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




                    HEARING ON ENERGY AND TAX POLICY

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

                                HEARING

                               before the

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                 of the

                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 19, 2007

                               __________

                           Serial No. 110-31

                               __________

         Printed for the use of the Committee on Ways and Means









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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL, JR., New Jersey       JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director
                  Brett Loper, Minority Staff Director

                                 ______

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                RICHARD E. NEAL, Massachusetts, Chairman

LLOYD DOGGETT, Texas                 PHIL ENGLISH, Pennsylvania
MIKE THOMPSON, California            THOMAS M. REYNOLDS, New York
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
ALLYSON Y. SCHWARTZ, Pennsylvania    JOHN LINDER, Georgia
JIM MCDERMOTT, Washington            PAUL RYAN, Wisconsin
RAHM EMANUEL, Illinois
EARL BLUMENAUER, Oregon

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also, published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.





















                            C O N T E N T S

                               __________

                                                                   Page

Advisory of April 12 2007, announcing the hearing................     2

                               WITNESSES

Jaime Steve, Legislative Director, American Wind Energy 
  Association....................................................     6
William H. Carlson, Chairman, USA Biomass Power Producers 
  Alliance, Redding, California..................................    10
Karl Gawell, Executive Director, Geothermal Energy Association...    14
Rhone Resch, President, Solar Energy Industries Association......    25
Robert R. Rose, Executive Director, U.S. Fuel Cell Council.......    37
Bob Dinneen, President and Chief Executive Officer, Renewable 
  Fuels Association..............................................    41
Nina Bergan French, Ph.D, Director, Clean Coal Combustion 
  Products, ADA-ES, Inc., Littleton, Colorado....................    45

                       SUBMISSIONS FOR THE RECORD

American Institute of Architects, Statement......................    83
Andrew J. Skok, Statement........................................    84
Association for Commuter Transportation, Statement...............    85
Avista Corp., Statement..........................................    86
Blue Mountain Energy, Statement..................................    87
Commuter Check Services Corp., Statement.........................    88
Environmental Power Corp., Statement.............................    90
FuelCell Energy, Inc., Statement.................................    94
Jerry Whitfield, PhD, Statement..................................    95
Karen K. Sisk, Statement.........................................    96
National Rural Electric Cooperative Association, Statement.......    97
National Venture Capital Association, Statement..................   104
Patrick Boyle, Statement.........................................   104
Soap and Detergent Association, Statement........................   106
Statement of Jerry Whitfield, PhD, Statement.....................   108
Statement of Plug Power Inc., Statement..........................   109
Statement of Technology Network, Statement.......................   111
United Corrstack, Incorporated, Statement........................   114
UTC Power, Statement.............................................   117

 
                    HEARING ON ENERGY AND TAX POLICY

                              ----------                              


                        THURSDAY, APRIL 19, 2007

             U.S. House of Representatives,
                       Committee on Ways and Means,
                   Subcommittee on Select Revenue Measures,
                                           Washington, D.C.

    The Subcommittee met, pursuant to notice, at 2:00 p.m., in 
room B-318, Rayburn House Office Building, Hon. Richard E. Neal 
[Chairman of the Subcommittee] presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                                CONTACT: (202) 225-5522
FOR IMMEDIATE RELEASE
April 12, 2007
SRM-3

        Chairman Neal Announces Hearing on Energy and Tax Policy

    House Ways and Means Select Revenue Measures Subcommittee Chairman 
Richard E. Neal today announced that the Subcommittee on Select Revenue 
Measures will continue the Ways and Means Committee's series of 
hearings on energy and tax policy. The hearing will focus on the 
current framework of tax incentives encouraging the development of 
alternative sources of energy. This hearing will take place on 
Thursday, April 19, 2007, in B-318 Rayburn House Office Building, 
beginning at 2:00 PM.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing. A list of invited 
witnesses will follow.
      

BACKGROUND:

      
    The Committee on Ways and Means has previously heard testimony on 
how the United States can help reduce the real and growing risks posed 
by climate change by encouraging the development and use of 
alternatives sources of energy. Tax incentives are one way in which the 
Federal Government can accelerate the development of these 
technologies. The tax code currently provides tax incentives 
encouraging the development of alternative sources of energy. The 
industries utilizing these incentives are best positioned to describe 
the utility of tax incentives in helping develop and expand these 
innovative technologies.
      
    In announcing the hearing, Chairman Neal said, ``We need to know 
which current tax incentives are working and which are not so that we 
can take that knowledge and apply it to future policy decisions. This 
hearing will take a deeper look into our tax code to find out if there 
are ways to update and improve existing tax incentives that encourage 
the development of alternative sources of energy.''
      

FOCUS OF THE HEARING:

      
    This hearing will focus on the utility of tax incentives in 
encouraging the further development, expanded production, and increased 
utilization of clean and renewable energy.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``110th Congress'' from the menu entitled, ``Committee Hearings'' 
(http://waysandmeans.house.gov/Hearings.asp?congress=18). Select the 
hearing for which you would like to submit, and click on the link 
entitled, ``Click here to provide a submission for the record.'' Once 
you have followed the online instructions, completing all informational 
forms and clicking ``submit'' on the final page, an email will be sent 
to the address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Thursday, 
May 3, 2007. Finally, please note that due to the change in House mail 
policy, the U.S. Capitol Police will refuse sealed-package deliveries 
to all House Office Buildings. For questions, or if you encounter 
technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
                                  ***

                                 

    Chairman NEAL. We began this process back in February, 
talking to scientists and experts on climate change and global 
warming. We urged Congress to act to reduce carbon dioxide 
emissions, which are a primary cause of global warming.
    Today we will hear from some industry experts who will 
advocate for certain tax incentives to support or enhance 
alternative energy sources in carbon reduction. Next week we 
will hear from Members of Congress, who will share with us 
their ideas for tax incentives to help American go green.
    Pick up any paper these days, and you are bound to see a 
number of stories on global warming, and how this country must 
go green to combat this serious threat. Being green is hot, not 
just in Hollywood, but here in Washington, too. Tom Friedman 
wrote--and I would recommend it to you--last week in the New 
York Times magazine section, ``The concept of green has gone 
main street.''
    So, is that enough to warrant the Committee's attention? I 
think it is really much more than a trend. As Friedman argues, 
going green is geostrategic, geo-economic, capitalistic, and 
patriotic. In essence, he says, ``Green is the new red, white, 
and blue.''
    Already, a number of U.S. businesses have announced their 
proposals to go green setting specific energy efficiency 
targets. They have concluded that being green is good for the 
bottom line, as well as for the environment.
    But Friedman is not the only one to assert that our energy 
independence is a national security issue. Even the military is 
trying alternative energy sources in the battlefield. Too much 
of our economy and national decisionmaking is influenced by the 
price of oil. To break that connection we need a thriving and 
independent alternative energy sector.
    This Committee is here to review, and perhaps update or 
expand tax incentives for these alternatives renewable energy 
sources. We will hear that these incentives are still needed, 
to some extent, in order for these energy sources to remain 
competitive in the marketplace. So we are having these 
hearings, and I expect the full Committee to mark up tax 
legislation on these issues.
    So I am pleased to welcome our witnesses today. 
Representing the American Wind Energy Association, we have 
Jaime Steve, who is the legislative director of the 
association.
    Representing the USA Biomass Power Producers Alliance, we 
have Bill Carlson, the Chairman. Mr. Carlson is also a 
principal of Carlson Small Power Consultants, in California.
    Testifying on behalf of the Geothermal Energy Association 
we have Karl Gawell, the Executive Director. While he has 
represented Geothermal for the last decade, I understand he 
also has a substantial background in wind energy, as well.
    On behalf of the Solar Energy Industries Association, we 
have Rhone Resch, President of the association. Mr. Resch is a 
true believer in alternative energy. He has a six kilowatt 
photovoltaic system in his home.
    Testifying today from the U.S. Fuel Cell Council, we have 
Robert Rose, the Executive Director.
    From the Renewable Fuels Association, we have Bob Dinneen, 
the President and CEO. Mr. Dinneen is the ethanol industry's 
lead lobbyist in Washington.
    We also welcome Dr. Nina Bergan French, Director of Clean 
Coal Combustion at ADA Environmental Solutions, Incorporated, a 
strong supporter of permanent and robust research tax 
incentives. Her company develops technology to measure and 
capture emissions.
    We all look forward to your testimony today, and I would 
like to recognize my friend, Mr. English, for his opening 
statement.
    Mr. ENGLISH. Thank you, Chairman Neal. I particularly want 
to thank you for calling this extraordinarily timely and 
important hearing. I am encouraged to see that you are clearly 
intending to build on the work of past Congresses in developing 
creative solutions to the energy challenges facing our nation.
    As you know, the Energy Policy Act of 2005 provided an 
unprecedented amount of tax incentives for alternative, clean, 
and renewable energy. In fact, that bill enacted tax incentives 
for every one of the technologies represented by the witnesses 
here today.
    It is really an exercise and a matter of common oversight 
to determine whether we should continue to offer these tax 
subsidies, and what level, and for how long. There is no doubt 
that renewable energy resources, including eternal ones, such 
as wind power and solar energy, have a critical role to play in 
the energy--the future energy portfolio of this country.
    We cannot ignore practical realities, however, as we 
consider how to enhance climate change and energy independence 
for the coming decades. I recognize that the Energy Information 
Agency predicts in its 2007 energy outlook report, that by 
2030, wind energy may only increase from.4 to.9 percent of the 
total electricity generated in the United States.
    As a long-time supporter of wind energy, I think wind 
energy is important. But by contrast, more than half of the 
electricity generated in this country comes from coal. This 
country has massive reserves of coal which could eliminate our 
dependence on foreign sources of energy for many decades to 
come.
    In my view, any proposal to address climate change and 
energy independence which does not provide for options like 
clean coal technology may be inadequate.
    That is why the 2005 energy bill included a number of 
incentives for advancing clean coal energy. This Congress 
should use the opportunity this hearing presents to explore 
what else we could, and should do. The promise coal 
gasification technology holds is to deliver cheap oil or no 
carbon power.
    New possibilities exist for other cutting edge technologies 
in areas like nuclear, oil shale, and geothermal. We can assess 
these based on science, not ideology or politics. The promise 
of alternative energy is great, and I look forward to working 
with you, Mr. Chairman, and with the majority in drafting 
legislation to help advance these technologies. And I thank you 
for the opportunity to comment.
    Chairman NEAL. Thanks, Phil. And now, we would like to 
recognize Mr. Herger, who, I believe, would like to greet 
personally one of his constituents.
    Mr. HERGER. Thank you very much, Chairman Neal, and Ranking 
Member English. I would like to welcome a constituent of mine, 
Bill Carlson, who will testify on behalf of the USA Biomass 
Power Producers Alliance. Bill, it is good to see you again.
    A resident of Redding, and our--California's--second 
Congressional district, Bill is retired from years with Shasta 
Wheelabrator Technologies and Energy Company. as a consultant. 
Bill has spent the majority of his career advancing the 
interests of the open-loop biomass industry, and has seen or 
helped install almost all, if not all, of the open-loop 
facilities in the United States.
    Thank you for testifying for us today, Bill. Thank you, Mr. 
Chairman.
    Chairman NEAL. Thank you, Wally. Without objection, any 
other Members wishing to insert statements as a part of the 
record may do so. And all written statements made by the 
witnesses will be inserted into the record, as well. Mr. Steve, 
thank you for being here.
    Mr. STEVE. Thank you.

 STATEMENT OF JAIME STEVE, LEGISLATIVE DIRECTOR, AMERICAN WIND 
                       ENERGY ASSOCIATION

    Mr. STEVE. Thank you, Mr. Chairman. Members of the 
Committee, thank you. My name is Jaime Steve, and I serve as 
Legislative Director of the American Wind Energy Association, 
based here in Washington, D.C.
    Mr. Chairman and Members, today's typical wind turbine can 
generate as much as 2 megawatts of electricity, or enough power 
for about 540 households. It is also interesting to note that 
Texas is now the number one producer of wind power in the 
United States. That was a claim held by California for the last 
20 years.
    Also interesting, the Statue of Liberty's torch is 
currently powered through a purchase of wind power. Starbuck's, 
Safeway, and Staples are all purchasing wind power electricity.
    Examples of wind energy jobs include 500 workers building 
towers at Beaird Industries in Shreveport, Louisiana, and 
another 350 workers building towers in DMI Industries in West 
Fargo, North Dakota.
    The most interesting point is that wind developers pay 
roughly $5,000 in rental fees--$5,000 per wind turbine--per 
year for 20 years. That is a lot of income to the farmer, or 
rancher, or another land owner. And that is happening from 
Maple Ridge, New York, to Abilene, Texas.
    My last example, an empty beer bottle, which I can assure 
you all that I liberated the contents of at a point prior to 
the beginning of this hearing--in an undisclosed time prior to 
the beginning of this hearing--but the point being that that 
entire beer produced by the New Belgium Brewery in Fort 
Collins, Colorado, is produced with 100 percent wind power. We 
are seeing this more and more.
    These examples show that supporting wind and other forms of 
clean, renewable energy means creating jobs, spurring rural 
economic development, stemming global warming, and enhancing 
our National energy security. And the best ways to invest in 
rural energy are long-term extensions at full value of the 
existing provisions for renewals.
    The production tax credit, which expires December 31, 
2008--not that far away, is less than 2 years from now. 
Extending the existing solar investment tax credit, but also 
opening that up for use by small wind turbines, much smaller 
type of wind turbine, which you have probably seen elsewhere, 
something that you could use to power your own home, your own 
farm, or small business. Last, clean renewable energy bonds, 
which help non-tax paying entities, and public power entities.
    These incentives are needed, because wind energy is not yet 
fully cost competitive with mature electric generation 
technologies. In fact, over the last 2 years, wind energy costs 
have been increasing, making the Production Credit of full 
value even more crucial than before.
    First, I would like to thank Representative Pomeroy and 
Representative Ramstad for their bill, H.R. 197, aimed at 
providing a 5-year extension of the Production Tax Credit at 
full value. The bill now has 85 cosponsors, 10 of whom serve on 
the full Committee.
    I would also like to thank Representatives Blumenauer and 
Cole for their bill, H.R. 1772, to open the separate investment 
tax credit for the solar that I referred to, and open that up 
to the small wind systems.
    One thing that we have seen over time is that these issues 
are--always have been, on this panel, very bipartisan issues, 
and we are very proud of that. Since 1999, the PTC, the 
Production Tax Credit, has expired and been extended 5 times--
that's since 1999--always for short, 1 or 2-year periods, and 
more often than not, with economically painful periods of 
expiration for the industry.
    The effect has been to create a boom-and-bust cycle within 
the industry, which stops us from achieving further cost 
reductions and holds us back from our potential. Simply stated, 
when the credit is available, we produce jobs and clean energy. 
When it is not available, we lose jobs and we produce very few 
new projects. Access to a long-term PTC can break this boom-
and-bust cycle.
    Another piece of background. In 1998, wind energy produced 
roughly enough electricity to power about 500,000 homes in the 
U.S., and wind was virtually a California-only industry. Today, 
Texas has surpassed California, as I mentioned, and we're 
operating in over 30 states and producing about--enough power 
for about 3 million American homes. That's roughly all of the 
homes and all of the population of the state of Virginia.
    We have come a long way. But this growth has been driven by 
short-term Production Tax Credits. What we need is a long-term 
credit. With a long-term credit we can do so much more. A long-
term Production Tax Credit would spur increased development of 
wind and other renewables, while also creating much-needed 
manufacturing jobs, particularly in the Midwest, which we have 
seen, particularly in the auto industry.
    A long-term extension would also reduce the cost of wind 
power to consumers. A 10-year Production Tax Credit would 
deliver thousands of megawatts of new power, and a 15-percent 
reduction in the cost of wind power. A shorter, 5-year 
extension would produce about half of those benefits. What we 
are looking for is the ability to plan, invest, and create new 
jobs. And that would reduce prices in the long run.
    In conclusion, Mr. Chairman, to keep providing these new 
jobs, spurring economic development, and addressing global 
warming, the wind industry--and all the industries, really--
need long-term credits. We ask the Congress to pass long-term 
extension of these credits, the full value, so we can keep the 
tower factories humming from Shreveport, Louisiana to West 
Fargo, North Dakota. Keep producing more wind power in Texas, 
of which we're just booming in Texas, and keep producing from 
Maple Ridge, New York, all the way to Abilene. Thank you very 
much.
    [The prepared statement of Mr. Jaime Steve follows:]
 Statement of Jaime Steve, Legislative Director, American Wind Energy 
                              Association
    Chairman Neal and Members of the committee, my name is Jaime Steve 
and I serve as Legislative Director for the American Wind Energy 
Association (AWEA) based here in Washington, D.C.
    Mr. Chairman, today's typical wind turbine can generate as much as 
two megawatts of electricity, or enough power to meet the needs of 
about 540 households. It is also interesting to note that:

      Texas is now the #1 wind-producing State in the nation, 
having recently surpassed California which held that claim for over 20 
years.
      The Statue of Liberty's torch is powered through a 
purchase of wind energy.
      Starbucks, Safeway, and Staples are all purchasing wind-
generated electricity.
      Examples of wind energy jobs include 500 workers building 
towers at Beaird Industries in Shreveport, LA and another 350 workers 
building towers at DMI Industries in West Fargo, ND.
      Wind developers pay about 5,000 per turbine, per year for 
20 years in lease payments to hard-pressed farmers, ranchers and other 
land owners from Maple Ridge, NY to Abilene, TX. Wind projects also 
make significant contributions to the local tax base of many rural 
communities.
      A single wind turbine avoids the same amount of carbon 
dioxide as is emitted by about 4,800 cars.

    These examples show that supporting wind and other forms of clean, 
renewable energy means creating jobs, spurring rural economic 
development, stemming global warming, and enhancing our national energy 
security.
    And, the best way to invest in renewable energy is through long-
term extensions of the renewable energy tax credits and bonds, 
specifically:

    (1)  The renewable energy Production Tax Credit (or PTC) which 
expires December 31, 2008
    (2)  The existing solar Investment Tax Credit--with the addition of 
small wind systems used to power homes, farms, and small businesses, 
and
    (3)  Clean Renewable Energy Bonds for non-taxpaying, public power 
entities.

    These incentives are needed because wind energy is still not yet 
fully cost competitive with mature electric generation technologies. In 
fact, over the last two years, wind energy costs have been increasing, 
making the Production Tax Credit even more crucial than before.
    First, a thank you to Reps. Pomeroy and Ramstad for their bill, 
H.R. 197, aimed at providing a 5-year extension of the PTC through 
December 31, 2013. This bill now has 75 cosponsors, ten of whom are 
Members of this panel. I also thank Reps. Blumenauer and Cole for their 
bill (H.R. 1772) to open the separate investment tax credit for solar 
power systems for use by individual landowners who purchase small wind 
systems. The history of these incentives in this committee clearly 
shows that support for renewable energy tax credits has always been a 
bipartisan issue.
    Since 1999, the PTC has expired and been extended five times--
always for short one- or two-year periods and more often than not with 
economically painful periods of expiration between extensions. The 
effect has been to create a boom-and-bust cycle that stops us from 
achieving further cost reductions and holds back our potential. Simply 
stated: when the credit is available, we produce jobs and clean 
energy--when it is not available we lose jobs and build very few new 
projects. Access to a long-term PTC can break this boom-and-bust cycle, 
and allow wind energy to become an even far greater contributor to our 
energy mix.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]




    In 1998 wind energy produced enough electricity to power about 
500,000 homes and wind was virtually a California-only industry. Today, 
Texas has surpassed California as the top wind energy producing state 
and high-tech wind turbines are operating in 30 states producing the 
equivalent amount of electricity needed to power about 3 million 
American homes--or, about the amount of energy used by the entire 
population of the state of Virginia. This growth has been driven in 
large part by access to short-term PTC extensions. Imagine what we 
could do with a long-term extension.
    A long-term PTC would spur increased development of wind and other 
renewables, while also creating much-needed manufacturing jobs, 
particularly in the Midwest. A long-term extension also would reduce 
the cost of wind power to consumers. Industry estimates indicate that a 
10-year PTC would deliver thousands of megawatts of new wind power and 
a 15 percent reduction in the cost of electricity produced from wind. A 
shorter 5-year extension would deliver about half as much power and 
about half (roughly 8 percent) of the cost reductions. In a nutshell, a 
long-term extension would eliminate the every-other-year turbine 
manufacturing cycle by allowing large investments in the supply chain 
for turbine components. This ability to plan and invest would create 
jobs, and reduce costs and stem price increases for wind turbines, thus 
lowering energy costs to consumers.
Conclusion
    Mr. Chairman, to keep providing new jobs, spurring rural economic 
development and addressing global warming, the wind industry needs 
long-term access to renewable energy production tax credits, investment 
tax credits and bonds.
    We all ask Congress to pass long-term extensions of these tax 
credits at full value so that we can keep the tower factories humming 
from Shreveport, Louisiana to West Fargo, North Dakota. We'll also keep 
making much-needed land rental payments to farmers and ranchers, from 
Maple Ridge, NY to Abilene, TX.
    Thank you,
                                 Jaime Steve, Legislative Director,
                                   American Wind Energy Association
                                    1101 14th Street, NW 12th Floor
                                             Washington, D.C. 20005
                                                       202-383-2506
                               __________
    Background: The U.S. wind energy industry installed over 2,400 
megawatts (MW) of new generating capacity in 2006, making wind one of 
the largest sources of new power generation in the country and a 
mainstream option with which to meet growing electricity demand. One 
megawatt of wind power produces enough electricity on average to serve 
250 to 300 homes.
    AWEA's annual industry rankings provide a standard reference point 
for tracking the growth of wind power in the U.S. The rankings (as of 
December 31, 2006) are the following:
Top Five Wind Energy Producing States
(Expressed in megawatts (MW) of capacity):
                             State                               # of MWTexas                                                             2,768
California                                                        2,361
Iowa                                                                936
Minnesota                                                           895
Washington                                                          818
    Texas is firmly established as the leader in wind power 
development, with over 2,700 megawatts of new wind generation installed 
at the end of 2006, and some 1,000 megawatts currently under 
construction. Iowa and Minnesota look likely to break the 1,000 MW mark 
in 2007. Washington will come close, with the 140-MW Marengo project 
that is currently under construction there.
Top Five Largest Wind Farms Operating in the U.S.
(Size is expressed in Megawatts (MW))

------------------------------------------------------------------------
               Project                 # of MW        Project Owner
------------------------------------------------------------------------
Horse Hollow, TX                         1736   FPL Energy
------------------------------------------------------------------------
Maple Ridge, NY                           322   PPM Energy/Horizon Wind
                                                 Energy
------------------------------------------------------------------------
Stateline, OR & WA                        300   FPL Energy
------------------------------------------------------------------------
King Mountain, TX                         281   FPL Energy
------------------------------------------------------------------------
Sweetwater, TX                            264   Babcock & Brown/
                                                 Catamount
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                               __________
Five PTC expirations and extensions since 1993:
    In place: January 1, 1993 through June 30, 1999
    1) Credit expired: June 30, 1999
    Extended: December 1999 through December 31, 2001 (credit made 
retroactive to July 1, 2001)
    CREDIT UNCERTAIN FOR 6 MONTHS
    2) Credit expired: December 31, 2001
    Extended: March 2002 through December 31, 2003 (retroactive to 
January 1, 2002)
    CREDIT UNCERTAIN FOR 3 MONTHS
    3) Credit expired: December 31, 2003
    Extended: September 2004 through December 31, 2005 (retroactive to 
January 1, 2004)
    CREDIT UNCERTAIN FOR 8 MONTHS
    4) Extended: August 2005 through December 31, 2007
    FIRST TIME CREDIT EXTENDED BEFORE EXPIRATION DATE
    5) Extended: Oct. 2006 through December 31, 2008
    SECOND TIME CREDIT EXTENDED BEFORE EXPIRATION DATE

                                 

    Chairman NEAL. Thank you, Mr. Steve.
    Mr. Carlson?

 STATEMENT OF WILLIAM H. CARLSON, CHAIRMAN, USA BIOMASS POWER 
            PRODUCERS ALLIANCE, REDDING, CALIFORNIA

    Mr. CARLSON. I would like to thank Mr. Herger for that 
wonderful introduction. Thank you. Mr. Chairman and Members of 
the Committee. The USA Biomass Power Producers appreciate the 
opportunity to appear today, representing the views of the 
nation's open-loop biomass power industry.
    We represent more than 1,200 megawatts of baseload grid 
connected renewable electricity. I will identify the many 
unique environmental benefits provided by open-loop biomass, 
and urge the Committee to change the Production Tax Credit 
rules to place us on a level playingfield with other valuable 
and deserving renewable technologies.
    The term biomass describes a wide variety of energy 
technologies. Today I am referring specifically to the 
production of electricity from the controlled combustion of 
untreated cellulosic solid waste, such as bark, orchard 
trimmings, rice hulls, and sugar bagasse. Qualified open-loop 
biomass facilities receive only one-half of the current PTC for 
their electricity, which creates issues I will describe.
    In an national effort to limit greenhouse gases, you must 
understand that biomass electricity production is the only 
renewable that lowers net greenhouse gas emissions below a zero 
greenhouse gas emissions level. A recent California Public 
Utility Commission ruling states, ``In particular, the record 
shows that electric generation using biomass that would 
otherwise be disposed of under a variety of conventional 
methods results in a substantial net reduction in greenhouse 
gas emissions. This is because the usual disposal options for 
biomass waste emit large quantities of methane gas, whereas the 
energy alternatives either burn the waste that would become 
methane, or burn the methane itself, generating CO2. 
Since methane gas is on the order of 20 to 25 times more potent 
as greenhouse gas than CO2, trading off methane for 
CO2 emissions for energy recovery operations leads 
to a significant net reduction of the greenhouse effect.''
    Additionally, biomass power extends landfill life, 
eliminates air pollution from open burning, lowers the 
incidence of catastrophic Western forest fires, and restores 
forest health. Despite these benefits, the industry declined 
over 30 percent by 2005 from its 1990 peak of 135 facilities 
producing 2,300 megawatts due to low fossil fuel prices and 
contract buy-outs.
    We thank the Members for recent actions stabilizing the 
situation for our industry. In the 2004 Jobs Act, Congress 
expanded the PTC to acknowledge, for the first time, the 
valuable contributions of open-loop biomass.
    In the 2005 energy bill, the PTC was further modified to 
provide us a 10-year credit duration for new facilities. These 
actions, coupled with strong programs in numerous states, have 
arrested the decline in biomass power, and initiated a nearly 
400 megawatt increase in capacity that will be completed by the 
end of next year, roughly a 20 percent rebound.
    This increase consists of two business models: the 
restarting of closed biomass or converted coal plants; and the 
addition of combined heat and power installations at forest 
product facilities. These models are quicker and more economic 
than building a new greenfield facility.
    Nationally, use of just these two business models grossly 
underutilizes a significant green, renewable resource. 
Currently, the combination of the high cost of greenfield 
development, and the availability of only one half the PTC, 
prevents developers from being competitive in new capacity 
solicitations held by utilities under state renewable portfolio 
standard requirements. These widely used auctions are almost 
universally won by those receiving the full section 45 PTC.
    The single most important thing that the Committee could do 
to foster the growth of biomass power and capture these unique 
environmental benefits is to approve legislation creating 
parity in the credit rate for biomass and other renewables with 
that of wind and geothermal energy. Only then will the nation 
be able to tap the thousands of megawatts of biomass power 
potential identified by the Western Governors' Association, 
25x'25, and others.
    I am pleased to announce that Representatives Herger and 
Meek of this Committee, yesterday introduced H.R. 1924, which 
would create such tax parity.
    Another impediment facing our facilities is IRS Notice 
2006-88, that requires facilities sited at industrial plants to 
net the electrical consumption of the industrial plant from the 
production of the biomass power facility, and claim the credit 
on only the net amount, if there is any, even if the biomass 
power facility is not serving the industrial facility 
electrical load.
    The ruling would affect more than two-thirds of the biomass 
projects currently proposed, destroying their viability. 
Working with the American Forest and Paper Association, we urge 
you to include a reversal of this rule in any upcoming energy 
tax legislation. While EPA and DOE diligently work to encourage 
such highly efficient combined heat and power facilities, the 
IRS would eliminate them by this ruling.
    In closing, let me reiterate that our number one priority 
is to achieve parity in the PTC tax credit to obtain more than 
a handful of new facilities a year. And to transform a portion 
of our Nation's electric supply from a major source to a 
negative emitter of greenhouse gases, the full credit is 
required. A simple extension of the credit will not bring the 
broader benefits of open loop biomass technology to the nation.
    Thank you. I would be happy to answer any questions, and we 
hope that we can serve as a resource for your ongoing efforts.
    [The prepared statement of Mr. William Carlson follows:]
Statement of William H. Carlson, Chairman, USA Biomass Power Producers 
                     Alliance, Redding, California
    My name is William Carlson and I appreciate the opportunity to 
appear before the Subcommittee in my role as the Chairman of the 
Steering Committee of the USA Biomass Power Producers Alliance 
(USABPPA), representing the views of the nation's open-loop biomass 
power industry. USABPPA is the only trade group organized solely to 
represent the nation's grid connected biomass power supply, and as of 
today we represent more than 1,200mW of base load renewable 
electricity. The thrust of my testimony today is to identify the many 
unique environmental and other public benefits provided by open-loop 
biomass, and to urge the committee to change the production tax credit 
(PTC) rules to place this technology on a level playing field with 
other valuable and deserving renewable technologies.
    As you know, the term biomass can be, and is, used to describe a 
very broad variety of energy technologies. In my testimony today, I am 
referring to the production of electricity from the controlled 
combustion of untreated solid cellulosic wastes such as bark, orchard 
trimmings, rice hulls and sugar bagasse. These production facilities 
generate firm base load power that provides local voltage support and 
enhanced reliability, and is added in small disbursed increments that 
do not require transmission system upgrades. Qualified open-loop 
biomass facilities are eligible to receive only one-half of the current 
PTC for their electricity, which creates issues I will describe later 
in my testimony.
    To see the potential role of open-loop biomass as a necessary 
component in any national effort to limit greenhouse gases, it is 
important to understand that open-loop biomass electricity production 
is one of the few renewables that lowers net greenhouse gas (GHG) 
emissions below a zero greenhouse gas emission level. This is because 
biomass waste materials, an unavoidable fact of modern life, disposed 
of conventionally (landfilling, onsite decomposition, open burning) all 
generate substantial quantities of methane, a very damaging greenhouse 
gas, while biomass power converts all that potential methane to 
CO2, resulting in a net negative greenhouse gas emission 
profile. California has now formally recognized this benefit, in a 
California Public Utility Commission ruling in CPUC Decision 07-01-039, 
which implements SB 1368, the GHG emissions performance standard: ``In 
particular, the record shows that electric generation using biomass 
(e.g., agricultural and wood waste, landfill gas) that would otherwise 
be disposed of under a variety of conventional methods (such as open 
burning, forest accumulation, landfills, composting) results in a 
substantial net reduction in GHG emissions. This is because the usual 
disposal options for biomass wastes emit large quantities of methane 
gas, whereas the energy alternatives either burn the wastes that would 
become methane or burn the methane itself, generating CO2. 
Since methane gas is on the order of twenty to twenty-five times more 
potent as a GHG than CO2, and since methane has an 
atmospheric residence time of twelve years, after which it is converted 
to atmospheric CO2, trading off methane for CO2 
emissions from energy recovery operations leads to a significant net 
reduction of the greenhouse effect.''
    Additionally, biomass power extends landfill life, eliminates air 
pollution from open burning of agricultural and forestry residuals, 
helps lower the incidence of catastrophic Western forest fires, and 
allows cost effective restoration of our nation's overstocked and 
unhealthy forests, resulting in better watershed health, wildlife 
habitat, forest fire resilience, improved growth rates for enhanced 
carbon sequestration and overall forest health. The list of societal 
and environmental benefits from an expanded biomass power industry is 
long and impressive.
    Historically, the national high-water mark for open-loop biomass 
facilities occurred around 1990, with an inventory of approximately 135 
facilities producing as much as 2,300mW. From the early 1990s to 2005, 
the industry experienced a precipitous decline of approximately 30% of 
U.S. biomass power production due to the expiration of fixed contract 
rates and contract buyouts. Furthermore, changes in federal forest 
policies diminished the supply of materials flowing from National 
Forests, negatively impacting the fuel supply for many of the plants.
    I wish to thank the Members of the Committee for their role in 
recent actions positively impacting open-loop biomass. In the 2004 JOBS 
Act, Congress expanded the PTC to acknowledge the valuable 
contributions of open-loop biomass and other renewable technologies 
(though at only \1/2\ the rate of some other renewable technologies). 
Then, in the 2005 Energy Bill the PTC was further modified to provide 
all qualifying technologies with 10 year credit duration for new 
facilities.
    The actions taken to date, coupled with strong positive actions by 
numerous states, have arrested this decline in U.S. biomass power 
production. The combination of federal and state actions has initiated 
a nearly 300mW increase in U.S. capacity since 2005 that will be 
completed by the end of this year, which is roughly a 15% rebound. An 
additional 100+mW is expected to be placed in service by 12/31/08 as a 
response to the extension of the PTC placed in service date enacted as 
part of the Tax Relief & Health Care Act of 2006. This increase in 
capacity is attributable to two factors--first, the restarting of 
biomass plants (and conversion of a couple of older coal-fired plants 
to biomass) that had been closed since the early 1990's and second, the 
addition of combined heat and power (CHP) installations at forest 
product facilities utilizing low valued mill residual materials. 
Restarting idle facilities and installing CHP at existing facilities 
takes less time and can be more economic than building a new greenfield 
biomass facility from the ground up.
    In the scale of our national electrical power requirements, 
however, we are significantly underutilizing a significant green, 
renewable resource. Currently, the combination of the relatively high 
cost of new greenfield open-loop biomass power, and the availability of 
only one-half the PTC, prevents the open-loop operators from being 
competitive in the new capacity solicitations held by various utilities 
under state renewable portfolio standard (RPS) requirements. These 
auctions are almost universally won by those renewable technologies 
having access to the full Section 45 PTC.
    Therefore, the single most important thing that the Ways & Means 
Committee could do to foster the growth of biomass power and thus 
diversify the types of renewable electricity within the nation's energy 
portfolio, is to approve legislation equalizing the credit rate for 
biomass and other renewables by equalizing the PTC rate for open-loop 
biomass to that of wind and geothermal energy. Only then, will another 
900 megawatts of biomass capacity in projects that have been identified 
and proposed become a reality and allow numerous other projects to 
enter the planning phase.
    Another significant impediment to the production of electricity by 
open-loop biomass facilities is a rule published last year by the IRS 
that affects only biomass among renewable technologies. Under Notice 
2006-88, facilities sited at industrial plants must net the electrical 
consumption of the industrial facility with the production of the 
biomass power facility and claim the credit on only the net amount, 
even if the biomass power facility is not serving the industrial 
facility electrical load. This ruling will affect more than \2/3\ of 
the biomass projects currently proposed, destroying their viability.
    The USABPPA, working with the American Forest & Paper Association, 
urges you to include a reversal of this rule in any upcoming energy tax 
legislation (a copy of a joint letter on this issue is attached to my 
testimony). Other federal agencies, such as the EPA and DOE, are 
working to encourage the very types of combined heat and power (CHP) 
cogeneration facilities that IRS would eliminate by this ruling. These 
CHP facilities are among the most efficient and cost effective ways to 
utilize biomass fuel and lower fossil fuel use. This type of activity 
should be encouraged by IRS regulations, not penalized.
    Like other technologies on this panel, we would urge the Ways & 
Means Committee to extend the Section 45 Production Tax Credit beyond 
the current ``placed in service date'' expiration of December 31, 2008. 
Biomass projects not currently under equipment purchase and 
construction contracts are already halting planning and permitting 
activities until Congress extends Section 45. Like some other renewable 
technologies, new biomass power has a fairly long time horizon from 
conception to ``placed in service'', typically 3-4 years. Consequently, 
one long-term extension would send a more powerful market signal to 
investors than would a series of one and two year extensions.
    In closing, let me reiterate that the No. 1 priority of the open-
loop biomass power industry is to achieve parity in the PTC credit 
rate. To obtain more than five to ten new facilities a year, to obtain 
a significant number of completely new facilities, and to transform a 
portion of our nation's bulk electric supply from being a major emitter 
of greenhouse gases, not just to a neutral position, but to a negative 
emitter of GHG, the full Section 45 credit is required. Simply 
maintaining the Section 45 status quo via a ``placed in service date'' 
extension will not bring the broader benefits of open-loop biomass 
technology to the nation. Thank you again for this opportunity to 
present to the Subcommittee and I hope that USABPPA can serve as a 
resource to your ongoing efforts.

                                 

    Chairman NEAL. Thank you.
    Mr. Gawell?

STATEMENT OF KARL GAWELL, EXECUTIVE DIRECTOR, GEOTHERMAL ENERGY 
                          ASSOCIATION

    Mr. GAWELL. Thank you, Chairman Neal, and Members of the 
Subcommittee. I appreciate the opportunity to testify before 
you today. I am going to leave my statement in the record, and 
basically try to address what I think are some of the 
highlights for the Committee.
    The first is most people don't know what geothermal energy 
is. We have produced in a few states, and Mr. Thompson and Mr. 
Herger know, because we are in their backyard. But you get 
outside of a few western states, and people aren't quite clear. 
What is this geothermal energy stuff?
    But the states where we produce today, which are now five--
Alaska has been added--like California, we are known as one of 
the most reliable baseload renewable power sources around. And 
we are seeing tremendous growth, and there is tremendous 
potential. Let me just point out, really quickly.
    There have been three reports done in the last 6 months. 
One--this is just an executive summary by Dan Fleischman, who 
worked for us over a year, looking at what's happening today in 
the western states. And he found there is well over 100,000 
megawatts of what's called conventional hydrothermal potential 
to be tapped if the economics is there.
    There is also a report by the National Renewable Energy 
Lab, looking at geothermal energy in a variety of ways, and 
found several areas where 100,000 or more could be brought--co-
production in the Gulf of Mexico, EGS, coal production from oil 
fields, as well as conventional hydrothermal.
    And we probably--you may have all heard a bit about the MIT 
report that came out, which showed if you developed the 
engineering techniques to work the reservoir, you can expand 
this resource dramatically. What I am here to tell you is that 
that is what we're saying is happening today.
    One of the things which the Energy Policy Act did was it 
gave geothermal a boost, and really started projects moving. A 
few years ago, I was asked by a Committee during the energy 
crisis in California, ``How much could you bring online?'' And 
we looked.
    And, you know, step-outs of existing plants could come on 
quickly. We said, ``Well, maybe you could see 300, 400 
megawatts move out pretty quickly.'' Today, the survey I put in 
the testimony shows that we have identified, today, almost 
2,000 megawatts of projects. I think we have 61 projects now 
moving forward. And I would say 80 to 85 percent of those came 
in after Energy Policy Act. A lot of those are in the early 
stages of development.
    But what Energy Policy Act has done is really pushed the 
envelope. We have added a new state, we added Alaska. In the 
next 2 years, I suspect we will add Idaho, Wyoming, Oregon, 
Colorado, and Texas to the existing list of Utah, Nevada, 
Hawaii, California, and Alaska.
    But where do you go from there? When you look at the MIT 
report, and you look at where they think you can go with this 
deep geothermal, or EGS, where the maps show you, you don't go 
to the full potential. You just go to a tier above it.
    What you end up with is having Washington, Montana, South 
Dakota, Louisiana, Arizona, North Dakota, West Virginia, South 
Carolina, Illinois, Iowa, Nebraska, Arkansas, Florida, 
Tennessee, and on. You have 38 states that they feel you could 
do geothermal power potential with continued development of the 
industry and continued technology development. And that is what 
the PTC has started, it has helped us move in that direction.
    What do we specifically need? I think Jaime Steve pointed 
out what all of us would say, is we need a long-term policy. We 
have all seen the roller coaster of energy policies. Remember 
the energy crisis? You turn around two days later and it's 
gone? Well, guess what? It is back again, and then it's gone 
again.
    Our industries have been up and down, year after year. And 
even the 1970s, the big oil crisis. Most of the tax credits 
passed then were starting to be repealed two or three years 
later. Only PURPA really stayed in place to push new projects 
forward.
    So, we need to have that long-term policy. We need a long-
term extension of the tax credit. That's for sure. For my 
industry--and I think others that produce baseload power 
plants, we are suggesting you also think about changing placed-
in-service. Right now, the placed-in-service treatment under 
section 45 is all or nothing.
    Vince Signorotti, from CalEnergy, sat before this 
Subcommittee in 2005 and told you we need a three-year 
extension to complete our plan. If we get a three-year 
Production Tax Credit, we will build it. The Energy Policy Act 
of 2005 came out just short, and just short of what they could 
do. That plant is not built. The economics were made by the 
Production Tax Credit, and their contract did not allow them to 
have multiple pricing. Some of the contracts some of our 
companies sign have two prices. One with and one without the 
tax credit. And so, that project doesn't move forward.
    But if they had known then what a major power producer 
knew, that if you made the commitment, you've got that plant 
under construction today, that you could at least use the 
current placed-in-service deadline as your start----
    Chairman NEAL. If it would be okay with you and Members of 
the panel, we have heard the call of the House, those are the 
bells. So we are going to go off and vote. And I would--this is 
great attendance that we have had. And if you give us about 15 
minutes, we will be back.
    [Recess.]
    Chairman NEAL. Mr. Gawell, would you like to wrap up your 
testimony?
    Mr. GAWELL. I will be glad to, Chairman, thank you. As I 
was saying, the way we can move forward, or I should say 
continue moving forward, like I said, lots have been happening. 
It's really been an exciting time in this industry. The way we 
can move forward is get a long-term extension of the credit. 
And, frankly, long-term policies across the board. That really 
helps people plan to build the infrastructure, and make things 
move forward.
    We had long-term policies in the 1970s to early 1980s. I 
think all of the renewable technologies not only saw growth, 
but also saw cost reduction, too, because you saw the 
infrastructure being built and new projects coming on. So, 
long-term extension of the tax credit--5 to 10 years is 
critical.
    The second thing is changing placed-in-service so that--we 
propose that baseload plants can qualify using the current 
placed-in-service date if they have a power sales agreement and 
they are actively under construction because they have already 
made the commitment to go ahead. Because that's when the 
company puts its money on the line, when it starts construction 
of a project. That's the big dollar event.
    And the third item we have raised in our testimony is the 
issue of exploration. A lot of the resource in the United 
States is still difficult to find and high-risk. And from the 
time you do exploration to the time you build the plant can 
sometimes be as much as 10 years. So we suggested that the 
Committee consider exploration tax credit just for the 
exploration drilling expenses at the front end.
    Those three things will go a long way toward pushing this 
even further, and I want to, I guess, close by saying it's--you 
know, for many years I was warned by my friends in the American 
wind energy industry to look out for what you ask for. They 
said, ``Oh, Karl, you don't realize this PTC, it's on again, 
off again. And, you know, if you get it, you're going to be in 
places like this saying, 'Gosh, we need it extended, because it 
was only two years, and then two years, and two years more.' ''
    And, now, I see what they were talking about, in terms of 
the short term of the credit. But I also want to say we're glad 
to be here, because of what we've seen happen in the last two 
years, since this credit was extended. We have gone from 
having, literally, a handful of projects under development to 
having dozens of projects under development in many new states. 
And I think that's what we can see, if the Committee can move 
forward with a long-term extension. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Karl Gawell follows:]
    Statement of Karl Gawell, Executive Director, Geothermal Energy 
                              Association
    Mr. Chairman and Members of the Subcommittee the Geothermal Energy 
Association (GEA) appreciates the Committee's interest in geothermal 
energy and its interest in the importance of tax incentives to this 
emergent industry.
    The Energy Policy Act of 2005 (EPAct) has resulted in a major, 
positive impact on the geothermal energy industry. In November of 2006, 
GEA's survey of industry activity showed a substantial surge in 
developing geothermal power projects in the U.S. Some 61 projects were 
under various stages of development, a substantial increase from 
earlier years. Table 3, which is attached to this testimony, provides a 
summary of the survey's results.
    The survey identified new power projects in Alaska, Arizona, 
California, Hawaii, Idaho, New Mexico, Nevada, Oregon and Utah. These 
projects, when developed, would provide just over 2000 MW of new 
electric power for the grid--enough electricity to meet the needs of 
cities the size of Albuquerque, Portland, Sacramento and Seattle 
combined.
    Results of the survey provide dramatic evidence that new federal 
and state initiatives to promote geothermal energy are paying off. The 
most significant catalyst behind this new industry activity has been 
Congress' decision to extend the Section 45 Production Tax Credit (PTC) 
to include new geothermal energy facilities, which was initiated in 
2004 and completed under EPAct of 2005.
    Several provisions in EPAct were intended to promote geothermal 
energy development. First, Congress made new geothermal plants eligible 
for the full federal production tax credit, previously available only 
to wind and closed-loop biomass projects. Second, EPAct authorized and 
directed increased funding for research by the Department of Energy 
(DOE), and gave the Bureau of Land Management (BLM) new legal guidance 
and secure funding to address its backlog of geothermal leases and 
permits.\1\
---------------------------------------------------------------------------
    \1\ The EPAct research initiatives have been totally undercut by 
Administration efforts to terminate geothermal energy programs at DOE, 
and regulations for the the leasing provisions have yet to be completed 
by the Department of the Interior, however.
---------------------------------------------------------------------------
    If we can build and sustain the momentum that EPAct has given the 
industry, geothermal energy can become a major U.S. energy source. The 
untapped potential of this resource is enormous. Today, geothermal 
energy provides nearly 3,000 MW of reliable electric power in the U.S. 
Recent reports by the GEA, National Renewable Energy Laboratory (NREL), 
and Massachusetts Institute of Technology (MIT) all point to a much 
larger for geothermal energy production from a range of technology 
applications.\2\ Each of these studies supports the potential to 
achieve 100,000 MW or more from the geothermal resource base.
---------------------------------------------------------------------------
    \2\ ``An Assessment of Geothermal Resources Development Needs, by 
Daniel Fleischmann, GEA, January 2007 (http://www.geo-energy.org/
publications/reports.asp); Geothermal--The Energy Under our Feet, by 
Bruce Green and Gerald Nix, National Renewable Energy Laboratory, 
November 2006 (http://www.nrel.gov/docs/fy07osti/40665.pdf); The Future 
of Geothermal Energy, An Assessment by an MIT-led interdisciplinary 
panel, January 2007 (http://web.mit.edu/newsoffice/2007/
geothermal.html).
---------------------------------------------------------------------------
    Geothermal's role among clean energy technologies is important to 
recognize. It is one of the few technologies that can supply, clean, 
reliable, low emission fuel that is also a baseload resource providing 
power 24 hours a day, 365 days a year. Geothermal energy could also 
support our national hydrogen initiative and nation biofuels goals, 
both of which will require significant amounts of energy to produce 
alternative domestic transportation fuels.
Tax Policy Advantages of a Production Tax Credit
    The structure of the Production Tax Credit is unique, and when 
first enacted in 1992 it represented a radical change from the 
Investment Tax Credit. The move to a production tax credit makes sense 
from a number of policy perspectives.

      The Production Tax Credit works--the PTC has historically 
been shown to stimulate new investment in wind energy;
      The Production Tax Credit encourages cost reduction and 
efficiency by rewarding investors based upon project output instead of 
total expenses; and,
      The Production Tax Credit requires production for the 
full period of the credit to ensure that projects are legitimate power 
producers and not tax credit ``scams.''

    Congress' decision to expand the Production Tax Credit to include 
geothermal and other renewable energy resources was an appropriate 
policy choice.\3\ As the GEA survey shows, the PTC is having the 
desired effect. But, to make this truly effective, we urge Congress to 
extend the credit five to ten years. We also urge Congress to allow 
geothermal and other baseload projects to qualify once they have 
binding contracts and are under construction. Further, we urge Congress 
to enact a new tax incentive for geothermal exploration. We will 
discuss each of these proposals in turn.
---------------------------------------------------------------------------
    \3\ We believe Congress also intended the new Clean Renewable 
Energy Bond provision in EPAct to promote geothermal energy, among the 
renewable technologies, and have supported the CREBS provisions as 
well.
---------------------------------------------------------------------------
Building Upon The Energy Policy Act
    The Energy Policy Act of 2005 has helped launch a new era for the 
geothermal industry. But, as this Subcommittee knows, this legislation 
is only the beginning. As the November survey of new projects shows, 
many of these are in their early stages, and they will take several 
years to bring to fruition. These projects are just the beginning of 
what is possible.
    Consistent federal and state policies over a longer period of time 
will be needed to spur develop of our largely untapped geothermal 
energy resources. The roller-coaster of federal and state energy 
policies has undermined the development of many clean technologies, 
including geothermal energy. It's worth noting the recommendation by 
the Western Governors' Association's (WGA) Clean and Diversified Energy 
Advisory Committee (CDEAC): ``A strong, overarching theme . . . is the 
need for stable, long-term policies at both the federal and state 
levels. . . .''
    Energy is too often considered an issue of the moment, or the 
latest crisis. But to effectively address U.S. energy needs, the nation 
must adopt sustained longer-term energy policies. We hope that the 
Subcommittee will consider new energy legislation this session to build 
upon EPAct and provide the long-term, stable policies needed through a 
long-term extension of the Section 45 tax credit. We would urge the 
Subcommittee to support a 5-10 year extension of the placed in service 
deadline.
The Developers Dilemma: Short Time Period to Meet Placed in Service 
        Requirement and Long Construction Lead Times
    The Energy Policy Act amended the Section 45 PTC to include new 
geothermal facilities, as well as several other renewable facilities, 
on the same basis as new wind facilities. The PTC gives the developer 
the incentive needed to choose to invest in geothermal energy. However, 
given the longer construction lead-time for geothermal plants--3 years 
or more--the short period the law allows for new plants to be placed in 
service undercuts its effectiveness. The short timeframe means that 
some of the largest new geothermal facilities may not go forward 
because they will not be able to meet the rigid deadline. Ideally, the 
placed in service deadline for the Section 45 PTC should be extended an 
additional 5-10 years and Congress should provide geothermal facilities 
greater flexibility in qualifying for the credit. If geothermal 
facilities that secure binding contracts and are under construction by 
the current deadline could be certain to qualify, substantial 
additional geothermal generation would be developed in the next few 
years.
    In 2005, I accompanied Vince Signorotti of CalEnergy when he 
testified before this Subcommittee about the importance of the PTC to 
his company's geothermal plans. He said:
    We have a permit, so we could put shovels in the ground tomorrow. 
We have a customer--the Imperial Irrigation District--which strongly 
supports the development of geothermal power and has signed a 30-year 
contract for 95% of the plant's output. We are also ready to go with 
financing and construction. However, the project is not yet 
commercially viable. Put simply, obtaining a production tax credit for 
this facility is the difference between an economically viable project 
and a dream. The present values of future production tax credits 
(especially if allowed for ten years of energy production) will launch 
this project and other geothermal projects around the country.''
    The first issue we ask you to address is the eligibility period. 
For geothermal projects, the placed-in-service date should be extended 
for an appropriate term to make the production tax credit viable. Given 
the construction time of most geothermal plants, the existing one-year 
eligibility period does nothing to help make our plant a reality and 
probably won't help other geothermal developers. Three years is the 
minimum needed to benefit most geothermal developers, who, like us, 
must deal with multi-year lead time challenges of planning, permitting, 
and construction. I therefore propose that you either extend the 
Section 45 placed-in-service date for at least three years or provide 
transition rules enabling new geothermal projects with binding 
contracts in place to qualify. This modification would more 
realistically help to achieve Congress' intent to provide an incentive 
for more geothermal development.
    If Congress extends the production tax credit for geothermal energy 
in this manner, we will build this plant; it's that simple. And it will 
greatly increase the odds of seeing a Salton Sea 7, 8 and 9, because 
non-polluting, base load geothermal power is seen as an attractive 
substitute for coal and gas plants. The power from our plants near the 
Salton Sea can be directed west to San Diego, northwest to Los Angeles, 
northeast to Las Vegas, or east to Arizona. These are all areas with 
urgent needs for new, reliable electric power. They are having 
difficulty meeting current clean air requirements and they expect 
substantial growth in their power demands. While they are also subject 
to state or local renewable portfolio standards that mandate higher 
percentages of renewable energy, they are not likely to meet those 
standards in the absence of the production tax credit.\4\
---------------------------------------------------------------------------
    \4\ Testimony of Vince Signorotti, Vice President, CalEnergy 
Operating Corporation, House Ways and Means Subcommittee on Select 
Revenue Measures, May 24, 2005.
---------------------------------------------------------------------------
    Since that testimony, what has happened? Instead of extending the 
tax credit at least three years, Congress extended the production tax 
credit for a period of two years. As a result, instead of building one 
of the largest new geothermal power plants in the world--likely the 
first of several--CalEnergy has not built the power plant. As Vince 
said, ``it's that simple.''
    Unfortunately, while EPAct has spurred significant new interest in 
geothermal power, the legislation has failed to spur the development of 
geothermal's full potential because of the short time-frame and 
``cliff'' imposed by the current placed in service requirement. As Todd 
Raba, President of MidAmerican Energy Company (MEC) explained to the 
Senate Finance Committee in his March 29th testimony:
    With regard to geothermal, hydro, biomass and waste-to-energy 
generation, the problem is more acute. While these resources are more 
geographically limited than wind, they function as dispatchable, base 
load resources, enhancing their value. Drilling new geothermal wells or 
upgrading existing hydro facilities to create incremental power 
expansions is highly capital intensive. The vast majority of these 
projects cannot be completed within the short placed-in-service time 
frames under the existing PTC legislation, thus severely limiting new 
investments.\5\
---------------------------------------------------------------------------
    \5\ Testimony of Todd M. Raba, President, MidAmerican Energy 
Company, Before the Committee on Finance, United States Senate, March 
29, 2007.
---------------------------------------------------------------------------
    Consider the work underway by Davenport Power LLC to develop what 
could be the first major geothermal power plant in Oregon. The cascade 
region of Oregon and Washington appears to have substantial untapped 
geothermal resources, and development of the first power projects in 
the region would have added significance. But, according to Todd Jaffe 
of Davenport, despite the fact that the company intends to begin 
drilling and on-site development this month, without an extension of 
the PTC the project may fail.
    As Mr. Jaffe of Davenport Power explains:
    This project (120MW) will cost in excess of $400 million. NGC is 
working with its investment banker in order to secure the necessary 
long term equity required for the project. This commitment is needed as 
soon as possible since the majority of the well drilling must be 
financed with equity. In order for this project to be economically 
successful, the project MUST receive the PTCs. Our investors are 
assuming that Congress will once again extend the PTCs to cover the in-
service dates thought 2011 and that the project will receive these 
credits for the entire 10 years. If not, NGC will not be able to secure 
equity funding and the project may have to terminate.\6\
---------------------------------------------------------------------------
    \6\ Personal Communication, Todd Jaffe, Davenport Power LLC, March 
15, 2007.
---------------------------------------------------------------------------
    In the 1980s, the combination of federal tax credits and power 
sales contracts issued under the Public Utilities Regulatory Policies 
Act of 1978 (PURPA), fueled dramatic growth in renewable power, 
including geothermal energy. By the early 90s federal tax credits had 
been eliminated or scaled back, energy prices dropped to historic lows, 
and PURPA contracts ceased. EPAct has again made the development of 
geothermal projects possible, again. However, the long lead times of 
geothermal projects and the short term of the credit period are 
undercutting its potential.
    We urge the Subcommittee to support extending the credit and 
amending Section 45 to allow geothermal and other baseload power plants 
to qualify for the credit once they have secured binding contracts and 
are under construction.
Exploration Incentives
    As the examples above note, the early expenses of geothermal 
projects are particularly difficult hurdles. Exploration is usually 
financed with equity, carries high risks, and takes a long time to be 
paid back. The exploration technologies available today do not allow 
confirmation of the resource without drilling, and drilling geothermal 
wells is expensive, with costs ranging from a few million to over ten 
million dollars for a single well. There are substantial undiscovered 
geothermal resources in the U.S., but a dramatic increase in new 
exploratory drilling will be necessary if potential resources are to be 
developed into power projects.
    While the PTC helps provide incentives for power projects, it is 
not as effective at encouraging exploration. Early exploration can take 
place a decade before any power will be produced, and can often involve 
an investor who is not the power developer. The cost and risk of 
exploration for new geothermal resources is as high or higher than 
those in the oil and gas industry, and the ability to attract capital 
to finance geothermal exploration is far more difficult.
    Providing incentives for exploration is an important part of 
ensuring a continued cue of new projects. We urge the Subcommittee to 
consider enacting a tax credit for 30% of the costs of exploratory 
drilling.
The Critical Role of Tax Incentives
    Tax incentives are critical to offset the high initial cost and 
risk of developing new geothermal power projects. The California Energy 
Commission (CEC) estimated that the initial capital cost of a typical 
geothermal facility was roughly $2700 per kilowatt, which is 4-6 times 
greater than the capital cost of a comparable-output combined cycle 
natural gas power plant as shown in the following table.
    Table 1: Capital Costs of Natural Gas and Geothermal Facilities
                          (CEC estimates 2003)

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Capital Costs                                                             Installed Costs        In-service Cost
----------------------------------------------------------------------------------------------------------------
Combined Cycle Natural Gas                                                  542          592                 616
----------------------------------------------------------------------------------------------------------------
Geothermal Flash                                                           2128         2410                2558
----------------------------------------------------------------------------------------------------------------
Geothermal Binary                                                          3210         3618                3839
----------------------------------------------------------------------------------------------------------------
Source: Comparative Cost of California Central Station Electricity Generation Options, Magdy Badr and Richard
  Benjamin, California Energy Commission, 2003.

    The CEC estimate does not reflect recent increases in steel and 
drilling costs discussed later in this statement, and does not include 
``site specific'' costs such as permitting and transmission. Capitol 
costs of new plants have been increasing substantially, as the 
following chart from EnergyBiz Magazine shows:
              Table 2: Power Plant Capitol Cost Inflation

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]



    Because a geothermal facility has very low fuel costs and no fuel 
market volatility, in the long run, over 30-50 years, the ``levelized'' 
cost of a facility might be competitive with the long-term costs of a 
fossil fuel plant (considering both capitol and fuel costs). But 
without the Section 45 Production Tax Credit (PTC), the initial risks, 
long lead times, and high capital cost will compel many investors to 
choose other alternatives that have shorter lead times, less risk, and 
lower front-end costs.
    In an important way, the PTC is equalizing risk. Given the high 
capital cost and risk associated with geothermal development, the PTC 
gives the investor the incentive necessary to consider geothermal 
energy on a more equal basis with conventional power projects. In 
addition, by lowering the capital risk for the geothermal projects, the 
ratepayer and the economy benefit by avoiding price spikes and instead 
ensuring long-term stable prices for energy.
    Also, as the Figure below indicates, only about half of the 
investment needed for a new geothermal facility qualifies for the 
Investment Tax Credit, making a 10% credit effectively a 5% credit, 
while an output-based credit like the PTC makes no such distinction.
Figure 1: Typical Cost Breakdown of Geothermal Power Projects \7\
---------------------------------------------------------------------------
    \7\ Factors Affecting Costs of Geothermal Power Development, Cedric 
Nathanael Hance, August 2005, available at: http://www.geo-energy.org/
publications/reports.asp.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


Comparative Taxation Rates
    Geothermal facilities pay significant federal, state and local 
taxes. A study conducted for the Department of Energy in 1998 by the 
Princeton Economic Research Inc states:
    ``A lot more Federal income tax is being collected from geothermal 
electricity than from electricity produced from natural gas, on a per 
kWh basis. It appears that geothermal power systems, while having been 
granted a number of Federal tax incentives, . . . nevertheless appear 
to bear much heavier Federal income tax loads than are borne by some 
natural gas power generating systems. This is mostly because geothermal 
systems are much more capital intensive than natural gas power systems, 
and profits and income taxes are generally proportional to the size of 
investments.'' \8\
---------------------------------------------------------------------------
    \8\ Entingh, Daniel J. (December 15, 1998). ``Review of Federal 
Geothermal Royalties and Taxes.'' Princeton Economic Research, Inc., 
page 4.
---------------------------------------------------------------------------
    More recent analysis supports this conclusion. Brandon Owens, 
whowent on to become Associate Director at Cambridge Energy Research 
Associates, published a study entitled ``Does the PTC Work?'' which 
found: ``Fossil fuel--fired technologies have a lower tax burden 
relative to all renewable power technologies. The difference in tax 
burden is most pronounced for biomass and geothermal technologies, 
which, in this example, pay 227 percent and 338 percent more in total 
taxes, respectively, than they do for gas-fired combined-cycle units on 
a per megawatt-hour (MWhr) basis.'' \9\
---------------------------------------------------------------------------
    \9\ Owens, Brandon (July 2004). ``Does the PTC Work?'' PR&C 
Renewable Power Service, page 9.
---------------------------------------------------------------------------
    As Vince Signorotti pointed out in his 2005 testimony:
    Providing the geothermal industry with a production tax credit does 
not get us off the hook on the tax front by any means. Indeed, one 
recent study has shown that geothermal plants pay, on average, more 
than three times the taxes that gas-fired combined cycle power plants 
pay on a per megawatt-hour basis.\10\ This is largely the result of 
geothermal's high capital and related infrastructure costs and the fact 
that a much higher percentage of our costs go to labor than a 
comparably sized gas plant, whose highest cost item is fuel.\11\ In 
fact, our pro formas show that over the next 30 years, even with the 
benefits of the production tax credit in place, Salton Sea Unit 6 will 
still pay $100 million in federal income and payroll taxes and nearly 
$200 million in state and local income, property, and payroll taxes.
---------------------------------------------------------------------------
    \10\ ``Does the PTC Work?,'' by Brandon Owens (PR&C Renewable power 
Service, July 2004), pp. 10-12.
    \11\ One study has shown that ``job creation from geothermal energy 
is 11 times higher than from natural gas.'' ``Renewables Work: Job 
Growth from Renewable Energy Development in California,'' by Brad 
Heavner and Susannah Churchill, June 2002 (http://www.calpirg.org/
reports/renewableswork.pdf).
---------------------------------------------------------------------------
Accounting for the Positive Values of Geothermal Energy
    Today, perhaps more than ever before, Americans are aware of the 
costs of our energy habits. The national security implications of our 
dependence on foreign sources of energy are clear.
    Even more foreboding are the increasingly dire warnings about the 
consequences of global climate change. While the health costs of air 
and water pollution drove Congress to enact landmark air and water 
quality laws, more action is needed by Congress to intervene in energy 
markets with legislation that addresses greenhouse gas emissions.
    Geothermal energy is a domestic resource. Because geothermal power 
plants do not burn fuel like fossil fuelplants, they release virtually 
no air emissions. In general, geothermal energy production results in 
minimal environmental impacts, which are detailed in A Guide to 
Geothermal Energy and the Environment available at: http://www.geo-
energy.org/publications/reports.asp. But, the marketplace price of 
energy does not reflect any of these values.\12\
---------------------------------------------------------------------------
    \12\ One assessment of the marketplace value of the environmental 
externalities of geothermal energy production concluded that geothermal 
power production prevents emissions of 32 thousand tons of 
NOx, 78 thousand tons of SO2, and 16 million tons 
of CO2 per year, which were worth $243.7 million in 
equivalent air emissions value, or roughly 1.6 cents/kWhr of geothermal 
electricity produced. ``Promoting Geothermal Energy: Air Emissions 
Comparison and Externality Analysis,'' Alyssa Kagel and Karl Gawell, 
The Electricity Journal, August/September 2005, Vol. 18, Issue 7.
---------------------------------------------------------------------------
    Providing tax incentives for new production is one effective way of 
compensating for the marketplace's failure to include such 
externalities in energy prices.
The Western Governors' Clean Energy Initiative
    As Congress considers its next steps after EPAct, we call to the 
Committee's attention the recent recommendations from the Western 
Governors' Association (WGA) Clean and Diversified Energy Advisory 
Committee (CDEAC), and specifically the CDEAC Geothermal Task Force 
Report and recommendations. The CDEAC effort is unquestionably the most 
systematic, thorough, and contemporary examination available of the 
potential for geothermal energy and other clean energy technologies to 
contribute to the energy needs of the West. The CDEAC effort concluded 
that clean technologies can meet or exceed the West's need for new 
energy sources, but that sustained federal and state support is needed 
to achieve this goal.
    The CDEAC Geothermal Task Force made the following specific 
recommendation:
Geothermal Priority Recommendations
    1. Federal and state tax credits are important to reduce the risk 
and high capital cost of new projects. The federal production tax 
credit (and clean renewable bonding authority) should be made 
permanent, or at least extended ten years.
    Such changes would make the PTC an effective and equitable stimulus 
for new investment in geothermal power and result is substantial 
economic, energy security, and environmental benefits.
Conclusion
    The production tax credit is helping to spur renewed geothermal 
energy development, but much more is possible. We urge Congress to take 
the next steps and enact a long-term extension of the production tax 
credit, modify placed in service treatment for baseload power plants, 
and provide an incentive for new geothermal exploration. Together, 
these measures would help unleash the potential of this renewable 
energy resource.

                  Table 3: Developing Geothermal Projects by State and Status (November 2006) *
----------------------------------------------------------------------------------------------------------------
                                          PHASE 1
                                       (Identifying
                                           site,                      PHASE 3       PHASE 4
                                          secured       PHASE 2      (Securing    (Production
          State           Unconfirmed    rights to   (Exploratory     PPA and     Drilling and  TOTAL*  (PHASE 1
                                         resource,   Drilling and      final         Under        to  PHASE 4)
                                          initial     confirming)    permits)    Construction)
                                        exploration
                                         drilling)
----------------------------------------------------------------------------------------------------------------
Number of sites and MW-range ``# of sites/#MW''
----------------------------------------------------------------------------------------------------------------
AK                           1/15 MW       1/20 MW                                  1/0.6 MW          2/20.6 MW
----------------------------------------------------------------------------------------------------------------
AZ                                       1/2-20 MW                                                    1/2-20 MW
----------------------------------------------------------------------------------------------------------------
CA                                     5/320-330 MW   3/326.8 MW    5/139.5 MW    2/35-73 MW     15/821.3-869.3
                                                                                                             MW
----------------------------------------------------------------------------------------------------------------
HI                                         1/30 MW                      1/8 MW                          2/38 MW
----------------------------------------------------------------------------------------------------------------
ID                          2/200 MW                        1/26                     1/10 MW            2/36 MW
----------------------------------------------------------------------------------------------------------------
NM                                                       2/21 MW                                        2/21 MW
----------------------------------------------------------------------------------------------------------------
NV                        5/72-102 MW  7/304-393 MW   3/49-64 MW   6/157-167 MW      3/37 MW      19/547-661 MW
----------------------------------------------------------------------------------------------------------------
OR                                      3/86-91 MW       1/40-60     2/60.2 MW                  6/186.2-211.2 MW
----------------------------------------------------------------------------------------------------------------
UT                          2/135 MW                   1/36.6 MW                     1/11 MW          2/47.6 MW
----------------------------------------------------------------------------------------------------------------
Total                     10 projects  18 projects   11 projects   14 projects    8 projects        51 projects
                          422-452 MW    762-884 MW   499.4-534.4   364.7-374.7   93.6-131.6 MW  1719.7-1924.7 MW
                                                              MW            MW
----------------------------------------------------------------------------------------------------------------
*Unconfirmed projects are not counted in the state or final total.

Total U.S. Geothermal Projects Identified as Under Development--
        Confirmed and Unconfirmed--11/10/2006
61 Projects      2,141.7 MW-2,376.7 MW

                                 

    Chairman NEAL. Thank you.
    Mr. Resch.

 STATEMENT OF RHONE RESCH, PRESIDENT, SOLAR ENERGY INDUSTRIES 
                          ASSOCIATION

    Mr. RESCH. Thank you, Mr. Chairman and Members of the 
Committee, for providing the opportunity to testify today. My 
name is Rhone Resch, and I am president of the Solar Energy 
Industries Association, a national organization that represents 
close to 500 companies and over 20,000 employees in the U.S. 
solar energy industry.
    My testimony today is especially timely. Just two days ago 
I filled out my taxes with TurboTax. And for the first time in 
23 years, there was a box on the form allowing taxpayers to 
receive a tax credit for installing a solar system. I'm happy 
to say that I did install a system in 2006, and I did check 
that box and got that credit. And I want to personally relate 
the sense of patriotism and individual energy independence that 
I felt upon installing a solar system right here, in 
Washington, D.C.
    This system provides 100 percent of the electricity that my 
family will use over the course of the year. This is carbon-
smart, pollution-free energy, and it works right here, in 
Washington, D.C. In fact, this is an example of the solar 
panels that we put on my house. It's by a company called Sun 
Power, a U.S. company. It's the most efficient panel made in 
America. You can see it looks like a flat screen TV. Very 
different from what most people think solar panels look like.
    So, while Jaime brought his beer, I'm happy to say I 
brought my power plant. And if I had been smart, I would have 
brought 20 bottles of the wines that are made by the solar 
wineries in Congressman Thompson's district. But that will be 
for another hearing.
    So, from this experience I have some brief and concrete 
suggestions for ways to improve the current investment tax 
credit for solar energy. I am happy to say that the basic 
structure of an investment tax credit does work for solar. 
However, the duration of the credit is too short, and the scale 
is too small to encourage investment in U.S. manufacturing, or 
the construction of new solar power plants.
    Therefore, the most important thing that this Committee and 
Congress can do to improve upon the current solar tax credit is 
to pass H.R. 550, Securing America's Energy Independence Act. 
H.R. 550, introduced by Congressman McNulty and Congressman 
Camp, with 54 cosponsors, provides an 8-year extension of the 
ITC for both residential and commercial solar and fuel cell 
systems, and will send a long-term market demand signal that is 
needed for our industry to grow. H.R. 550 also improves the 
current ITC by modifying the structure for photovoltaics, to 
increase efficiency and drive down costs.
    The rest of my testimony will focus on why we need an 8-
year extension. The first is with respect to competitiveness. 
The development and manufacturing of solar energy is the 
fastest growing segment of the high-tech industry. Almost all 
of the growth is occurring in Japan, Germany, and China.
    Once again, technology developed in the United States is 
being commercialized by other countries. Just 7 years ago, the 
U.S. manufactured 40 percent of the world's solar electric 
goods. In 2006, we slipped to less than 7 percent of total 
growth production.
    In contrast, four years ago China had no solar 
manufacturing, and today produces 15 percent of all world 
supply. The lesson here is clear. The U.S. is once again 
getting beat out by Germany, China, and Japan, who have jump-
started their industries with long-term Federal incentives that 
create domestic markets and encourage consumers to buy solar 
energy.
    In contrast to Japan's 12-year incentive and Germany's 20-
year program, the ITC in the United States is for just two 
years. The only way that the U.S. can reclaim global leadership 
in solar and spur growth in domestic manufacturing is through 
the adoption of an 8-year extension of the ITC.
    Second, we need an 8-year extension to move us toward 
energy independence. Expanding the use of solar energy can 
dramatically reduce a reliance on foreign sources of energy. 
All solar technologies--PV, solar water heaters, and utility 
scale power plants--displace natural gas. But all technologies 
need a long lead time to scale up.
    Utility scale power plants can be built to provide firm, 
dispatchable power to the fastest growing communities in the 
United States. These power plants directly displace expensive 
polluting and inefficient natural gas peaking plants, and can 
decrease our growing demand for natural gas from the Middle 
East and Algeria.
    The problem, like that of nuclear and coal fire power 
plants, is that the construction of utility scale power plants 
takes five to seven years, from the planning to startup. And 
because of this lengthy construction time, a short-term 
extension for solar on the ITC will provide absolutely no 
incentive to build these plants. So, if we want to get serious 
about energy independence and security in a carbon-smart way, 
then the ITC must be extended for eight years.
    The third justification for why we need an 8-year extension 
is to establish parity between solar and other energy 
technologies. And parity, here, constitutes equal treatment, 
not special treatment.
    So, for instance, in the Energy Policy Act of 2005, clean 
coal technologies were granted favorable tax treatment for ten 
years. New generation nuclear technologies were provided eight 
years. And as Jaime pointed out, even in the production tax 
credit, section 45, when that was originally created, it had an 
eight-year initial window.
    These long-term policies were an explicit recognition of 
the fact that emerging technologies need financial, regulatory, 
and market certainty that can only be afforded by long-term, 
consistent Federal tax policies. Solar energy should be 
afforded equal treatment. Therefore, it is critical that the 
extension of the solar ITC be for eight years, as provided in 
H.R. 550.
    Finally, I would like to point out that solar energy is our 
Nation's most abundant energy resource, surpassing coal, gas, 
and oil reserves, combined. The United States has, simply put, 
the best solar resources of any developed country in the world. 
However, in 2006, solar energy produced just 1/30th of 1 
percent of all the electricity in the United States--1/30th of 
1 percent, yet we've got the best solar resources in the world.
    Take a look at this map. This shows a map of Germany and 
the solar insulation there, and the solar insulation in the 
United States. You can see the difference. Germany, which has 
the solar equivalent of Anchorage, Alaska last year installed 
seven times more solar than we did in the entire United States.
    So, given its abundance, solar energy is an obvious choice 
for a clean, reliable, and domestic energy future. Greater 
reliance on this untapped energy resource will grow our 
economy, create jobs, increase security and integrity, while 
heralding independence.
    Passing H.R. 550, the Securing America's Energy 
Independence Act, is the most meaningful solar policy that 
Congress could enact. I thank the Committee for giving me this 
opportunity to speak, and I am available to answer questions 
that you may have.
    [The prepared statement of Mr. Rhone Resch follows:]
     Statement of Rhone Resch, President, Solar Energy Industries 
                              Association
    Thank you, Mr. Chairman and Members of the Committee, for providing 
me the opportunity to testify today.
    On behalf of almost 500 companies and more than 20,000 employees in 
the U.S. solar energy industry, I urge the Committee to extend and 
improve the investment tax credit (ITC) for solar energy property for 
eight years, as provided in the Securing America's Energy Independence 
Act, H.R. 550.
    I would like to focus my testimony on several key points:
    An eight-year extension of the solar ITC is crucial to establish 
parity between congressional support for other electricity generation 
technologies and solar energy. Parity constitutes equal treatment--not 
special treatment;

      An eight-year extension of the ITC will create 
significant benefits that are not possible through more frequent, 
shorter term extensions of favorable tax treatment;
      The credit needs to be improved to increase market 
efficiency and drive down costs. Converting it from a cost-based to 
capacity-based credit will reward greater energy production, not 
greater costs; and finally,
      Solar energy improves our energy independence, energy 
security and environment, and it deserves long-term, stable 
congressional support now.

    Before addressing the key points above, a couple of contextual 
points are in order.
Recent Solar Tax Treatment History and Current Legislation
    The Energy Policy Act of 2005 (EPAct 05) created a new commercial 
and residential ITC for fuel cells and solar energy systems placed in 
service from January 1, 2006 through December 31, 2007. The credit was 
further extended for one additional year in the Tax Relief and Health 
Care Act of 2006. The solar ITC now expires on December 31, 2008.
    The new solar ITC is working and has helped more Americans use 
solar energy in their homes and businesses. However, the credit's 
limited size and duration has restricted manufacturing investment, 
failed to significantly increase the number of trained installers, 
which are critical to drive down future costs, and has not resulted in 
the construction of new utility-scale solar power plants. In response, 
Congressmen Michael McNulty (D-NY) and David Camp (R-MI) have 
introduced the Securing America's Energy Independence Act (HR 550) to 
improve and build upon the existing tax incentive.
    The Securing America's Energy Independence Act provides a blueprint 
of the policy changes needed to secure a long-term robust solar 
marketplace in America. Specifically, the legislation:

      Extends the ITC for all residential and commercial solar 
and fuel cell equipment for eight additional years;
      Modifies the residential and commercial tax credit for 
photovoltaic cell technology (direct conversion of sunlight into 
electricity) to $1,500 per half kilowatt;
      Removes the 30% cap for commercial photovoltaic 
installations and the $2,000 cap on residential photovoltaic 
installations;
      Provides alternative minimum tax (AMT) relief; and, 
Provides three year accelerated depreciation for commercial projects.

    The short and long-term benefits of enacting these changes would be 
significant. The benefits include:

      Increased energy security: Solar technologies help 
stabilize the nation's electricity grid, provide clean, reliable power, 
and reduce the impact of natural disasters and terrorist acts. 
Producing these home-grown technologies in the U.S. will reduce our 
dependence on foreign sources of energy, while simultaneously lowering 
the cost of energy to consumers.
      Reduction in the use of high cost natural gas: In most 
parts of the U.S., peak electricity demand occurs when solar 
electricity is near optimal efficiency (9 AM--6 PM). This demand load 
is almost exclusively served by central station gas generation that can 
be easily cycled on and off and is often highly inefficient. An eight-
year extension of the ITC will displace over 5.5 trillion cubic feet 
(Tcf) of natural gas and save consumers over $50 billion.
      Job creation: Solar systems require high-tech 
manufacturing facilities and produce well paying, high-quality jobs. 
Extending the tax credit will create an estimated 55,000 new jobs in 
the solar industry and over $45 billion in economic investment.
      Clean energy: Solar energy is the cleanest of all 
renewable energy sources, producing electric and thermal energy with 
zero emissions, no waste products or other forms of pollution.\1\
---------------------------------------------------------------------------
    \1\ For a comprehensive description of the three commercial solar 
technologies see appendix
---------------------------------------------------------------------------
The Crucial Nature of the Eight-year Extension
    It is critical that the extension of the ITC be for at least eight 
years, as provided for in HR 550. An eight-year extension will provide 
the long-term market ``demand-signal'' that is needed for industry to 
build new manufacturing capacity, expand the installer workforce, and 
construct new utility-scale solar power plants.
    Similar to other emerging energy technologies such as clean coal 
and new generation nuclear, utility-scale concentrating solar power 
(CSP) plants and new solar cell manufacturing plants require long lead 
times that far exceed the two-year time period remaining under EPAct 05 
and the Tax Relief and Health Care Act of 2006. Development of a CSP 
plant can take six years, while new photovoltaic cell manufacturing 
facilities often require four years to be completed.
    Additionally, solar energy is unique from other renewable 
technologies because it is installed on rooftops and requires an entire 
workforce of skilled electrical workers, plumbers, roofers, and others 
to be trained and certified to install solar systems. The creation of 
an entirely new specialized workforce requires substantial time and 
expenditure by the industry that will not occur without a long-term 
extension and improvement of the tax credit.
    Long-term regulatory and tax treatment certainty is equally 
important to project financing. Solar energy power plant projects are 
more complex than conventional power plants because of the 
unfamiliarity of the lending industry with the technology. On average, 
financing can take an additional 12 months for project development. 
Political and therefore market certainty--in the form of an eight-year 
ITC--is needed to help reduce the cost of capital for these projects.
    Despite the unique needs of the solar energy industry for long-term 
certainty, concerns have been raised that federal budget constraints 
may prevent long-term extension of the solar ITC. Similarly, some have 
argued that all renewable technologies, without regard to past 
treatment or current differences, should receive the same length of tax 
credit extension.
    According to this argument, some maintain that it would be unfair 
to provide solar technologies with a longer duration credit extension 
than that accorded to other electricity generation technologies. This 
concern misses the mark. An eight-year credit extension for solar would 
approximate equal treatment and does not equate to special treatment. 
This is so for several reasons.
    First, in EPAct 05 clean coal technologies were granted favorable 
tax treatment for ten years and new generation nuclear technologies 
were provided eight years. Wind energy technologies were also initially 
granted an eight-year duration (1992-2000) when the Internal Revenue 
Code Sec. 45 production tax credit (PTC) was created. These long-term 
extensions were an explicit recognition of the fact that emerging 
technologies need financial, regulatory and market certainty that is 
only afforded by long-term, consistent federal tax credit policy. Solar 
energy should be afforded equal treatment.
    Secondly, energy technologies with more mature markets are governed 
by the production tax credit (PTC) provisions in Code Sec. 45 (e.g. 
wind, geothermal, hydropower), while renewable technologies with less 
developed markets (e.g. solar and fuel cells) are governed by the ITC 
provisions in Code Sec. 48 (commercial) and Sec. 25 (residential). Due 
to these differences in market maturity, it is even more critical to 
provide long-term incentives to the ITC technologies. Long-term support 
will encourage market expansion to the level enjoyed by the PTC 
technologies.
    It is also important to recognize that the PTC and the ITC 
mechanisms function in fundamentally different ways and should not be 
viewed identically. As a practical matter, a one-year extension of the 
PTC is tantamount to a ten-year extension of the ITC. For instance, if 
the Sec. 45 PTC is renewed for one year, the duration of the favorable 
tax treatment is actually 10 years. This is because the ``one year 
extension'' for the Sec. 45 PTC actually refers to the duration of the 
``placed-in-service'' rule governing the credit, not the actual 
temporal duration of the credit's availability. Accordingly, under a 
one year Sec. 45 PTC extension, a claimant has one year to place 
qualifying Sec. 45 property (e.g. geothermal, hydro, wind, etc.) ``in-
service'' to trigger an annual, recurring tax credit that lasts for ten 
years.
    In contrast, the Sec. 48 ITC (or alternatively the Sec. 25 ITC) is 
a one-time credit for a portion of the cost of installing a qualifying 
solar system. The ``claiming'' of the Sec. 48 ITC credit does not 
trigger annual tax credit eligibility in each of the succeeding ten 
years. This distinction in the practical operation of the two different 
credits is fundamental. Furthermore, financial markets place a special 
premium on long-duration favorable tax treatment.
    To the extent that the metric of Congressional fairness to varying 
technologies is tax extensions of equal duration, then the differences 
in the mechanics of the Sec. 45 PTC and the Sec. 48 ITC cannot be 
overlooked. To do so would fundamentally disadvantage solar energy 
technologies vis-`-vis competing electricity generation technologies. 
There is no sound public policy rationale for this lesser and disparate 
treatment.
    The conclusion then, is clear. The ITC for solar energy and fuel 
cell assets should be extended for eight-years without regard to the 
length of extensions that are accorded other renewable energy assets. 
This is especially so given the history of favorable tax treatment that 
has already been afforded to coal, nuclear, ethanol, wind and other 
technologies.
An Eight-Year Extension of the Solar ITC Creates Unique Benefits
    The value of an eight-year extension of the solar ITC cannot be 
equated with more frequent credit renewals of lesser duration. Four 
successive extensions of two-year durations each will not allow the 
U.S. to construct new utility-scale CSP plants, reinvigorate our solar 
manufacturing base and pave the way for significant expansion and work-
force training in the solar system design and installation industry. 
Only through a single, eight-year extension can the U.S. solar energy 
industry realize its full potential. Nothing better illustrates this 
point than the graph below in Figure 1.

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    Figure 1: Source: AWEA, Wind Power Outlook 2006

    As the chart in Figure 1 demonstrates, short duration, frequent 
renewals of credit extensions create a ``boom-and-bust'' cycle that 
will not favor the longer term development of a robust, national solar 
energy industry that maximizes the potential of our world-class solar 
resources.
    Accordingly, it is essential that the extension of the ITC be for 
at least eight years. Such an extension will provide the long-term 
market demand signal that solar energy needs to transition from a 
nascent market to a mature one. Congress must eliminate the stop-start 
incentive cycle and create market conditions that allow solar companies 
to make new long-term investments that will reduce costs. To date, 
Congress has provided two short-term extensions (two and one year, 
respectively) that have not provided sufficient policy certainty for 
businesses to make long-term decisions.
    An eight-year extension is especially critical for the development 
of large, utility scale (e.g. 500 megawatts) solar power plants. CSP 
plants (also referred to as solar thermal electric power plants) are 
large projects that often take six years to complete from the initial 
planning stages. In this regard, CSP plants face many of the same 
challenges that other, state-of-the-art power plant designs such as 
new-generation nuclear plants and ``clean coal'' power plants confront. 
In fact, Congress in EPAct 05 recognized the unique challenges facing 
``clean coal'' and new nuclear power plants when it provided ten-year 
and eight-year duration favorable tax credit authorizations for these 
technologies, respectively. Congress should accord CSP plants similar 
treatment.
    An eight-year extension is also crucial to reinvigorating the U.S. 
solar manufacturing base. Because of the capital intensive nature of 
solar energy hardware production, new U.S. manufacturing facilities 
will not be constructed unless there is business and investor 
confidence that the U.S. marketplace will experience a long, steady and 
robust demand cycle for solar energy products. This need for a strong 
``demand signal'' to spur domestic manufacturing applies equally to the 
solar thermal (water heating), the CSP, and the photovoltaic segments 
of the U.S. solar manufacturing base. This point also applies with 
equal vigor to the entire ``solar value chain'' that includes research, 
engineering, polysilicon manufacturing, plastics manufacturing, glass 
production, copper wire drawing, metal fabrication, instrument 
manufacturing and battery production, among others.
    Finally, an eight-year ``demand-signal'' is also necessary if the 
U.S. is going to grow the installer base necessary to sustain robust 
deployment of solar technology. In order to expand the domestic market 
for solar energy, a significant number of electricians, plumbers, 
roofers and designers need to be trained and certified. Yet solar 
design and installation firms are unable to hire new personnel and bear 
the expense of training unless it is clear that the U.S. solar market 
is in a period of long-term sustained activity and growth. Passage of 
HR 550 will provide the long-term financial, regulatory and business 
certainty that business owners require to commit significant new 
capital for workforce training and expansion.
Improvement of the Existing ITC will Maximize Efficiency and cost 
        Reductions
    Passage of the Securing America's Energy Independence Act, HR 550, 
will improve the current structure of the credit for photovoltaic (PV) 
(for more information see appendix) installations from 30% of the cost 
of the installed system to $1,500/half kilowatt, based on the nameplate 
capacity of the system. This modification would mimic the current 
structure for fuel cells. This change improves the credit by converting 
it from a cost-basis to a capacity-basis, thereby rewarding greater 
capacity, not greater costs.
    There are several reasons for the PV credit to be modified to a 
capacity-based incentive. First, capacity-based incentives encourage 
cost efficiency and expedite the reduction of the cost of solar energy. 
In comparison, a cost-based incentive could discourage true cost 
reductions until a mature, highly competitive market is developed.
    Second, a capacity-based incentive rewards new technology that can 
produce electricity at a lower cost. For example, in Washington DC, the 
``turn-key'' cost for an installed PV system is approximately 6,000/
half-kilowatt. If enacted, the improved credit structure in HR 550 
would subsidize approximately 25% of the cost of the system. As the 
market matures and less expensive technologies are deployed, in the 
form of low cost panels or more cost effective installation 
technologies, it is anticipated that the installed cost would drop to 
approximately $4,000/half-kilowatt. The improved credit would then 
represent 35% of the cost of a system. Cost reductions in technology 
and installation will then encourage greater numbers of installations, 
further driving down system costs.
    Finally, studies have shown that state programs that incentivize 
solar technology deployment using a capacity-based rebate program 
result in larger solar installations than state programs that use a 
straight cost-based structure. This is especially important when we 
consider how solar can reduce demand for natural gas fired peak power 
(the most expensive electricity) and bring lower energy costs to all 
consumers. Larger initial installations have unique benefits, such as 
grid stability, avoided consumption of high-priced natural gas, myriad 
environmental benefits, and job creation throughout the entire economy.
The Energy Security, Energy Independence and Environmental Benefits of 
        Solar
    Enactment of HR 550 will improve our energy security, move the U.S. 
closer toward energy independence, and deliver numerous environmental 
benefits due to the inherent non-polluting nature of solar energy.
Energy Security
    As Congress looks to increase the use of carbon-smart renewable 
energy, it is critical that priority be placed on technologies that 
also improve U.S. energy security. Solar energy, in all of its forms, 
is a technology that can greatly improve the U.S.'s ability to have a 
secure and reliable energy supply.
    The electricity infrastructure in the U.S. is aging and energy 
consumers are increasingly subject to outages that affect critical 
infrastructure and disrupt business. The black out of August 2003 in 
the Northeast, triggered by a tree limb landing on power lines, cost 
consumers and businesses tens of billions of dollars. Unfortunately, 
this event is not unique and will occur with greater frequency if 
Congress does not take steps to diversify our energy portfolio.
    The good news is that this event could easily have been avoided 
through greater use of solar energy. A 2004 Department of Energy (DOE) 
study entitled Solution to the Summer Blackouts? concludes that if 
solar energy had met just one percent (1%) of local peak demand, we 
would have avoided the August 2003 blackout and other local brownouts. 
DOE's explanation was simple: high air conditioning loads stressed the 
grid and caused the blackout. These loads occurred on the hottest and 
sunniest days during the summer--the exact time when output from solar 
systems are greatest. DOE also concluded that over reliance on central 
generating stations led to grid fatigue and failure. This 
infrastructure vulnerability could have been minimized through greater 
reliance on distributed solar energy.
    Photovoltaic (PV) and solar water heating systems are distributed 
generation (DG) technologies. Like other DG technologies, they provide 
energy at the point of consumption rather than at a central power plant 
hundreds of miles away. As such, DG does not rely on vulnerable 
regional transmission lines and local distribution networks. By 
producing energy at the source of consumption, solar power alleviates 
stress and vulnerability on the grid.
    The DOE study also concluded that investing in solar energy is a 
more economically efficient and cost effective way to improve our 
energy infrastructure than capital intensive and often community-
opposed transmission line upgrades. In sum, using solar energy is a 
cost-effective, affordable way to alleviate stress on the electricity 
grid and improve the overall reliability of our electricity 
infrastructure.
    Solar is also the most reliable source of energy. This reliable 
track record has resulted in wide deployment of the technology in 
applications where power interruptions are unacceptable, including: oil 
and gas industry use of solar energy to power pumps and meters at 
remote locations; telecommunications industry use of solar to power 
relay stations and remote equipment; and, every satellite that has been 
sent out into space in the last 30 years has been powered by solar 
energy.
    Ironically, energy industry acceptance of the technology stands in 
stark contrast to consumer behavior. Consumers are investing hundreds 
of millions of dollars in small gasoline-powered generators. During 
grid failure and electricity outages, electronic gasoline pumps at the 
gas stations do not operate, rendering many generators idle because of 
fuel shortage. Solar energy is a technology that can provide reliable 
power during power outages.
    Finally, solar stabilizes volatile energy prices, a critical energy 
security issue affecting the U.S. today. In the last five years, 
consumers have seen electricity prices escalate between 20 and 78 
percent. At the same time, we have seen the price of natural gas triple 
and the price of gasoline routinely exceed $3.00 per gallon. Each year 
the cost of energy is taking a larger percentage of a family's income 
than at any other time in U.S. history. This energy inflation 
vulnerability especially impacts the poor and elderly on fixed incomes.
    Solar can help address this vulnerability because it requires no 
fuel to operate. Although a solar system is more expensive up front, 
there are no additional costs for operating a system once installed. 
Furthermore, solar panels are guaranteed for 20-25 years, allowing 
consumers to ``lock in'' their electricity prices for decades. 
Recognizing the upward trend in energy costs, incentivizing the use of 
a technology that requires no fuel inputs is an important element of 
any energy security plan.
Energy Independence
    Solar energy is a domestic and abundant energy source in the U.S. 
The U.S. has the best solar resources of any developed country in the 
world. Proportionally, U.S. solar energy resources exceed those of 
fossil, nuclear or other renewable energy resources. Despite this 
tremendous advantage, the U.S. has failed to capture and harness this 
free and readily available energy. In 2006, solar energy produced just 
1/30th of one percent of all electricity in the U.S.; Germany in 
contrast, with the solar resources of Alaska, installed seven times 
more solar energy property than the entire U.S.\2\
---------------------------------------------------------------------------
    \68\ Energy Information Administration, Net Generation by Energy 
Source by Type of Producer, October 2006.
---------------------------------------------------------------------------
    Congressional determination to increase energy independence hinges 
upon its commitment to developing our unlimited domestic solar 
resources. To accomplish this, Congress must pass an eight year ITC 
extension, such as that found in HR 550.

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 Figure 2: Germany Insolation                  Figure 3: U.S. Insolation

The U.S. is over-dependent on foreign sources of energy. Demand for 
natural gas continues to rise, primarily for the electricity 
generation. Increasingly we are turning to countries like Algeria to 
provide us with liquefied natural gas (LNG) to meet our growing demand. 
According to the Federal Energy Regulatory Commission, 41 new LNG 
terminals are proposed for construction in U.S. harbors and off U.S. 
beaches. Constructing these plants will exacerbate our addiction to 
foreign sources of energy. Our desire for energy independence demands a 
different course.
    Solar energy directly displaces natural gas used for heating homes 
and water. In a home, solar can directly replace natural gas used to 
heat radiant systems and can displace up to 70% of the natural gas used 
to generate hot water. Many countries that do not have a domestic 
source of fossil fuels, including Spain and Israel, mandate that all 
new homes must have solar water heating systems installed. The U.S. can 
demonstrate similar energy independence by using market incentives that 
spur solar investment and market growth.


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                                       Solar energy also displaces 
                              natural gas used to generate electricity. 
                              Almost all intermediate and peaking 
                              electricity plants use natural gas as the 
                              source of energy. These plants are often 
                              very inefficient and produce expensive 
                              electricity. Solar energy, which 
                              generates electricity from 8 A.M.-7 P.M. 
                              daily, can displace these inefficient, 
                              high cost power plants, and become a 
                              reliable source of firm, dispatchable 
                              power.
    Given the high price of natural gas to key industrial sectors and 
consumers, the U.S. can no longer afford to neglect its abundant solar 
resources. Analysis conducted by the Solar Energy Industries 
Association concludes that an eight-year extension and expansion of 
Sec. 48 and 25 tax credits for solar energy will displace over 5.5 
trillion cubic feet (Tcf) of natural gas, providing an economic value 
to consumers in excess of $50 billion.\3\ This is enough energy to 
displace the need for all new LNG terminals by 2012.
---------------------------------------------------------------------------
    \3\ Solar Energy Industries Association Natural Gas Displacement 
Model
---------------------------------------------------------------------------
    In addition to tempering natural gas demand growth, solar can also 
generate electricity to be used by plug-in hybrids and electric 
vehicles, thereby displacing gasoline derived from foreign oil 
supplies. Imagine a gasoline-free electric vehicle that also uses 
electricity derived from the sun rather than a coal-fired plant. The 
technology is advancing rapidly in this direction, but it is critical 
that Congress catalyze the market by providing incentives to use solar 
energy.
Environmental Benefits
    Though the environmental benefits of solar energy might be 
considered a given, it is worth highlighting several points. Solar is 
the cleanest method of energy generation, in terms of avoided air, 
waste and noise pollution, energy payback, water conservation, 
radiation, harm to wildlife, or environmental risk in the event of an 
accident.
    Solar energy produces no greenhouse gases, no acid precipitation or 
toxic emissions, and no other air pollution of any kind. Over the 40-50 
year life of a solar electric system, every kilowatt (kW) of solar 
electric power reduces 217,000 pounds of carbon dioxide, 1500 pounds of 
sulfur dioxide, and 830 pounds of nitrogen oxides emissions as compared 
to electricity produced by conventional generation.\4\
---------------------------------------------------------------------------
    \4\ NREL report, ``Distributed Energy Resources for the California 
Local Government Commission,'' October 2000.
---------------------------------------------------------------------------
    Photovoltaic solar energy generates electricity without use any 
water. In contrast, fossil fuel and nuclear based electricity 
generation use substantial amounts of water to run steam turbines. 
Across the U.S., approximately 40% of fresh water withdrawals are used 
for electric generation.\5\ If water-starved communities like Phoenix 
and Las Vegas are to continue growing, we must place greater emphasis 
on water-free electricity generating technologies.
---------------------------------------------------------------------------
    \5\ Sandia National Laboratories, Energy-Water Nexus, http://
www.sandia.gov/news-center/news-releases/2006/environ-waste-mgmt/
mapwest.html
---------------------------------------------------------------------------
    Concerns have been raised whether the energy used to produce solar 
panels is surpassed by the amount of energy generated from the panels. 
This energy relationship is referred to as the ``energy payback 
period.'' Currently, the energy payback for PV panels varies from 1-4 
years depending on different manufacturing variables. This means that a 
PV panel with a life expectancy of 40-50 years will generate between 10 
and 50 times more energy than was required to create the panel. Despite 
this superior ``energy return on investment'', the manufacturing 
process is still growing more efficient every year as the scale of 
production increases.\6\
---------------------------------------------------------------------------
    \6\ NREL Report No. NREL/FS-520-24619: ``Energy Payback: Clean 
Energy from PV''
---------------------------------------------------------------------------
Conclusions
    Solar energy is an obvious choice for a carbon-smart, reliable and 
domestic energy future. Greater reliance on this untapped energy 
resource will grow the economy, create jobs, increase grid integrity 
and security, while heralding energy independence. Unfortunately, all 
of these benefits are dependent on passage of HR 550. In the absence of 
long-term Congressional leadership, we will continue down the path of 
over reliance on foreign, highly price-volatile, insecure, carbon-
intensive energy sources.
    The U.S. stands at an energy crossroads. Independent, carbon-smart 
energy choices can be made today that will benefit generations to come. 
However, the window of opportunity is quickly closing. This Congress 
has an opportunity to invest in solar energy and ensure that the U.S. 
reclaims global energy leadership and independence.
    In conclusion, passing H.R. 550, the Securing America's Energy 
Independence Act, is the most meaningful solar policy that Congress 
could enact this year.
    I thank the committee for giving me this opportunity to speak, and 
I am available to answer any questions you may have.
APPENDIX
Photovoltaics (PV)
Technology

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                         Photovoltaic (PV) devices generate electricity 
directly from sunlight via an electric process that occurs naturally in 
certain types of material. Groups of PV cells are configured into 
modules and arrays, which can be used to power any number of electrical 
loads.

                        Crystalline silicon--the same material commonly 
used by

                        the semiconductor industry--is the material 
used in 94% of
all PV modules today. PV modules generate direct current (DC) 
electricity. For residential use, the current is then fed through an 
inverter to produce alternating current (AC) electricity that can power 
the home's appliances.
    The majority of PV systems today are installed on homes and 
businesses that remain connected to the electric grid. Consumers use 
their grid-connected PV system to supply some of the power they need 
and use utility-generated power when their power usage exceeds the PV 
system output (e.g., at night). In 41 U.S. states, when the owner of a 
grid-connected PV system uses less power than their PV system creates, 
they can sell the electricity back to their local utility, watch their 
meter spin backwards, and receive a credit on their electric bill--a 
process called net metering. The electric grid thus serves as a 
``storage device'' for PV-generated power.
Markets

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                           The global PV market has averaged 38% annual 
growth over the last five years. Yet PV still accounts for a small 
percentage of electricity generation worldwide and less than 1/30th of 
1% in the U.S. Furthermore, the U.S. lags behind Germany and Japan in 
installations as well as in manufacturing. Germany and Japan have 
surged to the lead with coherent, long-term national incentive 
policies, despite dramatically inferior amounts of sunshine.
    The U.S. possesses the best solar resources in the world, and yet 
Germany installs seven-times as much PV as the U.S.. Germany and Japan 
have taken the lead in solar manufacturing and installations because of 
long-term national incentive policies designed to make solar power 
mainstream. Japan instituted a carefully designed rebate program that 
lasted over ten years, while Germany incentivizes solar installations 
by paying 3-4 times retail electric rates for the electricity generated 
from PV systems for 20 years. The surging player in the industry, 
China, has gone from having no PV industry to manufacturing twice the 
level of the U.S. in just three years.
    While California is the dominant U.S. market for PV, with 73% of 
the grid-tied installations in 2006, other states now offer modest PV 
incentives for consumers, including Massachusetts, Connecticut, 
Illinois, New York, Oregon, Wisconsin and Washington State. California, 
Texas and Pennsylvania have long-term policy commitments to develop 
solar in-state. Major PV manufacturing expansions have occurred in some 
of the states hardest hit by the outsourcing of U.S. jobs, including 
California, Washington State, Oregon, Michigan, and Massachusetts.
Concentrating Solar Power
Technology

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                              Concentrating solar power (CSP) plants 
                              are utility-scale generators that produce 
                              electricity by using mirrors or lenses to 
                              efficiently concentrate the sun's energy. 
                              Two principal CSP technologies are 
                              parabolic troughs and dish-Stirling 
                              engine systems.

                                                  Using curved mirrors, 
                                                  parabolic trough
systems concentrate sunlight to drive conventional steam turbines. The 
mirrors focus the sun's energy onto a receiver pipe or heat collection 
element. From there, a high temperature heat transfer fluid picks up 
the thermal energy and uses the heat to make steam. The steam drives a 
conventional steam-Rankine power cycle to generate electricity. A 
typical collector field contains many parallel rows of troughs 
connected in series.


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                                        A solar dish-engine system is 
                                        shaped much like large 
                                        satellite dishes and covered 
                                        with curved mirrors. The dish 
                                        is programmed to always face 
                                        the sun and focus that energy 
                                        on a receiver at the dish's 
                                        focal point, in much the same 
                                        way that a satellite dish 
                                        focuses radio waves on a tuner. 
                                        The receiver is connected to a 
                                        Stirling engine, which uses the 
                                        thermal power generated by 
                                        the focused solar energy to
heat liquid hydrogen in a closed-loop system. The expanding hydrogen 
gas creates a pressure wave on the pistons of the Stirling engine, 
which spins an electric motor, creating electricity. Individual dish-
Stirling units range in size from 10 to 25 kW. With their high 
efficiency and modular construction, dish-engine systems are expected 
to be cost-competitive in distributed markets.
Markets
    During the 1980s and early '90s, developers built nine 
concentrating solar power plants in California's Mojave Desert. Then, 
for nearly two decades, no new plants were built--due to the erosion of 
federal support for renewables and plummeting energy prices. Yet in the 
current climate of rising natural gas prices, water scarcity, air 
pollution and carbon management concerns, concentrating solar power has 
the potential to play a major role in meeting the Southwest's future 
energy needs.
    The Western Governors' Association recently commissioned a Solar 
Task Force to report on the potential for clean solar development in 
the Southwest. The Solar Task Force Report, adopted in July 2006, 
identified areas with a potential for CSP generation capacity of 
approximately 200 gigawatts (GW). This capacity could produce about 
473,000 gigawatt hours (GWh) per year.
Solar Thermal Systems
Technology
    Solar thermal systems provide environmentally friendly heat for 
household water and space heating. The systems collect the sun's energy 
to heat either air or a fluid. The air or fluid then transfers solar 
heat to your home or water. In many climates, a solar heating system 
can provide a very high percentage (50 to 75%) of domestic hot water 
energy. In many northern European countries, combined hot water and 
space heating systems are used to provide 15 to 25% of home heating 
energy.

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                                                  Active solar water 
                                                  heating 
                                                  systems can be either 
                                                  ``open 
                                                  loop,'' in which 
                                                  the water to be 
                                                  heated flows directly 
                                                  through the

rooftop collector, or ``closed loop,'' in which the collector is filled 
with an antifreeze solution that passes through a heat exchanger 
mounted in or around your normal water heater. During the day, in good 
weather, your water can be heated entirely by the sun. In any weather, 
the heating system can back up your existing heater, reducing overall 
energy costs.
Markets

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                    In the absence of coherent national policies, from 
                    1997 until 2005, the U.S. solar water heating and 
                    solar space heating market showed little growth, 
                    averaging about 6,000 installations per year. In 
                    the past year, numerous states, including New York, 
                    Florida, Hawaii, and Illinois, have created or 
                    expanded incentives to complement the new federal 
                    tax credits. Accordingly, the market is projected 
                    to increase 25 to 50 percent in 2007.

    On the manufacturing side, the past year has seen an influx of new 
entrants into the U.S. market, and the introduction of new systems that 
use polymer-based collectors (as opposed to sheet metal). However, 
domestic manufacturers have stated that with a two-year window for the 
federal credit, they are unlikely to ramp up production substantially 
until a long-term market policy has been established.

                                 

    Mr. RESCH. And, Mr. Chairman, at this time I would like to 
request and attach to my testimony several letters that were 
written that, unfortunately, I was not able to get into my 
original testimony in support of a long-term extension, 
including: those from 25 environmental organizations; another 
letter from the Western Governors' Association; a letter 
supporting the bill from the National Association of Regulatory 
Utility Commissioners, NARUC; a letter from 13 utilities, 
including the Edison Electric Institute; a letter from the 
Secretary of Energy from the Commonwealth of Massachusetts, a 
personal letter to you, sir.
    Chairman NEAL. Smart move.
    [Laughter.]
    Mr. RESCH. I would like to include these with my testimony, 
if possible, sir.
    Chairman NEAL. Without objection.
    [The attachment to Mr. Rhone Resch's statement follows:]
    Chairman NEAL. Mr. Rose.

STATEMENT OF ROBERT R. ROSE, EXECUTIVE DIRECTOR, U.S. FUEL CELL 
                            COUNCIL

    Mr. ROSE. Thank you very much, Mr. Chairman, Members of the 
Committee. I see representatives from several fuel cell centers 
of excellence here, including Connecticut and Upstate New York. 
And eastern Pennsylvania and California also have significant 
fuel cell capacity. I am Bob Rose, I am representing the U.S. 
Fuel Cell Council. We are the trade association of the 
industry. And I appreciate this opportunity.
    The Committee showed commendable leadership in 2005 with 
the tax incentive provisions encouraging early deployment and 
adoption of fuel cells and related infrastructure. You know, 
prior to 2005, Federal market support for fuel cells was 
actually quite limited. And when it did come, it was in the 
form of direct support to purchasers. Both our industry and our 
markets are still adjusting to this new way of doing business 
that you have presented us with.
    And I am pleased to report that it appears that the credit 
is already beginning to prove its worth to our industry. So the 
value of your leadership can't be overstated by us, and I want 
to make sure to thank you all today.
    We also, as do my colleagues here, support a long-term 
extension of the investment tax credit for fuel cells.
    Fuel cells are meeting customer needs today in high-value 
niche markets. We list something like 30 products on offer on 
our U.S. fuel council website. Typically, these products have, 
you know, guarantees and other commercial terms. That is so 
often the case with emerging technologies--their price limits 
their competitiveness in the larger marketplace.
    This Subcommittee has long recognized the importance of 
Federal tax policy in filling in that valley of death for 
advanced energy technologies that carry a public benefit, and I 
am sure my colleagues can share with you some of the successes 
that their industries are now beginning to enjoy, as a result 
of the Committee's long-term support. My industry is kind of on 
the threshold of that commercial expansion, and so we need your 
help, really, kind of from the very beginning.
    We also support H.R. 550, which has a--not just the long-
term extension, but also several other provisions that would be 
of value to our industry. I certainly want to recognize 
Congressmen McNulty and Camp and their 52 cosponsors on that 
bill.
    As I said, our experience with the incentive is limited. 
The first--the returns from 2006 will really be the first ones 
where there is a significant number of credit claims, although 
there were a few deals done in 2005. We can't really link sales 
to the specific sales to the availability of the credit, 
although customers have said they're using it. And at least one 
energy service company said it has managed to place about 100 
fuel cells already under the credit. For us, that is a 
significant number.
    Creative minds are also linking the Federal credit with 
incentives offered by the states and in the--indeed, there are 
several states that have very aggressive programs to help us 
deploy fuel cells. And it's this combination of incentives, and 
not the Federal credit alone, that has made the crucial 
difference for some of our companies.
    In fact, these companies estimate that closer to $3,000 a 
kilowatt is needed to fully open markets in all the states, 
particularly those states that don't have programs of their 
own.
    I am going to share now my recommendations, which are going 
to sound quite a bit like the other guys' recommendations. But 
I did want to get on the record our formal view.
    We do seek an eight-year extension of the tax credits in 
section 48 and in 25D. This is going to provide us with 
certainty and stability for our purchasers, stimulate cost 
reduction. It will also stimulate supply chain interest, which 
is extremely important to our industry.
    It will also send a positive signal to capital markets, and 
indeed, give our companies the courage and incentive to build 
out their manufacturing capability.
    We hope the Committee will examine the adequacy of the 
current $1,000 per kilowatt cap, which some companies, as I 
said, report as insufficient to open markets for them 
nationwide.
    We hope the Committee will also signal the most inclusive 
interpretation of the credit. This is going to insure, we 
think, that the credit achieves its intended purpose, as the 
range of products and markets expands.
    We hope you will clarify the ability to transfer or trade 
credits, which is important for--to get non-tax-paying entities 
in the game, and also to facilitate the formation of investment 
pools.
    We endorse the AMT modification proposed in H.R. 550. 
Individuals of means are very often the best early adopters of 
technologies, as my colleague Rhone has said, in buying his 
solar system. The AMT negates their access to this tax 
incentive, and I think that would be an important change for 
us.
    And, finally, we request that the eligibility be explicitly 
provided for systems located in U.S. territories. There are 
markets there that we are having a hard time serving because of 
the Tax Code prohibitions.
    Finally, we also recognize and applaud the Congressional 
interest in supporting hydrogen infrastructure, which will help 
fuel cells, as well.
    In conclusion, thank you again. We are grateful for your 
leadership, and we appreciate the chance to come up here and 
say so.
    [The prepared statement of Mr. Robert Rose follows:]
Statement of Robert R. Rose, Executive Director, U.S. Fuel Cell Council
    Chairman Neal, Ranking Member English, Members of the Committee, I 
appreciate the opportunity to appear today to support a long-term 
extension of the investment tax credit for fuel cells. The U.S. Fuel 
Cell Council is a trade association of more than 105 members spanning 
all segments of our industry. We support commercialization of fuel 
cells of all types and for all applications.
    Fuel cells are a family of technologies that generate power 
electrochemically. Since there is no combustion, fuel cells are highly 
efficient with ultra low emissions. Fuel cells can utilize a wide 
variety of fuels, with unexcelled environmental performance. Overall, 
fuel cells deliver an exceptional combination of benefits to society.
    Fuel cells can power an extraordinary range of applications, from 
battery replacements in consumer electronics, to backup and remote 
power generation, auxiliary power units, combined heat and power 
systems and high efficiency base load electrical generation. They are 
also being developed for mobile power systems, specialty vehicles like 
forklifts and airport equipment, and for any vehicle that carries 
people, including transit buses and the family car.
    Fuel cells are meeting customer needs today in high-value niche 
markets, but as is so often the case with emerging technologies, their 
price limits their competitiveness in the larger marketplace. Capturing 
fuel cells' benefits for our society will require active public-private 
partnerships in all stages of development and demonstration and in 
preparing markets through financial incentives, infrastructure 
investment and removal of regulatory and economic barriers.
    This committee has shown commendable leadership in approving a 
variety of tax incentives to encourage the deployment and early 
adoption of fuel cells and related infrastructure. The value of that 
leadership to our industry cannot be overstated, and we thank you.
    Building on that beginning, a long-term extension of the Sec. 48 
fuel cell investment tax credit (ITC) is our highest priority before 
this Committee. HR 550, introduced by Congressmen McNulty and Camp with 
strong, bipartisan support, captures the spirit of this need. A long-
term extension will provide support now for early adopters in the 
private sector, and also accommodate the reality of our industry--that 
fuel cells are a family of technologies, with divergent 
commercialization pathways and time tables and an expanding product 
mix.
    The U.S. Fuel Cell Council reports that more than 30 products are 
available today, typically with guarantees, warranties and other 
commercial terms. But U.S. sales were below $200 million in 2005, based 
on voluntary reporting. A strong, stable and long-term investment tax 
credit will stimulate this nascent domestic industry by enlarging early 
markets.

    Sec.   A long-term extension will increase production volumes and 
lead to lower costs.
    Sec.   It will give customers experience with fuel cells, helping 
fuel cell developers improve their products based on that experience.
    Sec.   The credit gives developers--and their investors--confidence 
to build capacity.
    Sec.   It also helps attract suppliers and their innovations--a 
matter of fundamental importance to our industry.
    Sec.   And, of course, it creates jobs and strengthens the nation's 
technological competitiveness.
    Sec.   Finally, a long term commitment recognizes the evolution of 
the range of fuel cell technologies and products.

    This Committee has long recognized the importance of federal tax 
policy in stimulating acceptance of advanced energy technologies, given 
energy's crucial value to our economy and security. Tax support for 
solar and other technologies dates back to the 1970s. It has taken 
time, but those industries are now deploying at a remarkable pace, and 
that exciting expansion will continue with the continued support of 
this Committee. The fuel cell industry is at the threshold of a 
commercial expansion of its own, and also needs a steadfast commitment 
from government.
Experience with the Investment Tax Credit
    The fuel cell installation tax credit is less than two years old so 
Council members' experience with this incentive has been limited so 
far. The returns from 2006 will be the first to reflect use of the 
credit in the real world.
    While the nature of the credit does not allow us to link sales 
directly to the availability of the credit, customers have begun 
telling fuel cell companies that they intend to take advantage of the 
credit. I can report anecdotally that more than 100 fuel cell units 
have been or soon will be installed by one energy services company in 
transactions involving the credit.
    Federal market support for fuel cells has been modest in the past 
and when it came, it was in the form of direct support to purchasers. 
Both our industry and our markets are still adjusting to this new way 
of doing business. The certainty provided by a long term extension 
would help immeasurably. The purchase cycle can be as long as 18-24 
months for some companies. A long term extension will assure customers 
that the credit will be there when the units arrive. We have every 
expectation that the credit will prove its worth during 2007 and 
beyond.
    Creative minds also are linking the federal credit with incentives 
offered by the States. Indeed this combination of incentives--and not 
the federal credit alone--has made the crucial difference for some 
companies in closing deals. These companies estimate that closer to 
$3,000 per kilowatt is needed to fully open markets in all the States.
    Use of the credit also has been affected, frankly, by the 
difficulty in gaining a formal statement by the Internal Revenue 
Service (IRS) in response to technical questions about the credit and 
its application. Perhaps it is because we are new at this. But our 
industry sought the comfort of a formal statement from IRS about how 
the credit would work, similar to those produced by IRS in other cases.
    Our questions concerned the interplay between the ITC and other 
federal and state incentives; clarification of the subsidized energy 
financing / Industrial Development Bond (IDB) language, ``placed in 
service'' language, and application to lease arrangements; application 
of the credit to units like fork lifts and similar material handling 
equipment that are not fixed, but also are not ``passenger vehicles;'' 
and the availability of the credit in Puerto Rico. These issues will be 
interpreted by the taxpayer for 2006, and as you might imagine this is 
the cause of some unease.
    Thus a seemingly small thing, a mere matter of the lack of a few of 
paragraphs in the Federal Register, inadvertently has added uncertainty 
and confusion to a process that carries so much promise for fuel cell 
developers and users.
Recommendations
      The USFCC advocates an eight year extension of the tax 
credit. This will provide certainty and stability for purchasers, 
stimulate cost reduction and supply chain interest, and send a positive 
signal to capital markets.
      We encourage the committee to examine the adequacy of the 
current $1,000 per kilowatt cap which some companies report is 
insufficient to open markets nationwide for many fuel cell products.
      We hope the committee will also signal the most inclusive 
interpretation for the credit. This will address some remaining 
questions as to applicability in current markets and also assure that 
the credit achieves its intended purpose as the range of products and 
markets expands.
      We ask you clarify the ability to transfer or ``trade'' 
the value of the fuel cell ITC, so non-taxpaying entities may take 
advantage of the incentive, and to facilitate the formation of 
investment pools.
      We request that eligibility be explicitly provided for 
systems located in U.S. territories thus expanding the market and 
helping industry to respond to existing demand.

    The U.S. Fuel Cell Council also recognizes and applauds 
Congressional interest in supporting the emerging hydrogen energy 
infrastructure, via proposals such as H.R. 805. Incentives for hydrogen 
will help fuel cells enter important near term markets. Hydrogen 
systems that serve niche markets in the short run can be made available 
to supply passenger vehicles a few years from now.
The Energy Policy Act of 2005
    The Energy Policy Act of 2005 provides an exceptional policy 
outline for fuel cells and supporting hydrogen infrastructure. Yet more 
is needed if fuel cells are to achieve their commercial potential, and 
yield their benefit to society. The most critical policy needs today 
are long-term tax incentives for fuel cell purchases, federal purchase 
programs and appropriations for research, development and 
demonstrations that live up to the promise of EPACT 2005.
Tax Provisions Affecting Fuel Cells and Hydrogen
    The Energy Policy Act of 2005 established an Investment Tax Credit 
for business property (Section 48) and a parallel Investment Tax Credit 
for non-business property (Section 25D), which provide the purchaser of 
fuel cell property a credit equal to the lesser of $1,000 per kW or 30 
percent of the property cost.
    The Act also provided a credit for Alternative Fueling Stations 
(Section 30C), including hydrogen, limited to the lesser of $30,000 or 
30 percent.
    The Act provides Fuel Cell Vehicle Tax incentives (Section 30B), 
based on vehicle weight.
The U.S. Fuel Cell Council
    The U.S. Fuel Cell Council is the trade association of the 
industry, dedicated to commercialization of fuel cells in the United 
States. Our membership includes producers of all types of fuel cells, 
major suppliers, automakers and their suppliers, universities and other 
research institutions, fuel cell customers, hydrogen and other energy 
providers, government agencies, nonprofit organizations, and allied 
trade associations.
    Formed in 1998, the U.S. Fuel Cell Council has grown to more than 
105 members, who provide leadership on eight working groups focusing on 
all critical aspects of development, marketing and deployment and 
advocacy of fuel cell systems and related infrastructure for all 
members of the family of fuel cell technologies. The USFCC annually 
sponsors a Congressional Fuel Cell Expo on Capitol Hill, scheduled this 
year for May 15 in the Cannon Caucus Room.
State of the Industry
    While the science of fuel cells was born in Europe in the 19th 
Century, the first commercial fuel cells were made and purchased in the 
U.S., for the Gemini space program. Advanced pre-commercial fuel cell 
cogeneration systems and the first fuel cell buses were deployed in the 
early 1990s. By the turn of the current century, systems were under 
active development for an extraordinary range of applications, from 
tiny battery replacements to multi-megawatt power systems, from boats 
to locomotives, from two-wheel vehicles to transit buses.
    Several hundred U.S. companies and research institutions are 
working on fuel cells, and private investment continues to surpass 
government investment. U.S. fuel cell companies reported employing more 
than 3,200 workers, and investing nearly $500 million in research. 
These numbers are the best available, but they based on voluntary 
reporting and they significantly under estimate total investment and 
employment in the U.S. Fuel cell activity is under way in nearly every 
state
    There is an intense international competition to commercialize fuel 
cells. The European Community and individual countries of Europe--
including Iceland and Germany--and in Asia, Japan, China and Korea, all 
have ambitious development programs. Japan's fuel cell research program 
has more than tripled since 1995. Japan's aggressive research program 
for power generation includes deployment of more than 1,250 units. 
Japan has set ambitious fuel cell commercialization targets.
Meeting Customer Needs
    Fuel cells are commercially available today in some markets, such 
as stationary base load power, goods movement, telecommunications and 
backup power or specialty power systems, where their unique benefits 
bring special value. Full commercialization in all markets on an 
accelerated timetable will require collaboration between government and 
private industry, including a substantial public investment in research 
and development, demonstration and pilot programs, early commercial 
purchases, incentives for early adopters, and removal of market 
barriers. The public investment in fuel cells needs to be no larger 
than traditional levels of support for other domestic energy 
technologies, and may be more cost effective. The public benefit will 
far outweigh the cost.
    Perhaps the most encouraging evidence to date of the commercial 
potential of fuel cells is the enormous investment the private sector 
has committed to the technology since 1995. In short, there is a robust 
private effort already under way.
    As mentioned earlier, fuel cells are a family of technologies. Each 
has unique technical issues and approaches to commercialization. A 
comprehensive national strategy for fuel cells should address the 
unique requirements of the portable (micro), stationary and 
transportation markets and take advantage of the common elements that 
can be identified among the applications.
    This undertaking will require careful consideration of shared 
infrastructure requirements, the design of research, development and 
demonstration (RD&D) efforts that offer generic benefits, and 
strategies that reflect the market entry sequence for the various fuel 
cell products. It will also require investment in advanced feedstock 
and hydrogen carrier fuels and in improving technologies to make, store 
and transport these fuels. Portable (micro) fuel cell products, for 
example, are expected to lead the way in commercialization of fuel cell 
consumer products and, according to the U.S. DOE, will help catalyze 
other markets.
    Education, training and customer acceptance are an important part 
of the effort, beginning in schools and extending to vocational and 
professional education and to the public.
Summary
    The current investment tax credit has begun to do its job even in 
its infancy, and our industry is grateful to you for your leadership. 
We look forward to working with you and the Committee on these issues.

                                 

    Chairman NEAL. Thank you.
    Mr. Dinneen?

 STATEMENT OF BOB DINNEEN, PRESIDENT AND CEO, RENEWABLE FUELS 
                          ASSOCIATION

    Mr. DINNEEN. Thank you, Mr. Chairman. Thank you for 
convening this very timely and important hearing. And I would 
like to thank the Members of the Subcommittee as well who are 
in attendance today. And I am pleased that we are joined by 
Congressman Pomeroy and Congressman Weller, whose leadership on 
renewable fuels has been extremely important to helping to 
build the industry that we have today.
    Rhone mentioned that he put in a solar panel unit in his 
home. I guess it's incumbent upon me to acknowledge that I 
drove to this hearing today in an ethanol-powered car. I 
apologize, however, for not doing what Jaime did, in bringing 
some alcohol fuel to this important hearing, but maybe next 
time.
    Tax policy can, indeed, be a critically important and 
effective means of changing markets to pursue important public 
policy objectives. And the proof of that can be seen in the 
success of the Federal tax incentive program for ethanol over 
the past several years.
    Today, the ethanol industry comprises 115 plants that are 
in operation across 19 different States. We process 
approximately 2 billion bushels of grain into about 6 billion 
gallons of high quality, high octane performance fuel, and 
about 12 million metric tons of feed grain for livestock and 
poultry industries.
    Ethanol has become ubiquitous in the Nation's motor fuel 
system. We've blended in 46 percent of the Nation's fuel today. 
But we're not done yet. There are, in fact, 79 ethanol plants 
that are under construction today that will add another 6 
billion gallons of ethanol production capacity. We are among 
the fastest growing renewable energy industries in the world, 
and it is a direct result of the tax programs that have been 
put in place.
    Now, the Members of the Subcommittee, not many of them are 
from the Midwest with real ethanol production. Congressman 
Pomeroy and Congressman Weller have certainly seen firsthand 
the benefits of ethanol production. But I did a quick review, 
and I can tell you that as the ethanol industry grows and 
expands, we are growing far beyond the Midwest.
    There are, indeed, four plants that are in operation in 
Texas--or are under construction in Texas, rather. There is a 
plant under construction in Washington. There are two plants 
under construction in Oregon. There are two plants under 
construction in New York. There is a plant in operation in 
Georgia, and one under construction in Georgia, and there are 
three plants under construction in Wisconsin.
    Mr. Chairman, I apologize. I have got nothing in 
Massachusetts. However, it should come to some----
    Chairman NEAL. That will not help you.
    [Laughter.]
    Mr. DINNEEN. I do want to tell you, though, that the 
president of the industry's trade association is from 
Massachusetts, and he had the good sense to marry a beautiful 
woman from Pennsylvania, another state, unfortunately, where we 
don't have anything yet. But we will soon.
    The fact of the matter is, the industry is unrecognizable 
from what it was 5 years ago, and it will be unrecognizable 
again 5 years from now, because as new capital comes in to the 
industry, as we move beyond the traditional Midwest, new 
intellectual capital is coming in, as well.
    The industry is embracing new technologies to become more 
efficient. We are embracing new feed stocks. And the future of 
our industry is one in which grain and cellulosic feed stocks, 
which are available in every State in the country and every 
corner of the globe, is going to be part of the future. We are 
excited about that future.
    The ethanol industry today, however, is, indeed, 
contributing significantly to the Nation's energy, economic, 
and environmental security. A report that we had done for the 
association earlier this year looking at the 5 billion gallons 
of ethanol that was produced last year showed that ethanol 
added $41 billion to gross output in our Nation's economy. We 
are responsible for 160,000 jobs across the economy. We added 
$2.7 billion to Federal tax revenue, and we reduced oil imports 
by 170 million barrels, which are valued at more than $11 
billion.
    From an environmental perspective, the 5 billion gallons of 
ethanol that were produced last year reduced greenhouse gas 
emissions by some 8 million tons. Mr. Chairman, that's the 
equivalent of taking 1.2 million vehicles completely off the 
road.
    Maintaining this important industry is critical. We are 
still just a small part of the 140 billion gallon gasoline 
market in this country. We are making great strides today. But 
being able to continue that, we're going to have to continue 
the policies that have made that happen.
    So, much as everybody else in the renewable community, it 
is imperative that we continue the ethanol tax incentive 
program. Congressman Pomeroy and Congressman Hulshof have 
introduced legislation, H.R. 196, that would extend the ethanol 
tax incentives, and make this industry--allow us to move 
forward with a great deal more certainty.
    The program has been extraordinarily successful, both in 
terms of building the industry and in terms of its cost 
effectiveness. While the tax incentive costs the taxpayer $2.5 
billion last year, we provided $2.7 billion in increased tax 
revenue. And more importantly, the increased demand for grain 
caused by ethanol production reduced Federal farm program costs 
by more than $6 billion, returning $4 to the treasury for every 
$1 invested in this important domestic industry.
    Mr. Chairman, this is an important hearing. We look forward 
to working with you as we move forward.
    [The prepared statement of Mr. Bob Dinneen follows:]
   Statement of Bob Dinneen, President and Chief Executive Officer, 
                      Renewable Fuels Association
    Good afternoon Chairman Neal, Ranking Member English, and Members 
of the Subcommittee. My name is Bob Dinneen and I am president and CEO 
of the Renewable Fuels Association, the national trade association 
representing the U.S. ethanol industry.
    This is an important and timely hearing, and I am pleased to be 
here to discuss U.S. energy tax policy. Tax incentives have played a 
critical role in supporting the development of our domestic biofuels 
markets, making U.S. ethanol and biodiesel the fastest growing 
renewable energy resources in the world today.
    In 2006, the U.S. produced a record 4.9 billion gallons of ethanol, 
displacing the equivalent of 206 million barrels of crude oil valued at 
$13.6 billion. Since an increasing share of our oil is imported, this 
displacement means that these dollars were spent and invested in the 
U.S. and not sent abroad to foreign suppliers. Ethanol today is the 
single most important value-added market for farmers, and is 
revitalizing rural communities across the country. Finally, as ethanol 
is produced from agricultural feedstocks taking carbon out of the 
atmosphere, it is the only real strategy to address climate change in 
place today, actually lowering greenhouse gas emissions by 8 million 
tons in 2006.
    The single most important federal policy driving these impressive 
results is the tax incentives available to refiners that choose to 
blend biofuels into gasoline and diesel fuel today.\1\
---------------------------------------------------------------------------
    \1\ The Volumetric Ethanol Excise Tax Credit (VEETC) provides 
gasoline blenders/refiners with a federal tax refund of 51 cents per 
gallon of ethanol on each gallon of ethanol blended with gasoline, 
providing an important incentive to blend ethanol with their gasoline. 
The volumetric excise tax credit for agri-biodiesel is $1.00 per 
gallon, and the volumetric excise tax credit for biodiesel is 50 cents.
---------------------------------------------------------------------------
Background
    Today's ethanol industry consists of 115 biorefineries located in 
19 different states with the capacity to process almost 2 billion 
bushels of grain into 5.7 billion gallons of high octane, clean burning 
motor fuel, and more than 12 million metric tons of livestock and 
poultry feed. It is a dynamic and growing industry that is revitalizing 
rural America, reducing emissions in our nation's cities, and lowering 
our dependence on imported petroleum.
    Ethanol has become an essential component of the U.S. motor fuel 
market. Today, ethanol is blended in more than 46% of the nation's 
fuel, and is sold virtually from coast to coast and border to border.
    The ethanol industry provides a significant contribution to the 
American economy. According to an analysis completed for the RFA\2\, 
the approximately 4.9 billion gallons of ethanol produced in 2006 
resulted in the following impacts:
---------------------------------------------------------------------------
    \2\ Contribution of the Ethanol Industry to the Economy of the 
United States, Dr. John Urbanchuk, Director, LECG, LLC, December, 2006.

      Added $41.1 billion to gross output;
      Created 160,231 jobs in all sectors of the economy;
      Increased economic activity and new jobs from ethanol 
increased household income by $6.7 billion, money that flows directly 
into consumers' pockets;
      Contributed 2.7 billion of tax revenue for the Federal 
government and 2.3 billion for State and Local governments; and,
      Reduced oil imports by 170 million barrels of oil, valued 
at $11.2 billion.

    In addition to providing a growing and reliable domestic market for 
American farmers, the ethanol industry also provides the opportunity 
for farmers to enjoy some of the value added to their commodity by 
further processing. Farmer-owned ethanol plants account for 43 percent 
of the U.S. fuel ethanol plants and almost 34 percent of industry 
capacity. There are currently 79 biorefineries under construction. With 
seven existing biorefineries expanding, the industry expects more than 
6 billion gallons of new production capacity to be in operation by the 
end of 2009.
Tax Incentives
    The most significant tax incentive encouraging the expanded use of 
ethanol is the VEETC.\3\ The VEETC gives gasoline marketers and 
blenders an important incentive to blend ethanol with their gasoline. 
Historically, ethanol has not been competitive with gasoline as a fuel. 
As shown in Figure 1, spot market ethanol prices have been almost twice 
that of spot regular gasoline prices over the past twenty years.
---------------------------------------------------------------------------
    \3\ The first federal tax incentive for ethanol was the partial 
exemption for ethanol from federal excise taxes on motor fuel enacted 
as part of the Energy Tax Act of 1978. The partial exemption was set at 
4 cents per gallon for motor fuels that contained at least 10 percent 
ethanol (or 40 cents per gallon for every gallon of ethanol). The tax 
exemption was increased to 6 cents per gallon in 1984. The Omnibus 
Budget Reconciliation Act of 1990 reduced the rate of exemption to 5.4 
cents per gallon. This level was maintained until it was reduced by the 
1998 Transportation Equity Act for the 21st Century. This legislation 
reduced the exemption to 5.3 cents per gallon for 2001 and 2002, 5.2 
cents per gallon for 2003 and 2004, and 5.1 cents per gallon through 
December 31, 2010. The American Jobs Creation Act of 2004 replaced the 
partial excise tax exemption for ethanol with the VEETC. Under current 
law blenders and marketers are required to pay the full federal excise 
tax on motor fuel but can claim a tax credit or refund of 51 cents per 
gallon of ethanol blended with gasoline. All excise taxes are deposited 
into the Highway Trust Fund and the VEETC is paid out of the General 
Fund.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                                               LECG, January, 2007

    The VEETC protects ethanol producers from declines in oil and 
gasoline prices over which they have no control. Since ethanol is sold 
as an additive to motor gasoline, its price is determined more by oil 
and gasoline than by ethanol supply. An analysis of ethanol prices over 
the 1990 to 2005 period indicates that the spot market price of ethanol 
increases 4.6 percent for every 10 percent increase in spot market 
gasoline prices, but declines only 1.8 percent for every 10 percent 
increase in ethanol production. Consequently ethanol producers are 
price takers with their revenue determined largely by developments in 
the oil and gasoline markets.
    Economic theory suggests that a new national industry should be 
able to gain a significant market share within the domestic market 
before tax incentives are phased out or abolished. Thus, RFA supports 
legislation such as the Pomeroy-Hulshof ``Renewable Fuels and Energy 
Independence Promotion Act'' (H.R. 196) to make permanent the biodiesel 
and ethanol tax incentive and the small agri-biodiesel producer and 
small ethanol producer credits, creating a permanent foundation for 
these industries. Consistency in Federal policies will send the 
necessary and appropriate signals to the marketplace. Maintaining and 
extending the existing tax incentives for ethanol and biodiesel are 
essential for continued growth of the industry.
    Because the VEETC does not discriminate as to the nation or origin 
of the ethanol blenders' use, it allows foreign ethanol producers the 
benefit of the incentive. In order to offset the incentive foreign 
producers are eligible for, Congress implemented a credit offset, in 
the form of a secondary tariff, to prevent American tax payers from 
subsidizing foreign ethanol industries. The balancing act between the 
VEETC and the secondary tariff has proved effective and must be 
continued to ensure America is not subsidizing foreign ethanol 
production.
    Finally, it should be noted the federal ethanol tax incentive 
program has been extremely cost effective. The $2.7 billion in 
increased federal tax revenue attributable to the ethanol industry is 
in itself 160 million more than the estimated cost of the Volumetric 
Ethanol Excise Tax Credit (VEETC), assuming the 4.9 billion gallons of 
ethanol produced were blended. At a January 10, 2007 Senate 
Agriculture, Nutrition and Forestry Committee hearing, however, U.S. 
Department of Agriculture's Chief Economist, Keith Collins, noted that 
high crop prices, due in part to the strong domestic market for 
ethanol, led to a 6 billion savings for the Federal government from 
reduced farm program payments in 2006. Thus, with increased tax revenue 
and reduced farm program costs, the taxpayer realized a $4 return for 
every $1 invested in domestic renewable energy last year.
New Technologies
    The ethanol industry today is on the cutting edge of technology, 
pursuing new processes, new energy sources and new feedstocks that will 
make tomorrow's ethanol industry unrecognizable from today's. Ethanol 
companies are already utilizing cold starch fermentation, corn 
fractionation, and corn oil extraction. Companies are pursuing more 
sustainable energy sources, including biomass gasification and methane 
digesters. There is not an ethanol company represented by the RFA that 
does not have a cellulose-to-ethanol research program. These cutting 
edge technologies are reducing energy consumption and production costs, 
increasing biorefinery efficiency, improving the protein content of 
feed co-products, utilizing new feedstocks such as cellulose, and 
reducing emissions by employing best available control technologies.
    The technology exists to process ethanol from cellulose feedstocks; 
however, the commercialization of cellulose ethanol remains a question 
of economics. The capital investment necessary to build cellulose 
facilities remain about five times that of grain-based facilities. 
Those costs will, of course, come down once the first handful of 
cellulose facilities are built, the bugs in those ``first mover'' 
facilities are worked out, and the technology continues to advance. The 
enzymes involved in the cellulose ethanol process remain a significant 
cost, as well. While there has been a tremendous amount of progress 
over the past few years to bring the cost of those enzymes down, it is 
still a significant cost relative to processing grain-based ethanol. To 
continue this technological revolution, however, continued government 
support will be critically important.
    The VEETC reduces the risk associated with investment in new 
technology, such as cellulosic biofuels. Typically, the financial 
community will invest in higher risk, non-traditional activities only 
with the assurance that their revenues will not be threatened by 
foreign or domestic competition. Continued existence of the VEETC is an 
effective risk reducing instrument for investors and the financial 
community who are key to further expansion of the U.S, ethanol 
industry, particularly the use of cellulosic feedstocks for ethanol 
production.
Climate Change
    The RFA sees climate change as an opportunity to pursue policies 
that make sense on a variety of fronts, from protecting the environment 
to promoting U.S. energy security and economic development. The RFA 
promotes policies, regulations and research and development initiatives 
that will lead to the increased production and use of renewable fuels 
such as ethanol and biodiesel. The RFA is taking the climate change 
issue very seriously. Our members are producing a product that reduces 
climate change emissions from cars and trucks. The RFA itself has 
pledged to become carbon neutral. To follow through on this commitment, 
the RFA has joined the Chicago Climate Exchange, the world's first and 
North America's only voluntary, legally binding integrated greenhouse 
gas reduction and trading system for all six greenhouse gas emission 
sources, with offset projects in North America and worldwide. Once 
completed, the RFA will be offsetting 100 percent of its carbon 
emissions.
    The RFA generally supports Federal efforts to address climate 
change, in part because one set of uniform, national standards can be 
more effective than several, overlapping state and regional approaches. 
While we cannot speak to the climate change impacts of all new 
technologies and fuels, we can address the greenhouse gas (GHG) 
emissions benefits of renewable fuels such as ethanol. The Pew Center 
for Global Climate Change recently concluded that renewable fuels offer 
the greatest immediate term opportunity to reduce GHG emissions from 
the transportation sector. This is true because renewable fuels are 
readily available and can be used without significant infrastructural 
or technological advancement. As you may be aware, the United States 
already uses more than 5.5 billion gallons of ethanol annually. In 
2006, ethanol use in the U.S. reduced CO2-equivalent 
emissions by approximately 8 million tons, according to the Department 
of Energy. This is the equivalent of removing 1.2 million cars from the 
road from a climate change perspective.
    The U.S. Environmental Protection Agency (EPA) released a 
Regulatory Impact Analysis (RIA) with the Final Rule implementing the 
RFS on April 10, 2007. Chapter 6 of EPA's RIA, Lifecycle Impacts on 
Fossil Energy and Greenhouse Gases (GHG), included a displacement index 
showing the impact of replacing a BTU of gasoline or diesel with a BTU 
of renewable fuel. For every BTU of gasoline which is replaced by corn 
ethanol, the total lifecycle GHG emissions that would have been 
produced from that BTU of gasoline would be reduced by 21.8 percent. 
For every BTU of gasoline which is replaced by cellulosic ethanol, the 
total lifecycle GHG emissions that would have been produced from that 
BTU of gasoline would be reduced 90.9 percent.
    The U.S. ethanol industry is in the midst of a remarkable 
evolution, utilizing new more energy efficient technologies with every 
new plant that opens and with upgrades made at existing biorefineries 
as the industry retools. Examples of new energy saving technologies 
include fluidized bed reactors that utilize the syrup from a 
biorefinery's evaporators to generate steam, and biomass gasification 
that allows ethanol plants to utilize locally grown biomass to power 
the plant. Still other ethanol plants are locating alongside feedlots, 
allowing them to feed the distillers grains (a high protein co-product 
of the ethanol production process) without having to dry the material 
first, while at the same time using the manure from the feed lot to 
power the plants. These technologies are not only making ethanol 
biorefineries more competitive, they are greatly reducing the carbon 
footprint of the industry.
    The electric, natural gas and transportation sectors comprise a 
large majority of U.S. climate change emissions. Any climate program 
adopted by the Federal Government should encompass all three of these 
sectors (i.e. not leaving out the transportation sector). Efficiency is 
the most oft-stated approach to reducing GHG emissions in the 
transportation sector. It is equally important, however, to diversify 
the fuels market. One of the critical components to any strategy to 
diversify petroleum fuels is increased reliance on Flex-Fuel Vehicles 
(FFVs). Because FFVs run on virtually any combination of ethanol and 
gasoline, they help facilitate an unrestricted, truly competitive 
transportation fuels market. Like ethanol, FFVs are available now. 
Automakers including GM, Ford, VW, Toyota and Honda already provide 
FFVs to the Brazilian automobile market at very little cost. 
Reportedly, 81 percent of vehicles sold in Brazil in November 2006 were 
FFVs. FFVs are becoming increasingly popular in the U.S. However, more 
could be done to promote their manufacture and use. The RFA believes 
that all vehicles, whether gasoline powered, hybrid or advanced 
technology, should be flex-fuel. Enhancing incentives to gasoline 
marketers to install E-85 refueling pumps will continue to be 
essential. Federal policies should extend and expand tax incentives for 
E-85 refueling infrastructure, and create new consumer-based tax 
incentives to encourage the purchase of FFVs.
Conclusion
    Mr. Chairman, a recent Public Opinion Strategies poll found that 
78% of American support increasing the use of domestic renewable fuels 
such as ethanol. That reflects the growing consensus that we need to do 
everything possible to reduce our dangerous dependence on imported 
petroleum because of the attendant environmental and national security 
consequences of its continued use. Existing U.S. tax policies have made 
a difference, and can continue to drive investment in domestic 
renewable fuels such as ethanol and biodiesel. The VEETC, in 
particular, has played an integral role in supporting investment and 
development in ethanol production facilities and the significant growth 
of the industry. The continued existence of U.S. renewable energy tax 
policy will be critical to the rapid deployment and commercialization 
of new technologies for biofuels. The RFA looks forward to working with 
the Committee during the 110th Congress to ensure the U.S. ethanol 
industry continues to grow.
    Thank you.

                                 

    Chairman NEAL. Thank you very much.
    Dr. French?

  STATEMENT OF NINA BERGAN FRENCH, PH.D, DIRECTOR, CLEAN COAL 
     COMBUSTION PRODUCTS, ADA-ES, INC., LITTLETON, COLORADO

    Ms. FRENCH. Chairman Neal, Members of the Subcommittee, it 
is my privilege to be here today to present testimony on the 
importance of coal as a vital source of energy for the United 
States, and how Federal support in the form of R&D funding and 
tax incentives can be a catalyst to stimulate new clean coal 
technologies.
    My name is Dr. Nina French. I am Director of Clean Coal 
Technologies for ADA Environmental Solutions. ADA is an 
environmental control technology company, and we provide 
environmental emissions control technologies and services to 
the coal-fired power industry. We are the market leader in 
commercial mercury, control technology, and this year we 
started working on carbon capture technologies.
    We are technology developers. We have 30 years of 
experience helping coal-fired power plants reduce emissions. We 
believe that keeping electricity flowing reliably and cheaply 
is a critical foundation to our economy. And without--with a 
strong economy--without a strong economy, the nation will not 
be able to maintain its strong environmental agenda.
    I have three points I would like to make today. The first 
is that coal is critical to our future. It's an existing, 
reliable source of energy. It is baseload energy. It is 
inexpensive. We don't have to import it, and it is abundant. We 
have a 250-year-plus supply.
    Coal needs to be part of a mixture for our energy source, a 
mixture that includes renewables, other fossil fuels, and 
nuclear. I think of coal as having two parts. One is our very 
vast and large existing infrastructure, and the other is coal 
in the future. The key question for the future becomes can we 
reduce greenhouse gas emissions to continue to rely on this 
important national resource? And my answer is this.
    For 40 years, this industry has accomplished significant 
reductions in NOx, SO2, and particulates. 
This is from the existing fleet. These are from boilers that 
were actually never designed to burn clean. We have made 
tremendous strides. We have retrofitted and adapted 
technologies to meet this new world clean emissions.
    Then what is necessary to take the next step for clean 
coal? And I have two case studies I would like to briefly 
mention. The first is mercury control. We were faced with a 
hurdle in mercury. Private industry could not bear the full 
risk of early development. We had no regulations to drive 
technology development, and we had no technologies to provide 
the basis for regulations.
    We were able to overcome these hurdles with early Federal 
support, resulting in successful development of commercial 
technology to provide 90 percent mercury reduction. The return 
on investment to the American citizen was tremendous.
    As recently as 2005, studies were saying that mercury 
control would cost 350 billion. We have now shown that we can 
take 90 percent of the mercury out of coal-fired power plants 
for less than $2 billion a year.
    The second case study is refined coal. This section 45 tax 
credit has incentivized my company to develop a pre-treatment 
technology for coal that allows older boilers that don't have 
space for installation of new equipment to meet new mercury 
regulations and to reduce NOx. This tax credit works 
because it's goal-oriented, not selecting a winning technology.
    The goal is to reduce emissions. It also includes a 50 
percent market value test that is workable with legislative 
clarification. This tax incentive has promoted new emission 
control options that would not have been considered, otherwise.
    And that brings us back to the challenge of clean coal, of 
reducing greenhouse gases, specifically CO2, from 
coal-fired power plants. We have two approaches. The first and 
the most important is increasing efficiency. We need to make 
less carbon for each megawatt of electricity we produce. And 
for the new fleet, and some of the existing fleet of coal-fired 
power plants, we have technologies available today. The problem 
is, there is no incentive to use--to build a higher-efficiency 
plant. There is no incentive to spend the money.
    The second part of greenhouse gas reduction is carbon 
capture and storage. There are a number of promising concepts 
on the table, but they are all in their infancy, and they will 
require massive research and development support to get them 
going.
    What we know is the scale of carbon capture is enormous. 
History tells us that technology development implementation is 
going to be long, probably 10 to 20 years. But success is 
likely. To take coal into a carbon-constrained world, we need 
to carefully balance the timing between our carrots, which are 
tax incentives and technology development funding, and our 
sticks, which are regulations.
    We need to incentivize goals, not pick winning 
technologies. For example, we need to incentivize carbon 
reduction, not a specific technology. And we need to encourage 
technology development through incentives and risk reduction 
programs, such as R&D support and tax credits, loan guarantees, 
and others.
    We believe that, based on past accomplishments in our 
industry, given sufficient resources and incentives, we can 
make clean coal a reality. Thank you for your attention.
    [The prepared statement of Ms. Nina French follows:]
Statement of Nina Bergan French, Ph.D, Director, Clean Coal Combustion 
              Products, ADA-ES, Inc., Littleton, Colorado
    Chairman Neal, Mr. English, and Members of the Subcommittee: It is 
a privilege to present testimony on the importance of keeping coal as a 
vital part of the Nation's energy mix and how Federal support in the 
form of R&D funding and tax incentives can be a catalyst to stimulate 
the development of innovative and cost-effective technology to address 
the control of emissions from coal-fired power plants. ADA provides the 
perspective of a technology development company who evaluates such 
measures as part of its business decisions on which market 
opportunities to pursue.
    For the past 30 years, the scientists and engineers at ADA 
Environmental Solutions have built an international reputation for 
developing and commercializing highly efficient emissions measurement 
and control technologies for the power industry. In 2000, we began to 
focus our efforts on research, development, and demonstration of 
technology for reducing mercury emissions. Today, we are the market 
leader in providing commercial equipment to capture up to 90% of 
mercury generated by the combustion of coal. These experiences 
demonstrate the importance of the right Federal involvement.
My Testimony Today
    Today I would like to give you my perspective of clean coal. I will 
discuss the following points:

    (1)  Coal is critical to our future because it is reliable (base 
load capacity), inexpensive, abundant, and local.
    (2)  We have demonstrated the ability to meet environmental 
challenges with NOx, SO2, particulates and 
mercury.
    (3)  Federal incentives (e.g., tax credits) have been effective in 
advancing technology to ensure options exist and costs are reduced.
    (4)  Success for new technologies depends on a careful balance 
between:

          Incentives for technology development,
          Time for risk mitigation, and
          Regulation or tax-based market drivers (``sticks'' 
and ``carrots'').

    (5)  CO2 control seems to be the next concern. Critical 
points are:

          The scale is massive.
          Timeframe is probably long--10 to 20 years.
          Investment is critical.
          History tells us success is likely.
          Investment and incentives need to be designed to 
ensure that:
            multiple paths are followed,
            and costs and risks are reduced.
Coal Is Critical To Our Future
    Let me start by discussing why we, as an environmental technology 
company, believe that the continued use of coal is critical to 
sustainable, reliable power generation in the U.S.
    America leads the way in environmentally-beneficial technologies. 
As regulations tighten, we continue to improve technology that improves 
the air we breathe and the water we drink. We reap these benefits 
because our strong economy allows us to allocate significant resources 
to these efforts. We need power generation that is inexpensive, 
reliable, and environmentally safe. Our future depends on it. We 
believe that coal provides domestic energy security, low-cost energy, 
and reliability. The country today is asking, ``Can we make coal clean 
enough, and if so, how do we do it?'' Today, more than 1,100 coal-fired 
boilers produce more than 50% of our nation's electricity. Statistics 
show that states that choose coal for generation are rewarded by low-
cost electricity. Figure 1 shows that there is a strong correlation 
between the use of coal and the ability to provide inexpensive 
electricity.
    Economic development requires enormous investments in all aspects 
of energy infrastructure and significant increases in power generation. 
The U.S. is expected to need 50% more electrical capacity by 2030. Any 
expansion of power supplies must recognize that no single energy source 
can meet our growing energy needs. This requires a portfolio of 
solutions, including efficiency gains, more renewables, new nuclear 
power capacity and new coal-based generation.
    As renewables such as solar and wind power become a greater portion 
of our energy mix, it becomes even more important to maintain a source 
of reliable power that can operate continuously, day and night, and in 
all weather conditions. The reliability of coal-fired power plants has 
improved significantly over the years. Our plants have increased 
operational capacity from 59% in 1990 to between 80% and 85% in 2006. 
It's simple; we care more now. Electricity is a much more valuable 
commodity than it has ever been. This is the motivation that drives us 
to optimize our current investment. We really have no other choice as 
it would take decades to replace our current infrastructure.


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Figure 1. Cost of Electricity in a State as a Function of the 
        Percentage of Electricity Produced from Coal.
    Coal can also play an important role in national security by 
reducing our dependence on foreign energy sources. The United States 
has the largest coal reserve in the world, and America has more coal 
than any nation has of any single energy resource. At current 
consumption rates, these coal reserves could supply 250 years of fuel. 
This is far greater than our reserves of natural gas and oil combined.
    For these reasons, coal remains an essential part of the U.S. 
generation mix as a secure, plentiful, and relatively inexpensive fuel 
source. However, we as a nation must determine how to continuously 
improve emissions. Our goal needs to be Clean Coal.
Clean Coal Background
    The emissions control industry has made huge advancements in 
technology to improve emissions from coal-fired power plants. 
Collaboration among research organizations, universities, and power 
generation partners has enabled emissions of criteria pollutants sulfur 
dioxide (SO2), nitrogen oxides (NOx), and 
particulates from the existing fleet of coal fueled power plants to be 
lower today than they were in 1970, even as power produced from coal 
plants has increased by 173% (See Figure 2).
    Reductions in NOx, SO2, and particulate 
emissions were driven by a balance between technology development 
incentives and emissions regulations. Each made the other better. As an 
example, in the early 1970's flue gas desulfurization equipment, 
commonly referred to as ``scrubbers,'' were new and suffered from poor 
reliability and performance. Over time, as experience was gained and 
equipment modified, efficiencies rose from about 70% SO2 
removal to today's 95 to 98%, with similar improvements in reliability. 
The emissions of criteria pollutions shown in Figure 2 will continue to 
decrease each year as emission control equipment is installed on more 
plants as a result of new regulations such as the Clean Air Interstate 
Rule.


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Figure 2. NOx, SO2, and particulate emissions 
        from coal-fired power plants continue to decrease even though 
        we are.
Challenges in Developing New Emission Control Technology for the Power 
        Industry
    To understand how to make coal cleaner, it is helpful to appreciate 
how emissions control technology has developed for this industry. Since 
the first Clean Air Act of 1970, the power industry has gone through 
several rounds of implementing emissions control technology for 
NOx, SO2, and particulates. In each case, there 
were very similar experiences as the new technology was applied in an 
industry where reliability and compliance are mandatory. We learned the 
following important lessons::

      Be prepared for unexpected reactions between flue gas 
constituents and chemical reagents used to control the pollutants;
      Do not underestimate the differences in coal and plant 
operating conditions to cause wide variations in emissions;
      Try to plan for significant O&M problems that might not 
show up until after long-term operation; and
      Look for secondary effects on other components of the 
power plants.

    In each case, new-technology challenges had a significant impact on 
the reliability of power generation. The plants were forced to operate 
at reduced loads and suffered many unplanned shutdowns for maintenance 
and repair. Over time, technologies were improved to an acceptable 
level of cost and reliability. This is the true measure of acceptance. 
The impact depends on how widespread the technology was applied during 
the early adopter phase. For example, Hot-Side Electrostatic 
Precipitators (for particulate control) have cost the industry over a 
billion dollars. After initial successes, the technology was quickly 
applied to 150 power plants only to have a fatal flaw subsequently 
discovered.
    One of the challenges with implementing new emissions control 
technology is that everything is so big. The scale is massive. For 
example, emissions control equipment for a 500 MW plant treats two 
million cubic feet of flue gas every minute. Scrubbers may be as large 
as the power plant to which they are attached. Remember that we need to 
add new emissions control technology without taking the plant off-line. 
We have learned that the best way to bring new technologies to an 
existing coal-fired power plant is to proceed through a carefully 
chartered course:

    1.  Laboratory testing: provides a cost effective means to 
determine general feasibility and test a variety of parameters.
    2.  Pilot-scale: test under actual flue gas conditions but at a 
reduced scale.
    3.  Full-scale field tests: scale up the size of the equipment and 
perform tests under optimum operating conditions to define capabilities 
and limits of the technology.
    4.  Full-scale field tests at multiple sites: each new site 
represents new operating conditions and new challenges.
    5.  Long-term demonstrations at several sites: Some problems will 
not show up until the first year or so of operation.
    6.  Widespread implementation: Problems will still be found at new 
sites, but most of the fatal flaws will have already been discovered 
and resolved.

    We know from experience that trying to accelerate technology 
development by skipping these steps can result in large-scale operating 
problems and untimely and expensive plant outages. We also know that it 
takes ten to twenty years to successfully implement a major technology 
in this industry and implementation presents significant risks to the 
developer and user at each stage. In addition to the technology risk, 
there is significant financial risk to the developer. This is 
especially true when there is no regulation to guarantee a market will 
exist for a technology to control an emission that has not been 
previously regulated. There is often a ``chicken and egg'' dilemma in 
which there is no regulation to incentivize the development of a new 
technology and therefore there is no technology on which to base a 
regulation. Such was the case in the recent past, when the power 
industry was faced with reducing mercury emissions for the first time.
ADA-ES Experience in Developing and Implementing Mercury Control 
        Technology
    It is instructive to present a case-study on how Federal 
initiatives effectively provided incentives and risk mitigation that 
allowed industry to successfully develop cost-effective mercury control 
technologies for coal-fired power plants.
    Methylmercury, which builds up in certain fish, is a neurotoxin 
that leads to developmental problems in fetuses of pregnant women. 
Mercury contained in coal represented the largest man-made source of 
mercury. In December 2000, the EPA announced that it was beginning to 
consider regulating mercury emissions from the nation's coal-fired 
power plants.
    In anticipation of future regulations, the Federal government and 
industry funded research to characterize the emission and control of 
mercury compounds from the combustion of coal. Some estimates showed 
that 90% mercury reduction for utilities would be expensive for the 
industry because of the large volumes of gas to be treated, the 
relatively low mercury concentrations, and the difficulty of capturing 
certain species of mercury in its vapor phase.
    With potential regulations rapidly approaching, it was important to 
concentrate efforts on the most mature retrofit control technologies. 
Injection of dry sorbents such as powdered activated carbon (PAC) into 
the flue gas and further collection of the sorbent by ESPs and fabric 
filters represented potentially the most cost-effective control 
technology for power plants.
    The DOE realized the criticality of demonstrating and optimizing 
scale-up of sorbent injection technology to provide performance data 
for regulations. The DOE National Energy Technology Laboratory cost-
shared these demonstrations, with additional funding from several power 
companies, the Electric Power Research Institute, and private ADA-ES 
funding.
    The DOE-supported field tests resulted in great advances in 
technologies to capture mercury emissions and decreased costs. A 2005 
report by the DOE Energy Information Administration concluded that 
because technology for 90% mercury control from Western (Powder River 
Basin) coals was not available, an overall 90% mercury control rule 
could cost $358 billion. However, use of these new technologies later 
demonstrated that the 90% reduction for PRB coal could be achieved for 
less than $1 billion per year. This saving represents a huge return on 
the investment made by the Federal government in supporting early 
development and demonstration of mercury control technology.
    This success has allowed a dozen States to take mercury control 
into their own hands and implement stringent regulations on power 
plants in their respective states. This action has created the first 
real commercial market for the new mercury control technology.
Refined Coal Tax Credit (Section 45)
    Tax incentives also play a vital role in achieving even further 
emission reductions. The 2004 American Jobs Creation Act included a 
production tax credit designed to incentivize clean coal at the front 
end--changing the way the coal burns--for older plants with limited 
resources or space to add back-end emission control. The tax credit was 
written with clear emissions reduction goals: 20% NOx 
reduction and either 20% mercury or SO2 reduction. An 
additional market value test, requiring that the product result in a 
50% increase in market value over the feedstock coal still needs 
clarification (a baseline and enforcement guidelines), but the credit 
is significant in that it represents a strong goal-oriented, rather 
than specific technology-driven, tax incentive.
    ADA responded to the incentive of the tax credit and assembled a 
team to apply our mercury control expertise to invest in technology 
development for a refined coal product that will allow older cyclone 
boilers to reduce mercury emissions by 90%--enough to meet stringent 
State regulations, simply by burning refined coal. Clarification on the 
market value test will allow us to move to full-scale demonstrations to 
optimize and deploy our refined coal technology, and realize the goals 
Congress intended by the legislation.
Clean Coal: Carbon Challenges
    Carbon, in the form of carbon dioxide (CO2), is a 
greenhouse gas that is believed to contribute to climate change. Our 
goal is to reduce CO2 from both new and existing coal-fired 
power plants. This presents a number of challenges for technology 
development. It is not our purpose detail the technologies being 
advanced to address these issues. There will be a comprehensive report 
issued by the National Coal Council this summer that will provide in-
depth background on the various approaches. At this point, I would like 
to briefly mention three key areas for technology development.
    1)First, increased efficiency. The most effective way to quickly 
decrease carbon emissions is to increase efficiency of power production 
on new and existing boilers. Today we have more than 1,100 coal-fired 
boilers in the U.S. with an average age of 45 years. When many of these 
plants were built during the 1950's and 1960's, we did not care much 
about efficiency because coal was readily available, and cheap.
    Figure 3 shows that we produce 25% less CO2 as boiler 
efficiency increases from 35% to 50%. That is 25% less carbon that we 
have to separate and sequester. In May 2001, the National Coal Council 
produced a report which identified technologies that could increase the 
amount of electricity from the existing fleet of coal plants by 40,000 
MW in a three-year period. Those recommendations remain viable today. 
To increase the amount of electricity generated by the existing fleet 
by 40,000 MW without the need to build a single new plant of any fuel 
type represents a tremendous greenhouse gas mitigation opportunity for 
this country.
    However, although increased efficiencies result in lower 
CO2/MW-hr, they also require higher /MW-hr. Currently there 
is no incentive to absorb the increased costs for reduced carbon 
dioxide emissions.
    2)Carbon separation. Nitrogen comprises 78% of the flue gas from a 
coal-fired power plant. We have to separate the carbon from the 
nitrogen. Known technologies to do so include oxygen-fired combustion 
and amine (MEA) scrubbing for pulverized coal (PC) boilers, or chemical 
separation for integrated gasification combined cycle (IGCC) systems. 
The challenges now relate to scale and cost.
    3)Carbon storage and sequestration. Once the carbon is separated, 
we must store, or sequester, it. Known technologies to do so include 
injection for enhanced oil recovery (representing only a small percent 
of CO2), deep well injection, and deep ocean injection. The 
biggest challenges are the unknown long-term effects, which will 
determine long-term ownership and legal liabilities. Transportation of 
CO2 from plants to storage sites will require very large and 
expensive infrastructure.


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Figure 3. CO2 emissions as a function of Net Plant 
        Efficiency.
The Size of the CO2 Problem
    Carbon dioxide emissions from coal-fired power plants are bigger 
than anything we have ever tackled. The average 500MW plant produces 
900,000 lbs of CO2 per hour, and for a typical PC boiler, 
this CO2 is highly diluted in the flue gas. Compare this 
amount of CO2 to about 0.01 lbs of mercury per hour for the 
same plant. The scale for carbon capture and storage technology is 
daunting and the costs will be high.
    Technology maturation for carbon capture and storage will take 
time. The technologies are in their infancy. However, based on advances 
to date, they will become available and less costly, within the next 20 
years or sooner. Carbon capture and storage technologies can be 
expedited, but they cannot be willed into existence overnight by 
changes in policy. CO2 emissions from the U.S. are only a 
fraction of the world's carbon emissions. Technology developed in the 
U.S., can be transferred to countries like China and India that will 
allow the U.S. to leverage its investment in technology development.
New Coal-fired Generation
    Utilities are designing new coal-fired power plants to incorporate 
carbon separation and capture technologies as they become available. 
New coal plants will include both supercritical and ultra-supercritical 
PC boilers, as well as IGCC systems. They will incorporate the same 
carbon separation and storage technologies described above.
The Role of Carrots and Sticks in Encouraging Investment in Technology:
Not choosing a Winning Technology
    Coal-fired electricity is cleaner today as a result of a balance 
between ``Carrots'' (e.g., government-funded technology development or 
tax incentives) and ``Sticks'' (e.g., government regulation or 
restrictions). You cannot impose the Stick until technologies are 
ready, or nearly ready, and you need the Carrots to ready the 
technologies.
    In promulgating carrots and sticks, it is also important that the 
government defines a goal (e.g., reduced carbon emissions), but does 
not choose winning technologies. This notion is supported by most 
recent collaborative studies on reduced carbon emissions. For example, 
the recent MIT Interdisciplinary study, ``The Future of Coal,'' 
suggests that the government must not select specific technologies, but 
rather should incentivize technology development towards a common goal.
    Timing is Critical: If we impose clean coal restrictions (e.g., in 
the form of carbon taxes or emission limits) before separation and 
storage technologies are available, electricity costs will spiral, 
unraveling our economy and our ability to afford new technologies. 
However, history has demonstrated that if we first incentivize 
technology development, provide for risk reduction, and carefully time 
restrictions, the market will develop and provide winning technologies.
Summary
    Clean Coal is an important and viable part of our energy future. To 
move coal into a carbon-constrained world, we need to:

      Preserve base load electricity-generating capacity with 
reliable, inexpensive sources.
      Balance base-load capacity with renewable 
sources.Carefully balance timing between the carrots (tax credit and 
technology development funding) and the stick (e.g., regulations).
      Incentivize the achievement of goals, not specific 
technologies (i.e., we should reward any carbon reduction, not just the 
known technologies to do so).
      Encourage more technology development (R&D tax credits, 
demonstration tax credits, etc., and coordination with DOE R&D 
funding).

    We need to invest now in tax incentives and support for technology 
development. We don't know enough, yet, to decide which technology will 
be most cost-effective for each particular facility. Following multiple 
paths will increase the likelihood of sufficient successful options for 
application in the future, and will not preclude out-of-the-box 
technologies that have not yet been envisioned.
    We believe that based upon our past accomplishments, given 
sufficient resources and incentives, we can make Clean Coal a reality.
    Thank you for your attention to this important National matter. We 
look forward to working with the Committee and the Congress in meeting 
the challenges ahead. We would be happy to provide any additional 
information, analysis, etc., that you or your staff require.

                                 

    Chairman NEAL. Thank you. Mr. Gawell, I found your 
testimony on geothermal energy very informative. We have heard 
that short-term incentives mean the projects won't get off the 
ground, but you even cite specific examples where this has 
happened.
    Could you detail your recommendation that any tax incentive 
include a longer placed-in-service allowance along with 
contract requirements?
    Mr. GAWELL. The proposal, Mr. Chairman, made by MidAmerican 
Energy. Jonathan Weisgall, from MidAmerican, is my board 
president. They own a subsidiary, CalEnergy in California, that 
produces geothermal power.
    Their situation was, they said, ``We have got a huge 
investment here. I mean, geothermal renewable technologies are 
comparatively much more expensive. I have to take the risk, and 
I have to make it on the deadline, because if my plant comes 
online January 2, 2008, I get 0 of the tax credit.'' At least 
that's what my accountant is going to say. And their accountant 
said, ``We can't take that risk, it's too much for us to go 
forward.''
    And what we have seen is people now don't build plants, 
they pull them back. What he proposed was he said, ``If you 
could simply allow them the option that if we get that plant, 
we have our contract, we're selling to--let's say, in their 
case, you've got a firm power sales contract that says we're 
selling baseload power 24 hours a day.''
    Second, we've begun construction, which means in most of 
these firms, signed performance contracts for construction. So 
you're locked in. You're going to pay all the money, you're 
going to build the plant. You would, at your option, be able to 
use that date as the start date for your credit period.
    Now, it may take you another year or two to actually get 
your plant built, and you would lose a year or two of the 
credit. But in their conditions, they said, ``For us, this 
would make the difference. If we knew that, you know, if we 
missed the deadline a little bit, we will still get, you know, 
80 percent of the current credit,'' they would have moved 
forward with the project. But otherwise, they just couldn't 
take the risk.
    Now, to be honest, Mr. Chairman, some people will gamble. 
As you know, I used to work with the wind industry. And, you 
know, all these businesses, there is a lot of entrepreneurial 
people, and some people are going to take a gamble. But others 
won't. And others feel they have got a fiduciary responsibility 
with their board and tax--they can't do it.
    And so, they recommended that that be allowed, if they're 
under construction and they've got a power sales agreement, 
that they could have their option, use the placed-in-service 
date as their start date, even though they might lose some of 
the credit. That would give them enough for them to move 
forward and say, ``We will make the commitment and build the 
plant.''
    Chairman NEAL. Mr. Carlson, your testimony was very 
similar, regarding the length of time necessary for placed-in-
service in biomass facilities. I am assuming you are in 
agreement with your colleague, Mr. Gawell.
    Mr. CARLSON. Yes, I would be, Mr. Chairman. A typical 
biomass power project would take some three to four years to 
develop. And so, consequently, if an extension is not there for 
that period of time, a placed-in-service date definition change 
that would allow signed contracts to qualify would certainly be 
a benefit to our technology.
    Chairman NEAL. The gentleman from New York, Mr. Reynolds.
    Mr. REYNOLDS. I thank the Chairman. It has been a very 
enlightening hearing today. And, ironically, as I listen, fuel 
cells are a big aspect of parts of my district, as to an 
ethanol plant under construction in my district, as to the 
amount of wind underway in production, and solar in Buffalo, 
New York.
    One of the things Chairman Neal and I were talking about is 
it seems that each of you talk about the fact that some of the 
tax credits that Congress has found in the time that you've 
filed an extension have not been long enough to look at doing 
the job for site determination, permitting, and construction.
    It also seems evident in much of your testimony that 
without that tax credit, there will not be further advances in 
much of this type of energy consideration. Any in the panel 
disagree, that without the extension in 2008's expiring tax 
assistance, that we will be moving forward at full steam?
    [No response.]
    Mr. REYNOLDS. Hearing that, I would assume that Congress 
needs to consider its workmanship.
    In coal, that old coal plant that is next to my district, 
with the promise where the state looked at five different sites 
and chose an old, traditional coal-burning plant for power, the 
condition was clean coal technology. And, of course, the 
message to Senator Schumer and Senator Clinton, to myself and 
Congresswoman Slaughter would be, ``We are going to need a 
sizeable tax assistance in order to meet that.''
    But one of the things that I thought might be helpful, 
Doctor, in outlining to us is how coal plants today compare, in 
terms to emissions and efficiency, the older coal-fired power 
plants. Sometimes I think we have a tendency to draw what we 
know, versus what is beginning to get on the books, or under 
construction. And it might be helpful if you could address a 
little bit that furthers the aspect of what you outlined in 
testimony.
    Ms. FRENCH. I think it is very instructive to look at where 
we have been with coal. Coal-fired power plants were mostly 
built in the 1940s, 1950s, and 1960s. These--the average age of 
our fleet of 1,100 boilers is 45 years old. Those boilers were 
not designed with particulate control, NOx control, 
SO2 control in mind. We didn't know about those 
kinds of pollutions then.
    Since 1970, our electricity usage has increased 172 percent 
from coal alone. And yet, our NOx, SO2, 
and particulates continue to decrease. We have made tremendous 
strides. And much of this, as I said in my testimony, is 
retrofits.
    But now, if you look at the world of a new coal-fired power 
plant, they are much, much cleaner than anything we can do 
right now, even. And they are state-of-the-art. Everything that 
is on the books right now is state-of-the-art for coal. And 
most of what is being designed is being designed with carbon 
capture and storage in mind. Does that answer your question?
    Mr. REYNOLDS. Yes. One other question I might have. Does 
the marketplace already provide sufficient enough incentives 
for companies to develop and deploy clean coal technology? And 
if not, what incentives would be appropriate to encourage----
    Ms. FRENCH. I think the incentives for mercury control are 
coming. They are there in several states that have mandated 
their own mercury reduction rules that are more stringent than 
the Clean Air Mercury Act. And it's those regulations alone 
that will bring mercury control down to the levels it is 
capable of now. I don't think there are any more incentives, 
besides regulations, required there.
    The incentives for carbon are different. Incentives for 
CO2 are two, as I said. The first is you need to 
incentivize higher efficiency plants. If I am going to build a 
plant right now, you want me to build the most efficient plant 
I can, because then I make less carbon for each megawatt of 
electricity that I produce.
    But my--a higher efficiency plant is going to cost more. 
And if I have to sell that electricity for more, electricity is 
electricity. It's the same, no matter if it's a high efficiency 
plant or an old, dirty plant.
    So, what we need to do right now is incentivize high-
efficiency, new coal plants. That's the first place to start. 
If I can take efficiency from the high thirties, where we are 
now, to almost 50 percent, I produce 25 percent less 
CO2. That is 25 percent less CO2 that I 
have to capture and store, or deal with. And that is really the 
place to start.
    The carbon technologies themselves are in their infancy. 
And I think we need to incentivize the research and 
development. But as I said, we have to time the regulations 
with the technology development. So we need massive investments 
in research and development to get there, which I think we can, 
but we need to start now.
    Mr. REYNOLDS. All right. Thank you, Mr. Chairman.
    Chairman NEAL. The gentleman from Washington, Mr. 
McDermott, will inquire.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. I appreciate you 
having this hearing, and opening up a subject that hasn't been 
opened in Congress since 1993. That's the last time we had a 
green amendment before this Committee. Sakowski said to me 1 
day, ``Get some green amendments. I don't know what they are, 
but see if you can get some.''
    [Laughter.]
    Mr. MCDERMOTT. And we started in 1993, went a few years, 
and then we were leading the world and we dropped it. The Danes 
now produce. Wherever you go you would find a Danish turbine 
doing the job. That's because the Congress, for the last 12 
years, has not paid attention to this issue.
    Now, one of the things that troubles me in listening to 
this--and I look at the people here at the table, and I see the 
800-pound gorilla that is not at the table, which is energy 
conservation. I would like to hear you folks talk about how we 
should allocate a certain amount of tax credits we're going to 
have, keeping in mind that for every watt we save we don't have 
to build another one.
    And how do we make those decisions? Why should we choose 
wind or solar or coal--clean coal, if there is such a thing--
over not building? Because Americans have had this long history 
of showing that we're a rich nation by wasting. You go down any 
major city in the United States, when you look up in the 
buildings, all the lights are on, and we are wasting energy all 
the time.
    And it seems to me that there ought to be some kind of 
decision made in this Congress about what we do about tax 
credits and incentives that have to do with energy 
conservation. And I would like to hear you people talk about 
it. I know it's not what you came to talk about. You came here 
selling your particular version of the way to go for the 
future.
    But let's talk realistically. We don't have all the money 
in the world. So if anyone wants to talk, I am glad to listen.
    Mr. DINNEEN. I will start, Congressman. Other people will 
want to join in, but I think at least for us, we certainly 
agree that conservation needs to be part of the energy answer.
    We have a big job ahead of us. And I think all the 
renewables, other alternatives, and conservation, has to be 
part of any sane energy policy moving forward.
    I would say with particular respect to ethanol, because 
ethanol today is a--we do hope to be able to utilize a lot more 
flexible fuel vehicles that are running on E85, like the one I 
did drive to this hearing today. It's not the most efficient 
technology. It doesn't really take advantage of the fuel 
qualities that ethanol could provide, and there is a 30-percent 
reduction in mileage when ethanol is used, which makes the 
economics that much more difficult. But it also says something 
about the energy efficiency.
    And I would hope that in working with the auto companies as 
well, that there are incentives in place for them to maximize 
the efficiency of those flexible fuel technology vehicles. So I 
certainly agree that that is problematic, sir.
    Mr. RESCH. Congressman, if I may, I think they absolutely 
go together, energy efficiency and renewable energy. And I 
would hate to get into a thing where it's either/or, because I 
truly think we need both if we're going to get serious about 
being carbon smart as an economy, if we're going to be serious 
about scaling up manufacturing, and if we're going to be 
serious about actually levelizing energy prices for consumers.
    When I installed the system on my house, I installed it to 
be 80 percent of our electricity load, and I put pressure on 
the family to come up with the other 20 percent. So we put in 
compact fluorescents, we improved the energy efficiency, using, 
you know, basic, off-the-shelf measures, but we were able to 
drop it down by 20 percent, and see some real-time performance. 
And now the system actually does generate 100 percent.
    So, that's a good example of how the two go together. And I 
would hate for Congress to say, you know, ``We only have so 
much money, we can only do one or the other.'' We need to make 
a fundamental transformation in the way energy consumers both 
understand energy, deal with energy, and move forward decisions 
on energy.
    And I mean, one of the things that I am most, I guess, 
frustrated by is the fact that most people don't understand 
where energy comes from, electricity, or even natural gas. And 
you know, there needs to be an education there. And I think the 
one thing that sends the biggest signal is when Congress says, 
``I am empowering you to go change your lifestyle. I am giving 
you a credit to go improve your energy efficiency, or to put on 
solar,'' or whatever it happens to be.
    Mr. MCDERMOTT. I think the reason is I just bought some 
appliances for a remodel of my house. And if you get that star 
on there, you get some money back, and there is a lot of stuff.
    It seems to me that that's a very important place that we 
should be putting some of our tax credits. They shouldn't all 
be in the direction of the creation of more energy, but rather 
the creation of clean energy. Because I suspect that all 
utilities are operating on some kind of 10 percent or 20 
percent growth per year, as we have done since 1950. I mean, I 
was in the State Legislature in the State of Washington when we 
put together--so I know about nuclear energy, and what they 
told us about how it was going to cost--we built a bank with 
that kind of stuff.
    So, I really--the conservation question really is one that 
I wonder about in building construction. Mr. Weller and I have 
a bill on building construction and post-construction, and I 
wonder about how much of that we should put in. Mr.--yes?
    Mr. GAWELL. Mr. McDermott, I think, first of all, let me 
point out that most of us here also are part of a group called 
the Sustainable Energy Coalition, because we do support both.
    And we realize--well, frankly, when you look at the issues 
we--I can't tell you how many phone calls I get on climate 
change. I'm sure you do, too. I mean, how do you address some 
of these big issues? I think you're going to probably need a 
little bit of everything to even stand a good chance to get the 
kind of reductions you need.
    But I don't think it's fair to assume all the utilities are 
looking at growth--at least not in the West. I mean, in 
California, they aren't. They are looking at a fairly 
aggressive piece of legislation that is going to push carbon 
reduction and set a model, hopefully, for the country, on how 
to do that.
    But even when you're looking at the California model, you 
still need to be replacing--I mean, the point made about clean 
coal is true. Our fleet, even for the power we need, is getting 
quite old. We have a lot of central station problems, we have a 
lot of peaking problems. You are going to use both.
    It's infinite wisdom to figure out which. I mean, I could 
tell you during the 1992 energy bill I used to work in the 
Senate. And of all people, we would have these discussions in 
the back room with Senator Paul Wellstone and Senator Malcom 
Wallop. We would both sit there, going, ``Well, how do we know 
any of this stuff really works? How do we know what drives that 
marginal dollar of investment?''
    And it is tough. I mean, everybody--you know, when we had 
the hearings back in 1992, we sort of had--I said we had the 
level playingfield hearings. Every witness, every technology, 
every interest group came in and had their thing they wanted, 
and it was all for the level playingfield.
    But it's tough to see, but I will say the one thing about 
the renewable production tax credit is I think it does 
demonstrate that it works. It has shown that, unfortunately, 
when it is not there, things start cramping down very quickly.
    So, I think you do need a mix. I think we all support that. 
But I think we also all want to see results. I think if you 
want to give tax credits that show you they are driving real 
investment in all these things, and somehow try to factor that 
into your policies, would make a lot of sense.
    Chairman NEAL. Thank you. The gentleman from Georgia, Mr. 
Linder.
    Mr. MCDERMOTT. One thing. I hope that at some point we can 
talk about public power and the whole Production Tax Credit, 
and what the 15 percent of power that's created by them, how 
they get into this when it's basically been set up for the 
private sector.
    Chairman NEAL. I appreciate the gentleman's line of 
questioning. The gentleman from Georgia, Mr. Linder.
    Mr. LINDER. I thank the gentleman. Mr. Dinneen, when you 
take all the renewable fuels put together--solar, biomass, et 
cetera--what percentage is the total energy output?
    Mr. DINNEEN. I am not sure what--maybe somebody else? About 
two percent?
    Mr. LINDER. About 2 percent? Mr. Resch, you said your solar 
product produces about 1/30th of 1 percent of all the energy 
needs. What is your 30-year goal or 20-year goal? What do you 
think you can get?
    Mr. RESCH. It depends a little bit on the tax incentives, 
of course, but we estimate that if you have an eight-year 
extension of the tax credit--we did in that timeframe--solar, 
by the end of that tax credit, will be providing 50 percent of 
all new generating capacity. Right?
    So, we recognized that if demand for energy is going up 
like this, and we have to build new power plants, by the end of 
that 10-year window, solar will be providing 50 percent of that 
growth. So, as we go forward, solar becomes an important part 
of the mix. And at the end, we're still small, because we're 
competing in a very, very large, you know, 40 or 50-year 
installed capacity. We will end up being about----
    Ms. FRENCH. It's 50 percent, yes.
    Mr. RESCH. Yes, so we will be about three percent, growing 
to five percent shortly thereafter. Up to 30 years, it could be 
significantly larger.
    Mr. LINDER. Mr. Rose, you said that fuel cells cost $3,000 
per kilowatt. Is that what you said?
    Mr. ROSE. Congressman, fuel cells are a family of 
technologies, and they are being developed for just an 
extraordinarily wide range of applications. I can't give you a 
single number for the cost of a fuel cell, but it's--some power 
generation systems do charge--or do cost in that range, yes. 
Others are more expensive.
    Mr. LINDER. What is nuclear cost per kilowatt? Do you have 
an idea?
    Mr. ROSE. I don't. It's not my field.
    Mr. LINDER. Anybody have an idea?
    [No response.]
    Mr. LINDER. What does coal cost per kilowatt?
    Ms. FRENCH. I don't know, but I can find out.
    Mr. LINDER. I would like to know.
    Ms. FRENCH. I will do that.
    Mr. LINDER. Mr. Dinneen, you said that ethanol and its 
industry puts $2.7 billion into the revenue stream. Is that 
right?
    Mr. DINNEEN. That's correct.
    Mr. LINDER. How much does it take out? Is that a net number 
or a gross number?
    Mr. DINNEEN. That would be a gross number.
    Mr. LINDER. How much does it take out?
    Mr. DINNEEN. $2.5 billion is the cost of the tax incentive 
last year.
    Mr. LINDER. How much per gallon of ethanol is subsidized by 
the taxpayers?
    Mr. DINNEEN. Well, they get an incentive for every gallon 
of ethanol they use, to the tune of $.51 a gallon, so the----
    Mr. LINDER. Taxpayers get $.51 for every gallon?
    Mr. DINNEEN. Well, the taxpayers are receiving about $4 
back, because of the reductions in farm program costs I talked 
about, and the increased economic activity associated with 
ethanol production.
    Mr. LINDER. Mr. Steve, you said that farmers make $5,000 
per month you said?
    Mr. STEVE. Land owners, farmers, ranchers make about $5,000 
in payments per wind turbine per year.
    Mr. LINDER. Per year.
    Mr. STEVE. For a period of 20 years.
    Mr. LINDER. Do you know what--how much it is per kilowatt?
    Mr. STEVE. Per kilowatt? No, I don't have that calculation. 
I can get it for you, though. But I can tell you that we do 
hear stories from folks who say, ``This allows me to put my kid 
through college. This allows me to keep farming, where I 
couldn't farm before.'' It is very helpful for----
    Mr. LINDER. Do any of you represent a product that can 
succeed commercially without a taxpayer subsidy?
    Mr. ROSE. May I? This is my opinion, and not my 
organization's opinion, but I think they--the Members--would 
share it.
    The answer is yes. I think what would happen is--well, in 
fact, fuel cells are competing in markets today. There are 
niche markets, relatively small markets. And what we are 
looking at with the----
    Mr. LINDER. Are they commercially reasonable?
    Mr. ROSE. I'm sorry.
    Mr. LINDER. Are they commercially reasonable?
    Mr. ROSE. They are being purchased in preference to other 
technologies that are on the marketplace, so I would say yes.
    But what we're talking here is, first, accelerating the 
transition to wider adoption of the technology. I mean, there 
is a public value in that transition, or we wouldn't be here. 
And I think that is--it isn't so much the cost, it's the value 
that's extracted, I think, from all of these technologies for 
the larger community.
    And fuel cells can't compete in the marketplace in some 
markets today, and will find other markets. But they will not 
move into markets, as many markets, nor will they move into 
those markets as fast, without the support of the taxpayers.
    Mr. LINDER. Good.
    Mr. RESCH. It's kind of interesting to point out that every 
satellite that has gone into space in the last 30 years has 
been solar powered. The largest consumer for solar energy, for 
years, was the oil and gas industry, and they used solar remote 
applications to power pumps and meters and telecommunications 
equipment.
    You walk down K Street, you're going to see parking meters 
that are solar powered. The reason why is in remote 
applications. It's going to cost you a lot more to run a power 
line out to that unit, versus buying a solar system. So in a 
very small niche market like Bob is describing, solar certainly 
is cost-effective, and we are seeing it in wider and wider 
uses. I have seen cities that have air quality specifications, 
and so they are turning to solar, or other non-polluting 
technologies to generate electricity.
    Mr. GAWELL. Mr. Linder, I just want to add, I think it--for 
some of the technologies, like geothermal, we're not just a 
technology, we are also a resource akin to oil and gas.
    So, there are some areas where people develop pretty 
economically, but those are the cherries. But then you get out 
to larger areas that cost more and more, and you have got to 
have a push to get there through an incentive, or you've got to 
have major technology development.
    So, we're not exactly a widget with one price. We're a 
resource base with a range of prices, depending on what you 
look at.
    But I want to also point out that there was a study done by 
Dallas Burtraw of Resources for the Future, and he actually 
looked at all the renewable technologies and what happened to 
them. What happened to their prices between 1978 and 1990? And 
what he found was that every technology here met their price 
reduction goals during that period when we were building power 
plants. But the other thing that happened was during that same 
period, the average price of electricity from ``conventional 
sources'' dropped 40 percent.
    So, while many of the technologies did get their cost 
reductions, effectively the goal line moved at the same time. 
So these are fairly dynamic factors. And I think each 
technology has certain aspects. Even with wind, there are 
different wind regimes. Some wind regimes you're going to get 
different economic factors than others.
    So, you build out over time. If you want to get to this 
large end, we need to be building plants forward. Are we 
commercial in some areas? You might get commercial product. 
Most of those have been built, where you start moving up that 
supply curve.
    Mr. CARLSON. The largest user and producer of energy, also 
the most heavily integrated user of their own internal energy 
resources--55 percent of all the energy used by the forest 
products industry in the U.S. is produced internally.
    And so there are--just like the others have said, there are 
certain markets like that. For instance, if you're producing 
electricity for your own internal use, such as a pulp and paper 
facility, you're able to essentially sell it at retail.
    But what we're talking about is trying to move this 
technology out into the mainstream, so that we can utilize more 
of those underutilized biomass resources, where someone else 
may not already have paid the cost to collect them, move them 
to a central location, as you will in a manufacturing facility.
    And can we make the leap to selling it wholesale today? In 
most of the markets, the answer is, ``No.'' But all those 
internal resources have been used for many years to make a 
highly integrated forest products industry that has very well 
utilized the less expensive resources to produce internally.
    Mr. LINDER. What is the most efficient biomass technology, 
in terms of producing enough power to sell off, versus what it 
uses to produce the power?
    Mr. CARLSON. In a stand-alone new facility, that facility 
will sell 90 percent of its output externally, about 91 
percent.
    Mr. LINDER. That's about twice what it was 10 years ago.
    Mr. CARLSON. It is--internally, yes. The uses have gone 
down substantially. And so we are not efficient technology, 
because of fuel--very low Btu and very high moisture. So you 
wouldn't call it--they can't compete with the numbers that the 
doctor gave for coal, as an example.
    But that efficiency has come up, and--but it is still at 
the low 20 percent range, on an overall efficiency basis.
    Mr. LINDER. Thank you all.
    Chairman NEAL. I think Mr. Dinneen would just like to--has 
a brief comment.
    Mr. DINNEEN. Real brief. Congressman Linder, the ethanol 
industry is thrilled to be able to produce six billion gallons 
this year and we're going to double in size in a couple of 
years, but we're still selling into the 140 billion or 150 
billion gallon gasoline market. And our customer is our 
competitor.
    And so, there is no real incentive for them to, you know, 
turn over a part of their gallon to us, in the absence of the 
tax incentives that Congress has put in place. As we continue 
to grow, and we get much more volume--and you're producing 
ethanol from cellulose and other feed stocks--you may then have 
the volume where tax incentives are not necessary, because we 
will be a more meaningful part of the marketplace.
    Chairman NEAL. Thank you, Mr. Dinneen.
    Ms. FRENCH. Can I make one very brief comment, similarly?
    Chairman NEAL. Thank you.
    Ms. FRENCH. I don't think that clean coal requires 
subsidies. I think we need to incentivize the technology 
development. And during that time, what you will see is you 
will see the cost of those clean coal technologies decrease, 
which is really the same thing the whole panel is saying. The 
costs will decrease, the reliability will increase. And it 
creates a market for these clean technologies. And that is very 
different than a subsidy.
    Chairman NEAL. Thank you. And, Dr. French, your comments on 
the cost of coal per kilowatt will also be made part of the 
record.
    Ms. FRENCH. I will----
    Chairman NEAL. Thank you. The gentleman from Connecticut, 
Mr. Larson, will inquire.
    Mr. LARSON. Thank you, Mr. Chairman, and I thank the panel 
for your expert testimony. And I just want to thank Mr. Rose 
for pointing out that Connecticut is, indeed, the center of 
fuel cell excellence, led by UTC Power, which does an 
extraordinary job, trying to compete with Mr. Reynolds on a 
regular basis to maintain the fuel cell world.
    I decided to point out quickly, because I ask a couple of 
questions, that the greatest subsidy taxpayers currently pay is 
the amount of money that we export abroad to foreign companies 
who are utilizing oil.
    And I think as Thomas Friedman points out, our current 
foreign policy is, essentially, ``Leave no moolah behind,'' 
because we find ourselves in a situation where we are not only 
exporting more than $200 billion annually abroad, but that 
money finds its way into--it ends up funding terrorists and 
Islamic extremists who are fighting our troops over there, 
where we are currently spending over $400 billion in the war in 
Iraq.
    And so, this, in so many respects, is not only a tax 
situation, this is more of a national security. I want to 
commend Speaker Pelosi and Chairman Markey for the hearing the 
other day that is simpatico, Mr. Chairman, with your concerns 
to making sure that we get after the need to provide energy 
independence and the whole concept of global warming. There was 
a hearing in which we had both admirals and generals 
testifying, and talking about the need for us to make this 
transition.
    My two questions are as follows. First, it's one that is a 
bit self-serving, but the focus today is on renewables, and yet 
often time in renewables we don't focus on emissions. And so, 
Mr. Rose, I will start with you and ask don't you think that 
that should be included as part of the standards? That, 
ultimately, if we are trying to reduce the carbon footprint, 
that we ought to, when we're awarding and deciding and 
providing tax incentives, that we ought to make sure that 
emissions is as important as something being renewable?
    Mr. ROSE. Well, I believe I'm required to say ``yes,'' 
Congressman.
    [Laughter.]
    Mr. ROSE. And, therefore, I will. The--I am fond of saying, 
as you know, that it's really a combination of benefits that 
fuel cells--and, indeed, some of our colleague technologies--
bring that really make the difference.
    And we have three problems. We have the problem that you 
have described. We have the other problem of smog, and the need 
to protect public health against the ravages of air pollution. 
And we also have an energy security problem. And it's not a 
cafeteria plan, you know. We have to address all of those in 
order to really achieve the kind of future we all hope.
    And so, therefore, I am not sure that anybody has succeeded 
in monetizing those kinds of benefits in the past. It certainly 
is an area where we think we deliver the goods----
    Mr. LARSON. I am going to assume that most of the panel 
is--agrees with that. But I--if there is someone who doesn't, 
you've got the mic.
    [No response.]
    Mr. LARSON. Since everyone agrees with that, let me move on 
to my second question. In an article over this weekend, Thomas 
Friedman very succinctly laid out what he sees as the problem. 
In fact, he looked at it from an entrepreneurial standpoint--
something my dear friend and colleague, Mr. Blumenauer, has 
been exploring for years. And I want to proceed along the same 
lines that Mr. McDermott did, in terms of asking a question 
that's a little bit outside of the box.
    Essentially, he ends this whole story line about talking 
about the green--American importance as it relates to national 
security and reducing the carbon footprint by saying, ``All 
talk in conversation about this is pointless, unless American 
citizens, unless the entrepreneurs, Members of government, 
including Congress, are willing to step up to the plate and 
face, head on, the issue of a cap in trade, and more 
importantly, a carbon tax.'' Do you agree with that, yes or no?
    Mr. RESCH. Yes.
    Mr. LARSON. Well, let's take--I guess I will start with 
you.
    Ms. FRENCH. I think it is very, very important to look at 
the timing of that. If we unravel our economy by sending 
electricity prices sky high--I'm talking about the baseload----
    Mr. LARSON. Even if some of the tax funds went directly to 
achieving some of the goals--the boilers that you laid out 
earlier, and tried to provide the incentives for you to so-call 
``get at'' clean coal?
    Ms. FRENCH. Yes. I think we can get there, but I think we 
have to look very, very----
    Mr. LARSON. So when, in your estimation, would that be?
    Ms. FRENCH. I don't know, because the technologies are 
not----
    Mr. LARSON. You don't know.
    Ms. FRENCH [continuing]. Available yet. But if you put the 
stick in place with no technologies, there is nothing to 
support----
    Mr. LARSON. So Friedman has got it wrong.
    Ms. FRENCH. No. I think he doesn't--I'm not saying not to 
do it, but I am saying that we have, in this country, an 
environmental agenda because we have a strong economy. If we 
take the meat out of our strong economy by sending electricity 
prices sky high, we won't have an environmental agenda.
    The poor countries don't have an environmental agenda; they 
can't afford to. We can. But we have to act cautiously. And I 
think those answers--those questions are excellent questions, 
but I don't think we have the answer right now.
    Mr. LARSON. So the answer is we don't have the answer?
    Ms. FRENCH. We don't have the technologies right now. The 
answer is we need to invest in technologies----
    Mr. LARSON. None of these technologies will help, here?
    Ms. FRENCH. They won't cover the baseload. They won't cover 
the foundation of our economy right now. They are very, very 
important. As everybody has said, we need a mixture of 
technologies.
    Mr. LARSON. Would the other panelists respond?
    Mr. STEVE. Mr. Larson, we could use significantly more. 
These technologies offer great promise to this country. We are 
not going to claim that we can run the entire country on any 
single technology, that's true--of base line technologies that 
we have already. You need a mix of resources.
    What we are saying is give us the tools, give us a long-
term credit, we will get out there and we will build more. We 
will create more jobs. We can do it.
    Mr. RESCH. Congressman, your point is a very good one, and 
I would say, from a solar industry perspective, regardless of 
what the structure is, we would want to make sure that there is 
a clear market signal that is coming from this, all right?
    So, if it's a Btu tax, or if it's a carbon tax, whatever it 
happens to be, what you're then providing to consumers and to 
industry is a clear market signal. It's not a stick, it's a 
market signal that allows, as Mr. McDermott talked about, 
energy efficiency.
    All of the sudden, your first choice is energy efficiency, 
and consumers, if you're paying more for electricity, guess 
what? You're going to do that first. Second thing you are----
    Mr. LARSON. Combine that, as he said, with conservation?
    Mr. RESCH. Conservation, efficiency----
    Mr. LARSON. Keep your limits that you're looking at, or 
more?
    Mr. RESCH. And then I think you have got a true energy 
revolution in this country that hasn't occurred since, 
literally, electricity was invented and then went mainstream, 
back in the 20th century.
    Mr. ROSE. May I also comment----
    Mr. LARSON. Mr. Chairman, I think my ----
    Chairman NEAL. Well, let's choose this time to push 
forward. There is only one vote, and what I would like to do is 
to run over and vote. Mr. Larson can take the chair and I will 
come right back so we can continue the hearing. So Mr. Larson 
can control the time. Continue.
    Mr. ROSE. The Congressman knows the kind of answer he is 
going to get from me, I think. I do want to say that, seriously 
on this point, it's an important point for our industry, and I 
believe for sustainable technologies, generally.
    Any program, whether it be a tax program, or a so-called 
cap in trade program, has got to recognize that a lot of our 
technologies are making this transition a few kilowatts or a 
few hundreds of kilowatts at a time. And the challenge with 
programs like cap in trades is that they tend to go after the 
big guys.
    And so, any program that is developed, I hope, will 
recognize that these kind of small-scale, distributed 
technologies----
    Mr. LARSON [Presiding]. Mr. Rose, I would, because of the 
shortness of time, and my dear friend and colleague has to be 
on the floor----
    Mr. ROSE. Oh, sure.
    Mr. LARSON. So I am going to yield to Mr. Blumenauer for 
more--he has an amendment on the floor, and will not be able to 
come back.
    Mr. BLUMENAUER. Thank you. I appreciate your being here. I 
have three questions--two that I would just offer, and seek you 
to provide this information when you have a chance.
    I was--Mr. Linder's point about the subsidies that you all 
enjoy, and are seeking to make more use of, I just wondered if 
you, from your perspectives, could offer a brief assessment of 
the subsidies that all the sources of energy enjoy. To the best 
of my knowledge, there is no source of energy that hasn't 
enjoyed massive subsidy at some point, and continuing.
    Some of my friends in alternative energy have--when I can 
pose these questions, they say, well, they would be happy to 
settle for what the subsidy has been for the petroleum industry 
for a short period of its history, but the cost of--I 
appreciate what Mr. Larson talked about, in terms of what the 
cost of a gallon of oil would be if we factored in our 
investment in the Middle East to secure lines of supply and the 
vulnerability that we heard about at our hearing--a fascinating 
hearing--yesterday from the defense experts.
    So, if you could, at your leisure--but some time sooner, 
rather than later--give us a sense, from your perspective, of 
the subsidization of energy in this country, past and current, 
and how your niche fits into that.
    My second question, again, at your leisure, would be 
directly related to that, how we rationalize where we go from 
here. I am absolutely convinced that you need a reasonable 
window, not rolling the dice, is it going to expire in two 
years, is it go again in three? Some are different from 
geothermal, different for ethanol.
    I, personally, am interested in both of these Committees 
that Mr. Larson and I serve on, to be able to rationalize this 
in a way that people know what they expect, that there is 
always, you know, maybe a three-year window, that there is a 
rolling expiration date, things of that nature. If you could 
help us think about how it could be rationalized, in terms of 
structure and amount.
    My specific question, if any of you have anything off the 
top of your head that you would wish to respond to, I want to 
know what the Federal government can do now to exploit, 
enhance, and develop the markets for the technologies that you 
have right now.
    A specific example. The Department of Defense is seeking 
$22 million for a diesel generator for Guantanamo. Fuel that 
has to be brought in, huge sums of money, for just the prison 
facility. Any of you think that there are applications that 
might reduce that part of the carbon footprint, whether it's 
the Department of Defense, Interior, Transportation, the GSA, 
or the 300 million square feet of office space that we have 
across--can you give us some thoughts about what the Federal 
government can do right now in the budget in a cost-effective 
way to promote what we're talking about?
    Mr. LARSON. I think we can do that in a minute and 16 
seconds, but----
    Mr. BLUMENAUER. I do, a very quick answer. And then there 
is one quick one that is probably outside the purview of this 
panel, in particular, is a Federal purchase requirement for 
renewables.
    We, the Federal government, will lead by example, purchase 
X percent--say 15 percent--of power through renewable resources 
at all times. Currently, the Air Force is purchasing wind 
power, and they were a purchaser of wind power, as well. This 
can be done.
    Mr. STEVE. We have a----
    Mr. LARSON. As the panelists are, I'm sure, aware, we have 
a vote that is currently going on. It's the Chair's intention 
to ask Mr. Weller to speak, and then we will briefly recess and 
come back and finish the hearing. But I just wanted to thank my 
colleagues for their forbearance. And with that, we will turn 
to the gentleman from Illinois.
    Mr. WELLER. Well, thank you, Mr. Chairman, and thank you 
for including me in this hearing. I am a Member of the full 
Committee, but not a Member of this Subcommittee, and I am 
pleased to be here to see a number of folks that I had the 
opportunity to work with on what I believe has been good policy 
over the last few years.
    Particularly, as I look back over the last 12--now more 
than 12--years of the Ways and Means Committee, I think one of 
our proudest moments was about 2\1/2\ years ago, when President 
Bush signed into law the Energy Policy Act of 2005. A good 
policy that promoted alternative fuels, emphasized energy.
    And one common theme I am hearing today is that the 
extension for a significant, long, period of time for 
provisions before this Subcommittee and this hearing today, 
because good policies work. And I have seen that in my 
district, because we encourage more power plant--Transco, a 
small manufacturer in my district, has gone from 40 to 120 
employees supplying the insulation for power plants. Hundreds 
of millions of dollars in wind energy investment.
    With all the glacial--in my district we have glaciers in 
it, the higher point of ground, a positive place to build wind 
farms. We have six, either in operation or in construction.
    Biofuels, with the more than doubling of biofuel uses in 
the energy bill that President Bush signed into law in 2005, I 
participated in ground breaking for the 300 million gallon 
biodiesel plant in Seneca, Illinois. That would be the largest 
biodiesel plant in the world. Presently under construction is a 
100 million gallon plant going through the permitting process 
in my district.
    So, clearly, in this case, the rural areas in my district 
are big winners when it comes to that kind of development and 
investment. So the good policies in the energy bill of 2005 is 
working.
    And my friend, Mr. McDermott, noted a bill that he and I 
are working on to extend the energy efficiency provisions that 
were in the 2005 energy bill. I offered a residential tax 
credit with others on the commercial building tax credit. 
Energy efficiency must be part of our policy, as we continue to 
move forward. And I advocate long-term extension.
    I am also, you know, Mr. Chairman, an advocate of the 
25x'25 proposal, and it kind of all sounds outdated. I am 
clearly not--you can listen to the rhetoric out there, but if 
we were to provide--produce 25 billion gallons of biofuels, we 
would eliminate Venezuela as a supplier of oil and gas to the 
United States. Think about that, what that would mean in the 
foreign policy arena, and what it would mean to the national 
security concerns of this country.
    And Mr. Dinneen, you mentioned you drove to this hearing 
today, or drove to work today, in a flexible fuel vehicle. 
There is a new technology out there called a hybrid flexible 
fuel technology. Two U.S. manufacturers, Ford and GM, are 
moving forward to introduce that in the marketplace. Other 
manufacturers are moving forward in that. That marries the 
hybrid technology with flex fuel technology. So you have the 
hybrid engine plus the E85 capability.
    And it is said, according to an economic analysis, that if 
5 percent of all the vehicles in America were hybrid flex fuel 
vehicles, we would eliminate 140 million barrels of imported 
barrels a year. Think about what that would mean to our 
National security, let alone our economy, if we could do that.
    I have legislation I will discuss with the Senate Committee 
next week that provides a $3,500 tax credit to purchasers of a 
hybrid flex fuel vehicle. Kind of mirrors the incentive we had 
in place for the hybrid, which worked to create that 
marketplace, and----
    Mr. LARSON. I don't mean to interrupt the gentleman from 
Illinois, but there is about--just more than a minute-and-a-
half to----
    Mr. WELLER. Well, very quickly----
    Mr. LARSON. We have to get over and vote, which----
    Mr. WELLER [continuing]. Look at that type of incentive, as 
you talk about promoting flex fuels?
    Mr. DINNEEN. I think it would be extraordinarily helpful to 
move that technology forward. A flexible fuel hybrid, as far as 
I understand, would get about 700 miles to the gallon of 
gasoline that would be used. So it is absolutely something that 
we need to be looking very closely at, and I appreciate your 
leadership on that.
    Mr. BLUMENAUER. Seven hundred miles to the gallon. Think 
about that.
    Would you also submit to the Subcommittee, for the record 
in a written form, discussion of the potential for alternative 
sources of biomass----
    Mr. LARSON. Without objection, that will be made part of 
the record. And we will recess. When we come back, we will 
still continue with you up here, and I apologize for the fact 
that we had to vote for the second vote. We will stand in 
recess, but we will be back.
    [Recess.]
    Ms. SCHWARTZ [Presiding]. We will gather again. Mr. English 
is recognized for five minutes.
    Mr. ENGLISH. I want to thank the Chair for the opportunity. 
And I must say, although I was held up on the floor, I found 
out I was going to be a participator in this hearing. I have 
been very impressed by the testimony that I have read.
    And my first question is to Dr. French. Reading your 
testimony, the question that arises is does coal and liquid 
technology hold the promise of making the United States 
independent at some threshold from imports of foreign sources 
of oil? And if so, what carbon sequestration challenges would 
exist in a coal and liquid----
    Ms. FRENCH. Mr. English, thank you for the question. I am 
not an expert on coal-to-liquid. My background is combustion. 
So, let me speak from the environmental background, my 
combustion background, and recognize that I am not the 
country's expert on coal-to-liquids.
    I think that there is no question that coal, as a 
transportation fuel, as a liquid transportation fuel, holds a 
big role in national security, reducing our dependence on 
foreign imported oil. I don't know enough about the numbers to 
say that--you said a threshold--couldn't become independent. I 
don't know the numbers.
    In terms of the carbon from coal-to-liquids, I imagine 
you're talking about the carbon in the process of making a 
liquid fuel from coal, compared to the process of making a 
liquid fuel from crude oil. Is that correct?
    Mr. ENGLISH. Yes.
    Ms. FRENCH. Okay, so we're talking the process itself. And, 
again, I am not an expert on this. The carbon capture and 
storage technologies for that process will be very similar to 
the carbon storage capture technology through higher carbon 
production.
    So, I believe, as I said before, those are within our 
realm. We have a lot of smart people working on this. The 
technologies are in infancy now, but there are some very 
promising concepts on the table.
    Mr. ENGLISH. Beyond that point, Dr. French, in your view, 
does the marketplace already provide sufficient incentives for 
companies to develop and deploy clean coal technologies? And if 
not, what other incentives are appropriate to encourage this 
activity?
    Ms. FRENCH. Yes, Mr. English. I answered a portion of this 
question before. I think the incentives for clean coal, as up 
to and including mercury, exist already. The mercury control, 
as I stated in my oral testimony, is driven by regulations. The 
regulations exist in several states that go beyond the Federal 
mercury rule, and that has incentivized mercury control 
technology, and that is now commercially available for 90 
percent mercury reduction.
    When we look at clean coal as it relates to CO2 
capture, there are two parts to that. The first part is 
incentivizing efficiency. We want to incentivize the companies 
building new coal-fired power plants. And to some degree, part 
of the existing fleet. We want to incentivize efficiency. If we 
can move efficiency from 37, 39 percent, where we are now, up 
to closer to 50 percent, we reduce carbon by 25 percent. That 
is the place to start. That is 25 percent less carbon that I 
have to capture and store.
    And those technologies exist right now, but we need--there 
is no incentive to pay more for a power plant that is more 
efficient. So we need to incentivize efficiency, as a first 
step.
    And the second step is actually carbon capture and storage. 
Those technologies are in infancy. They require massive 
investment in research and development, and they require 
careful timing between the regulations and the technologies. We 
oppose regulations before the technologies are ready.
    Mr. ENGLISH. Thank you, Dr. French. Mr. Steve, I am 
somewhat familiar with what has been happening with wind power, 
in part because I have a major employer, GE, which is involved 
in the business, and I have been particularly struck by the 
technological changes that have gone on within wind power that 
seem to be telescoping its potential.
    I wonder if we could talk briefly about how technological 
changes that at one point were being pioneered in Europe are 
now ripening within the United States, and whether the 
extension, particularly of the tax incentives we're talking 
about, are going to encourage technological innovation.
    Mr. STEVE. Certainly. I will talk briefly, as well. 
Essentially, today's wind turbines are quite high-tech. The 
blades turn--they're computerized to turn into the wind. Very 
high-tech.
    What we need out of a long-term extension of the credit is 
actually something that will help us on the low-tech side, 
believe it or not, which is GE, for example, who, with all the 
resources they have, have a very difficult--they build wind 
turbines, but they have a very difficult time ironing out their 
supply chain, because people don't want to build things on an 
off again, on again basis every other year.
    We are talking about large components, like the castings 
used that hold the--essentially, the guts of the machine at the 
top. They hold the generator at the top of the machine. Folks 
don't want to hire people every other year. So you can't get 
enough people to do the production that is possible. That's why 
we need that long-term credit, is it--so that we can ramp up 
production.
    Mr. ENGLISH. Well, that makes a lot of sense, Mr. Steve, 
because the people in my district, on balance, would prefer not 
to be hired every other year.
    [Laughter.]
    Mr. ENGLISH. I yield back the balance of my time.
    Chairman NEAL [Presiding]. Including the gentleman from 
Pennsylvania.
    The gentlelady from Pennsylvania, Ms. Schwartz, is 
recognized.
    Ms. SCHWARTZ. Okay, thank you, Mr. Chairman. I appreciated 
your testimony. And before I ask my question, I want to 
associate myself with comments made earlier on conservation, 
and about the importance of--we really have to reduce the--
well, individuals and businesses, as we ramp up and promote 
more production. We need to produce more, but we also don't 
want to end up with so much excess. We want to be conserving 
energy.
    I also wanted to mention something that has not been talked 
very much about. I will just mention--it's not exactly germane, 
but we talked very little about public transportation. And 
here, too, there may be technologies that would go into public 
transportation. I come from an area that may--Mr. Blumenauer 
isn't here, but my guess is that he would be more expressive.
    So, it would be interesting if there are other options we 
can discuss today.
    What I wanted to ask you about was if you could--we touched 
on this earlier--the standards that have been set by 23 states, 
have really had as dramatic, or possibly more dramatic an 
effect, than some of the tax incentives that we have created, 
and when we speak to the states moving ahead of us at the 
national level in creating that market for you, and really 
creating those standards.
    So, how much--can you actually talk about the mix of--
whether setting those standards has had more of an impact than 
the tax credits? And sort of a follow-up, what do you think 
about a national standard, and whether that actually would do 
more for engaging private investors in encouraging production? 
Thank you.
    Mr. CARLSON. Ms. Schwartz, I will start, if I could, from 
the biomass perspective.
    Yes, there has been a dramatic growth in the RPS standards 
around the country, to the point now where almost two-thirds of 
the country's population is covered by a standard requirement, 
you know, which goes to how effective is the national standard 
at the rate of growth of the state standards--I mean, several 
states this year have just boosted. Colorado did, New Mexico 
did, just recently.
    The problem that some of us have in the implementation of 
the RPS is that there is still not the same level of tax credit 
for the different technologies. And so, those technologies with 
the highest tax credit--section 45--are able to bid the lowest 
bid into the auction, and then they win the bids in the 
auction. Everything else being equal, the growth of these 
renewable portfolio standards would be a wonderful thing for 
renewables of all kinds. But until we have that level 
playingfield, so to speak, there are some that win bids, and 
there are those who come close.
    Ms. SCHWARTZ. Maybe you can--if I have time, I would like 
to ask a follow-up question about how do we actually level the 
playingfield and not create--the most effective, the most 
efficient, and cleanest----
    Mr. GAWELL. I think it is important to note----
    Ms. SCHWARTZ [continuing]. And I think the most costly, I 
guess--go ahead.
    Mr. GAWELL. I think this is a really important question, is 
this inter-relationship between the renewable portfolio 
standards and the tax credits. It comes up all the time. We get 
it, as well.
    First of all, I think it's important to note that for a 
developer, or for technology, they do different things. What 
the California RPS does is give you the opportunity to get a 
contract for your power. It doesn't provide you the investor, 
it doesn't find you the resource, it doesn't do other things.
    The other thing is there is one thing about America people 
got to learn. Everybody wants green power, Mr. Chairman, but 
nobody wants to pay for it. Nobody wants to pay extra. And many 
of the states, like California and others, they want your bid 
to come in at, essentially, a commercial range.
    And what has been working, I think, for most of the 
utility-scale renewables, is the combination of the two, where 
you've got the ability to competitively get new contracts, so 
you know you can sell your power, and then the investment tax 
credit, or the production tax credit, to help buy down the cost 
of that high capital investment, so that you can bid in at a 
reasonable rate.
    And also, you should know in most of the states we do 
business in, in the West and out in California, the state 
actually has to examine your contracts, to make sure you have 
passed through any tax credit you received adequately. 
California came this close to saying you had to pass through 
100 percent, you know. But they didn't. They still require 
review of each contract to make sure that you aren't, in a 
sense, keeping it, but you are at--the consumer is benefiting 
most from use of it.
    So, I think that they actually can be very complementary, 
and they need to be thought of as complementary. But I will 
throw in one zinger about RPS's. And, Mr. Larson, this goes 
back to your climate issues. You know, everybody thinks--I 
think everybody at this table thinks--we need to do something 
about climate. But the devil is in the details.
    These state RPS's and whether they work right, or don't 
work right, or help this technology or that technology, I mean, 
some of these RPS laws that have been passed are voluminous. 
And there is something in there to make sure everybody gets 
their little piece of something, and they don't work well when 
some of them do well.
    So--but there is a lot to learn from what the states are 
doing. There is a lot of activity at the states, both in tax 
credits and in RPS's. And it's a very complex mix of--they can 
work together, and where they do work together, you're seeing 
very dramatic change.
    Mr. RESCH. Congresswoman, a very quick response from the 
solar perspective. The answer is that state renewable portfolio 
standards do not work for solar energy. There are 23, but the 
trend that we have seen on the states to actually have 
distributed generation, or solar carve-outs--Maryland, which 
just passed one last week, will be signed into law on the 24th, 
is going to be the most aggressive, that actually says, ``A 
certain percentage of our electricity has to come from solar.'' 
And that actually does work for us.
    And so, the Berkeley National Laboratory did a study just 
two weeks ago for the Department of Energy to look at state 
RPS's. How do we encourage the use of solar? Because it's 
clearly not working. And they found that a straight RPS does 
not build new solar. A three-X multiplier does not build new 
solar. You actually have to have a specific carve-out that you 
want created.
    And so, what I would say in a national RPS is that we 
should take a look really not toward just a solar carve-out, 
but more for a distributed generation carve-out, right? So it 
allows fuel cells and small wind and solar, all to compete in a 
distributed generation. We get the benefit of a true mix, so 
that it's not just centralized power plants, but it's also 
distributed generation power plants, as well, that stabilizes 
the grid, as well as to increase the use of renewables.
    Ms. SCHWARTZ. My suspicion is I don't have time, but I 
think it is certainly a mix, and I think there will probably be 
more discussion about how we create as we proceed. So, thank 
you, Mr. Chairman.
    Chairman NEAL. I thank the gentlelady. I believe Mr. Weller 
has some time left. Mr. Weller?
    Mr. WELLER. Thank you, Mr. Chairman, for the opportunity to 
reclaim my time. Thank you. And the opportunity to be here 
today.
    I would comment to my colleague from Pennsylvania, I also 
support the idea of a national portfolio standard. I advocated 
25x'25 approach, and I would like to see this be bipartisan.
    Mr. Dinneen, a question I had I would like to follow up, 
because I was very rushed as we were trying to run over to 
vote. You know, in Illinois, if you raise corn and soybeans, 
you're a pretty happy guy. We have prices of corn over 4, 
soybeans are over $7. Corn prices have more than almost tripled 
since the 2005 energy bill was signed into law. So if you raise 
those products, that's pretty good. And there is going to be a 
big cost of production this year, but if you're a livestock 
producer or you're a miller, there is concern.
    There is tremendous potential down the road regarding 
alternative sources of biomass used for biofuel production. And 
can you share with the Subcommittee what you see as the likely 
time table with that technology being developed? And then, 
also, as a secondary question--and others may have talked about 
this--but what type of incentives would you consider to 
expedite the new technologies, particularly in the area of 
cellulose and ethanol?
    Mr. DINNEEN. Thank you, Congressman. A couple of really 
quick points. Indeed, the price of grain has gone up because of 
the increased demand for ethanol, as a result of the Energy 
Policy Act. But because the markets respond, they have 
responded, and 90.5 million acres being planted with corn this 
year has already had an impact on the marketplace, and those 
corn prices are coming down. The marketplace will find a new 
equilibrium that is going to allow for plenty of grain to be 
grown for energy use and fuel use and fiber use, and it's an 
amazing thing, the marketplace.
    The other thing, just real quick. As you well know, when 
you're processing grain into ethanol, you are just borrowing 
the starch. And what is left behind is a very high-value feed 
product that is then sold to livestock and poultry markets. So 
that is having a beneficial impact for those livestock 
industries, as well. And I am sort of the poster child for the 
fact that we probably have too much starch in our diet, anyway. 
So, we are making some progress.
    Nonetheless, there is no question that we recognize that 
there are limits to what we are going to be able to produce 
from gain. And because of that, there is not an ethanol company 
that I represent that doesn't have a very aggressive cellulose 
to ethanol resource program underway, in part because they 
already have some cellulose already coming into their 
facilities.
    And if you are looking for a time table, I think that you 
will see the commercialization of ethanol from cellulose in the 
fiber that exists in the corn kernel probably happening first, 
and it could be as early as this year, when that technology 
might be commercialized. There are any number of companies that 
are looking at different technologies, whether it's corn stove 
or municipal solid waste, or switchgrass.
    And there are technologies that range from gasification to 
enzymatic conversion to acid hydrolysis, all of which have 
received funding from the Department of Energy recently, to 
move the projects forward. And while some cynics will tell you 
that cellulose to ethanol is still a long ways away, I believe 
that the time table is far sooner then conventional wisdom 
would suggest, and perhaps as much as 18 or 24 months, when you 
add commercial production of cellulosic ethanol.
    I cannot tell you which technology, I cannot tell you which 
feedstock, but as the industry has grown, as new capital has 
come in, as new intellectual capital has come in, and with all 
the focus that is being placed on cracking the Code to even 
produce ethanol from cellulose, I'm certain it's going to 
happen really soon.
    Mr. WELLER. Well, the energy bill provided funding for that 
research.
    Mr. DINNEEN. It did.
    Mr. WELLER. And the institutions in my state are 
participating in that research. But from a tax policy 
standpoint, any further recommendations that you would 
recommend to further along the development of the cellulose 
ethanol----
    Mr. DINNEEN. Well, not just because he is on the dais, but 
I think that the legislation that Congressman Pomeroy has 
introduced, that would make the tax incentives that exist for 
ethanol, and extending those and making them permanent, is 
going to allow the industry to continue to invest in these new 
technologies, and to continue to invest in new feedstocks.
    And I think that would be the most important thing to move 
this agenda forward.
    Mr. WELLER. Thank you.
    Chairman NEAL. I thank the gentleman. Mr. Pomeroy is 
recognized.
    Mr. POMEROY. Thank you very much, Mr. Chairman. I want to 
begin by thanking you for this hearing. As I said earlier, it's 
been a long time since we had a discussion like this one, and 
it couldn't come at a better time, trying to sort this all out.
    It's basically been a hodge podge of renewable energy 
incentives in our tax codes to try and evaluate how they're all 
working, and building a coherent rule, strategy. Thank you to 
this panel, because I think your testimony has been absolutely 
excellent.
    You see something very transforming in renewable energy 
from sources as diverse as wind to clean coal, and the ethanol. 
And closed loop systems, I believe, is just starting to 
really--we don't know, but it is really transformative.
    I would like to just focus on wind for a moment, to discuss 
the extraordinary growth in capacity. You're talking about a 
very serious power supply, you mentioned, being reduced now by 
wind. And a lot more coming up. Can you speak to that, please?
    Mr. STEVE. Certainly. Wind is growing fast, but we have to 
admit we're still less than 1 percent of the power generated in 
this country. We think we can do a heck of a lot more than 
that. And again, I think----
    Mr. POMEROY. What do you think you can do?
    Mr. STEVE. We think we can do something approaching 20 
percent of the power in this country, given the tools, given 
the incentives. And those incentives are--like I keep saying--
long-term extension of this credit. Because what we have seen 
over time--we have been very appreciative of every extension of 
the production tax credit that this Congress has passed, very 
appreciative, however, they have been in short durations. They 
have been 1 year, one-and-a-half years.
    And what we have said to folks is, ``Give us at least 5 
years, something on the order of 10 years. Two years plus 2 
years plus 1 year does not equal 5 years, because of the boom 
and bust.'' It is----
    Mr. POMEROY. I think the extenders--prior Congresses 
actually allowed the expiration, and totally disrupted from top 
to bottom----
    Mr. STEVE. Right.
    Mr. POMEROY. In Grand Forks, North Dakota, the end of 2003 
they had 25----
    Mr. STEVE. Exactly.
    Mr. POMEROY [continuing]. Because of the expiration----
    Mr. STEVE. Yes, and that's exactly what happens with an on-
again, off-again policy. And this tortures the books of 
companies in North Dakota and Shreveport, Louisiana, and 
elsewhere, is that they have literally got to lay people off. 
And you don't get those people back if those good-paying jobs--
--
    Mr. POMEROY. You think the technologies that----
    Mr. STEVE. Definitely.
    Mr. POMEROY. Very well. The question I had on ethanol has 
largely been asked, Mr. Dinneen, but there is a lot of 
skepticism about how quickly we can move--we can bring 
cellulosic ethanol into some dimension of ethanol production in 
our country. Would you care to speak to that?
    Mr. DINNEEN. Sure. There was skepticism in the summer of 
2005, when the energy bill was being passed, and people said, 
``Oh, there is no way in the world that the ethanol industry is 
going to be able to produce 7.5 billion gallons of ethanol by 
2012. That's way too much.'' And I think the marketplace has 
gotten the signal that this is real, and this is the place to 
invest. We are going to hit that 7.5 billion gallon target not 
in 2012, but probably by July of 2007. I mean, that's how fast 
the marketplace has responded.
    So, I think when you give the proper signal, the investors 
are anxious to get in. They just want to make sure that there 
is going to be a market, and it's going to be competitive, and 
this is the place to invest.
    Mr. POMEROY. We are not as far along as Iowa or Minnesota 
in the ethanol capacity, but we now have plants under 
construction--I've been to the groundbreakings--that are being 
built right this minute that will increase our ethanol 
production tenfold, and we're probably not done yet. I think 
that's an example of what's coming across the Midwest. It's 
unbelievable.
    Coal. You know, we've got an awful lot of coal resource. 
You're not asking for tax credits, you're asking for up front 
grants on technology research?
    Ms. FRENCH. What we're asking for is incentives to invest--
both technology development and tax incentives to invest in the 
massive amount of research required if we want to limit and 
control carbon from coal-fired power plants.
    Mr. POMEROY. Sequestration is a principle strategy?
    Ms. FRENCH. There are two aspects. One is carbon capture, 
which in an air-based system means you have to separate out the 
carbon from the nitrogen, and the second is carbon storage. 
Sequestration is the same.
    Mr. POMEROY. Jim McDermott mentioned that municipals don't 
benefit from tax credits. We tried to do a clean renewable 
energy bond alternative. Is that a prototype that we ought to 
continue to use to get rural electric coops and municipals--
non-taxable systems into the--I see my time is expired, Mr. 
Chairman, so I----
    Chairman NEAL. Proceed, proceed.
    Mr. POMEROY. I have no more questions, but I would sure 
like to----
    Chairman NEAL. That's fine.
    Mr. STEVE. If I can give an answer to that one, from a wind 
perspective, yes. That works. And we need to see more money 
available for those type of efforts by the public power 
entities, because they do not have--they cannot make access to 
the Production Tax Credit. This is kind of a--the flip side of 
the Production Tax Credit.
    Chairman NEAL. I thank the gentleman. The gentleman from 
New York, Mr. Crowley, is recognized to inquire.
    Mr. CROWLEY. Thank you, Mr. Chairman. I appreciate very 
much your extending me the courtesy of--not being a Member of 
the Subcommittee--being here today. And thank you, also, for 
opening this hearing today. I think it's one of the most 
important issues facing our Nation, in terms of reliance upon 
fossil fuels and especially parts of the world that we rely 
upon them from, and our dependance upon them.
    So, as we move toward weaning us off of--as the President 
referred to--fossil fuel, I appreciate all the work of the 
people who are engaged and have been for some time now.
    And my question is to fuel cell technology development, 
that technology, and solar energy as well. I represent parts of 
Queens and the Bronx in New York, and I have the distinction of 
representing a studio where the--which has green groups in it. 
I had the opportunity to tour the facility. It's on old 
building, but on top of that building they have plants growing, 
and it's a big source of energy, substantially, with that green 
roof.
    Also, in the Bronx portion of my district there was a new 
housing Committee that is being developed called ``Villa 
Verde,'' supported by the Bloomberg Administration, it is 
providing more housing in the city, and is also environmentally 
friendly. And I welcome that.
    Now, at the Federal level, an issue I have been looking 
into is the of the tax law for fuel cells installed in non-
residential buildings, the same tax treatment as commercial 
solar installations. And I understand that fuel cell technology 
has not taken off as it could, due to certain caps, as I have 
been told, certain caps and limitations within the Tax Code.
    I was wondering your thoughts on both the tax parity for 
fuel cells with solar, and possibly a move toward changing the 
current tax law to extend the 30 percent fuel cell investment 
tax credit for an additional 5 years--at least 5 years--with a 
provision that would strike the $1,000 per kilowatt cap for the 
purpose of the tax credit, applicable solely to commercial fuel 
cell installations, and eliminating the cap, or increasing the 
cap, to $3,000 per kilowatt. What are your thoughts on this, 
and the overall issue of using the Tax Code to promote 
technology parity?
    Mr. ROSE. I will start, if--Mr. Congressman. The fuel cell 
council's number one priority is the certainty that a long-term 
extension gives us. And the--that's the consensus view of our 
industry.
    That said, as I mentioned in my testimony, there are some 
Members of the fuel cell family who are not able to get access 
to markets nationwide, except in a few states where there are 
additional, rather aggressive support programs. And these 
companies say that an increase in the cap as much as $3,000 
would be of substantial benefit to them, and accelerate their 
deployment.
    But the--so at least as far as the official view of the 
council is, if we had to choose between the lower amount and 
the longer term and the higher amount and the shorter term, we 
would prefer the lower amount and the longer term. Ideally, we 
would prefer the higher amount and the longer term, obviously, 
and I guess that goes without saying, Mr. Chairman. But--and I 
hope that answers your question.
    I think, you know, some of our Members are--feel $1,000 is 
enough. Some of our Members feel that it is not, and that we 
need additional support. And some of our Members are not there 
yet in terms of product, and they don't know yet what the right 
level is.
    So, I think the one thing that helps the family of 
technologies the most, given what we can see today, is the 
certainty that the longer term credit can give us, and then 
perhaps we can talk about the appropriate level, and talk in a 
little more detail about how some of the companies are able 
to--what limitations it imposes on some of the companies.
    Mr. RESCH. I will just provide just a very short response. 
I actually put this picture up. It's North Bergen, New Jersey. 
It's not quite your district, but it does show--this is the 
second largest market for solar in the country, behind 
California. So New Jersey has prioritized the use in 
California, because of the grid instability, and the fact they 
can't build new power plants, it's just too congested. Same 
thing in Connecticut, actually, a very, very rich program 
starting to develop there. And then, Long Island, in fact, is 
the third largest market, and New York, the entire state.
    The question you raise is a very good one, which is the 
proper size and structure of the tax credit. And on the PV 
side, we're actually, in H.R. 550, looking to modify the tax 
credit from a cost-based structure to a capacity-based 
structure, similar to the fuel cell tax credit. And the reason 
why? That's a more efficient tax credit. It incentivizes lower-
cost systems, and encourages competition to drive down costs.
    And originally, in the energy bill, that 30 percent tax 
credit was created, and that was great. It was good 
recognition. But we have worked with economists, we have worked 
with experts to say, ``Okay, what is a tax structure that, 
within a timeframe of 8 or 10 years, is going to drive down the 
cost of solar so we don't need a tax credit?''
    We are not looking for permanency, we are looking for a 
duration that we know is going to deliver results as we scale 
up manufacturing, create jobs, drive down costs, so that solar 
becomes cost competitive at the retail level for--in every part 
of the country.
    And so, the structure for fuel cells, in going up to $3,000 
per kilowatt probably makes sense, because that's the structure 
we are certainly turning to, in particularly, with basically a 
$1,500 per half-kilowatt structure. So we would certainly 
support that. We think it's a more efficient type of tax 
policy.
    Mr. CROWLEY. Thank you.
    Mr. STEVE. Let me just add very briefly from a wind 
perspective, a smaller portion of our industry is a small wind 
turbine that you use to power your home or farm, going for the 
exact same market as is the technology we have just been 
talking about with the exact same treatment. There is currently 
no tax treatment for purchases of small wind turbines. We're 
looking at the same thing.
    Mr. CROWLEY. Thank you. Thank you, Mr. Chairman.
    Chairman NEAL. I thank the gentleman. The gentleman from 
California, Mr. Nunes.
    Mr. NUNES. Thank you, Mr. Chairman. It is a pleasure to be 
here.
    I just want to make sure that we clarify some of the things 
that have been said today. The Energy Policy Act of 2005 
invested $9 billion into nearly all of your industries--I think 
every one of your industries--and it was the largest investment 
in the history of the United States into renewable energy.
    And I just want to see, is there anyone here at the table 
that thought the Energy Policy Act that passed with very broad, 
bipartisan support, anyone here, do they oppose the Energy 
Policy Act of 2005, or do you think it was good for the 
industry?
    Mr. GAWELL. I support it.
    Mr. NUNES. Everyone down the line? I know some of you 
mentioned in your testimony----
    Mr. GAWELL. One observation, and it comes back to a couple 
of comments. You asked us what we could do about things. Well, 
first of all, at least from the geothermal perspective, you 
could start implementing--or the administration could start 
implementing--all of the provisions they haven't done rules 
for. I think we all support it, and we would like to see the 
Energy Policy Act really implemented now.
    Mr. NUNES. Sure.
    Mr. ROSE. And may I also comment? I think it's an important 
point that you really asked two different questions. One, I 
think we all support the Energy Policy Act, but that doesn't 
necessarily mean that it has been fully effective for my 
industry, at least.
    One of the issues that came up was this issue of Federal 
purchases of fuel cell units and other advanced energy 
technologies, and that has not yet been funded by the 
government, nor have appropriations been requested by the 
President. We are working with the Department of Energy now, 
we're in the third year of those discussions.
    And that--you know, in my industry, if you want to help us 
buy some units--and I think that is a critical piece of--one of 
the reasons why we're here, is we're here helping the private 
sector buy units, and the Federal government can also step up. 
And so I'm sorry for that elaborate answer, but----
    Mr. NUNES. I think all of us here, you know, including 
myself, have ways, you know, that we want to improve, you know, 
renewable energy in this country. I have had a bill, and I 
think everyone here in the Ways and Means Committee has a bill 
that they have worked on in the past.
    But I just want to make sure that everyone knows that in 
2005, the Energy Policy Act was--it did open the door. We know 
it hasn't been fully implemented, but it's working. And in 
large part, I think it's been good for our economy.
    I want to ask Mr. Dinneen a question. I have an interest in 
cellulosic ethanol, and I know that you are very familiar with 
that subject. But there is this ongoing issue, is it really 
viable. And I know that I read, at least in some news reports, 
that the government just gave out some grants for cellulosic 
ethanol startups.
    Can you tell the Committee at all, give a date or time that 
we can actually expect to go out and visit or see cellulosic 
ethanol being produced? Do you have a timeframe, or a time line 
that we can expect to see that?
    Mr. DINNEEN. Well, I tried to talk a little bit about that 
earlier. I do think that you're going to see commercial sale of 
ethanol production soon, likely from fiber, first. There is a 
plant----
    Mr. NUNES. Like straw?
    Mr. DINNEEN. The fiber I'm talking about is from the corn 
kernel itself, the corn fiber.
    Mr. NUNES. That's what you were talking----
    Mr. DINNEEN. Because it's already coming into the facility. 
And even breaking that down--that's cellulose and breaking that 
down has been a challenge. But the technology is very close to 
being commercialized.
    Because of the Energy Policy Act you have been talking 
about, which provided some grant funds, DOE about 3 weeks ago 
did announce 6 different grants, 382 million, to 6 different 
companies in 6 different parts of the country, using 6 
different feed stocks. And I can't tell you which one is going 
to succeed first.
    I do know this summer there will be a groundbreaking at a 
cellulosic ethanol in Emmitsburg. A comment about needing to 
make sure that the Energy Policy Act is, indeed, fully 
implemented. There are a couple of those cellulosic facilities 
that are still looking for the loan guaranteed funds to be 
appropriated, in order to move forward with their plans.
    But there are companies that are looking to break ground as 
soon as loan guarantees are secured on a wheat straw ethanol 
plant in Idaho, on a waste-to-ethanol plant in Los Angeles, on 
a woody biomass cellulose plant in Georgia, on a waste plant in 
New York State. So we are right there. We are on the cusp, and 
I do believe within--I hate to try to give a timeframe, because 
inevitably you're wrong, but you know, within two years, three 
years, there is going to be commercial production of cellulosic 
ethanol in a significant way.
    Mr. NUNES. Well, I think that is very exciting, and I am 
glad you are here before the Committee, because I think we 
really need to--the sooner that can happen, I think the better, 
and people will start to believe in cellulosic ethanol.
    So, thank you all for being here, for your testimony, and 
thank you, Mr. Chairman.
    Chairman NEAL. Thank you. Mr. Steve, you highlighted my 
argument that green was the new red, white, and blue, by 
testifying that the torch of the Statue of Liberty was lit by 
wind power. Thank you for reinforcing that position.
    Can you tell the Committee what are the most expensive 
aspects of producing energy which causes your industry to need 
incentives?
    Mr. STEVE. Yes, certainly. The biggest one, I would have to 
say, is access to electric power transmissionlines. There are 
areas of the country where you can produce vast amounts of wind 
power. And what we're looking for particularly in the Dakotas, 
areas of Texas as well--really, throughout the whole kind of 
heartland of the country--you don't have a big enough extension 
cord in order to get that power out of there to where it's 
needed in, say, Chicago, in the population centers.
    So, we can produce the power, but the country really needs 
to invest in a 21st century transmission system, not just for 
wind, but for all resources, for all renewal resources, for 
coal, for, you know, any kind of electric generation source 
possible. That's the biggest cost right now.
    Again, I keep hammering on this point. Long-term credit at 
full value is going to help us bring this----
    Chairman NEAL. Thank you. I would like to recognize Mr. 
Weller, if he would like to do a follow-up question.
    Mr. WELLER. Thank you, Mr. Chairman. And, you know, Mr. 
Carlson, you use biomass generation of electricity, and we have 
talked about cellulosic ethanol. Let me just ask what might be 
an obvious question. Is there plenty of biomass to go around?
    We are going to be using biomass for production of ethanol, 
as well as electric. Is there going to be a point where we're 
going to be----
    Mr. CARLSON. Well, there have been several studies on that, 
most recently by the 25x'25, which I'm on the steering 
Committee, which I have referenced a couple of times. And they 
show that there are staggering amounts of biomass, and it could 
be very--whether they be in dedicated energy crops, or whether 
we grow things on conservation reserve program lands, you know, 
which is the more controversial.
    And then, of course, the one that our industry relies on, 
to a large extent, and could make the largest contribution, and 
that is the health of nation's public forests, restoring that 
health by removing some of the excess materials that are out 
there that fuel these catastrophic wildfires that you all read 
about in the newspapers every summer, and they get larger every 
year. And so, there is a staggering amount of cellulose 
material that could be produced in the U.S.
    I think the goal of, you know, 25 percent of the nation's 
total energy, primarily driven, again, by biomass resource is, 
indeed, obtainable.
    The nice part about the work that Mr. Dinneen does in 
renewable fuels, versus the work that I do in biomass power, is 
that there is compatibility between those two, where those 
facilities that produce renewable fuels also use a large amount 
of energy internally, and that is where they can provide--
combined heat and power, both electricity and steam, that they 
need for those processes.
    And they may--the breaking down of the cellulose also frees 
up the component which basically makes the corn stalk stand up, 
and basically then--if that's a more difficult task, for them 
to break that down, then that could become a fuel for our 
industry. So all of these work in tandem, and I think all of 
this resource will be used completely.
    And I think that there is a staggering potential for this 
in the U.S. I mean, there are temporary dislocations, as have 
been mentioned, like corn ethanol growing so rapidly that the 
price has gone through the roof. But on a more long-term basis, 
I mean, I think there is almost an unlimited capability. The 
U.S. is--there is a tremendous amount of biomass that goes to 
waste----
    Mr. WELLER. There is a--in my district ----
    Mr. CARLSON. Yes. That's right. I mean----
    Mr. WELLER [continuing]. That produces watermelons. I'm 
told that they throw away 800 million pounds of watermelons a 
year. There is never a short on watermelons.
    Mr. CARLSON. Where I am from in California, they actually 
grow watermelons just for the seeds. Now, there is a waste.
    Mr. WELLER. But the 25x'25 concept, can we achieve a 25 
percent portfolio of renewable sources, you know, alternative 
sources, for our nationwide energy consumption prior to 2025? 
Do we need the next 18 years to achieve that goal, or can it be 
done more quickly?
    Mr. CARLSON. Well, if you look at the recommendations of 
25x'25, it started with the incentives that are there, and they 
created some new programs to enhance those. And of course--the 
answer is of course. We could achieve it before 2025 if we 
really wanted to put either the market drivers in place--some 
of this has been talked about today, in terms of other taxes. 
And you can do this all with incentives, obviously.
    And--but it's so difficult. They are--it's very expensive 
to increase the incentives, obviously. But you don't value the 
things that you have saved. You don't value the national 
security, the benefits. If you would, you would find that these 
incentives are very well paid for, justified, to give us by 
2020 or 2018, because, you know, the--it's--I mean, there is 
still a lot of entrepreneurs out there that are willing to put 
their capital into a market that they know is going to be 
there.
    Mr. WELLER. Thank you. Thank you, Chairman.
    Chairman NEAL. I want to thank the panelists today. I 
thought your testimony was exceptional. And it is going to be 
very helpful, as we move forward, in crafting our legislation.
    I also think it's important to acknowledge the number of 
Members who attended today, and Members who are not on the 
Subcommittee, in fact, showed up. I think that highlights the 
intense level of interest in energy issues, as they relate to 
the national security.
    So, please note that there may be some written follow-up 
questions from Members. And without objection, the record will 
remain open for these questions and answers. If there are no 
further comments, I wish to adjourn this meeting and say thanks 
to all.
    [Whereupon, at 4:50 p.m., the Subcommittee was adjourned.]
    [Submissions for the Record follow:]
             Statement of American Institute of Architects
    The American Institute of Architects, the voice of the 
architectural profession and the resource to its 80,000 members in 
service to society, strongly supports governmental policies, programs, 
and incentives that encourage energy conservation--especially as they 
relate to the built environment. We applaud the efforts of Chairman 
Neal and the Members of the subcommittee for holding this important 
hearing on how tax incentives can increase the development of 
alternative energy technologies and improve energy efficiency.
    In order to significantly improve energy efficiency in the United 
States, we must make a serious commitment to designing and constructing 
more energy efficient buildings. The building sector is one of the 
largest consumers of energy in our nation and is responsible for a 
massive share of the electricity used. One way to spur the development 
of energy efficient buildings, and thus reducing the amount of energy 
the building sector consumes, is through tax incentives. Specifically, 
extending and enlarging the Energy Efficient Commercial Buildings Tax 
Deduction (Public Law 109-58, Sec. 1331) will provide the necessary 
incentives to spur the design and construction of more energy efficient 
buildings in the United States.
    According to the Department of Energy's Energy Information 
Administration, the building sector accounts for 39 percent of total 
U.S. energy consumption, more than both the transportation and industry 
sectors.\1\ The same report found that buildings are responsible for 71 
percent of U.S. electricity consumption. Therefore, if we in the United 
States want to be serious about energy efficiency, buildings must 
become a significant part of the discussion.
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    \1\ http://buildingsdatabook.eere.energy.gov/docs/1.1.3.pdf
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    Over the next 30 years, the character of the built environment will 
change dramatically. Currently, U.S. building stock sits at 300 billion 
square feet. Experts predict that between now and 2035, 52 billion 
square feet will be demolished, 150 billion square feet will be 
remodeled, and another 150 billion square feet will be newly 
constructed.\2\ Because buildings are such a major consumer of energy, 
the AIA believes that if Congress and our nation want to significantly 
improve energy efficiency, addressing energy consumption in the next 
generation of buildings is a vital endeavor. Providing incentives for 
designing and constructing energy efficient buildings and for 
installing energy efficient systems in them is an effective way for the 
Federal Government to promote a sustainable future.
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    \2\ http://www.architecture2030.com
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    Federal tax incentives designed to spur the construction of energy 
efficient buildings are currently in place, but in order for these 
incentives to be utilized to their potential, some changes are needed. 
Specifically, within the Energy Policy Act of 2005 (Public Law 109-58), 
Congress approved a provision that created a tax deduction for the 
design and construction of commercial buildings that meet a high 
standard of energy efficiency.
    Known as the Energy Efficient Commercial Buildings Tax Deduction, 
this incentive allows building owners to claim a tax deduction of up to 
$1.80 per square foot of building area for the installation of systems 
that reduce the total energy and power costs by 50 percent or more when 
compared to a specific industry standard for energy efficiency (ASHRAE 
90.1). The building systems eligible to secure the tax deduction 
include interior lighting systems; heating, cooling, ventilation, and 
hot water systems; and building envelope systems.
    Some energy efficient systems are more expensive to design, build, 
and install than their traditional counterparts. Thus the initial 
increased capital costs often dissuade owners from installing these 
systems. The Energy Efficient Commercial Buildings Tax Deduction 
addresses this situation and provides building owners with the 
financial incentive to build in an energy efficient manner.
    The AIA strongly supported the enactment of this tax deduction; 
however in order to ensure that it can continue to be used to encourage 
the construction of energy efficient buildings, the deduction must be 
extended and enlarged. The current deduction can only be claimed for 
buildings placed into service by December 31, 2008. As it often takes 
years to move from the building's initial design stage to final 
completion, many buildings on drawing boards today will not be placed 
into service until long after the deduction has expired and therefore 
are unable to reap the intended tax benefit for installing energy 
efficient systems. Therefore, the AIA encourages Congress to extend the 
Energy Efficient Commercial Buildings Tax Deduction for a sufficiently 
long and predictable period to allow designers of future structures to 
factor it into their financial calculus.
    Legislation has been introduced in both the House and the Senate 
that will extend the Energy Efficient Commercial Buildings Tax 
Deduction. H.R. 539, The Buildings for the 21st Century Act, will 
extend the tax deduction until 2013. This bill, introduced by Rep. 
Allyson Schwartz, has attracted 136 bi-partisan cosponsors and if 
adopted, would ensure that any buildings that meet the efficiency 
requirements under the deduction and are placed into service by 2013 
will be able to claim the deduction. In an effort to further increase 
the deduction's effectiveness, H.R. 539 increases the deduction from 
the current $1.80 per square foot to 2.25 per square foot. The AIA 
strongly supports this bill because exceeding ASHRAE 90.1 by 50% is a 
significant leap in energy efficiency and, in most cases, will require 
capital expenditures in excess of $1.80 per square foot to reach it.
    We applaud the Subcommittee for addressing this issue and urge it 
to extend and deepen the Energy Efficient Commercial Buildings Tax 
Deduction.

                                 

        Statement of Andrew J. Skok, Fuel Cell Power Association
    The Fuel Cell Power Association (FCPA)appreciates the opportunity 
to submit this statement in support of extending and expanding the 
current tax credits available for fuel cells. The FCPA consists of 
companies involved in stationary applications of fuel cells for 
electric power plants on both a commercial and research and development 
level.
    Fuel cells are ultra-clean systems that produce power at very high 
efficiencies at scales ranging from a few kilowatts per installation to 
multi-megawatt power plants. They are applicable to both distributed 
generation and central station power and can also operate in a 
cogeneration mode to utilize waste heat from the system. Fuel cells can 
also operate on a variety of fuels including natural gas, gasified 
coal, digester gases from waste treatment facilities, other biofuels, 
and hydrogen. Their versatility, efficient operation, and environmental 
characteristics have made them a very desirable alternative to current 
fossil fuel fired power systems and have resulted in considerable 
support for their accelerated development through research and 
development programs of the Department of Energy.
    Considerable progress has been made in fuel cell development over 
the years and several products are at a commercial threshold. As with 
many new technologies such commercialization has been inhibited because 
of high initial cost of products and the resulting low volume of sales. 
Large investments in production capacity are unlikely without 
incentives to drive down the cost of the initial commercially offered 
systems so that significant volumes of fuel cell sales may reduce unit 
costs for the systems.
    This Committee has recognized both the environmental and efficiency 
benefits of fuel cells as well as the need for incentives to accelerate 
their commercial introduction through enactment of the Section 48 fuel 
cell investment tax credit included in the 2005 Energy Bill. The FCPA 
appreciates the Committee's action in this regard. In combination with 
State-based incentives these incentives have helped FCPA members 
complete agreements for the installation of fuel cells in a handful of 
states that offer such incentives, particularly California. However, 
such installations are only viable in a small number of states and only 
when very high cost power is the competition. In order to compete 
nationally in the short term, fuel cells need to receive additional 
incentives. We believe, based on incentive levels in California, that 
an investment tax credit of $3,000 per kilowatt is necessary. Such a 
credit will encourage a comprehensive base of fuel cell installations 
in much broader applications than are currently financially viable. It 
will provide a significant increase in the volume of fuel cell sales, 
which in turn will encourage larger manufacturing capacity. These 
actions will result in significant reductions in fuel cell 
manufacturing costs making the technology viable in more markets.
    In addition to an increase of the ITC to 3,000 per kilowatt, the 
FCPA joins the U.S. Fuel Cell Council in requesting that the provision 
be extended for eight more years. Such an extension will allow for a 
stable industry to be formed, as well as encourage the introduction of 
new, even higher efficiency, technologies now under development by the 
industry. It will also encourage increases in production capacity and 
construction of facilities related to new fuel cell technologies and 
foster the viability of markets for the resultant products.
    Finally, the FCPA understands that currently if an entity opts to 
take advantage of the ITC it may not utilize the Production Tax Credit 
(PTC) available for electricity produced using biofuels. Removal of the 
prohibition on using both credits would make fuel cell use in renewable 
applications much more financially viable, particularly where competing 
electricity prices are low.
    The fuel cell industry is in a position to provide very-high 
efficiency power in both distributed and central station power 
applications with a minimum of environmental emissions. The technology 
has received significant support from the Federal government over a 
considerable period of time and is now at the threshold of commercial 
viability. Continuing and improving the tax incentives originally 
provided by this Committee is in the interest of this nation as it 
strives to reduce the environmental impact of electricity generating 
technologies and reduce overall energy use and dependence on foreign 
sources of energy. Therefore, the FCPA recommends that:

      The ITC be increased to $3,000 per kilowatt,
      The ITC be extended for 8 years, and
      Fuel cell users be permitted to claim both the ITC and 
the renewable energy PTC for electricity from biomass sources.


                                 

          Statement of Association for Commuter Transportation
    The Association for Commuter Transportation (ACT) congratulates the 
House Ways & Means Committee for holding a series of committee hearings 
on energy and tax policy. Additionally, ACT would like to urge the Ways 
& Means Committee to hold additional hearings on this subject matter, 
specifically regarding tax policy & the demand side of energy 
consumption.
    As the Ways & Means committee considers policies to establish 
energy independence, it is important to consider not only the supply 
side of the equation, but also the demand side. Much of Congress' focus 
to date has centered on the need for cleaner, more efficient energy 
supplies, i.e. hybrid automobiles, alternative fuels, ethanol, etc. 
While these are all certainly worthy causes, their benefits will 
diminish if the demand for energy continues to increase at the current 
rate. This is particularly relevant in the transportation sector. 
Increase vehicle miles traveled (VMT) has negated any increase in fuel 
efficiency rates over the past decade. Additionally, increased VMT 
leads to increased congestion which leads to an increase in fuel 
consumption. An energy bill will not be complete without taking aim at 
reducing VMT.
    ACT has developed a white paper (attached) which identifies 4 key 
strategies for reducing VMT, promote innovative solutions to congestion 
relief, engage employers in an effort to reduce congestion, improve the 
congestion mitigation and air quality program, and expand options for 
commuters. Within these four strategies are a number of recommendations 
and implied legislative remedies. While some of these recommendations 
lie outside of the jurisdiction of the ways and means committee, ACT 
has a number of recommendations it feels would improve an energy bill.

      Create parity between the transit/vanpool and parking 
portions of IRC 132(f) (HR 1475);
      Approve the Bike Commuter Act (HR 1498);
      Resurrect the Investment Tax Credit established by the 
1978 Energy Policy Act;
      Provide tax credit for the purchase of equipment used for 
teleworking;
      Tax Credit for Employers who subsidize their employees 
alternative commutes; among others.

    ACT developed this white paper and recommendations with budget 
realities in mind. Many of the recommendations come at no cost to the 
Federal government. These recommendations also provide cost effective 
results.
    For example, if the Investment Tax Credit for vanpools originally 
in the 1978 Energy Policy act were resurrected, it is estimated that 
vanpooling nationwide could triple over the course of several years. If 
the growth, as expected, were to occur, it would mean an additional 
16,000 vanpools operating nationwide, leading to the conservation of 
hundreds of millions of gallons of gas each year. The 10-year cost to 
the Federal treasury would be roughly 50,000,000. Consider this when 
looking at other tax credits currently being discussed. The chart below 
compares the daily consumption of fuel for commutes to and from the 
work place. A typical vanpool is 3 times more fuel efficient than 10 
new hybrid autos, and 6x more fuel efficient than 10 new autos. Plus, 
every vanpool placed into service reduces the number of peak hour autos 
in commute traffic by a factor of 10.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fuel Efficiency of Single Occupant Autos vs. Hybrid Autos vs. Vanpools
----------------------------------------------------------------------------------------------------------------
                                       10 Peak Hr Autos
                                                                10 Peak Hr Hybrid        1 Peak Hr
----------------------------------------------------------------------------------------------------------------
Mileage per Gallon                     22 mpg                   43 mpg                   13 mpg
----------------------------------------------------------------------------------------------------------------
Daily Commute                          50 miles                 50 miles                 50 miles
----------------------------------------------------------------------------------------------------------------
Fuel Consumed/Vehicle                  2.27 gallons/vehicle     1.16 gallons/vehicle     3.85 gallons/vehicle
----------------------------------------------------------------------------------------------------------------
Total Fuel Consumed                    22.7 gallons             11.6 gallons             3.85 gallons
                                       (10 autos)               (10 hybrid autos)        (1 vanpool)
----------------------------------------------------------------------------------------------------------------

    ACT is hopeful that it will be afforded an opportunity to share 
more of its views before the Ways & Means committee at a hearing 
dedicated to demand side energy tax policies and proposals. If you have 
any questions, please contact Jason Pavluchuk, ACT's government 
relations liaison.
                                                          Jon Martz
                                                          President

                                                    Nicholas Ramfos
                                                     Vice President

                                                        Lynn Osborn
                                                          Secretary

                                                         Brian Shaw
                                                          Treasurer

                                                   Elizabeth Stutts
                                           Immediate Past President

                                                        Mark Wright
                                                 Executive Director

                                 

                    Statement of Avista Corporation
    We are writing to urge you to (1) extend the 30 percent Investment 
Tax Credit (ITC) for solar energy property for a minimum of eight 
years; and (2) remove the current `exclusion' in Internal Revenue Code 
section 48 that prevents electric utilities from claiming the energy 
ITC.
    The 30 percent commercial solar property ITC, which is scheduled to 
expire on December 31, 2008, provides an incentive for development of 
commercial solar projects that has spurred new growth in U.S. solar 
power generation. In order to maintain this potential, it is critical 
that Congress provide a long-term extension of the 30 percent 
commercial solar ITC.
    In addition, an obvious way to support large-scale development of 
solar power in this country is allow the sector that may have the most 
to offer toward this goal--electric utilities--to claim the same tax 
incentive that other businesses can. Granting electric utilities the 
ability to take advantage of the solar investment tax credit by 
removing the section 48 electric utility exclusion will encourage 
broader and more efficient development of solar power, resulting in 
more use of solar power and lower cost to the consumer.
    Many in the electric utility industry are increasingly hopeful and 
optimistic about the long term potential of solar power as an important 
contributor to our nation's energy generation portfolio. A long-term 
extension of the existing commercial solar ITC for eight years or more 
and removal of the section 48 electric utility exclusion will provide 
the market stability necessary in the solar sector to encourage long-
term large-scale solar investments, including by utilities. These 
changes would help underpin what we hope will be dramatic growth in 
solar power generation in this country.
    We appreciate your support for the long-term extension of the 
commercial solar ITC and the removal of the section 48 electric utility 
exclusion.

                                 
                   Statement of Blue Mountain Energy
    Thank you for the opportunity to submit testimony regarding energy 
efficiency tax credits and inclusion in upcoming legislation. My name 
is Paula Young representing Blue Mountain Energy (BME). BME is a 
consulting company who provides professional scientific and technical 
expertise for research and development projects. We are working in 
conjunction with our local distribution company, Southwest Gas 
Corporation, to develop and demonstrate gas-fired heat pumps in the 
Southwest United States.
    We are pleased that H.R. 1385 and S.822, the EXTEND Act includes 
investment tax credits for both residential and commercial gas fired 
heat pump purchases. We have worked extensively with the Natural 
Resources Defense Council, the American Council for an Energy Efficient 
Economy and the Alliance to Save Energy to ensure that these credits 
are for only very high efficiency equipment and that they move us 
towards a cleaner and more efficient energy future.
    Tax credits for gas fired heat pump technology is included in the 
EXTEND act in Sections 102 (for Residential equipment) and in 204 (for 
Commercial equipment). The credit would be only for those systems with 
a coefficient of performance of at least 1.1. Two types of small gas-
fired equipment are expected to be eligible for the credit.
    1) Absorption Heat Pumps use a refrigerant, absorbent and heat to 
create a cooling effect. Simply put, the cooling effect is accomplished 
with the removal of heat through evaporation of a fluid (refrigerant) 
at low pressure and the rejection of heat through the condensation of a 
fluid (refrigerant) at a higher pressure. In the chiller unit, heat 
provided by a gas burner boils the ammonia out of the water and 
condenses it in an outdoor coil. The ammonia is then evaporated at low 
pressure, cooling a circulating water system. The chilled water 
circulates through the area to be cooled via a piping system 
eliminating the need for ductwork and making the system well suited to 
a variety of applications. The ammonia is then reabsorbed into the 
water (the absorption process) and the cycle repeats. In heat pumping 
mode, the cycle is reversed.
    2) Natural Gas Engine Driven Heat Pumps utilize proven, built-for-
purpose natural gas engines, robust compressors, and standard air 
conditioning components. In heating mode, the technology is able to 
take advantage of waste heat from the engine for extremely high 
efficiencies. The technology runs very much like electric equipment; 
however, the engine running the compressors operates on natural gas 
directly instead of electricity.
    Gas-Fired cooling (air conditioning) is currently used in 
approximately 3% of buildings nationwide with all of that being in the 
large tonnage arena (medium size to large size commercial buildings). 
There are only a couple manufacturers building packaged gas-equipment 
for the small commercial and residential market with sales being in the 
less-than 500 per year range. The greatest advantage of increased 
national use of natural gas-fired cooling is the more efficient use of 
our natural gas and the reduction in peak electricity loads in the hot 
summer months. Gas heat pumping is entirely new technology that is 
significantly more energy efficient than current gas heating 
technologies.
Societal Benefits of the Technology that warrant the credit
      Energy Efficiency: These technologies are at least 50% 
more efficient in heating mode than existing natural gas heating. In 
cooling mode, there is little to compare to except incumbent 
technology, which runs on electricity; however, overall use of natural 
gas is reduced when it is used directly at the unit. Additionally, in 
cooling mode, the COPs are better than those currently being achieved 
by large sized gas cooling technology.
      Conservation of our nation's natural resources: Electric 
generation power plants are generally less than 50% efficient, with 
many plants having significantly lower efficiencies. The direct use of 
natural gas will can achieve a two to three-fold increase in 
efficiency. Additionally, combined cycle power plants use approximately 
one third of a gallon of water to produce one kilowatt-hour of 
electricity, whereas these technologies require either no water (in the 
case of the engine technology) or very little (in the case of 
absorption).
      Reduction of Peak Electricity Demand: Summer air 
conditioning has lead to higher peak demand in the summer increasing 
electric rates substantially. In addition, during the summer, the 
electric peaking plants tend to generate both the most inefficient and 
the most expensive power. Increasing direct use of natural gas in the 
summertime will significantly reduce this peak demand for electricity 
and even out the demand for natural gas.
      Cost savings for consumers: Utilizing natural gas 
directly at the gas heat pump will provide meaningful year round energy 
cost savings. Thus, the lifecycle costs are lower when installing gas 
fired equipment. Natural gas heat pumps use natural gas during the 
``off peak'' summer months, which in turn, reduces the customers 
overall electric demand charges by significantly reducing their 
electrical requirements during the times when electrical prices are the 
highest. A natural gas heat pump is also a more efficient heating 
system; consequently, the amount of natural gas used in the winter 
months is less than a conventional gas furnace, providing even more 
energy savings and conservation benefits. Additionally, when 
manufacturing volumes increase, first cost could be on par with the 
incumbent technologies.
      Low Environmental Impact: The direct use of natural gas 
provides a two to three-fold increase in efficiency. This increase in 
efficiency saves both natural gas and water over the long run. The 
technologies also do not use harmful refrigerants.
      National Security: Natural gas is primarily a domestic 
resource and our overall energy security is enhanced through the 
reliance of this abundant domestic energy source. The natural gas 
industry's underground pipeline delivery system is very efficient and 
reliable and not as vulnerable to attack or natural disasters as 
electricity delivery systems.
      Fuel Diversity: Consumers currently do not have fuel 
choice in their air conditioning needs. These products would be the 
first to offer that choice
      Consumer benefits: Unlike most electric technology, the 
systems can have multiple zones for comfort control, they are very 
quiet and safe to operate with minimal moving parts

    We urge inclusion of the equipment provisions under sections 102 
and 204 of the EXTEND act by included in any energy tax legislation 
moving through the congressional process this year. Thank you for the 
opportunity to comment.

                                 

     Statement of Commuter Check Services Corporation, Watertown, 
                             Massachusetts
    As the House Ways and Means Committee analyzes ways in which the 
tax code can be used to promote alternative energy, Commuter Check 
Services would like to take the opportunity to urge the Committee to 
also be mindful of those actions and initiatives that Congress can take 
which will reduce demand energy consumption. One of those initiatives 
is to promote usage of the transit portion of the transportation fringe 
benefit, specifically, report HR 1475, introduced by Congressman 
McGovern (D-MA) which would create parity between the parking and 
transit portions of the commute benefit.
    Issue. Transit Benefits are authorized by Section 132(f) of the 
Internal Revenue Code, which allows for pre-tax salary deductions for 
transit and parking or employer subsidized transit or parking. The 
transit provisions include vanpool services. The current tax-free limit 
for transit is 110 per month; the limit for parking is 215. The 
inequity discourages public transit use, encourages automobile 
commuting and consumption of gasoline, and the associated impacts on 
air quality, climate change and related concerns.
    History. The transit benefit was first ``codified'' in 1984 and 
limited to 15 per month. Its popularity and consistent support by 
Congress has resulted in the benefit being increased and expanded as 
follows.

    1984:  Legislation codifies transit benefits, $15 per month maximum 
(``cap''), limited to employer subsidy
    1991: IRS raises transit benefit cap to $21
    1992: Legislation raises cap to $60 per month
    1995: Inflation adjustment raises cap to $65
    1998: Legislation adds the employee-paid pre-tax payroll deduction 
option
    2002: Legislation raises the monthly maximum benefit cap to $100
    2005: Inflation adjustment raises cap to $105
    2007: Inflation adjustment raises cap to $110

    Participation. Employers of all sizes and types, in the public, 
private and non-profit sectors, use the transit benefit, from the 
smallest employers to the largest private companies, as well as local 
and State governments and the U.S. Government. It is estimated that 
over 50,000 employers use transit benefit programs, which are operated 
by local transit agencies, regional planning agencies, private 
businesses and chambers of commerce. It is estimated that over 1.5 
million commuters now use the transit benefit, in every State of the 
country.
    Need for Increase. Use of the existing program has been strong, but 
the lack of parity for the transit and parking provisions limit the 
effectiveness of the transit benefit. The $215 limit for tax-free 
parking allows parking to be fully paid on a tax-free basis for all but 
a very small share of auto commuters. Numerous U.S. DOT and EPA studies 
have identified free parking as a major if not the single most 
important urban transportation problem. In contrast, the 110 cap for 
transit means that many transit riders in all of the major U.S. transit 
markets are unable to get their transit pass with tax free funds. 
Transit fares exceed 110 per month for transit operators in Boston, 
Chicago, New Jersey, New York, Philadelphia, San Francisco, Virginia, 
Maryland and elsewhere. The vast majority of all transit rides taken 
are in these cities.
    Impacts. Even with the lower tax-free limits for tax-free support 
of transit, numerous studies, including one performed by the National 
Academy of Science, have documented the effectiveness of the transit 
benefit in building transit use. The transit benefit is especially 
effective in building transit use because it focuses on the worksite, 
the destination for commuting trips. It is a cost-effective way to 
target tax support for to reduce peak period congestion and the 
associated environmental impacts. A summary of the many studies 
performed on the effectiveness of the transit benefit appears on the 
following page.
    Cost Offset. To offset the cost of creating parity, the tax-free 
limit of $215 per month for parking would be reduced to $200, and the 
cost-of-living adjustments included in Sec. 132(f) would be frozen in 
order to pay for the increase of the transit portion.
Simple Elasticities
    Considerable data on the impacts of transit benefit programs is 
available, but the obvious and well-documented relationship between 
fare levels and ridership is the simplest confirmation. Decades of 
experience show that for every 10% increase in fares ridership falls by 
3%. The reverse is also generally true; fare reductions build ridership 
by approximately 30% of the price reduction. Thus, if an employer 
benefit program reduces employee fares by 40%, the ridership growth 
would be expected to be 12%. As shown below, actual impacts appear to 
be greater, i.e., that employer-based tax incentives are more effective 
in building ridership than fare reductions are. This is likely because 
transit benefits are an incentive that focuses on the largest 
opportunity to build ridership--auto users.
National U.S. Study (National Academy of Sciences, TCRP, 2005)
    ``Employer programs contribute 5 to 25% of total transit rides and 
5 to 40% of revenues.''
    ``Transit ridership generally increases 10% or more at 
participating worksites.''
    ``More than half of the surveys reported an increase in transit 
riders between 10 and 40%, and nearly one quarter reported increases of 
more than 60%.
    ``Two surveys (San Jose and Atlanta) suggest that transit ridership 
more than doubled after a transit benefits program was implemented.''
Bay Area Study
    General: Transit subsidies generated an increase in transit commute 
trips of 25% in San Francisco and 48% in outlying areas.
    Apple Computer: Number of participants in transit program tripled 
when transit voucher program replaced pass program.
    Lawrence Livermore National Laboratory: ``Use of transit rose 50% 
when we began offering Commuter Checks.''
    Hewlett Packard: Transit use rose 100% when the employer pass 
program was changed to a transit voucher program.
    Bay Area Rapid Transit District (BART): Employer programs serve 
over 60% of peak period employed riders (2006 study).
Philadelphia Region
    35% of participating employees indicated they use transit more 
often than before they started using TransitCheks.
    8.5% were new users to transit.
    13.7% increased the total number of trips per week (\2/3\ from new 
users, \1/3\ from added frequency).
    Average number of new trips per week = 6.6.
New York
    14% of TransitChek users said they did not use transit before 
receiving TransitChek.
    10% of TransitChek users reported increased transit use for 
commuting after receiving TransitChek.
    24% of TransitChek users reported increased transit use on weekends 
after receiving TransitChek.
    15% of TransitChek users reported increased transit use on weekday 
evenings after receiving TransitChek
Accor Services USA

                                 

              Statement of Environmental Power Corporation
    Good Morning, Mr. Chairman. I am Joe Cresci, the Chairman of the 
Board of Environmental Power Corporation. EPC was founded in 1982 and 
is headquartered in Portsmouth, New Hampshire. Since its founding, 
Environmental Power has developed only generating facilities powered by 
non-conventional fuels and renewable energy sources, including hydro-
electric and waste coal-fired generation.
    The focus of my comments this morning is our subsidiary, Microgy, 
Inc., headquartered in Golden, Colorado. Microgy develops biogas 
systems, utilizing anaerobic digesters, which are very efficient at 
extracting methane-rich biogas from a combination of livestock manure 
and other organic and food industry wastes. To date, we have completed 
or announced projects in Wisconsin, California, Texas, and Nebraska. 
With appropriate public policy, we see large market opportunities in 
many other areas of the country, including large and small agricultural 
areas that are home to dairy and feed cattle farms as well as swine 
production areas.
    We refer to our biogas as RNG--Renewable Natural Gas. Our RNG is 
used to produce ``green'' pipeline-grade methane, thermal energy or 
electric power. Microgy, along with our Danish licensor, has 
significantly improved conventional anaerobic digestion technology, 
enabling us to generate RNG at volumes and costs that are commercially 
attractive.
    Although SEC regulations and competitive considerations do not 
permit me to discuss cost and pricing matters in detail, I can say that 
we believe our RNG will be competitively priced compared to projected 
prices for LNG imports. At the same time, our technology and manure 
handling processes also significantly reduce greenhouse emissions, 
improve water quality and dramatically reduce odors around animal 
operations.
    There are three areas where support from the government could allow 
this expanding technology to compete with the highly capitalized and 
government-subsidized existing energy infrastructures.
    1) First, a credit for the production of biogas from certain 
renewable feedstocks: this production tax credit should be on a parity 
with biodiesel from waste oil, which is the most comparable product for 
a renewable fuel already on the books. The credit also needs to be 
transferable under rules and regulations created by the Secretary of 
the Treasury. A tax credit which is not monetizable is significantly 
less valuable to a small, emerging industry which may not yet be 
turning a profit.
    2) Second, a counter-cyclical safety net program for biogas 
producers: this would be a payment first used to pay down loans and 
other obligations from the building of a facility if the average daily 
price of natural gas fell below a predetermined price for a prescribed 
period.
    3) Third, transportation incentives for smaller operators: these 
would help incentivize multi-farm collection and transportation of 
qualified energy feedstocks from smaller livestock operations to a 
qualified facility or for the purchase or construction of equipment or 
facilities for collection and transportation.
    Why is this technology development so important? Anaerobic 
digesters (AD) are devices that capture, control and enhance the 
degradation of organic material. Two principal benefits occur: 
production of energy and environmental benefits--including large scale 
greenhouse gas capture and manure management. The biogas produced by 
anaerobic digestion is composed of about 60% methane, the principal 
ingredient of natural gas, with most of the rest being carbon dioxide. 
Methane, which is 21 times more damaging as a greenhouse gas than 
CO2, would ultimately escape into the atmosphere if not 
captured in the AD process. Biogas can be used ``as is'' as a power 
source, or cleaned up to be used as a renewable substitute for natural 
gas, propane or other fossil fuels. If to be used for interconnection 
with the natural gas pipeline, the biogas must be scrubbed until it is 
in excess of 95% methane. It is worth noting that with current 
scrubbing technologies, the additional capital and operating cost is 
only justified in the case of larger-scale systems.
    In the U.S., until recently, use of AD has been limited to old-
generation, small-scale technology. Currently, however, advances in 
technology have made AD more cost competitive with other types of 
energy. While viability is well established at operating facilities, 
large scale deployment of this type of energy production requires 
support comparable to that provided to competing sources of energy in 
order to expand and develop the potential market into a significant 
renewable energy source that can truly impact the country's needs for 
alternatives to fossil fuel.
    Digesters are normally designed to process the feedstock available 
to them and can be scaled up and down in size. However, in order to 
access the commercial mainstream--that is, to be economically viable 
and make a significant impact on our energy supply--larger-scale 
systems are necessary to achieve economies of scale in both production 
and market access, including access to the existing infrastructure for 
marketing, transportation and distribution of conventional fuels.
    Our on-the-ground experience and market research has shown us that 
the small-scale, single farm systems face a host of difficulties. They 
have relatively high expense due to a lack of economies of scale, and 
often, poor operational results. The systems are typically operated by 
the farmer, who is not and does not want to be an expert on AD and 
manure management. Smaller operations also have interconnection issues. 
The small energy producer is not worth a utility's time and effort and 
have even more limited private sector financing opportunities. Their 
economic viability relies heavily on existing USDA and state grant and 
subsidy programs.
    Larger-scale systems allow for professional management, negotiation 
of energy agreements with utilities and other energy end users, 
efficiencies and economies of scale, and especially, the volumes of 
output required for refinement into pipeline quality renewable natural 
gas for delivery via our nation's existing transport and distribution 
infrastructure, the interstate pipeline system. Such projects have 
numerous commercial financing options. The farmer, rather than 
diverting his efforts to his own system, can receive a slice of a 
larger pie, without a financial or management investment on his part. 
In Microgy's business model, we seek to become the partner of the 
farmer, with our specialty being the day to day operation of the 
anaerobic digester.
    AD utilizing animal and other byproduct materials can generate 
significant quantities of energy in the United States. We estimate that 
AD systems on larger-scale dairy, swine and beef farms, if fully 
operational and with a complete supply of all feedstock materials, 
could produce well over 340 billion cubic feet of natural gas 
equivalents per year. Note that 1000 cubic feet of natural gas equals 
approximately 1 million btus. The potential production of 340bcf has 
the energy equivalent of approximately 2.5 billion gallons of heating 
oil per year.
    In addition, a significantly larger market would be available if 
expanded to smaller farms: over 90% of all the cows in the U.S. are on 
farms smaller than 2,000 head. However, in order for energy production 
to be cost-effective on such farms the manure from these farms would be 
combined for use in larger, centralized facilities. In this way smaller 
farms can also benefit from economies of scale and the other benefits 
accruing to larger-scale systems. Without support, however, today's 
transportation costs could limit their opportunities to participate.
    Processing manure and other materials by AD also creates 
significant environmental benefits, including greenhouse gas emissions 
reductions, as methane that would otherwise have been released into the 
atmosphere is captured. Note that methane is 18-21x more powerful a 
greenhouse gas than CO2. Other air quality improvements 
include significant reductions in odor, ammonia and particulates. 
Utilizing AD also generates water quality improvements, including 
reduction of excess nutrient run-off--such as occurs with phosphates, 
nitrates, and BOD materials, and help to farmers in addressing 
significant water pollution challenges. In addition, the systems 
produce value-added products. Each one million gallon digester would 
also generate 100 tons NH3; 153 tons P205 and 184 tons K20 fertilizers, 
as well as approximately 10 cubic yards of bedding, compost or mulch. 
At full development of the potential AD to Energy market, these value 
added products would equal over 500,000 tons of NH3, 800,000 tons of 
P205, 900,000 tons of K20 and 52,000 cubic yards of bedding, all per 
year. Note also that many of the synthetic products such as fertilizers 
that would be replaced by the residuals from AD energy production are 
themselves produced from petroleum.
    These projects bring significant economic benefits to the areas 
where they are built, normally in rural often isolated regions. 
Although we realize that real ``economic gain'' is not part of the 
Congressional scoring process, we believe it is extremely important to 
point out that, based on our experience we conservatively estimate 
approximately $3 to $30 million dollars in direct development and 
construction investment as well as annual direct spending of up to $2.5 
to $4 million per year. Applying the standard 5 to 1 multiple to 
account for the ``ripple effect'' of regional economic impact, we 
estimate construction period impact in each project area of $15 to $150 
million and annual extended economic impact of up to 20 million. 
Specifically we expect large, eight-tank AD projects such as the one in 
Stephenville, TX to incur about $2.5 million in annual direct spending 
with a $12-15 million ripple effect and about 1/8 of that on smaller 
projects like our AD at the Norswiss farm in Wisconsin. These are big 
impacts in the generally small regional communities where they are 
located.
    A variety of renewable (as well as non-renewable) fuels receive 
Federal Government assistance. This government assistance is expressed 
in a variety of terms, depending on the fuel and/or end product 
produced, such as per gallon of fuel produced, per kwh of electricity 
generated, etc. In order to compare these subsidies, it is useful to 
express them all in terms of dollars of subsidy per units of energy 
(mmbtu) produced. When viewed in this manner, it is apparent that 
renewable liquid fuels receive greater support than others. For 
example, biodiesel produced from agri-fuels receives approximately 
$8.55 per mmbtu; ethanol receives $6.16; and biodiesel from waste oil 
receives 4.27. On the other hand, generating electricity from renewable 
sources, such as wind or solar, receives substantially less, in a range 
of 2.57 per mmbtu.
    Biogas is akin to a renewable liquid fuel and, from a support 
perspective, should be treated similarly to biodiesel and ethanol:

      Biogas and biodiesel are derived from the processing of 
similar feedstocks.
      Renewable liquid and gas fuels have more flexible end 
uses: pipeline delivery as a fossil fuel alternative in industry and 
homes, local applications as a fossil fuel substitute, or power 
generation.
      Liquid and gas fuels are efficient from a micro 
perspective. Producing electricity from a liquid or gas fuel results in 
significant energy losses. For example, only 35% or so of the energy 
content of a fuel ends up as electric power. The rest is wasted as lost 
heat.
      Liquid and gas fuels are efficient from a macro 
investment point of view. For example, because wind generates power 
intermittently (only when the wind blows), utilities must also keep 
available significant extra generation capacity fired by conventional 
fossil fuels. Digesters, in contrast, run 24 hours per day, 7 days per 
week.

    In sum, the production and use of biogas as a replacement for 
fossil fuels could potentially provide numerous benefits such as:

      Use of biogas as a replacement for significant quantities 
of fossil fuels and deliverable via conventional fuel distribution 
infrastructure
      Reduced greenhouse gas emissions
      Potential reduction in criteria air pollutant emissions
      Improved water quality through better manure management 
Less dependence on declining fossil fuel supplies
      Better energy security (through a reduced dependence on 
imported energy), and
      Stimulation of rural economies

    These are benefits to society rather than merely financial benefits 
for the farmer who produces the biogas. Consequently, it is appropriate 
for the government to provide support for the development of the biogas 
industry, an industry that did not exist when legislation was written 
for other renewable fuels.
    If the biogas industry is to prosper, government must help launch 
policy initiatives that will provide the same direct financial 
incentives or tax credits that are now earned by programs that focus on 
renewable ethanol, biodiesel, and electricity.
    Three areas are key:

      Monetizable production tax credits for biogas from 
certain renewable feedstocks.
      A counter-cyclical safety net for biogas producers and 
their lenders.
      Transportation incentives for biogas production for small 
operators.

    We look forward to working with the Committee, and I would welcome 
you to visit our facilities around the country, particularly in Texas, 
where we are delivering RNG (our trademarked substitute for natural 
gas) to the pipeline. Thank you for your careful consideration and 
support.


[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]



Market Size
    More easily accessible larger-scale systems:

      Beef cattle: Herds with over 10,000 head: 268
      Dairy farms: Farms with over 2,000 head: 380
      Swine Farms with over 20,000 animals: 452


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                   Statement of FuelCell Energy, Inc.
    FuelCell Energy, Inc. (FCE) appreciates the opportunity to submit 
this statement to support the extension and expansion of the current 
tax credits available for fuel cells. FCE (www.fce.com) is the leading 
fuel cell manufacturing company with headquarters in Danbury, 
Connecticut that produces and sells fuel cell systems. We currently 
have over sixty units in operation worldwide that have generated 
approximately 155 million kilowatt hours of electricity.
    Fuel cells are ultra-clean systems that produce power at very high 
efficiencies, at scales ranging from a few kilowatts per installation 
to multi-megawatt power plants. They are applicable to both distributed 
generation and central station power and can also operate in a 
cogeneration mode that uses waste heat from the system. Our fuel cells 
operate on a variety of fuels including natural gas, gasified coal, 
digester gases from waste treatment facilities, other biofuels and 
hydrogen. Their versatility, efficient operation and superior 
environmental characteristics make them a very desirable alternative to 
conventional fossil fuel fired power systems.
    As with many new technologies, capturing sufficient order volume to 
lower product costs is the remaining challenge for large-scale 
deployment. Consistent and robust incentive programs are essential to 
facilitate the order volume that is necessary to drive down product 
costs. The resulting order volume will generate thousands of new, high 
quality, manufacturing and engineering jobs in the U.S.
    This Committee recognized both the environmental and efficiency 
benefits of fuel cells as well as the need for incentives to accelerate 
their commercial introduction through enactment of the Section 48 fuel 
cell investment tax credit included in the 2005 Energy Bill. FCE 
appreciates the Committee's action in this regard. In combination with 
state-level incentives, FCE has been able to complete agreements for 
the installation of fuel cells in a handful of states that offer such 
incentives, particularly California. As a result, states with fuel cell 
incentive programs and high cost power are the early target markets.
    The fuel cell industry is in a position to provide very-high 
efficiency, low greenhouse gas power in both distributed and central 
station power applications with a minimum of environmental emissions. 
Continuing and improving the tax incentives originally provided by this 
Committee is in the best interest of our nation as it strives to reduce 
the environmental impact of electricity generating technologies, reduce 
overall energy use and dependence on foreign sources of energy. 
Therefore, FCE recommends that:

      The ITC be increased to $3,000 per kilowatt
      The ITC be extended for a minimum of 5 years, and
      Enable fuel cell users to claim both the ITC and the 
renewable energy PTC for electricity from biomass sources.

    In order to compete nationally in the near term, fuel cells must 
receive an equivalent incentive in states where they are not currently 
available. Our experience, based on incentive levels in California, 
indicates that an investment tax credit of $3,000 per kilowatt is 
necessary. Such a credit will allow for a omprehensive base of fuel 
cell installations across the country instead of those few locations 
that provide state-level incentives. It will provide a significant 
increase in the volume of fuel cell sales, which in turn will allow 
fuel cells to be cost competitive with conventional, more polluting 
technologies.
    In addition, FCE requests that the ITC provision be extended for at 
least five years. Such an extension will allow for rapid growth of the 
fuel cell industry. An extension will allow for the development of 
healthy markets and capital investment in production facilities to 
serve those markets. In addition, the extension would avoid the boom 
and bust cycles that occurred with other technologies as a result of 
short term tax credits.
    Finally, FCE understands that if an entity opts to take advantage 
of the ITC it may not use the Production Tax Credit (PTC) available for 
electricity produced using biofuels. Removal of the prohibition on 
using both credits would promote the use of environmentally friendly 
biofuels for renewable applications such as fuel cell based power 
generation. FCE has several installations running on digester gas and 
would benefit greatly in this market if this prohibition is removed.
    Thank you for your consideration of these matters. Please contact 
me with any questions you may have.

                                 

                   Statement of Jerry Whitfield, PhD.
    Mr. Chairman and Members of the Committee, the Biomass Investment 
Group (BIG) of Gulf Breeze, Florida, appreciates the opportunity to 
submit this statement for the record on the potential role of the 
``closed-loop'' biomass tax credit in helping to achieve our nation's 
energy security and environmental policy objectives. We at BIG are very 
excited about the possibilities associated with this technology, and 
urge the committee to extend the placed-in-service date window for the 
``closed-loop biomass'' production tax credit for at least five years.
    The term ``closed-loop biomass'' was coined to describe the 
production of energy from a dedicated biomass crop. The ``loop'' refers 
to the balanced and sustainable planting, growing, and harvesting of 
the biomass crop, its transformation into electrical energy, and 
finally, the redistribution of remaining ash over the plantation as a 
fertilizer for further plant growth. As described below, the use of a 
dedicated crop potentially provides a number of energy and 
environmental benefits, including displacement of fossil fuels for 
production of electricity by renewable biomass derived fuels, and 
absorption of atmospheric carbon via photosynthesis and carbon 
sequestration in the roots of the plants. In addition, there are energy 
and environmental benefits from the increases in facility efficiency 
due to the ability of the operation to control the type and condition 
of the feedstock. In the context of this testimony, ``closed-loop'' 
refers specifically to the Internal Revenue Code Section 45(c)(2) 
definition ``any organic material from a plant which is planted 
exclusively for purposes of being used at a qualified facility to 
produce electricity.''
    As you know, the closed-loop biomass production tax credit was 
enacted as part of the Energy Policy Act of 1992. At that time, 
electricity production from a closed-loop biomass process was not 
economic, and no closed-loop facilities existed. Since the early 
1990's, to the best of our knowledge, no production tax credits for 
electricity from closed-loop Section 45 biomass electricity production 
tax credits have ever been claimed (there may be some current activity 
associated with the co-firing of biomass with coal, which has a 
separate definition in the tax code).
    Until recently, one of the most significant technological hurdles 
facing prospective closed-loop developers involved finding a way to 
efficiently convert the feedstock into an intermediate liquid biofuel 
that could subsequently be transformed into energy. Another hurdle that 
vexed entrepreneurs involved the search for a feedstock that would grow 
rapidly enough to keep a baseload power facility stocked with fuel from 
an economically sized farm. As I will describe, we at BIG believe that 
we have developed solutions for these two challenges that will allow 
our facility to be very efficient in transforming the feedstock into 
electricity, thereby making it more economical, and we also have 
identified an energy crop that can generate the tons of raw biomass 
necessary to keep our turbine in operation 24 hours a day, 7 days a 
week, year round.
    Although we have made great strides in bringing the cost of our 
green, renewable electricity closer to being competitive in the market, 
we will not be able to further narrow that gap until we have gotten a 
first commercial facility up and running. After the flagship plant is 
placed in service, and after the period wherein the plants grow mature 
root systems, we will doubtless spend several years perfecting the 
process to allow us to obtain the maximum amount of energy from each 
ton of biomass fuel.
    As you might guess from the above discussion of our infant 
technology, the availability of the production tax credit is an 
absolutely essential ingredient in our plans. One of the impediments to 
convincing the financial community to partner with us in building this 
first facility is the recent trend wherein Congress provides one- or 
two-year extensions of tax credits. These extensions are not 
sufficiently long to allow taxpayers to design, finance, and build a 
groundbreaking commercial facility. Five years is a more realistic 
timeline. Therefore there has never been a period of certainty within 
which an investment decision on this type of plant can be made knowing 
that PTCs will be available when the plant comes on-line. As you can 
see, these short extensions, relative to the timeline for building such 
renewable energy facilities, appear to be counterproductive to the 
original intention of these production tax credits, namely promoting 
the development of renewable biomass energy.
    Since this is all new technology, I will provide some details of 
our plans. BIG is developing the first commercial scale, farm based, 
closed-loop biomass-to-electricity plant in the U.S., using a dedicated 
farm energy crop as fuel. The facility will be located in South 
Florida, where the climate is suitable for year round growing and 
harvesting, enabling continuous base load electricity production. 
Without a long-term extension of the Section 45 closed-loop biomass 
production tax credit, I can assure you, we will not be able to obtain 
the financing necessary to get this first facility built.
    Our facility is designed to produce 130 MW of electricity from a 
high yielding energy crop known as E-GrassTM requiring 
18,000 acres of cultivation and providing electricity for over 80,000 
homes. This crop is a perennial plant and after initial planting and 
grow-out, only requires harvesting and hauling to the centrally located 
fuel processing and power plant facility. The fuel conversion utilizes 
a fast pyrolysis process to produce a combustion turbine grade liquid 
bio-oil from the E-GrassTM feedstock. Electricity is 
produced from an integrated combined cycle power plant for optimum 
power generating efficiency.
    We believe that this type of facility could play a critical role in 
reducing the nation's dependence on fossil fuels, eliminating 
atmospheric carbon emissions from electricity production, and helping 
to create jobs and boost the economy of our farmers. Importantly, this 
biomass-to-electricity power plant model has significant environmental 
attributes. It will save 930,000 tons of CO2 emissions per 
year compared to the same size coal-fired power plant, or 440,000 tons 
of CO2 from a natural gas-fired plant. Indeed, the 
integrated farm and power plant process will be CO2 negative 
since although the crop will absorb the same amount of CO2 
as released by the power plant, the below-ground biomass (rootstock) 
will sequester additional CO2 over the 20+ year life of the 
crop. Air emissions will meet all air quality standards for this type 
of facility. Mineral matter (ash) absorbed by the crop during growth 
will be recovered during the fuel conversion process and returned to 
the farm as a soil amendment, thus completing the ``loop.''
    BIG has successfully secured a Power Purchase Agreement with 
Progress Energy of Florida to purchase 100% of the power produced for a 
term of 35 years (including extensions). The project is planned to be 
placed in service in 2010. Design and development of this facility is 
well underway, but it will not be built unless investors are certain 
that the facility will be eligible to receive the PTCs under the 
placed-in-service date window.
    I urge this committee to extend the qualifying period for the 
Section 45 closed-loop biomass energy production tax credit by at least 
five years to enable developers of this type of technology to make 
investment decisions with the knowledge that these important incentives 
will be in place when such a facility comes on-line.
    Again, we appreciate the opportunity to provide this information. 
If Members, or staff, have any questions regarding the technology, we 
would be pleased to serve as a resource to the Committee on closed-loop 
biomass issues.

                                 

                       Statement of Karen K. Sisk
    My story, as sent to Senator Kit Bond, MO.:
    I, Karen K. Sisk, have an income from Social Security. Disability 
that does not allow me extra funds to pay 100% of my medications in the 
donut hole (reached 4/1/2007). In 2006, I spent co-pays through my 
donut hole period. There is no longer a donut hole coverage in 2007.
    My income is above the % of poverty and I have no assets, thus the 
system at present is determining my fate. Changes in poverty guidelines 
developed in the 1950's, along with cost of living in past 5 years 
(food, gas, taxes) has soared, but poverty limits remain almost the 
same and are based on family feeding plans of the 1950's. Along with 
increases in pharmaceutical and health care costs, now I am being told 
if I don't pay my medical bills in 10 days--I will not be served by my 
doctors of 14 years.
    I am a nurse (professional), diabetic and injured at work lifting a 
patient. Prior to 2006 Medicare Part D, I was being supported by 
Pharmaceutical Assistance Programs. As of 2006 Medicare Part D, I am 
not covered because I have Medicare Part D. Now, Medicare Part D will 
not cover me in donut hole. Without medications I will DIE!
    Do I live on the street?
    Take my Medicines?
    Not eat?
    Go into Diabetic Shock!
    Sure sounds like Euthanasia of future Baby Boomers!
    1) Change poverty guidelines--Update to today 2007, Standards.
    2) Find solution for (professionals) with higher Social Security & 
no assets--to be able to eat--take medications and encourage 
corporations to utilize (their) minds without having to use physical 
labor.
    3) I don't know what. . . .
    I have served on the Board for the East Missouri Community Action 
Agency for 2 years, Jefferson County Missouri: Disabilities Support 
Systems for 3.5 years, Greater Mineral Area:
    Emergency Food & Shelter Program for 2 years, Madison County 
Advisory Council for the EMAA for 2 years, Madison County Council for 
the Developmentally Disabled for 2.5 months. Poverty guidelines vary 
for each agency that is available for emergency assistance, as well as, 
each agency filing the same papers over and over again (? decrease in 
paperwork act / not for those in poverty.
    Why can't there be a clearing house for original background 
paperwork, that these other agencies (pharmaceutical companies, 
community action agencies, service providers that use sliding scales . 
. .) can be referred to, for this information.
    In the past 2 weeks, I have filed the same papers to 16 different 
agencies.
    I have been trying for the last month to receive a copy from my 
Part D carrier stating that I have reached the donut hole. This is 
necessary to ask for assistance from the pharmaceutical companies.
    I have been given many misinformed, as well as, out right lies that 
this paper would be there in three days. I will be without medications 
by next week.
    After contacting The Department of Senior Services and they did not 
know to whom they should refer me to >>>>>
    I called Rod Jetton's Office, Speaker of the House of 
Representatives in Missouri, about this. >>>>>>>>
    I was referred to the Southeast Missouri Area on Aging and they 
were told by Community Care RX that they will get that in the mail as 
soon as possible. We are still waiting!
    I informed these offices, if need be, they might just see me on the 
front steps of the the Jefferson City Courthouse waiting to die--over 
the next few months.
    I know I am not the only one in this situation. Most Poverty 
individuals do not have the resources, education and persistence to do 
this or the computers to write their responses to committees such as 
you.
    Many improvements can be made, to access healthy affordable living, 
empowering jobs that don't require you to work 2 more jobs to support 
your family, and a campaign to educate people on the utilization of 
resources such as; Vocational Rehabilitation Programs for those with 
learning disabilities so they can get a suitable job . . .
    I draw a social security check 1,234.00 net each month and have 
took on a part time job, 2/2006, at Movie Gallery (8-10 hours/week, 
minimum wage/260.00per month in 2007) to help me pay co-pays for my 
medications.
    It was still inadequate, the funds I made were 300 shy of the cost 
for that year, ``with coverage in the donut hole''. My medication costs 
per month were approximately are $2,400.00.
    With the use of MO RX program that becomes $1,200.00. Prices under 
Part D have increased since 2006 and coverage under donut hole is 
nonexistent.
    When President Lincoln chose ``The'' Woman to develop the Dept. of 
Health and Human resources in that era I doubt that either one of them 
could foresee what the situation is today.
    Or for that fact, ``The'' Woman who developed the Nutritional and 
Poverty guidelines in 1950's.
    Speaking of Women, Dr Donna Marie Beagle, Ed.D., a child of 
homelessness and poverty, speaks today on ``See Poverty . . . Be The 
Difference!'' and has written a book on this.
    She, EMAA, many other community action agencies through out the 
state, myself and other individuals who are interested in stopping 
poverty in these ``here'' United States are meeting at the steps of 
Jefferson City, Courthouse on May 2, 2007 to speak to legislatures. All 
are invited.
    Come to the ``SHOW ME STATE`` and let's lay down some foundations 
for institutional and systematic change.

                                 

     Statement of National Rural Electric Cooperative Association, 
                          Arlington, Virginia
Clean Renewable Energy Bonds
    I am pleased to provide testimony today about a program of great 
importance to the members of the National Rural Electric Cooperative 
Association--the Clean Renewable Energy Bond. I would like to start by 
thanking Congressmen Earl Pomeroy (D-ND) and Ron Lewis (R-KY) for 
introducing H.R. 1965, which provides for additional funding and the 
continuation of the CREBs program. I would also like to thank 
Congressmen McDermott (D-WA), Ramstad (R-MN) and many others on the 
Committee for their strong leadership on and support of the Clean 
Renewable Energy Bond.
Background on electric Cooperatives
    NRECA is the national service organization representing the 
interests of cooperative electric utilities and their consumers. In 
addition to advocating consensus views on legislative and regulatory 
issues, NRECA provides health care, pension, financial investment and 
many other programs for its members.
    Electric cooperatives are not-for-profit, private businesses 
governed by their consumers (known as ``member-owners''). Today, 930 
electric cooperatives serve 40 million consumers in 47 states. 
Cooperatives are a unique sector of the electric utility industry, 
serving an average of only 7 consumers per mile compared with the 35 
customers per mile served by investor-owned utilities (IOUs) and 47 
customers per mile served by municipal utilities. To put this in 
greater perspective, electric cooperatives serve only 12% of the 
population--but maintain 42% of the nation's electricity distribution 
lines covering three quarters of the land mass. Cooperative revenue per 
mile averages only $10,565, while it is more than six times higher for 
investor-owned utilities, at $62,665 and higher still for municipal 
utilities, at $86,302 per mile. In summation, cooperatives have far 
less dollars than the other electricity sectors to support much more of 
the distribution infrastructure. In addition, electric cooperative 
households generally have less income than the rest of the nation, with 
nearly half of the cooperative service territories suffering poverty 
rates that are higher than the national average.
    These numbers illustrate why bringing power to rural areas is a 
costly endeavor, resulting in electricity prices that are often higher 
in cooperative service territories than those served by IOUs. The key 
to success in bringing the most reliable and affordable power possible 
to these low density areas lies in the cooperative business model. The 
term ``cooperative'' has been described by Federal court decisions and 
IRS rulings and pronouncements. The IRS requires that businesses adhere 
to the following guidelines to qualify for cooperative status:
    1) Subordination of capital. Most benefits of the cooperative must 
remain with members. The cooperative is not to be operated for the 
primary purpose of paying a return on investment.
    2) Democratic control by the members of the cooperative. Each 
cooperative is run by a board of directors elected by the entire 
cooperative membership. Votes are on a one member, one-vote basis.
    3) Operation at cost. Costs must be fairly allocated to all 
members. Any revenue that is collected from members above what it costs 
to operate the co-op plus retain a reasonable margin for future needs 
is returned to all members on an equitable basis. In the case of 
electric cooperatives, net margins returned to members are referred to 
as ``capital credits.''
    To sum up these requirements, the cooperative's benefits must flow 
to its member-owners. Any benefits received from the Federal 
Government, therefore, also flow to the cooperative's consumers. 
Although most electric cooperatives are exempt from federal income tax, 
all electric cooperatives pay state and local property taxes, sales tax 
and payroll and excise taxes--$1.09 billion in 2003.
Electric Cooperatives and Climate Change
    Electric cooperatives increasingly seek to provide safe, reliable 
and affordable electricity generation to their consumers. They are 
investing in technology such as renewable generation to reduce their 
emissions. This generation augments coal, nuclear, hydropower and gas 
generation that is necessary to provide output of sufficient scale for 
the growing economy. It should also be noted that intermittent 
generation from wind or solar energy would cause an unreliable grid if 
not backed up with these conventional resources, which unlike wind, are 
able to provide electricity on demand 24 hours a day. Renewable energy 
(not including renewable hydropower) accounts for only two percent of 
the current generation mix in the U.S., and the need for that renewable 
energy is growing along with the need for all other types of generation 
as our population, particularly in rural America, grows. The attached 
chart (chart 1) displays the current U.S. generation mix.
    This Committee has been considering how tax policy fits with 
meeting the goals of addressing climate change. I submit that tax 
incentives that drive energy technology are among the most important 
programs Congress will establish to meet climate change goals. Electric 
cooperatives support the goal of reducing carbon emissions if it is an 
economy-wide goal, maintains fuel diversity, protects the economy from 
significant negative impacts and does not result in regressive income 
impacts on lower and middle-income households. In addition, any climate 
change plan should recognize that new technologies, including the 
capture and sequestration of carbon dioxide from power plants, will be 
critical to addressing this issue. But cost-effective, commercially-
available technologies are still more than a decade away from large-
scale commercial applications. This is where tax policy can play a role 
to accelerate the research, development, demonstration, and 
commercialization of new technologies. Tax incentives should be 
available to all segments of the utility industry--including incentives 
tailored to cooperatives--for advanced electric generation, 
transmission, and distribution technologies.
    With respect to potential climate goals, the Electric Power 
Research Institute, which provides technological research to the 
electric utility sector, has identified the need to bring all potential 
energy resources, efficiency measures and technologies to bear as they 
each hold only a part of the potential needed to reduce U.S. carbon 
emission intensity (CO2 emissions per MWh). Note that the 
utility sector is responsible for just over a third of all of the 
nation's CO2 emissions. Using the Energy Information 
Agency's Annual Energy Outlook 2007 as a base case for carbon emissions 
over the next 25 years, EPRI calculated the CO2 reductions 
that would result from reasonable but aggressive deployment programs in 
seven specific areas. The attached chart (chart 2) shows the role that 
renewable energy, efficiency, advanced coal, nuclear and other 
technologies could play if certain technological advances are assumed. 
Note that an economic analysis of the costs of pursuing these is not 
included in the chart and has not yet been produced by EPRI, but as 
utilities, it is mandatory that we balance the need for new 
technologies against affordable rates for our member owners.
    There are many details of a carbon reduction program that will need 
to be addressed as Congress develops a bill, and cooperatives will be 
actively engaged in the debate over how to structure a program to 
reduce greenhouse gas emissions.
Electric Cooperatives and Alternative Energy
    One of the details of a climate proposal will be the development of 
tax incentives for alternative energy. With respect to renewable 
energy, twenty-two states have approved renewable portfolio standard 
mandates that require most utilities to offer a certain percentage of 
renewable energy. Coupled with the need to avoid carbon emissions when 
possible, the need to for utilities to develop all available renewable 
resources is urgent. Currently, renewable energy makes up almost 11 
percent of the electricity provided by electric cooperatives. The 
majority of that 11 percent is from large scale federal hydropower, 
although more than 500,000 megawatts come from non-hydroelectric 
renewable capacity.
    More than 750 coops (80% of the cooperative industry) offer ``green 
power'' programs that enable consumers to buy renewable output from the 
marketplace. Almost all of this power is currently purchased from 
federal hydropower facilities, the market or through contracts with 
developers. Yet, electric cooperatives are ideally situated to develop 
renewable projects in their back yards. Those projects have not yet 
been fully realized because of a historic market barrier: given their 
not-for-profit business model, electric cooperatives have not been able 
to directly utilize traditional tax incentives like the Production Tax 
Credit. The capital costs for renewable generation remain much higher--
two to ten times more expensive--than conventional resources. Such 
incentives remain necessary, therefore, to bring renewable generation 
on line at a cost that is affordable for consumers and to push 
technology to make the resources more efficient and effective.
    Incentives enable utilities to bring alternative generation 
resources on line despite their higher capital costs. Small in size 
with few consumers per mile, electric cooperatives can't hide high 
prices for generation or push costs off onto shareholders. Electric 
cooperatives return revenues in excess of what is needed for generation 
and electricity delivery back to their consumers. By the same token, 
electric cooperatives must flow the costs of any generation to 
consumers through rates, and every member bears those costs. Keeping 
rates affordable and the delivery of energy reliable is our key 
mission, and locally-elected boards of consumer directors hold electric 
cooperatives accountable to that mission.
    The Energy Policy Act of 2005 recognized that incentives, 
particularly tax incentives, take center stage among federal polices 
that foster technology development. For example, EPACT extended the 
Production Tax Credit (PTC) that provides up to a 1.9 cent per kWh 
incentive for development of wind, geothermal, hydropower, biomass and 
other renewable resources. Electric cooperative consumers indirectly 
benefit from the PTC by purchasing renewable power from IOUs and 
developers to the extent that they can negotiate with the producers to 
pass along some of the PTC benefits in lower power costs. The PTC does 
not, however, provide electric cooperatives with an incentive or 
subsidy needed to develop resources in their back yard.
    To address this concern, Congressmen Pomeroy and Lewis sponsored 
legislation in 2005 that was attached to EPACT and created an equally 
important new program, the Clean Renewable Energy Bond. The bill had 80 
bipartisan cosponsors in the House, and the program was also strongly 
supported by then-Finance Committee Chairman Charles Grassley and 
Ranking Member Max Baucus. The program recognizes that not-for-profit 
electric cooperatives, generally exempt from tax at the federal level, 
should receive an incentive similar to those available to investor-
owned utilities and for-profit developers.
    I would note that EPACT also provided an investment tax credit for 
advanced pulverized and IGCC coal, and a Production Tax Credit for 
advanced nuclear resources. Unfortunately, federally tax-exempt 
electric cooperatives do not have an opportunity to put those 
incentives to use. At the same time, because their significant 
generating capacity is sized to keep pace with our growing communities, 
applying advanced coal technologies and nuclear generation resources 
stands to make the biggest impact on reducing carbon emissions. Today, 
electric cooperatives do not have the opportunity that other sectors do 
to invest in these technologies. We would like your help to ensure that 
any future energy tax bill will include financing mechanisms that 
electric cooperatives can use for advanced clean coal and nuclear 
generation in addition to renewable energy.
The Clean Renewable Energy Bond Program
    I want to now focus my testimony on our experience with the Clean 
Renewable Energy Bond (CREB) program. Although the program is in its 
infancy, it has proven to be a highly effective way to bring new 
renewable projects on line. The CREB program is as successful as the 
PTC in getting new renewable resources in the ground, as electric 
cooperatives alone flooded Treasury with more than $550 million in 
applications for 83 projects in 22 states. In addition, electric 
cooperatives have proven that given the necessary incentives, they will 
tap available renewable resources.
    The program in its first year funded 78 electric cooperative 
projects and was well balanced across many technologies, including 
wind, biomass, landfill gas, hydropower and solar. The award size of 
cooperative projects ranged from $120,548 to $31 million.
    The attached map shows the distribution of these projects across 
the country (chart 4), and the bar charts show the numbers of 
applications by technology (chart 5) The electric cooperative set aside 
worked well to ensure that cooperatives could build utility scale 
projects and the program would be balanced between electric 
cooperatives and government applications.
    The only significant ``complaint'' co-ops have with the program is 
that the volume cap is not sufficient to fully fund all of the worthy 
applications. 800 million was provided to last for two years, with 300 
million set aside for electric cooperatives. Yet Treasury received 2.5 
billion in applications in the first year overall. Electric 
cooperatives submitted more than $550 million of those applications, 
but received only $300 in bond allocations due to a program size that 
was too small overall. An additional $400 million, with $150 million 
set aside for electric cooperatives, was provided under the Tax Relief 
and Health Care Act of 2006, but this still does not fully fund the 
program. In contrast, there is no volume cap for the PTC.
    In order to address this problem, Congressmen Lewis (R-KY) and 
Pomeroy (D-ND) have introduced a bill, H.R. 1965, to make the program 
annual and provide an increase to 1 billion in funding each year. The 
same proportionate set aside, $375 million, is available for electric 
cooperatives. While applications may still exceed this mark, annual 
certainty about funding at a $1 billion level will help to ensure that 
more projects, including larger utility scale projects, can be 
financed. The bill makes a few additional technical improvements to the 
existing program.
    I urge this committee to include the Pomeroy-Lewis bill in any 
energy tax bill. The provision fits hand in hand with the Production 
Tax Credit, ensuring that electric co-ops, which are ideally situated 
to develop renewable generation, can also help tap this nation's 
renewable potential for electricity production. I also urge the 
committee to extend the Production Tax Credit as it provides the option 
for our members to purchase renewable energy affordably from other 
providers, wherever it is necessary.
CREBs are an Important Part of Cleaner Generation in the Future
    In conclusion, I commend this Committee for its past and current 
support of the Clean Renewable Energy Bond and Production Tax Credit 
programs. Incentives are the key to cooperatives realizing their goal 
to provide clean, affordable generation to their member-owners. Tax 
policy, including incentives available to all utility sectors, will 
play a central role in ensuring that all available renewable resources 
are developed and all consumers can access advanced coal and nuclear 
technologies. Ultimately, tax policy can help to make feasible new 
technologies that address carbon emission but are not currently 
commercially accessible. We are pleased that the Committee has 
recognize the important role that not-for-profit electric cooperatives 
and their consumers will play in our energy future with the CREB 
program, and look forward to working with you on future proposals that 
will shape the nation's energy policy.
CHART 1
U.S. Generation Mix

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CHART 2

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CCS--Carbon Capture and Sequestration
PHEV--Plug-in Hybrid Electric Vehicles
DER--Distributed Energy Resources

CHART 3


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    Note that grey icons are applications not awarded.
    CHART 4
    Number of Projects Approved, By Technology
    Government Projects Co-op Projects

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                               National Venture Capital Association
                                                     April 19, 2007
The Honorable Charles B. Rangel, Chairman
House Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515

The Honorable Jim McCrery,Ranking Member
House Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Rangel and Ranking Member McCrery,

    On behalf of the National Venture Capital Association I am writing 
in support of the proposal to extend and enhance the Investment Tax 
Credit (ITC) for clean energy technologies. We believe that the Federal 
Government should dramatically expand financial incentives to drive the 
market adoption of green energy sources, with mechanisms including tax 
credits, subsidies, loan guarantees and other programs. In addition, 
Congress should consider creating incentives for the U.S. greentech 
companies to manufacture their products in this country.
    NVCA recommends that Congress adopt a technology neutral approach 
that allows the marketplace, not the federal tax code, to pick 
technology winners and losers. To the greatest extent possible, federal 
policy should establish a level playing field that enables all 
promising energy technologies to compete. A long term extension of the 
Investment Tax Credit that eliminates the caps that currently apply 
exclusively to fuel cells would render the ITC more effective in the 
drive to innovate a robust and diverse set of energy technology 
solutions.
    Venture capital investing in ``Clean Tech'' has more than tripled 
between 2005 and 2006 and we believe our industry has an important role 
to play in the energy arena. However, considering the global nature of 
the energy crisis, we believe that by partnering with the private 
sector the Federal Government partner can drive U.S. clean energy 
development.
            Sincerely,
                                                        Mark Heesen
                                                          President

                                 

         Statement of J. Patrick Boyle, American Meat Institute
    Mr. Chairman, Ranking Member, and Members of the Committee thank 
you for allowing us the opportunity to submit testimony before this 
Subcommittee. My name is Patrick Boyle and I am president of the 
American Meat Institute (AMI). AMI has provided service to the nation's 
meat and poultry industry--an industry that employs more than 500,000 
individuals and contributes more than 100 billion in sales to the 
nation's economy--for more than 100 years.
    AMI members include 250 of the nation's most well-known meat and 
poultry food manufacturers. Collectively, they produce 90 percent of 
the beef, pork, veal and lamb food products and 75 percent of the 
turkey food products in the U.S. Among AMI's member companies, 60 
percent are small, family-owned businesses employing fewer than 100 
individuals and some are publicly trade and employ tens of thousands. 
These companies operate, compete, sometimes struggle and mostly thrive 
in what has become one of the toughest, most competitive and certainly 
the most scrutinized sectors of our economy: meat and poultry packing 
and processing.
    AMI member companies have been carefully observing recent 
developments in the renewable energy sector, specifically the impacts 
from the increase in demand for corn from the ethanol industry and the 
opportunities to contribute to American energy security by producing 
energy from animal fats, methane conversion, and other means. Of 
greatest significance in this debate is the rise in demand for corn has 
pressed market forces to demand higher corn prices. Consequently and 
among other impacts, the change in price and availability has led 
animal agriculture producers to consider alternatives to their feeding, 
nutrition, and dietary regimen. These changes can and do impact meat 
and poultry quality, consumer offerings, livestock and poultry farm 
efficiency, and the management of livestock and poultry operations.
    It is for these reasons articulated in the following testimony that 
AMI is asking Congress and the Administration through tax and other 
legislative vehicles to consider policies to support energy-based 
opportunities for animal agriculture, minimize adverse impacts on 
livestock and poultry producers and processors, and ultimately place 
the United States in a more competitive position in terms of energy 
security, diversity, and availability. Specifically, AMI supports 1) 
research in ethanol byproduct safety, quality, and usability and 
renewable energy technologies, 2) equity of incentives for all 
renewable energy including renewable diesel, biodiesel, and methane 
conversion, 3) a working lands conservation program to encourage 
environmentally friendly feed stuffs production, and 4) supports 
exposing consumers to more renewable fuels by allowing the ethanol 
tariff to expire.
Feed Impact on Meat and Poultry Production and Consumption
    Corn is one of the largest components in the diets of livestock and 
poultry. Swine rations often contain about 60-85 percent corn, poultry 
rations contain about 65-75 percent, and beef animals often have diets 
averaging 35 to 65 percent shell corn--although some producers will 
feed 100 percent corn to beef animals as either shell corn, flaked, or 
silage. As a result of a significant increase in ethanol production, 
animal nutritionists are being confronted with a new challenge in 
attempting to incorporate a significant amount of ethanol's byproduct 
or distillers grains into existing feed rations and maintain meat and 
poultry quality and the economic well-being of livestock and poultry 
producers.
    As background, the process of corn milling for ethanol creates a 
byproduct called `distillers grain' with nutrient profiles that are 
very different than corn. For example, corn dry matter is approximately 
60--70% starch. When starch is harvested to produce ethanol it 
concentrates protein and fiber, and fundamentally alters the level and 
dietary availability of key minerals and essential amino acids in the 
remaining distillers grain. If livestock and poultry producers want to 
incorporate distillers grain in their nutrition plan, they need to 
account for these differences in nutrition to keep the ration in 
balance with animal requirements and avoid overfeeding specific 
minerals. However, there are some drawbacks to supplementing feed with 
distillers grains. Initial research has demonstrated that animal 
performance measured by weight-gained/day, meat yield, leanness, 
environmental impact (manure production), and other factors have 
provided initial indicators that livestock and poultry on distiller 
grain rations have underperformed their corn-rationed peers.
    Livestock and poultry producers manage their animal nutrition 
programs to maximize the daily conversion of feed into muscle protein 
and ultimately quality meat and poultry products. Animals fed an 
optimal ration will produce the highest quality meat and poultry in a 
limited period of time--all carefully balancing, protein, fat, 
tenderness, weight, muscle density, and other quality considerations in 
the final product. However, feed that converts slowly into protein 
requires livestock and poultry producers to market fewer animals, 
handle more waste, and reduce the overall productivity and efficiency 
of the farm. Thus, if the nutrient content of the feed is unbalanced, 
the livestock and poultry marketed may also yield less lean meat, 
contain more fat, or produce a lighter animal--all very negative 
impacts for livestock and poultry producers, processors, and consumers.
    The very high fiber content, nutrient variability, limited 
digestibility, and different mineral profile of distiller grains are 
the key limiting factors of its ability to be used as a substitute for 
corn. Swine and poultry in particular have difficulty digesting high 
fiber feed. By comparison, corn contains on average 1.95 percent crude 
fiber, whereas distillers grain contain between 4 and 12 percent crude 
fiber. For this reason and others, rations for poultry are limited to 
as little as 10 percent distillers grain. Swine, in some cases, can 
feed up to 20 percent distillers grain, and cattle can be fed up to 45 
percent the normal corn ration. Higher levels of incorporation with 
current animal nutrition supplementation can occur, but will risk 
lowering meat and poultry quality, animal health, or adversely 
impacting farm management.
    Therefore, federal research investment in applied meat and poultry 
nutrition could provide livestock and poultry producers with tools and 
supplements to help adjust their feeding regimen to incorporate 
distillers grains and other byproducts more easily. A number of very 
reputable studies on distillers grain impacts have been done. However, 
animal agriculture producers are in need of dietary solutions that they 
can employ on their farming and production operations. Research can 
also offset other challenges of distillers grains include the high 
degree of nutritional variability from plant to plant and its storage 
and transport problems.
Policy Recommendations
    Given the nutrition and handling limitations with distiller grains 
and the challenge of corn demand and its availability, AMI asks that 
Congress consider providing federal research funding on broad-based 
applied research initiatives into renewable energy technologies, 
economics, and byproduct safety, quality, and usability (i.e. storage 
and transportation). Directing research on these topics will ideally 
provide animal agriculture producers with needed animal nutrition 
guidance for producing safe and high quality meat and poultry products.
    The meat and poultry industry has been investing for years in farm 
level nutrition and management research to improve the safety and 
quality of meat and poultry. Livestock diets have been shown to impact 
microflora in the gut. It is encouraging that USDA monitoring data and 
the Centers for Disease Control (CDC) illness data indicate that the 
meat and poultry industry has made measurable and significant food 
safety improvements.
    With the broad based introduction of distillers grains into the 
diets of livestock and poultry, it is critical for us to understand its 
impact on microflora and, in turn, on meat safety. Similarly, consumers 
have been continuing to add new meat and poultry products to their 
diets and shopping carts. Many of these new products are leaner or 
provide other benefits to our customers. The continued competitiveness 
of meat and poultry producers is closely tied to producer's ability to 
provide consistent, high quality animals to our member companies. 
Congressionally directed research can aid this development.

Broader Energy Considerations

    AMI recognizes that this dietary change is largely being driven by 
an energy policy that has selected certain technologies to advance. It 
is AMI's perspective that the U.S. and the world need a policy that 
supports a broad diversity of energy options and renewable energy 
sources to supply the energy and transportation needs of today and the 
future. AMI supports alternative fuels and new sources, such as those 
from renewable diesel, methane conversion, and biogas. Consumers and 
businesses can benefit from many new energy sources from such raw 
materials as animal fats, tallow, and animal waste products as their 
feed stocks as long as the law does not prejudge or unduly favor one 
feed stock over another.
    AMI also supports a working lands environmental approach, which 
would remove the regulatory and/or legislative restrictions on 
producers that elect to grow crops on land currently locked in the 
Conservation Reserve Program (CRP), but still maintain environmental 
benefits to the land. The benefits under such a system would continue 
to accrue to the soil, air, and water and provide an abundant base to 
grow crops for food and energy.
    Lastly, AMI views the renewable energy segment as a new and rapidly 
growing market. There remains a broad need for renewable energy 
infrastructure and consumer buy-in into this development. To aid 
consumer confidence in renewable energy and expand the market, it would 
be in Congressional interest to allow the ethanol tariff on imported 
product to expire in 2008. This would potentially expose consumers to 
more renewable energy and broaden the diversity of our energy sources.
    Thank you for the opportunity to provide these perspectives today.

                                 
              Statement of Soap and Detergent Association
    The Soap and Detergent Association (SDA) appreciates the 
opportunity to submit comments on the destructive consequences of 
biofuel tax incentives on the United States oleochemical industry. SDA 
is a 110 member national trade association representing the formulators 
of soaps, detergents, general household and institutional cleaning 
products as well as the suppliers of ingredients and finished packaging 
for those products. Among these suppliers are the manufacturers of 
oleochemicals made from animal fats and oils.
    The primary raw material of the United States oleochemical industry 
is tallow, an animal fat. The industry's economic viability is, in 
fact, based on the competitive price advantage of tallow vis a vis 
foreign palm oil. However, because of the substitutability of palm oil 
for tallow, if tallow's advantageous price differential is lost, the 
future of a United States based oleochemical industry, and its 
customers, becomes tenuous.
    Unlike corn and soybeans for which plantings can be expanded to 
accommodate new biofuel applications, tallow production is relatively 
fixed, usually fluctuating less than 2% from year to year. There is no 
real elasticity in the tallow supply. Cattle herds are not expanded to 
produce tallow. It is a by-product, not a crop.
    Biofuel subsidies for animal fats undermine the oleochemical 
industry in two ways. First, they create upward price pressures on the 
non-expandable, finite tallow raw material pool. Second, particularly 
as a result of the recent IRS decision expanding the ``renewable 
diesel'' tax credit to so-called ``coproduction,'' they now pose the 
issue of supply availability per se, not just price. This is an 
untenable and undeserved position for the oleochemical industry and is 
wholly caused by biofuel subsidies.
    Existing biofuel subsidies, including those for ethanol, have 
created a series of damaging economic incentives favoring the diversion 
of tallow from long standing traditional uses to fuels. The cascade of 
incentives began with the tax credits for tallow-based biodiesel in the 
VEETEC provisions of the American Jobs Creation Act of 2004. These were 
followed by a subsidy for the direct burning of tallow as a fuel and 
finally the ``renewable diesel'' incentives found in Section 1346 of 
the ``Energy Policy Act of 2005.''
    The inherent impact of the renewable diesel provision was 
compounded in guidance issued earlier this month wherein the Internal 
Revenue Service held that so-called ``coproduced fuel,'' where animal 
and other fats are mixed directly with crude oil going to a cracking 
tower, was considered to be ``renewable diesel'' produced by the 
thermal depolymerization (TDP) process and therefore eligible for the 
$1.00/gal subsidy.
    Tyson Foods, Inc. and ConocoPhillips have already announced a joint 
venture to produce such a ``renewable diesel'' via a ``coproduction'' 
process. This type of operation now poses the greatest threat to the 
continued viability of the tallow raw material pool and, in turn, the 
domestic oleochemical industry, its customers and the companies which 
depend on their products.
    The renewable diesel subsidies that will be paid to the Tyson/
ConocoPhillips enterprise serve to highlight the unthinking, irrational 
nature of the current biofuel subsidization policy. There is no process 
for calibrating the subsidy to process costs, no apparent limits on the 
amount of the subsidy that can be collected by a producer, and no 
consideration of the impact on other industries. Coproduction renewable 
diesel is nothing more than a subsidy to large oil companies.
    Based on our understanding of the renewable diesel ``coproduction 
process,'' it involves little more than commingling the animal fats 
with the crude oil being fed to a cracking tower.
    Taken together, these three subsidy credits create a manifold of 
incentives capable of diverting tallow away from oleochemical 
production. For its part, the oleochemical industry receives no 
subsidies. It has historically purchased its tallow in a classic free 
market, supply and demand environment. Those traditional conditions 
have, however, been destroyed by the government's economic 
intervention.
    The situation is further complicated by the fact that ethanol 
incentives are diverting corn from traditional livestock feeding 
operations. This has caused an additional draw down of the tallow pool 
since tallow, in part, is substituted for the diverted corn in animal 
feed. Currently, tallow prices are in the $0.25-0.26 range. 
Traditionally, tallow prices have been in the low to mid teens. This 
represents a nearly 60% increase and has every indication of being a 
sustainable price given the current subsidy structure.
    The conditions in the corn market which have led to this new tallow 
price level are generally viewed as attributable to the confluence of 
the long standing ethanol subsidy combined with an enhanced renewable 
fuels standard. This was the perfect biofuels storm, the effects of 
which have been widely felt and publicized. We must learn from this.
    In Illinois, SDA estimates the loss of the oleochemical industry 
would result in the loss of 1,000 jobs. Illinois is estimated to 
produce 45--50% of U.S. oleochemicals. Consequently, on a national 
basis we estimate that 2,000 jobs are at stake. Oleochemicals are, by 
their very nature bio-based, and always have been.
    The true irony of the current situation is that a quiet, 
traditional, economically sound, Middle American, bio-based industry 
which never asked government for a thing, stands to be destroyed by a 
rush to subsidize the economically challenged and technologically 
unsettled biofuels industry. In SDA's view, there is no doubt that they 
can coexist, but not under the current economic conditions created by 
the biofuels incentives currently in place where by oleochemicals lose.
    SDA recognizes that the potential benefit of biofuels to the nation 
is significant. However, that benefit should not be purchased at the 
cost of driving a well established, traditional industry out of 
business.
    There must be a balance and the impacts on related industries must 
be considered before current programs are extended unthinkingly. 
Biofuel tax subsidies have their victims as well as their 
beneficiaries. It is essential that the current biofuels tax policy be 
redesigned to consider its destructive and deleterious impacts on 
related industries.
            Respectfully submitted,
                                                    Dennis Griesing
                                 Vice President, Government Affairs

                                 
                   Statement of Jerry Whitfield, PhD.
    Mr. Chairman and Members of the Committee, the Biomass Investment 
Group (BIG) of Gulf Breeze, Florida, appreciates the opportunity to 
submit this statement for the record on the potential role of the 
``closed-loop'' biomass tax credit in helping to achieve our nation's 
energy security and environmental policy objectives. We at BIG are very 
excited about the possibilities associated with this technology, and 
urge the committee to extend the placed-in-service date window for the 
``closed-loop biomass'' production tax credit for at least five years.
    The term ``closed-loop biomass'' was coined to describe the 
production of energy from a dedicated biomass crop. The ``loop'' refers 
to the balanced and sustainable planting, growing, and harvesting of 
the biomass crop, its transformation into electrical energy, and 
finally, the redistribution of remaining ash over the plantation as a 
fertilizer for further plant growth. As described below, the use of a 
dedicated crop potentially provides a number of energy and 
environmental benefits, including displacement of fossil fuels for 
production of electricity by renewable biomass derived fuels, and 
absorption of atmospheric carbon via photosynthesis and carbon 
sequestration in the roots of the plants. In addition, there are energy 
and environmental benefits from the increases in facility efficiency 
due to the ability of the operation to control the type and condition 
of the feedstock. In the context of this testimony, ``closed-loop'' 
refers specifically to the Internal Revenue Code Section 45(c)(2) 
definition ``any organic material from a plant which is planted 
exclusively for purposes of being used at a qualified facility to 
produce electricity.''
    As you know, the closed-loop biomass production tax credit was 
enacted as part of the Energy Policy Act of 1992. At that time, 
electricity production from a closed-loop biomass process was not 
economic, and no closed-loop facilities existed. Since the early 
1990's, to the best of our knowledge, no production tax credits for 
electricity from closed-loop Section 45 biomass electricity production 
tax credits have ever been claimed (there may be some current activity 
associated with the co-firing of biomass with coal, which has a 
separate definition in the tax code).
    Until recently, one of the most significant technological hurdles 
facing prospective closed-loop developers involved finding a way to 
efficiently convert the feedstock into an intermediate liquid biofuel 
that could subsequently be transformed into energy. Another hurdle that 
vexed entrepreneurs involved the search for a feedstock that would grow 
rapidly enough to keep a baseload power facility stocked with fuel from 
an economically sized farm. As I will describe, we at BIG believe that 
we have developed solutions for these two challenges that will allow 
our facility to be very efficient in transforming the feedstock into 
electricity, thereby making it more economical, and we also have 
identified an energy crop that can generate the tons of raw biomass 
necessary to keep our turbine in operation 24 hours a day, 7 days a 
week, year round.
    Although we have made great strides in bringing the cost of our 
green, renewable electricity closer to being competitive in the market, 
we will not be able to further narrow that gap until we have gotten a 
first commercial facility up and running. After the flagship plant is 
placed in service, and after the period wherein the plants grow mature 
root systems, we will doubtless spend several years perfecting the 
process to allow us to obtain the maximum amount of energy from each 
ton of biomass fuel.
    As you might guess from the above discussion of our infant 
technology, the availability of the production tax credit is an 
absolutely essential ingredient in our plans. One of the impediments to 
convincing the financial community to partner with us in building this 
first facility is the recent trend wherein Congress provides one--or 
two--year extensions of tax credits. These extensions are not 
sufficiently long to allow taxpayers to design, finance, and build a 
groundbreaking commercial facility. Five years is a more realistic 
timeline. Therefore there has never been a period of certainty within 
which an investment decision on this type of plant can be made knowing 
that PTCs will be available when the plant comes on-line. As you can 
see, these short extensions, relative to the timeline for building such 
renewable energy facilities, appear to be counterproductive to the 
original intention of these production tax credits, namely promoting 
the development of renewable biomass energy.
    Since this is all new technology, I will provide some details of 
our plans. BIG is developing the first commercial scale, farm based, 
closed-loop biomass-to-electricity plant in the U.S., using a dedicated 
farm energy crop as fuel. The facility will be located in South 
Florida, where the climate is suitable for year round growing and 
harvesting, enabling continuous base load electricity production. 
Without a long-term extension of the Section 45 closed-loop biomass 
production tax credit, I can as-

sure you, we will not be able to obtain the financing necessary to get 
this first facility built.
    Our facility is designed to produce 130 MW of electricity from a 
high yielding energy crop known as E-GrassTM requiring 
18,000 acres of cultivation and providing electricity for over 80,000 
homes. This crop is a perennial plant and after initial planting and 
grow-out, only requires harvesting and hauling to the centrally located 
fuel processing and power plant facility. The fuel conversion utilizes 
a fast pyrolysis process to produce a combustion turbine grade liquid 
bio-oil from the E-GrassTM feedstock. Electricity is 
produced from an integrated combined cycle power plant for optimum 
power generating efficiency.
    We believe that this type of facility could play a critical role in 
reducing the nation's dependence on fossil fuels, eliminating 
atmospheric carbon emissions from electricity production, and helping 
to create jobs and boost the economy of our farmers. Importantly, this 
biomass-to-electricity power plant model has significant environmental 
attributes. It will save 930,000 tons of CO2 emissions per 
year compared to the same size coal-fired power plant, or 440,000 tons 
of CO2 from a natural gas-fired plant. Indeed, the 
integrated farm and power plant process will be CO2 negative 
since although the crop will absorb the same amount of CO2 
as released by the power plant, the below-ground biomass (rootstock) 
will sequester additional CO2 over the 20+ year life of the 
crop. Air emissions will meet all air quality standards for this type 
of facility. Mineral matter (ash) absorbed by the crop during growth 
will be recovered during the fuel conversion process and returned to 
the farm as a soil amendment, thus completing the ``loop.''
    BIG has successfully secured a Power Purchase Agreement with 
Progress Energy of Florida to purchase 100% of the power produced for a 
term of 35 years (including extensions). The project is planned to be 
placed in service in 2010. Design and development of this facility is 
well underway, but it will not be built unless investors are certain 
that the facility will be eligible to receive the PTCs under the 
placed-in-service date window.
    I urge this committee to extend the qualifying period for the 
Section 45 closed-loop biomass energy production tax credit by at least 
five years to enable developers of this type of technology to make 
investment decisions with the knowledge that these important incentives 
will be in place when such a facility comes on-line.
    Again, we appreciate the opportunity to provide this information. 
If Members, or staff, have any questions regarding the technology, we 
would be pleased to serve as a resource to the Committee on closed-loop 
biomass issues.

                                 

             Statement of Plug Power Inc., Latham, New York
    My name is Dr. Roger Saillant, President and CEO of Plug Power 
Inc., a Latham, NY-based company that is a leader in the development of 
on-site energy systems utilizing proton exchange membrane (``PEM'') 
fuel cells for stationary power, emergency backup power and material 
handling applications. Plug Power espouses the values of sustainability 
and is developing and commercializing fuel cell systems that contribute 
to the United States' energy independence.
    Plug Power would like to thank the Members of the Committee for the 
opportunity to submit testimony in favor of including commercial and 
residential fuel cell credit extensions in the energy legislation being 
advocated by Congressional Leadership. Also, let me thank you for your 
initiation of these credits in the Energy Policy Act of 2005 and for 
providing a one-year extension of the credits last year.
    We have been advocating tax credits for fuel cells in both 
residential and commercial use since 1999 and have been working closely 
with our Congressman, Michael McNulty, who has introduced legislation 
in each Congress since that time. Thanks in large part to Rep. 
McNulty's steadfast leadership, and to the support in this Committee, 
today we have the credit in existing tax code.
    Fuel cell tax credits currently in existence are critical for our 
fledgling industry. This credit targets stationary and portable fuel 
cell technologies and it has been our intention that the credits apply 
to all non-mobile applications that meet the credit criteria of 
efficiency and size. These applications are the precursors to the fuel 
cell vehicle and a low or no-carbon transportation and energy 
generation future. In fact, at Plug Power, our vision is one of a 
sustainable and renewable future, and we believe that such a future 
cannot occur without fuel cell conversion devices. Renewable energy 
sources are, unfortunately, not readily adaptable to the transportation 
market, but through fuel cells, can supply that motive power. In 
addition, some renewable energy sources are intermittent, and fuel 
cells allow for the storage and use of that energy power at all times.
    Plug Power support H.R. 550 and its companion bill S. 590, the 
Securing America's Future Act. This bill extends both the fuel cell and 
solar tax credits and provides those credits though 2016. The long term 
nature of the fuel cell credit is critical. First, it recognizes the 
evolution of the range of fuel cell technologies and products. This is 
not akin to providing a credit for a ``highly efficient motor''. It is 
more like a credit for highly efficient motors, power generators, 
battery replacements, forklifts, back up power units, critical load 
providers, loaders, and so on. You get the idea: fuel cells need a long 
term credit because we are talking about a VERY wide variety of 
products.
    The long term nature of the credit is also important because it 
allows us to: reduce our manufacturing costs, invest in our 
manufacturing facilities with confidence, give security to our 
manufacturing base, build confidence in our supply base, and 
importantly, provide time for the long term planning that is often 
involved in building and siting fuel cell technologies. Like solar, we 
have some large scale systems and/or some aggregations of systems that 
takes a long time to gain approvals and otherwise be ready for 
installation.
    H.R. 550 also calls for relief from the Alternative Minimum Tax, 
which some of our commercial credit customers have requested. Ours is a 
fledgling industry but one in which there are at least 30 products now 
available. We must find ways to get our fuel cell systems into customer 
hands, and the tax credit is proving to be a very valuable tool. We 
believe that, once customers have enough experience with fuel cell 
systems, they will want to use them to replace existing, and in many 
cases, inferior technologies. We cannot rely on the credit as a tool 
for gaining experience with fuel cells if our customers cannot even 
take advantage of that credit.
    For the fuel cell portion of H.R. 550, it continues to allow 
telecommunications customers to take advantage of the credit. We 
support the continuation of this provision.
    We are very encouraged by the support of H.R. 550 to date and urge 
its passage as part of any comprehensive energy legislation. The credit 
of 30% capped at $500 per half kilowatt is just enough to encourage 
cost reductions and leverage early sales, yet not so much that we are 
installing technologies that are not yet ready for commercial 
introduction.
    Again, Plug Power thanks you for the opportunity to provide 
testimony and for your support to date of fuel cell tax credits.
FUEL CELL DESCRIPTION
    A fuel cell is an on-site power generation system that 
electrochemically combines hydrogen with oxygen in the air to form 
electricity. Hydrogen fuel can be generated by electrolyzing water with 
low-cost off-peak electricity, or with electricity obtained from 
renewable sources such as solar, wind, or biomass. This makes such fuel 
cell systems highly efficient as well as environmentally friendly. The 
heart of stationary or portable PEM fuel cell system is the stack, 
which is comprised of the same technology as is used in most fuel cell 
vehicle applications.
STATIONARY, BACKUP AND PORTABLE F UEL CELL BENEFITS

      In backup applications, fuel cells can provide power for 
critical infrastructure such as communication systems and water 
utilities.
      Fuel cells used in materials handling applications offer 
a clean and highly efficient alternative to the current battery 
solutions.
      Fuel cell systems are designed to stringent standards 
developed by the telecommunications industry that qualify equipment 
under extreme environmental conditions and requires specific levels of 
technological resiliency including temperature extremes, wind-driven 
rain, altitude, earthquake and ballistics tolerance.
      Fuel cell technology operates with very low audible 
noise, 60dba@1m, in stark contrast to traditional combustion systems, 
which typically operate at 70db@7m.
      Our traditional central generation model for supply of 
power in the U.S. is failing to meet the needs of a growing economy 
with increasing demand for high-quality power. There are weaknesses in 
both power generation and transmission and distribution infrastructure 
that can best be met with the new paradigm of distributed generation: 
placing the generating assets on site, where the energy is needed. Fuel 
cells will be an important technology component of our nation's 
distributed generation portfolio as issues of energy security become 
more critical.
      When fueled by hydrogen from a renewable energy source 
such as solar, wind, or hydropower, or if the fuel source is bio-fuel 
like ethanol from plant wastes, CO2 emissions are net zero.
      Fuel cells can provide highly reliable electricity. Some 
studies estimate that power quality and reliability issues cost our 
economy alone as much as 150 billion per year in lost materials and 
productivity, while others have reported estimates as high as 400 
billion per year.
      Unlike traditional combustion technologies, fuel cell 
systems are designed to require only one preventive maintenance call 
per year to ensure full capability and performance.
      Because fuel cells provide electricity at the site of 
consumption, they reduce the load on the existing transmission and 
distribution system. Siting the fuel cells at the point of consumption 
also avoids the line losses (up to 15%) inherent in moving electricity 
and provides an alternative to costly and unattractive traditional 
power lines. Provides critical backup when grid power is unavailable 
due to weather related outages and can carry the load at the site of 
consumption until grid power is restored.
A HYDROGEN ECONOMY
    Both stationary and mobile fuel cell systems are the ideal 
technologies to transition to a fully sustainable energy future based 
on hydrogen. Vehicular and stationary fuel cells, taken together, 
provide the impetus for development of a hydrogen infrastructure in the 
United States and move us to natural capitalism. This technology, like 
other innovative transportation options, is cursed with the ``chicken 
or the egg'' question. That is: what comes first, the infrastructure or 
the fuel cells? By developing both stationary and transportation 
applications with the ability to refuel on a small scale, demand can be 
generated by multiple product applications and provide a stronger 
incentive to develop a full-scale hydrogen infrastructure. By way of 
example, our company is exploring a home refueling station that would 
fuel, via hydrogen, the family automobile as well as provide the 
electricity and heat for the home. One can imagine the early adopters 
buying a fuel cell car and a home refueling station at the same time.

                                 

                    Statement of Technology Network
    Chairman Neal, Ranking Member English, and Members of the 
Subcommittee, on behalf of The Technology Network (TechNet), I am 
privileged to provide testimony on the important issue of energy and 
tax policy and specific issues related to the current framework of tax 
incentives encouraging the development of alternative sources of 
energy.
    TechNet was created in 1997 to shape public policy impacting U.S. 
innovation and technology leadership and today is the preeminent 
organization representing chief executive officers of the nation's 
leading high technology companies. Chaired by John Chambers of Cisco 
Systems and John Doerr of Kleiner Perkins Caufield & Byers, TechNet's 
CEO and senior executive members are the nation's leading innovators in 
the fields of information technology, Internet and e-commerce, 
biotechnology, venture capital and investment banking. TechNet's top 
priority is to foster public policies and private sector initiatives 
that maintain U.S. competitiveness and economic growth through 
innovation.
    Recognizing the nation's energy and environmental challenges and 
the enormous potential of innovation as the solution to these 
challenges, TechNet established a Green Technologies Task Force 
comprising senior executives of leading innovation companies to 
identify key public policies and industry initiatives that will spur 
the development and adoption of new technologies to enhance energy 
efficiency, encourage use of renewable energy and protect the 
environment.
    The TechNet Green Technologies Initiative represents TechNet's 
longstanding commitment to policies that strengthen the nation's 
innovation-driven global competitiveness.
    Among the key recommendations of the TechNet Green Technologies 
Task Force is the need to adopt fundamental reform of federal tax 
policy with the goal of encouraging the development, commercialization 
and adoption of new energy technologies.
    We appreciate the Subcommittee's leadership in exploring how tax 
policy can more effectively drive innovative green technologies and 
alternative sources of energy. Indeed, we believe this should be among 
Congress's leading priorities because of the tremendous potential that 
such policy changes hold for U.S. economic competitiveness, national 
security and the global environment.
    Several provisions of the current tax code provide incentives for 
investment in anddeployment of renewable energy sources or alternative 
fuels. These include:

      Production Tax Credit, providing a 1.5-cent/kWh credit 
for wind, solar, geothermal, and ``closed-loop'' bioenergy facilities 
(adjusted for inflation, the 1.5 cent/kWh tax credit is currently 
valued at 1.9 cents/kWh).
      Investment Tax Credit, providing a federal income tax 
credit worth 10% of initial investment cost for certain solar, 
geothermal, or qualifying biomass facility and a 30% credit for some 
solar or fuel cell investments and residential projects, with various 
caps applying to different applications.
      Volumetric Ethanol Excise Tax Credit (VEETC), providing 
ethanol blenders and retailers with .0051 per percentage point of 
ethanol in the blend on a volumetric basis (E10 is eligible for $.051/
gal). VEETC also provides a credit of $.01 per percentage point to 
blenders of two types of biomass-derived diesel fuels fatty-acid methyl 
esters derived from virgin oils/fat and diesel derived from biomass via 
a thermal depolymerization process), and $0.005 per percentage point to 
blenders of fatty-acid methyl esters derived from recycled oils/fats.

    We applaud the leadership of this Subcommittee in advancing these 
incentives. They are an important first step in securing our nation's 
energy future. However, more remains to be done.
    Federal incentives including tax credits, loan guarantees and other 
programs are critical to the early success of energy technology 
projects which in many cases incur substantial up-front costs to 
generate electricity in lieu of high ongoing fuel costs. Investors or 
consumers face significant capital investments to develop or install 
such technologies, creating a need for creative financing solutions 
particularly for larger-scale commercial installations.
    The convergence of computing, communications and data; digital 
technologies and broadband-enabled networking that has revolutionized 
industries from communications to e-commerce to manufacturing to 
finance is beginning to transform the energy sectors in the United 
States and abroad. Technologies that were unimaginable ten years ago 
are widely available today.
    The federal tax code's existing incentive programs, however, have 
not kept pace with the dramatic rate of technological advances. The 
current tax code is not optimally designed to spur the development of 
new technologies. We believe that they comprise a level of incentives 
that is not strong enough to drive substantial new investment or 
significantly change consumer behavior. As a result, their impact on 
cutting edge innovations has been limited by constraints including the 
timeframe and structure of these incentives.
    As a fundamental matter the current federal tax code has 
historically favored conventional fossil fuels, which have received 
billions of dollars in federal subsidies each year. According to 
General Accountability Office data, the U.S. petroleum industry 
received between $134.9 and $149.6 billion in tax incentives between 
1968 and 2000, as a result of various programs including expensing of 
exploration and development costs, alternative fuel production credits 
and other incentives. Predicted benefits to the oil and gas industries 
resulting from just the incentives included in the Energy Policy Act of 
2005 totaled $6 billion.
    Because current tax incentives are structured in a manner that 
continues to advantage traditional energy sources, we believe that 
federal tax policy will not significantly change patterns of energy 
production or consumption unless we commit to a fundamentally new 
approach.
    To be truly effective in addressing our nation's critical energy 
challenges, our tax system must be modernized so that it accelerates 
the rate of change for bringing energy technology solutions to market. 
Significant reform is necessary even to achieve parity in terms of the 
support for new technologies relative to incumbent energy sources, but 
we should do more.
    Similar efforts by other nations have yielded substantial results. 
Comprehensive and strategic policies to create sustainable markets for 
renewable energy technologies have had far-reaching success in Germany, 
Spain, Japan and other nations that now benefit from robust alternative 
energy industries. In each case, an unwavering high-level commitment to 
a fundamental shift in strategy has led to sustained investment in and 
adoption of new energy technologies.
    Achieving fundamental reform of our current tax system will be a 
complex undertaking that demands thoughtful and detailed policy change. 
We believe, however, that we can and must do more to expand markets for 
innovative technologies and to accelerate the development of new 
innovations through technology-neutral tax policies.
    Piecemeal programs and incentives will not drive fundamental 
changes in behavior necessary to change patterns of energy supply and 
demand. Above all, we need a comprehensive, strategic and sustained 
approach to tax policy that drives supply and demand for new energy 
technologies so that they are developed and utilized at a scale that 
can make a significant impact.
    We recommend the following reforms as a starting point for a new 
approach:
1. Restructuring incentives to ensure market signals drive new 
        technologies
    Structural issues significantly impact the effectiveness of 
existing tax programs in spurring new technologies. Our current tax 
code includes various alternative energy incentive programs, each of 
which applies to certain specified energy technologies but not to 
others.
    Some of these incentives are subject to caps and other specified 
limitations. For example, federal law currently provides a 30% 
investment tax credit for solar installations, but residential systems 
are capped at $2,000 under the credit. As a result, even modest 
residential solar installations receive relatively little incentive 
under the program.
    Similarly, the investment tax credit includes a $1,000 per kilowatt 
cap for fuel cells for both commercial and residential installations. 
In addition, incentives for manufacture of fuel-efficient vehicles 
impose an annual cap on the number of eligible hybrid vehicles.
    Tax incentives for alternative fuels are similarly structured to 
encourage specific technologies rather than technologies that meet 
performance goals. Tax incentives are available to companies (including 
oil companies, fuel distributors and others) that blend biofuels with 
conventional fuels for distribution. Existing credits apply to 
alcohols, fatty-acid methyl esters and diesel derived from biomass 
using a thermal depolymerization process.
    Existing credits for biofuels are based on volumetric blend 
percentages (i.e. the percentage of biofuel in the finished fuel). 
Using a volumetric basis grants an advantage to relatively low energy 
content fuels despite the advantages of higher energy content fuels 
that include increased range and lower emissions. As a result, current 
tax incentives favor less energy dense fuels such as ethanol over fuels 
with higher energy content such as butanol and other high-alcohol 
content fuels.
    In addition, novel biofuels that do not fall within the chemistries 
or processes specified within the tax code are not eligible for the tax 
credits. These include such promising technologies as biomass derived 
and biochemically produced hydrocarbons. Furthermore, biofuels derived 
from feedstocks that result in significantly lower greenhouse gas 
emissions are not granted any additional incentive over those derived 
from conventional feedstocks.
    In short, current tax policy picks winners and losers. The 
structure and value of existing incentives is not driven by an 
overarching strategy to impact energy security or reduce harmful 
emissions but is primarily a reflection of the political clout of 
various industry sectors or even individual companies.
    Federal tax policy can be significantly more effective in 
addressing national energy and environmental priorities by driving new 
technologies if it is restructured in a manner that encourages a range 
of innovative technologies and enables the market to drive the growth 
of these technologies.
    We recommend the establishment of robust, long-term incentives that 
are available to promising technologies that meet specified 
performance-based criteria. Such criteria may include, but are not 
limited to, minimum efficiency standards, reduced emissions of 
greenhouse gases or other pollutants, low-emissions or low-fossil fuel 
reliance in production processes, reduction in petroleum usage and 
similar factors consistent with energy and environmental policy goals.
    We believe that certain novel approaches to achieving market-driven 
incentives also merit consideration. Linking federal support for 
biofuels to changes in the price for oil, for example, will cause tax 
incentives for biofuels production to increase as oil prices decrease. 
This approach will enable alternative fuels to compete more 
effectively, while preserving federal support when it is not needed 
(i.e. when oil prices rise to a point at which biofuels are 
competitive).
2. Long-term, consistent approach
    To drive substantial private sector investment, we need stable, 
long-term and predictable incentives. We support a minimum 5-year 
timeframe for clean energy tax credits.
    We believe this is the minimum amount of time necessary to enable 
rational investment decisions and a reasonable period of time given 
budget constraints that impact tax policy. This minimum timeframe will 
allow for economies of scale in the development, deployment and cost of 
renewable energy sources.
    The federal regulatory environment's support for energy 
technologies can be significantly improved by establishing consistency 
and predictability. The effectiveness of existing incentives is 
significantly limited in driving development of projects with long lead 
time, particularly given the pace of development and consumer adoption 
of energy technologies. In most cases, existing tax credits or 
incentives are short-term, piecemeal programs subject to the 
uncertainty of the Congressional reauthorization and/or appropriations 
processes. For example, the production tax credit for renewable energy, 
established in 1992, has been subject to three expirations and several 
short-term extensions (some retroactive), most recently through 
December 2008.
    Energy policy and its urgency have fluctuated with changing energy 
prices. A sound national energy strategy must include long-term, stable 
policies that accelerate development and adoption of new technologies 
including next-generation technologies.
3. Consumer incentives that change patterns of demand
    The federal tax code can do more to change consumer behavior 
consistent with the development and commercialization of new 
technologies. The tax code can significantly change consumer behavior, 
driving demand in pace with supply, by shortening the payback period 
for installation or adoption of new technologies.
    Incentives currently exist for manufacturers and consumers of 
energy efficient appliances, including refrigerators and dishwashers. 
Industry has partnered successfully with the Federal Government for 
many years to establish effective market-based programs and 
initiatives, such as the Department of Energy-Environmental Protection 
Agency Energy Star program, which have been effective in informing 
consumers about energy usage and encouraging the development of energy 
efficient products.
    Currently, some states offer generous incentives for consumer 
purchase and installation of energy technologies while others have no 
such incentives. Federal policy should establish greater consistency in 
consumer demand for energy technologies.
4. Technology neutrality and support for a balanced portfolio of 
        technology
Solutions
    The importance of technology neutrality and the need to develop a 
portfolio of technology solutions that is balanced cannot be 
overemphasized. In particular, we note that more established energy 
technology solutions continue to make tremendous gains in cost 
reduction and effectiveness. These technologies, including solar, fuel 
cell and wind technologies, have not yet met their full potential. In 
the case of some established clean technologies, a lack of widespread 
consumer adoption has a counterintuitive effect of fueling consumer 
skepticism that should be addressed.
    To the greatest extent possible, federal policy should establish a 
level playing field through performance-based criteria that enable all 
promising energy technologies to compete. Ultimately, the marketplace 
should pick technology winners and losers.
Conclusion
    There is an unprecedented degree of consensus today that our nation 
faces energy challenges that will impact our economic competitiveness, 
national security and the global environment unless we take significant 
steps to chart a sound energy future.
    Energy tax policy--and specifically, policies that encourage novel 
and innovative new energy technologies--is among the most important 
means of driving fundamental change in our energy supply and demand. We 
deeply appreciate the Subcommittee's leadership and encourage your 
continued resolve to make bold changes that will enable us to surmount 
our nation's critical energy and environmental challenges. TechNet is 
committed to supporting the Subcommittee in this important effort.
    Thank you for your consideration.

                                 

              Statement of United Corrstack, Incorporated
Introduction
    On behalf of United Corrstack, Incorporated (``UCI''), I am pleased 
to provide this statement in connection with hearings on energy tax 
policy conducted by the Select Revenue Measures Subcommittee on April 
19 and 24, 2007. I wish to comment on two objectives I believe are 
important for Congress to consider as it continues work on tax credits 
and other incentives for the development of alternative energy 
technologies. Those two objectives are, first, to ensure that tax 
credits will be available for a sustained period of time and, second, 
to ensure that a standard tax credit rate is available to as broad a 
spectrum of alternative energy technologies as possible.
    Several bills dealing with tax credits for alternative energy 
technologies have been introduced. H.R. 197, introduced by Rep. Earl 
Pomeroy, would extend the production tax credit for electricity 
produced by renewables for another five years. While this would be 
helpful, I recommend careful attention to two other bills, H.R. 1924, 
introduced by Reps. Kendrick Meek and Wally Herger, and H.R. 2001, 
introduced by Reps. Jay Inslee and Lee Terry. These would be 
particularly beneficial to my company, which is developing a biomass-
fired cogeneration plant adjacent to our paper mill. However, I 
recognize that other technologies also deserve support and encourage 
the Committee to take a broad and equitable approach to encourage 
alternative energy technologies as it confronts the challenges of 
climate change, energy efficiency, the security of energy independence, 
and economic growth.
Background on United Corrstack, LLC
    Before discussing the effect of the production and investment tax 
credit issues on our company, I first would like to describe our 
operations. United Corrstack (``UCI''), located in Reading, Pa., has 
been in business since 1993 and is a subsidiary of Interstate 
Resources, Inc. (``IRI''), a privately-held corporation based in 
Arlington, Va. that owns and operated several paper mill and package-
making facilities throughout the eastern United States. UCI is a paper 
mill that produces recycled corrugating medium in a range of weights 
between 23 and 33 lbs. Our paper product is sold on a wholesale basis 
to many package-making facilities primarily within a 150-mile radius of 
Reading, Pa. Our annual sales are approximately 50 million. We have 75 
direct employees and our activities result in indirect fulltime 
employment of more than 30 other workers. Our direct employees work in 
a union shop, with union-scale wages and benefits. UCI prides itself on 
producing the highest quality paper, providing superior customer 
service and maintaining a strong and positive presence in the Reading 
area.
Corrstack's Energy Challenge
    Since we began operating, we have been 100 percent dependent on 
fossil energy purchased from local utilities. We purchase 9 MW per day 
of electricity from our local electric utility. In addition, we 
purchase approximately 5mm gallons No. 2 fuel oil or equivalent natural 
gas per year to heat the boilers that produce steam for our paper 
processing machines.
    In the first (8) years of our plant's operation, the cost of 
electricity, oil and natural gas was reasonable enough that our 
operations were sufficiently profitable. However, during the past five 
years, our energy costs have nearly doubled. Last year alone, we paid 
more than $11 million for energy. Since our product is priced as a 
commodity traded on an open exchange, we cannot pass these higher 
energy costs onto our customers. These higher costs have cut into our 
margin, thereby challenging our plant's profitability.
    We do not blame our local utilities for these higher costs since 
they are forced to pass on their own escalating wholesale costs to 
retail customers like us. Still, we found ourselves having to take 
action in order to maintain the employment and economic viability of 
our facility.
    Concurrently with rising utility costs burdening our facility, our 
region has had to deal with another problem, how to dispose of ever-
increasing volumes of waste that for years has been transported to 
landfills both local and in other states. With these landfills now 
operating at near capacity, United Corrstack viewed these dual problems 
of higher energy costs and near-capacity landfills as a problem that 
could be turned into an exciting opportunity.
Creating a New Path Forward
    We plan to break ground soon on a 30 MW biomass-fueled cogeneration 
plant that will allow us to generate our own steam and electric power 
for use in our paper mill in Reading, with excess power being sold to 
the local utility replacing additional fossil fuel generated 
electricity. The plant is expected to come on line in the third quarter 
of 2008. We expect that the successful operation of this plant will 
save our company approximately 3-4 million per year in natural gas and 
electricity costs.
    The proposed plant is the first of its kind in the northeast and is 
an innovative approach to clean energy. The facility will use a 
circulating fluidized bed (CFB) boiler for fuel flexibility, low 
emissions and high efficiency in a cogeneration process for maximum 
thermal efficiency. It will burn about 800 tons per day of biomass fuel 
from waste sources, including pallets, railroad ties, paper sludge, 
residual wood and various construction and demolition residue. In 
addition, about three per cent of the waste to be used as fuel will be 
burlap and other wastes from the local Hershey Chocolate facility. Our 
goal is to reduce the consumption of purchased natural gas and No. 2 
fuel oil by at least 85 per cent.
    The steam energy produced will be sufficient not only to serve our 
existing paper mill, but a new mill that we expect to construct within 
a few years. We also will have sufficient residual electrical power to 
sell to our local utility. We are bearing the infrastructure expense of 
constructing a new substation, interconnect equipment, and new 
transmission lines to accommodate that exchange of electricity.
    The production of power and steam in this new facility will be 
subject to strict environmental guidelines administered by the 
Pennsylvania Department of Environmental Protection. We expect the DEP 
to issue our permit in early June. Groundbreaking will take place 
shortly thereafter. The facility is expected to come on line in mid 
2008. It will maintain 75 jobs and create up to 150 new jobs in the 
Reading area.
The Value of the Production Tax Credit
    Under current law that expires at the end of 2008, we qualify for a 
modest production tax credit that would result in about $1.2 million 
per year. The rate under which we qualify is half the rate available to 
other renewable and energy efficiency technologies such as wind and 
geothermal. Also, current law only applies to half of the types of 
biomass, such as residual wood and pallets.
    The legislation proposed by Reps. Meek and Herger would help us by 
equalizing the production tax rate for open-loop biomass to the level 
that applies to wind and geothermal. However, even though the Meek-
Harger bill would give us the full rate equivalency, it still would 
only apply to half the fuel we use since the definition of biomass 
under the current tax code is limited.
    The legislation proposed by Reps. Inslee and Terry takes a 
different approach. It would create a new classification under the tax 
code for combined heat and power sources and make it eligible for a 10 
per cent investment tax credit. The Inslee-Terry bill may benefit us 
more since the 10 per cent investment tax credit would apply to our 
entire production process. We understand that if both bills are 
enacted, we would have to choose which one is better for our facility. 
We would make that decision at the appropriate time. However, the 
Committee may wish to consider making both the investment and 
production tax credit provisions, or at least some elements of both 
provisions, available so that other worthy biomass-fired cogeneration 
plants can become more attractive to investors.
    We believe the cogeneration process we will use at our site merits 
equal treatment with these other sources. Beyond the help that either 
bill would provide us, however, there is another reason to encourage 
more of these facilities nationwide.
    The use of biomass fuel in a clean-burning, advanced technology 
combined heat and power (CHP) system such as the one we are developing 
at United Corrstack should be encouraged in any change to the tax code 
contemplated by Congress. The thermal efficiency rating of CHP systems 
exceeds 60 per cent while the thermal efficiency rating of conventional 
coal-fired utility plants rarely exceeds 30 per cent. This is because a 
CHP system utilizes excess steam for industrial process rather than let 
it escape into the atmosphere as is the case with conventional coal-
fired plants.
    In addition, biomass has certain benefits that fossil fuels do not. 
Biomass is as dependable and plentiful a resource as the sun, wind and 
water. Biomass is carbon neutral because it creates its carbon by 
absorbing CO2 and, unlike typical fossil fuels, it contains 
very little sulfur and metals. If there is any drawback to biomass, 
however, it lies in how the biomass fuel is brought to the power plant. 
While there is a substantial interstate transmission pipeline system to 
ship natural gas and oil, there is no comparable long-distance shipping 
capability for biomass. We are negotiating with trucking companies that 
can bring us the biomass fuel we need for the next two to three years. 
Beyond that, however, we cannot be certain. Therefore, an increase in 
the production tax credit would provide protection for our capital 
investment by giving us a financial cushion to offset escalating 
transportation costs.
Conclusion
    Our plant is unique in the northeast, not only because we are using 
biomass from local sources that otherwise would go to landfills, but 
because we are complying with the strictest environmental protection 
standards. We believe our facility will be a prototype that can be used 
elsewhere in the country. I want to emphasize that we have made the 
decision to proceed with construction of our biomass cogeneration 
facility regardless of whether the current tax credit provisions remain 
unchanged. Nevertheless, because of fuel supply and other risks we are 
taking, we strongly believe Congress should act to provide longer term 
stability in the provision of tax credits for renewable, combined heat 
and power and other alternative energy resources. This not only would 
be good for United Corrstack, it would help the growth of alternative 
energy resources elsewhere.
    Thank you for the opportunity to provide these comments.

                                 

                         Statement of UTC Power
    UTC Power appreciates this opportunity to submit a statement for 
the hearing record on the impact of energy tax policy on advanced 
energy technologies.
Summary
    Our comments regarding energy tax incentives are based on UTC 
Power's portfolio of ultra clean, highly efficient, reliable onsite 
power generation technology solutions. While the technologies employed 
by our products are diverse, they are similar in their ability to 
address the nation's need for clean, efficient, reliable, continuously 
available base load power. UTC Power's onsite power generating 
equipment such as our PureCellTM, PureComfortTM 
and PureCycle systems compete against the well established and heavily 
subsidized electric grid. Distributed generation technologies such as 
ours offer enhanced energy security and stability. By splitting energy 
requirements between the electric grid and the natural gas grid, we 
provide our customers with an effective risk management strategy.
    From a policy perspective, UTC Power as well as our supplier base 
and customers purchasing any of our onsite power generation products 
would benefit from stable, long term government policies that provide 
meaningful levels of incentives over a known timetable for the maximum 
period possible. There are three specific federal energy tax incentives 
of interest to UTC Power that were included in the Energy Policy Act 
(EPAct) of 2005 and extended until 12/31/08:

        Sec 48 Fuel cell investment tax credit;
        Sec 48 Microturbine investment tax credit; and
        Sec 45 Geothermal production credit.

    In all three cases, the volumes for products associated with these 
incentives are low and potential suppliers and customers are risk 
adverse. Long term certainty and a meaningful level of incentive are 
absolutely essential. We urge Congress to pass legislation this year 
that provides long term extensions (a minimum of five years) for 
federal incentives that will assist in the commercialization of these 
products; make several revisions; and clarify key implementation 
issues. We support HR 550 and HR 197 that provide more specifics on the 
extensions and revisions to the existing incentives that we endorse.
Company Background
    UTC Power, a business unit of United Technologies Corporation (UTC) 
is a world leader in commercial stationary fuel cell development and 
deployment. UTC Power also develops innovative combined cooling, 
heating and power applications for the distributed energy market. Since 
1991, UTC Power has installed more than 260 fuel cell systems in 19 
countries around the world. UTC Power's PureCellTM 200 
system provides base-load power and can operate connected to or 
independent from the grid and also switch between modes automatically 
or on command. The PureCellTM 200 system operates seamlessly 
during grid outages. Additionally, it is one of the cleanest power 
sources available today.
    UTC Power also develops innovative combined cooling, heating and 
power applications for the distributed energy market. One example is 
the PureComfortTM power solution, an ultra-efficient natural 
gas driven combined cooling, heating and power solution capable of 
satisfying energy needs with or without the grid. It is flexible, 
environmentally benign and can reach efficiencies in excess of 80 
percent. PureComfortTM power solutions consist of 
microturbines and a double-effect absorption chiller/heater from our 
sister UTC division the Carrier Corporation. When a UTC Power system is 
integrated with a facility's central heating or cooling system, the 
efficiencies can exceed 80 percent, resulting in substantial energy 
cost savings.
    In addition, UTC Power is developing an organic Rankine cycle 
product known as the PureCycle system for geothermal and other energy 
resources. This technology is in the development stage. We are 
partnered with Chena Hot Springs Resort outside of Fairbanks Alaska, 
the Department of Energy and Alaskan authorities in validating this 
exciting new geothermal technology. Operating with geothermal water at 
165+ F, this project has featured the use of the lowest temperature 
geothermal energy resource in the world. On April 12, 2007 we announced 
a series of agreements with Raser Technologies of Provo, Utah to 
provide up to 135 PureCycle systems for three Raser power plants. In 
total, these systems will generate approximately 30 megawatts of 
renewable electrical power.
Energy Efficiency and Renewable Energy are Key to Meeting Increasing 
        Energy Demands, But U.S. Policies are Not Adequate to Meet the 
        Challenge
    A December 2006 Government Accountability Office (GAO) study 
entitled ``Key Challenges Remain for Developing and Deploying Advanced 
Energy Technologies to Meet Future Needs'' indicates: ``U.S. 
electricity generation will grow from 3,900 billion kilowatt hours in 
2005 to 5,500 billion kilowatt hours in 2030.''
    How will our nation meet this demand with minimal environmental 
impact?
    A recent report by the American Council on Renewable Energy ``The 
Outlook on Renewable Energy in America'' states that 500 to 700 
gigawatts of new renewable energy supplies could come from U.S. 
renewable sources by 2025. The American Solar Energy Society also did a 
study ``Tackling Climate Change in the U.S.: Potential Carbon Emission 
Reductions from Energy Efficiency and Renewable Energy by 2030'' and 
found U.S. greenhouse gas (GHG) emissions could be reduced between 60-
80% by 2050 if appropriate incentives were provided.
    Advanced energy technologies such as UTC Power's 
PureCellTM, PureComfortTM and PureCycle systems 
face significant hurdles in gaining acceptance including a risk adverse 
market and initial high costs driven by low volumes. We welcome the 
recent actions by Congress to provide incentives for fuel cells, 
microturbines and geothermal energy production in the 2005 Energy 
Policy Act (EPAct) and last year's action to extend these three credits 
until 12/31/08. However, these efforts are not sufficient to address 
the challenges we face as a company, industry or nation.
    The GAO report concluded: ``It is unlikely that DOE's current level 
of R&D funding or the nation's current energy policies will be 
sufficient to deploy alternative energy sources in the next 25 years 
that will reverse our growing dependence on imported oil or the adverse 
environmental effects of using conventional fossil energy. The report 
added: ``In addition, the duration of certain federal tax incentive has 
been insufficient to stimulate investment decisions to deploy advanced 
energy technologies. . . . The credit's duration is key to encouraging 
companies and their lenders to undertake the substantial investments 
and build an industry over time.'' UTC Power's experience in the 
marketplace confirms these conclusions.
Fuel Cell Investment Tax Credit
    A fuel cell investment tax credit was established in EPAct 2005 for 
business and non-business property owners. It provides a credit of 
$1,000 per kilowatt installed cost or 30 percent of project cost, 
whichever is less. The original sunset was 12/31/07, but this was 
extended until 12/31/08 in the Tax Relief and Health Care Act of 2006.
    UTC Power is investing more than $100M total in a 5 kW fuel cell 
system for the critical back up power market and a new 400 kW 
stationary fuel cell product that will have twice the life and double 
the output at half the cost of our current PureCellTM 200 kW 
system. The PureCellTM Model 5 power system is currently 
available as a pre-production product with commercial availability in 
the 2008 timeframe. The PureCellTM 400 system is scheduled 
for market launch in early 2009. The fuel cell tax credit is set to 
expire just as these products will be entering the market which 
generates considerable uncertainty for us, our suppliers and potential 
customers. Extension of the credit this year is therefore critical to 
the commercial success of these products.
    In addition, there are a number of issues related to implementation 
of this new credit that require clarification including: the use of the 
federal credit in connection with state incentives; applicability to 
certain markets; transference of credits so non tax paying entities can 
access the incentives; and eligibility for customers located in U. S. 
territories.
Microturbine Investment Tax Credit
    The microturbine investment tax credit was created at the same time 
as the fuel cell provision noted above for business property owners. It 
provides $200 per kW installed cost or 10 percent of total project 
cost, whichever is less.
    Our microturbine based systems provide cooling, heating and power. 
These products face the same risk adverse, low volume, high cost 
dynamics as fuel cells. Given the low emissions, plus high efficiencies 
of these systems and their ability to provide assured power, there is 
significant customer and public benefit in their deployment. Both fuel 
cells and microturbines share the same need for certainty and longevity 
with regard to federal financial incentives.
    In addition to the clarification issues associated with fuel cells, 
we also would seek a technical correction to the statute explicitly 
stating that the microturbine credit applies to the entire combined 
cooling, heating and power system and not just the microturbine 
component.
Geothermal Production Tax Credit
    The EPAct also made geothermal energy production eligible for the 
Sec. 45 federal Renewable Electricity Production Tax Credit (PTC). This 
incentive is adjusted for inflation and currently provides 2.0 cents 
per kWh for energy produced from geothermal resources. A taxpayer may 
claim credit for the 10-year period commencing with the date the 
qualified facility is placed in service.
    Many geothermal projects take years to develop. The PTC timeframe 
is too short for most geothermal projects to be completed by the 
current placed in service deadline. We support the Geothermal Energy 
Association's position that ``To achieve sustained geothermal 
development, Congress should immediately amend the law to allow 
facilities under construction by the placed in service date of the law 
to qualify, and extend the placed in service deadline by at least 5 
years, to January 1, 2014, before its expiration.''
Longer Term Tax Credit Extension is Important Due to Length of Sales 
        Cycles and Need for Certainty by Suppliers, Technology 
        Developers, Investors and Customers
    Our experience in the onsite power generation marketplace indicates 
that sales cycle for these advanced technologies is typically 18-24 
months. Tax credits of only two years duration therefore have limited 
value in supporting the commercialization of these technologies.
    Volumes for our onsite power generation solutions are low in these 
early years of the commercialization process. This translates into 
initial costs that are higher than conventional technology since 
overhead is spread over a smaller base. Low volumes also make it 
difficult to attract the needed supplier investment in capacity 
expansion, tooling and equipment since they face the risk of never 
returning a profit. These risks can be mitigated somewhat by the 
knowledge that federal incentives will be available to help defray the 
costs of initial product deployment and help promote market 
penetration.
    Our parent company, United Technologies Corporation (UTC) is one of 
the nation's largest investors in R&D (3.2B in 2006) for products such 
as aircraft engines, helicopters, air conditioners, elevators and 
escalators that operate for decades. We need as much certainty as 
possible regarding government policies, regulations and incentives so 
we can deploy our assets for maximum public benefit and shareholder 
value.
    Smaller companies including many of our suppliers don't have these 
advantages and therefore are even more vulnerable than we to market 
changes. Our suppliers have an even greater need for certainty if they 
are to make investments in tooling, facilities and equipment that will 
support our products.
Conclusion
    Water never boils if the heat is turned on and off. Many have 
highlighted the problems associated with the uncertainties of tax 
credits of short duration and the ``on again off again'' nature of the 
production tax credit. Testimony presented in a recent Senate Finance 
Committee hearing pointed out that five two-year tax credit extensions 
are not equal to one ten-year extension. There is a compelling need for 
assurances that government policies with regard to support for advanced 
energy technologies will be stable and consistent with a long term 
perspective. We urge Congress to enact the most robust and longest term 
extensions possible for these important advanced energy technologies so 
their benefits can be realized by mainstream America.

                                 
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