[Senate Hearing 110-387]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-387
 
                         REVISED ENERGY OUTLOOK

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


                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   TO

 RECEIVE TESTIMONY ON THE ENERGY INFORMATION ADMINISTRATION'S REVISED 
                         ANNUAL ENERGY OUTLOOK

                               __________

                             MARCH 4, 2008


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


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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii              PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota        LARRY E. CRAIG, Idaho
RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana          JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           BOB CORKER, Tennessee
KEN SALAZAR, Colorado                JOHN BARRASSO, Wyoming
ROBERT MENENDEZ, New Jersey          JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas         GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
JON TESTER, Montana                  MEL MARTINEZ, Florida

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
              Frank Macchiarola, Republican Staff Director
             Judith K. Pensabene, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Caruso, Guy, Administrator, Energy Information Administration, 
  Department of Energy...........................................     5
Domenici, Hon. Pete V., U.S. Senator From New Mexico.............     2

                                APPENDIX

Responses to additional questions................................    37


                         REVISED ENERGY OUTLOOK

                              ----------                              


                         TUESDAY, MARCH 4, 2008

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:03 a.m. in 
room SD-366, Dirksen Senate Office Building, Hon. Jeff 
Bingaman, chairman, presiding.

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

    The Chairman. Ok. Why don't we go ahead with the hearing. 
Thank you very much for joining us today.
    Mr. Caruso, thank you for being here. We're always glad to 
hear from you, and look forward to discussing your 
Administration's recently revised Annual Energy Outlook.
    We know that EIA has just completed this year's energy 
outlook last December. They had just completed it when the 
Energy Independence and Security Act was signed into law. We're 
very appreciative that on your own initiative you took the 
effort to re-run those models so that we might all begin to 
better understand the effects of the new energy legislation.
    Because it is clear that the effects of the legislation 
will be substantial, I believe we've made some great strides 
toward reducing our energy dependence and curbing global 
warming pollution. In 2006, 60 percent of our oil, gas and 
other transportation fuels came from foreign sources. As I 
understand your projections now in 2022, only 51 percent of 
those fuels will come from foreign sources.
    This is a substantial achievement. It reverses the long 
standing trend of becoming more and more reliant on imported 
oil. It appears that OPEC will meet tomorrow and decide not to 
increase oil production despite new record high prices for oil.
    We hit a new high of $103.95 per barrel yesterday. OPEC's 
decision to sit by and watch as oil prices skyrocket highlights 
how important it is to wean ourselves off of imported oil to 
the maximum extent possible. This bill that was signed into law 
takes a strong step away from oil dependency and toward greater 
efficiency and home grown biofuels.
    I'm also glad to see that your revised outlook suggests 
that EISA will lead to substantially reduce--that's the 
initials of that bill that was signed into law, will lead to 
substantially reduce growth in greenhouse gas emissions. 
Through the greenhouse gas emissions reduction requirements 
included in that bill's renewable fuel standard. Congress 
passed and the President signed into law the country's first 
global warming legislation.
    Your testimony states that you now expect energy-related 
carbon emissions in 2030 to be 500 million metric tons below 
what was published or expected prior to the passage of this 
legislation. This again is a substantial change, a substantial 
decrease and a step in the right direction. It demonstrates 
that government policy can and will move toward reducing 
greenhouse gas emissions. I hope we will use this first step to 
build momentum toward more comprehensive global warming 
legislation.
    I also want to thank Mr. Caruso for his responsiveness to 
Congress' request that EIA facilitate more transparency on 
refinery capacity and utilization. Both Senator Domenici and I 
co-sponsored an amendment that was adopted as part of the 
recent legislation requiring EIA to analyze refinery outage 
data and report its findings to the Secretary of Energy. EIA 
has now decided to go one step further and publish aggregate 
data on refinery outages every month in its Petroleum Supply 
Monthly.
    This kind of data transparency is critical to the free and 
properly functioning markets that we depend upon. I applaud EIA 
for making the efforts. Again, thank you for being here. Let me 
call on Senator Domenici for his comments.

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

    Senator Domenici. Mr. Chairman, fellow Senators, this ought 
to be a red letter hearing. The crowd should fill this place 
and reporters that are interested in reporting something good 
that was done by Congress, not only good, but exceptionally 
good, should be here. Because Mr. Caruso's agency is the best 
in the world and they're probably as close to right on 
predictions as anyone around.
    The Administrator has come before us to discuss the law we 
passed to change CAFE standards. In that same bill we added 
biofuel production, as you may recall, and we also added some 
additional appliance efficiencies. Those were your specialty, 
Mr. Chairman.
    Now the Administrator tells us that he is able to predict 
the impact of changing the CAFE standards, adding to the 
biofuels standard and improving appliance efficiency. He's 
giving us a report on the impact of that law, and those 
provisions, on America's energy consumption. It turns out that 
for the first time, our use of crude oil that is imported is 
going to come down, rather than continue its upward spiral.
    Now, people will say, by how much? It's substantial. Two 
million barrels a day less by the year 2030, a time when people 
are expected to be using more oil elsewhere in the world.
    Second, we didn't talk very much when we passed that bill. 
Commerce did its part. We had a say in the rest of the bill, 
but the Commerce committee worked on that provision.
    By raising the CAFE standard, we said that we're going to 
have a different kind of automobile mix in the next 10 years 
and then thereafter. By doing that, we will save huge amounts 
of carbon dioxide, Senator Craig. You know we're out talking 
about what new thing we should impose on ourselves to reduce 
carbon dioxide emissions. Of course there's going to be a 
battle royal as to whether we're going to impose a substantial 
cost on our economy or not.
    But the energy bill we passed last year is going to cause 
us to save. I've got it down here where you could understand 
it: It's going to save in carbon dioxide emissions what 71, 
500-megawatt coal plants would have emitted over that 23-year 
period. Senator Bingaman, just think of that.
    By changing those car standards we are going to reduce the 
carbon dioxide by the equivalent of 71, 500-megawatt coal 
burning plants. What they would have emitted over 23 years? Now 
whatever else one wants to say about the excellent report that 
Mr. Caruso and his agency have given us here today, it is 
extremely important that we send our message out to the Senate 
and all those who worked hard with this committee to pass the 
major energy bill and the two that followed, that we can have 
an impact on the deleterious effect of being so dependent on 
crude oil.
    But you can't change it quickly. Our dependence is 
pervasive, and you've got to change it gradually. But we have 
changed it forever just on the CAFE standard change.
    Now if we can just look around and see if there's other 
things where we can produce--more American owned resources--we 
will truly be making some headway in terms of what we must do 
for our country. We're not there, but I'm very positive that we 
are making progress because we did do something that for years 
said we couldn't.
    We were told it would have a measurable effect. You recall, 
Senator Bingaman, we were told by the expert from Oak Ridge 
National Laboratory, were we not, that if we passed the CAFE 
standard bill on an amendment of Senator Dianne Feinstein, that 
would be the biggest step you can take in reducing carbon 
dioxide and in reducing our dependence upon crude oil.
    He was just theoretically telling us that. Now we did it, 
and we have the experts saying what the result will be. We've 
never passed anything to have this big an effect to your 
knowledge, have we, Mr. Caruso?
    Mr. Caruso. No, sir.
    Senator Domenici. I have my additional remarks--a prepared 
statement--that I will not give. I ask you to include them, Mr. 
Chairman, as if read. Thank you very much.
    [The prepared statement of Senator Domenici follows:]
    Prepared Statement of Hon. Pete V. Domenici, U.S. Senator From 
                               New Mexico
    Administrator Caruso, I want to start by thanking you for your hard 
work on this year's energy outlook. It is important that we take the 
information that you provide into account as we seek ways to increase 
America's energy security.
    Our efforts in Congress have led to three pieces of landmark energy 
legislation in the past three years. First we passed the Energy Policy 
Act of 2005, then the Gulf of Mexico Energy Security Act of 2006, and 
last year we passed the Energy Independence and Security Act of 2007. 
That legislation will:

   Raise CAFE standards;
   Increase biofuels production; and
   Improve appliance efficiency.

    Each of these measures was intended in part to reduce America's 
reliance on imported oil, which has grown steadily over the years.
    When I first came to the Senate in 1973, imports accounted for 28 
percent of our oil supply. Thirty-five years later, oil imports account 
for more than sixty percent. EIA projects that level to diminish only 
slightly by 2030, even as alternative fuels account for a much greater 
percentage of our energy supply.
    I am deeply concerned about the long-term impacts this dependence 
will have--I believe it threatens our economic strength, our national 
security, and our standing in the world.
    In the 25 years preceding our most recent energy bills, Americans 
spent $1.76 trillion on foreign oil. Looking forward, EIA has projected 
that we will spend closer to $8.5 trillion over the next 25 years.
    As we seek to reduce our dependence on imported oil, we must also 
address global climate change. I believe the bipartisan legislation we 
have passed in the last three years has, and will continue to, make a 
difference on both fronts. EIA is projecting over 16 gigawatts of new 
power plant capacity by 2030--that is a big deal. I also believe that 
there is additional room for bipartisan solutions to address both 
global climate change and our nation's dependence on foreign oil. This 
week I will be introducing a bill that establishes a Clean Energy 
Investment Bank. I expect bipartisan support for this measure which 
seeks to facilitate substantial additional investments into clean 
energy projects throughout the United States.
    The energy bill we passed last December shows that Congress can 
reduce greenhouse gas emissions without harming the economy or 
increasing the price of energy--your data makes this clear. The five-
billion metric ton reduction that will result from our most recent bill 
is equivalent to the carbon dioxide emissions that 71 500-MW coal 
plants would have emitted over the same 23-year period. It shows that 
our legislative options are not limited to a potentially devastating 
cap-and-trade system.
    The data in this year's Annual Energy Outlook is encouraging--it 
shows that some progress has been made. These estimates would have been 
worse in the absence of Congressional action. More importantly, 
however, this Outlook should be seen as a warning for the future, and 
an indication of the significant work that remains.
    The price of oil reached an all-time high yesterday--$103.95 per 
barrel. It broke a record that was set during a supply shock nearly 30 
years ago. It will be a serious undertaking to address this growing 
challenge. Equally daunting is our seeming inability to accurately 
estimate the massive growth of the world's new energy consumers and the 
difficulty of the world's producers to keep pace with rising demand. 
Just four years ago, EIA estimated that the price of oil would rise 
from approximately $24 to $29 per barrel by 2010. We must ask how our 
estimates could be so far off the mark in such a short time. And, we 
must re-examine our policies in light of these new factors.
    It has never been more important to develop an effective energy 
policy--one that will reduce our dependence on foreign oil and reduce 
our carbon emissions.
    In my view, such a policy will focus on three types of initiatives:

   Those that increase production of our domestic resources;
   Those that accelerate research, development, and deployment 
        of renewable and alternative sources of energy; and
   Those that enhance our nation's ability to conserve energy.

    In terms of production, EIA projects that a great deal of our 
domestic oil will come from development of reserves in the Gulf of 
Mexico. It is no coincidence that just two years ago the Congress 
passed legislation to open more of this area. We are now seeing the 
import-reducing benefits of that work in EIA projections.
    With energy prices near all-time highs, it is time to revisit the 
debate over responsible energy production on the Arctic Coastal Plain 
of Alaska as well. It is time to inventory our resources and produce 
more oil and gas on the Outer Continental Shelf--we must know what we 
have to work with and then we must produce it.
    At the same time, we should advance the next generation of fuels 
and technologies, such as oil shale, coal-to-liquids, and advanced 
batteries. As I mentioned, I plan to introduce legislation this week 
that would establish a mechanism to help ensure that clean energy 
projects receive the financing they need to find success.
    I look forward to working with you, Mr. Chairman, on legislation 
that will help many of these initiatives become reality.

    The Chairman. Sure, we will include those in the record. 
Mr. Caruso, why don't you go right ahead with your testimony?

  STATEMENT OF GUY CARUSO, ADMINISTRATOR, ENERGY INFORMATION 
              ADMINISTRATION, DEPARTMENT OF ENERGY

    Mr. Caruso. Mr. Chairman, members of the committee, thank 
you very much for this opportunity to present the Energy 
Information Administration's updated Annual Energy Outlook. As 
you know EIA does not promote, formulate or take positions on 
policies. Our views should not be construed as representing 
those of the Department of Energy or the Administration.
    My written statement provides an overview of the Annual 
Energy Outlook 2008 reference case, which incorporates EIA's 
assessment of portions of the Energy Independence and Security 
Act of 2007. I'll refer to it as EISA 2007 that was enacted 
last year. This 2008 reference case replaces the earlier 
released version that we issued shortly before that enactment. 
EISA 2007 provisions with the greatest effect, as Senator 
Domenici just mentioned, are the new fuel economy standards for 
light-duty vehicles, the new renewable fuel standard and new 
efficiency standards for various types of equipment.
    My oral presentation today focuses on highlights in the 
areas of energy prices, consumption, production, imports, 
renewable energy use and greenhouse gas emissions. As implied 
earlier, our projections are based on current laws and 
regulations that are in place as of February 2008. The updated 
2008 reference case also includes additional revisions that 
reflect historical data issued after the December early 
release; our latest Short Term Energy Outlook, when these runs 
were made, which was January 2008; a more current economic 
outlook; and updates to correct modeling problems in the 
earlier released version.
    Starting with energy prices, real world oil prices in real 
terms in the AEO2008 reference case decline gradually from 
current levels to $57 per barrel in 2016, or about $68 when 
looked at in nominal dollars. As expanded investment in 
exploration and development brings new supplies to the world 
oil market, we do expect prices will trend downward over this 
period between now and 2016. As shown in figure 1 of my written 
testimony, real prices then begin to rise after 2016 as demand 
continues to grow and higher cost supplies are brought to the 
market.
    In 2030, the average real price of oil is $70 per barrel in 
constant 2006 dollars or about $113 dollars per barrel in 
nominal dollars. We recognize that there is uncertainty in our 
long term price projections and due to unpredictable changes in 
energy markets and geopolitical concerns. For this reason, we 
project a range of oil prices using different assumptions from 
what are in the reference case. Under our high-price case, for 
example, oil prices in 2030 reach about $185 per barrel in 
nominal dollars.
    Projections for natural gas prices are also higher than 
those in our 2007 outlook, but coal price projections have not 
risen substantially. Electricity prices, which follow fuel 
prices, are expected to rise in real terms through 2009 then 
decline until 2015, before rising again through 2030.
    Total energy consumption, as shown in figure 3, is 
projected to grow by 19 percent between 2006 and 2030 at a rate 
of about 0.7 percent per year or less than one-third the rate 
of growth in gross domestic product, which we project to be 2.4 
percent per year. Total consumption of liquid fuels, both oil 
and renewable liquids, shown in figure 4, grows at an average 
annual rate of 0.4 percent in the AEO2008 reference case, 
increasing from 20.7 million barrels a day in 2006 to 22.8 
million barrels per day in 2030, led by growth in 
transportation fuels which account for 68 percent of total 
liquid demand in 2006, increasing to 73 percent in 2030.
    Total consumption of natural gas, shown in figure 5, is 
projected to increase about 10 percent over its 2006 level by 
2016, and then decline by about 5 percent from that 2016 level 
by 2030. Industrial natural gas use is lower than in previous 
editions of the outlook because of the higher delivered natural 
gas prices, lower economic growth and a reassessment of natural 
gas in the energy-intensive industries, which clearly are 
increasing their efficiency in the use of natural gas.
    Under current laws and regulations, natural gas is expected 
to lose market share to coal in the electric power sector as a 
result of a continued increase in natural gas prices in the 
later half of the projection period and slower growth in 
electricity demand, largely attributable to slower economic 
growth.
    Coal consumption is projected to grow at a faster rate 
toward the end of the projection period, particularly after 
2020, as coal use for new coal-fired generating capacity grows 
rapidly under current policies.
    Nuclear generating capacity increases from about 100 
gigawatts in 2006 to 115 gigawatts in 2030, including more than 
16 gigawatts of capacity at newly-built nuclear power plants 
and 2.7 gigawatts expected from upgrades of existing plants. 
These are partially offset by 4.5 gigawatts of retirements.
    Total marketed renewable energy consumption is the fastest 
growing segment of this outlook. It is projected to grow by 3 
percent per year in the reference case. Rapid growth in the 
projected use of renewable fuels in transportation in AEO2008 
reflects the EISA 2007 renewable fuels standard.
    Ethanol use grows from 5.6 billion gallons in 2006 to 24.3 
billion gallons in 2030. This is about 16 percent of the total 
gasoline consumption by volume in that year, and that's divided 
between corn and cellulosic feedstocks in this outlook.
    Biomass-to-liquids technology plays a significant role in 
compliance with EISA 2007--its requirement for cellulosic 
renewable fuels. While the situation is very uncertain at this 
early stage, our current view is that available quantities of 
cellulosic biofuels prior to 2022 will be insufficient to meet 
the new RFS targets. As a result, the modification-of-
applicable-volumes provision included in EISA 2007 is expected 
to be triggered, reducing the overall RFS target in 2022 from 
36 billion gallons to about 32.5 billion gallons.
    The use of renewable technologies for electricity 
generation is stimulated by improved technology, existing State 
RPS programs, the availability of the renewable production tax 
credit for eligible generation placed in service before the end 
of 2008, and higher fossil fuel prices. Total renewable 
generation in the AEO2008 reference case, including combined 
heat and power and end use generation, grows by 2.2 percent per 
year.
    Turning to liquid energy production and imports, U.S. crude 
oil production grows from 5.1 million barrels per day in 2006 
to a peak of 6.3 million barrels per day in 2018, primarily due 
to increased production from the deep waters of the Gulf of 
Mexico and from the expansion of enhanced oil recovery 
operations in onshore areas supported by higher crude oil 
prices. Domestic production subsequently declines to 5.6 
million barrels a day in 2030 as increased production from 
newer and smaller discoveries is inadequate to offset the 
declines in large fields in Alaska and the Gulf of Mexico. 
Total domestic liquids supply, which includes crude oil, 
natural gas plant liquids, refinery processing gains and other 
refinery inputs such as biofuels, grows from 8.3 million 
barrels per day in 2006 to 10.5 million barrels per day in 
2030.
    Differences between the updated AEO reference case and the 
prior early release version are driven largely by EISA 2007, 
although they also reflect some of the other updates mentioned 
earlier.
    Net imports of crude oil and refined products in 2030 are 
2.4 million barrels a day lower in the updated reference case 
then in the early release version. The net imports share of 
total liquid supplied, including crude oil and refined 
products, is significantly affected by EISA 2007, dropping from 
60 percent in 2006 to 51 percent in 2022 and then increasing to 
54 percent in 2030, as shown in figure 9 of my statement.
    Compared to previous AEOs, lower projected growth in energy 
consumption and greater reliance on renewable fuels yields a 
lower projection in energy-related carbon dioxide emissions. In 
the AEO2008 reference case, greenhouse gas emissions are 
projected to increase at an average annual rate of 0.6 percent, 
as shown in figure 14. Over the period 2008 to 2030 projected 
cumulative energy-related carbon emissions are 5.3 billion 
metric tons lower in the updated AEO reference case than they 
were in the early release version. Projected increases in 
energy-related carbon emissions primarily result from continued 
reliance on coal for electricity generation and on petroleum 
fuels in the transportation sector.
    In conclusion, Mr. Chairman, in addition to its work on 
baseline projections that I have reviewed this morning, EIA has 
also responded to a request from this committee and others for 
analysis of the energy and economic impacts of alternative 
proposals to limit greenhouse gas emissions and other policy 
proposals. We look forward to providing whatever further 
analytical support that you may require on energy-related 
topics. We believe that such analysis can identify both 
potential synergies and potential conflicts among different 
energy-related objectives that are currently under discussion 
in this committee and elsewhere.
    This concludes my testimony, Mr. Chairman and members of 
the committee. I would be happy to answer any questions you may 
have. Thank you.
    [The prepared statement of Mr. Caruso follows:]

  Prepared Statement of Guy Caruso, Administrator, Energy Information 
                  Administration, Department of Energy

    Mr. Chairman and Members of the Committee: I appreciate the 
opportunity to appear before you today to discuss the long-term outlook 
for energy markets in the United States.
    The Energy Information Administration (EIA) is the independent 
statistical and analytical agency within the Department of Energy. We 
do not promote, formulate, or take positions on policy issues. Our 
mission is to produce objective, timely, and relevant data, 
projections, and analyses that are meant to assist policymakers, help 
markets function efficiently, and inform the public. The energy 
projections that I will discuss today are widely used by government 
agencies, the private sector, and academia as a starting point for 
their own energy analyses. However, our views are strictly those of EIA 
and should not be construed as representing those of the Department of 
Energy or the Administration.
    The Annual Energy Outlook 2008 (AEO2008) reference case discussed 
today includes the impact of the Energy Independence and Security Act 
of 2007 (EISA2007) that was enacted in December and replaces the early 
release version issued shortly before that enactment. The specific 
EISA2007 provisions that are modeled in AEO2008 include updates to the 
renewable fuel standard (RFS) and to the corporate average fuel economy 
(CAFE) standard for new light-duty vehicles; updated and new appliance 
energy efficiency standards for boilers, dehumidifiers, dishwashers, 
clothes washers, and walk-in refrigerators and freezers; lighting 
energy efficiency standards; provisions to reduce energy consumption in 
Federal buildings; and industrial electric motor efficiency standards. 
Consistent with the general approach used in the AEO, the reference 
case does not consider those sections of EISA2007 that require 
appropriations for implementation or sections with highly uncertain 
impacts on energy markets. The updated reference case also includes 
additional revisions that reflect: historical data issued after the 
early release version of the AEO2008 was completed, the EIA Short-Term 
Energy Outlook released in January 2008, a more current economic 
outlook, and updates to correct modeling problems in the early release 
version.
    The AEO2008 is intended to represent an energy future based on 
given technological and demographic trends, current laws and 
regulations, and consumer behavior as derived from known data. EIA 
recognizes that projections of energy markets are highly uncertain and 
subject to political disruptions, technological breakthroughs, and 
other unforeseeable events. In addition, long-term trends in technology 
development, demographics, economic growth, and energy resources may 
evolve along a different path than expected in the projections. The 
complete AEO2008, which EIA will release in April, includes a large 
number of alternative cases intended to examine these uncertainties. 
The following discussion summarizes the highlights from the AEO2008 
reference case.

                             ENERGY PRICES

    EIA has raised the reference case path for world oil prices in 
AEO2008, although the upward adjustment is smaller than the last major 
adjustment, introduced in AEO2006. In the AEO2008 reference case, real 
world crude oil prices (defined as the price of light, low-sulfur crude 
oil delivered in Cushing, Oklahoma, in 2006 dollars) decline gradually 
from current levels to $57 per barrel in 2016 ($68 per barrel in 
nominal dollars), as expanded investment in exploration and development 
brings new supplies to the world market. After 2016, real prices begin 
to rise (figures 1 and 2),* as demand continues to grow and higher cost 
supplies are brought to market. In 2030, the average real price of 
crude oil is $70 per barrel in 2006 dollars, or about $113 per barrel 
in nominal dollars.
---------------------------------------------------------------------------
    * All figures have been retained in committee files.
---------------------------------------------------------------------------
    In developing its oil price outlook, EIA explicitly considered four 
factors: (1) growth in world liquids consumption, (2) the outlook for 
conventional oil production in countries outside the Organization of 
the Petroleum Exporting Countries (OPEC), (3) growth in unconventional 
liquids production, and (4) OPEC behavior. With the forces driving 
demand outside the United States as strong or stronger than previously 
expected and with global supply projections somewhat weaker, trends in 
total world liquids production are similar to those in the Annual 
Energy Outlook 2007 (AEO2007) reference case but the oil prices are 
higher.
    Current oil prices are above EIA's reference case estimate of the 
long-run equilibrium price, driven by recent strong global economic 
growth, shortages of experienced personnel, equipment, and construction 
materials in the oil industry, and political instability in some major 
producing regions. EIA's expectations regarding the ultimate size of 
both conventional and unconventional liquid resources have not changed 
since the AEO2007. Of course, geopolitical trends, the adequacy of 
investment and the availability of crude oil resources and the degree 
of access to them, and the market behavior of key OPEC producers are 
all inherently uncertain. To evaluate the implications of uncertainty 
about world crude oil prices, the AEO2008 includes alternative high and 
low price cases (figure 2).
    The price of natural gas also is higher in the AEO2008 reference 
case. The real wellhead price of natural gas (in 2006 dollars) declines 
from current levels through 2016, as new supplies enter the market. 
After 2016, real natural gas prices rise to $6.56 per thousand cubic 
feet ($10.52 per thousand cubic feet in nominal dollars) in 2030 
(figure 1). The higher prices reflect an increase in production costs 
associated with trends that were discussed in AEO2007 but not fully 
reflected in its reference case. The higher natural gas prices also are 
supported by higher oil prices.
    Minemouth coal prices in the AEO2008 reference case, both 
nationally and regionally, are generally similar to those in the 
AEO2007 reference case. Average real minemouth coal prices (in 2006 
dollars) fall from $1.21 per million British thermal unit (Btu) ($24.63 
per short ton) in 2006 to $1.14 per million Btu ($22.51 per short ton) 
in 2020, as prices moderate following a substantial run-up over the 
past few years. After 2020, prices rise due to demand growth, reaching 
$1.19 per million Btu ($23.24 per short ton) in 2030 (figure 1). In 
nominal terms, the average minemouth price of coal in the AEO2008 
reference case is $1.91 per million Btu ($37.29 per ton) in 2030.
    Electricity prices follow trends in the delivered prices of fuels 
to power plants. From a peak of 9.3 cents per kilowatthour (2006 
dollars) in 2009, average delivered electricity prices in the AEO2008 
reference case decline to 8.5 cents per kilowatthour in 2016 and then 
increase to 8.8 cents per kilowatthour in 2030. In nominal dollars, the 
average delivered electricity price reaches 14.1 cents per kilowatthour 
in 2030.

                           ENERGY CONSUMPTION

    Total primary energy consumption grows by 19 percent between 2006 
and 2030 (figure 3), at a rate of 0.7 percent per year or less than 
one-third the rate of growth in gross domestic product (GDP) (2.4 
percent per year). Energy intensity, as measured by primary energy use 
per dollar of GDP (2000 dollars), declines at an average annual rate of 
1.7 percent from 2006 to 2030. Since 1992, the energy intensity of the 
U.S. economy has declined on average by 2.0 percent per year, in part 
because the share of industrial shipments accounted for by the energy-
intensive industries has fallen from 30 percent in 1992 to 21 percent 
in 2006. In the AEO2008 reference case, the energy-intensive 
industries' share of total industrial shipments continues to decline, 
although at a slower rate, to 18 percent in 2030.
    Population is another key determinant of energy consumption, 
influencing demand for travel, housing, consumer goods, and services. 
Since 1990, population has increased by about 20 percent and energy 
consumption by 18 percent. Population in the reference case increases 
by 22 percent from 2006 to 2030, compared to the aforementioned 19 
percent growth in energy consumption. The rest of this section reviews 
consumption trends for each major energy source.
    Total consumption of liquid fuels grows at an average annual rate 
of 0.4 percent in the AEO2008 reference case, from 20.7 million barrels 
per day in 2006 to 22.8 million barrels per day in 2030 led by growth 
in transportation uses, which account for 68 percent of total liquid 
fuels demand in 2006, increasing to 73 percent in 2030 (figure 4). 
Improvements in the efficiency of vehicles, planes, and ships are more 
than offset by growth in travel.
    EISA2007 requires new light-duty vehicles, including both cars and 
trucks, to reach an average fuel economy of 35 miles per gallon (MPG) 
by 2020, based on the Environmental Protection Agency (EPA) test value 
used to measure compliance with the CAFE standard. The EPA CAFE test 
value generally differs from the estimated MPG value on the fuel 
economy label and typically exceeds the actual on-the-road fuel economy 
of a new vehicle by a significant margin. Despite these differences, 
the higher fuel economy standards in EISA2007 significantly improve the 
in-use fuel economy of the stock of light-duty vehicles. In the 
reference case, the average in-use fuel economy for the stock of light-
duty vehicles in 2030 increases to 28.0 miles per gallon, 38 percent 
above its 2006 level. EISA2007 also results in a shift in the mix of 
transportation vehicle fuels. Total biofuel consumption reaches 2.8 
quadrillion Btu (29.7 billion gallons) in 2030 in the revised AEO2008 
reference case, 2.3 quadrillion Btu (24.4 billion gallons) more than in 
2006. This represents about 11.3 percent of total motor vehicle fuel, 
on a Btu basis, in 2030.
    Total consumption of natural gas increases from 21.7 trillion cubic 
feet in 2006 to 23.9 trillion cubic feet in 2016, then declines to 22.7 
trillion cubic feet in 2030 (figure 5). Industrial natural gas use is 
lower than in previous AEOs because of the higher delivered natural gas 
prices, lower economic growth, and a reassessment of natural gas use in 
the energy-intensive industries in AEO2008. Under current laws and 
regulations, natural gas is expected to lose market share to coal in 
the electric power sector as result of a continued increase in natural 
gas prices in the latter half of the projection and slower growth in 
electricity demand.
    Total coal consumption increases from 22.5 quadrillion Btu (1,114 
million short tons) in 2006 to 30.1 quadrillion Btu (1,557 million 
short tons) in 2030, growing by 1.2 percent per year. Coal consumption 
grows at a faster rate toward the end of the projection period, 
particularly after 2020, as coal use for new coal-fired generating 
capacity grows rapidly. About 91 percent of the coal is currently used 
for electricity generation. Coal remains the primary fuel for 
electricity generation and its share of generation (including end-use 
sector generation) is expected to increase from about 49 percent in 
2006 to 54 percent in 2030. Growth in coal use by coal-to-liquids (CTL) 
plants is lower than in previous AEOs as a result of EISA2007. 
Investment dollars that would have previously gone into CTL capacity 
now flow to biomass-to-liquids (BTL) capacity. However, there is a 
great deal of uncertainty about this projection.
    Total electricity consumption, including both purchases from 
electric power producers and on-site generation, grows from 3,814 
billion kilowatthours in 2006 to 4,974 billion kilowatthours in 2030, 
increasing at an average annual rate of 1. 1 percent (figure 6). In 
comparison, electricity consumption grew by annual rates of 7.3 
percent, 4.2 percent, 2.6 percent, and 2.3 percent in the 1960s, 1970s, 
1980s, and 1990s, respectively. The most rapid growth (1.7 percent per 
year) occurs in the commercial sector, as building floorspace is 
expanded to accommodate growing service industries. Growing use of 
electricity for computers, office equipment, and small electrical 
appliances is partially offset in the AEO2008 reference case by 
improved energy efficiency.
    Total marketed renewable fuel consumption grows by an average of 
3.0 percent per year in the reference case, from 6.8 quadrillion Btu in 
2006 to 13.7 quadrillion Btu in 2030. About 45 percent of the demand 
for renewables in 2030 is for grid-related electricity generation 
(including combined heat and power), and the rest is for dispersed 
heating and cooling, industrial uses, or transportation uses.
    The rapid growth in the use of renewable fuels for transportation 
in AEO2008 reflects the updated RFS in Section 211(o) of the Clean Air 
Act as amended by EISA2007. The updated RFS sets a requirement for 36 
billion gallons of total renewable fuels by 2022, including 21 billion 
gallons of advanced biofuels. Included are requirements for 1 billion 
gallons of biodiesel by 2012 and 16 billion gallons of cellulosic 
biofuels, both of which count toward the advanced biofuels requirement. 
The remaining 4 billion gallons of advanced biofuels may come from any 
source. The difference between advanced biofuels and total renewable 
fuels may be met by corn ethanol. Diesel fuels that are derived from 
biomass feedstocks count 1.5 times their physical volume as credits 
towards meeting the RFS requirements owing to diesel's higher energy 
content relative to ethanol.
    While the situation is very uncertain, the current state of the 
industry and our present view of projected rates of technology 
development and market penetration of cellulosic biofuel technologies 
suggest that available quantities of cellulosic biofuels prior to 2022 
will be insufficient to meet the new RFS targets for cellulosic 
biofuels, triggering both waivers and a modification of applicable 
volumes as provided for by paragraphs 7(D) and 7(F), respectively, of 
Section 211(o) of the Clean Air Act as amended by EISA2007. The 
modification of volumes reduces the overall target in 2022 from 36 
billion gallons to 32.5 billion gallons. The modified cellulosic 
biofuel requirement is projected to be met by a combination of domestic 
cellulosic ethanol, imported cellulosic ethanol, and biomass-to-liquids 
diesel, but the specific mix is again highly uncertain.
    Ethanol use grows from 5.6 billion gallons in 2006 to 24.3 billion 
gallons in 2030 (over 16 percent of total gasoline consumption by 
volume) (figure 7). Ethanol use for gasoline blending grows to 13.3 
billion gallons and E85 consumption to 11.0 billion gallons in 2030. 
The ethanol supply is expected to be produced from both corn and 
cellulosic feedstocks, with corn accounting for 15.0 billion gallons of 
ethanol production in 2030. The AEO2008 reference case also expects 
strong growth in ethanol imports after 2010, reflecting the pending 
expiration of the tariff on imported ethanol in January 2009. Biodiesel 
use reaches 1.3 billion gallons in 2030 (about 1.6 percent of total 
diesel consumption by volume). Consumption of diesel liquids produced 
from biomass (BTL) grows to 4.2 billion gallons in 2030, 4.9 percent of 
total diesel consumption by volume.
    Excluding hydroelectric power, renewable energy consumption for 
electric power generation grows from 0.9 quadrillion Btu in 2006 to 3.1 
quadrillion Btu in 2030. The higher level of nonhydroelectric renewable 
energy consumption in the AEO2008 reference case primarily reflects a 
revised representation of State renewable portfolio standard (RPS) 
programs, which require that specific and generally increasing shares 
of electricity sales be supplied by renewable resources such as wind, 
solar, geothermal, and sometimes biomass or hydropower. Previous AEOs 
placed more weight on the ``escape clauses'' incorporated in many State 
RPS programs, given that the consumer costs of these programs would 
increase significantly if the Federal production tax credit (PTC) for 
qualifying renewable energy expired as provided for under current law. 
The new representation, which assumes that the State RPS goals will be 
met absent a clear contrary indication, results in significant 
additional growth of renewable generation from wind, biomass, and 
geothermal resources.

                     ENERGY PRODUCTION AND IMPORTS

    Net imports of energy are expected to continue to meet a major 
share of total U.S. energy demand. The increased use of biofuels 
resulting from EISA2007, much of which is domestically produced, and 
the reduction in transportation fuel demand due to the new fuel economy 
standards both serve to moderate growth in energy imports. Higher fuel 
prices over the projection period also spur increased domestic energy 
production and moderate energy demand growth, also tempering growth in 
imports. Furthermore, the net import share of total U.S. energy 
consumption in 2030 is 27 percent, a decline from the 30-percent share 
in 2006.
Liquids and Other Petroleum Products
    U.S. crude oil production grows from 5.1 million barrels per day in 
2006 to a peak of 6.3 million barrels per day in 2018, primarily due to 
increased production from the deep waters of the Gulf of Mexico and 
from the expansion of enhanced oil recovery operations in onshore areas 
supported by higher crude oil prices. Domestic production subsequently 
declines to 5.6 million barrels per day in 2030, as increased 
production from new smaller discoveries is inadequate to offset the 
declines in large fields in Alaska and the Gulf of Mexico (figure 8) 
Total domestic liquids supply, including crude oil, natural gas plant 
liquids, refinery processing gains, and other refinery inputs (e.g., 
ethanol, biodiesel, BTL, and liquids from coal) grows from 8.3 million 
barrels per day in 2006 to 10.5 million barrels per day in 2030.
    The net import share of total liquids supplied, including crude oil 
and refined products, drops from 60 percent in 2006 to less than 51 
percent in 2022, and then increases to 54 percent in 2030 as crude oil 
imports grow rapidly at the end of the projection to meet liquids 
demand (figure 9). Net crude oil imports in 2030 are 11. 1 million 
barrels per day in 2030 and net product imports (including net ethanol 
imports) are 1.3 million barrels per day in 2030.
Natural Gas
    Total domestic natural gas production, including supplemental 
natural gas supplies, increases from 18.6 trillion cubic feet in 2006 
to 20.1 trillion cubic feet in 2022 before declining to 19.6 trillion 
cubic feet in 2030 in the AEO2008 reference case. While onshore 
conventional production declines steadily from 6.6 trillion cubic feet 
in 2006 to 4.4 trillion cubic feet in 2030, lower-48 offshore 
production grows from 3.1 trillion cubic feet in 2006 to a peak of 4.5 
trillion cubic feet in 2017 as new resources come online in the Gulf of 
Mexico. After 2017, lower-48 offshore production declines to 3.5 
trillion cubic feet in 2030. Lower-48 production of unconventional 
natural gas, particularly gas from shale, is expected to be a key 
contributor to growth in U.S. natural gas supplies, increasing from 8.5 
trillion cubic feet in 2006 to 9.5 trillion cubic feet in 2030. The 
Alaska natural gas pipeline is expected to be completed in 2020, later 
than previously anticipated, because of delays in the resolution of 
issues between Alaska's State government and industry participants.
    Net pipeline imports of natural gas fall from 2.9 trillion cubic 
feet in 2006 to 0.3 trillion cubic feet in 2030 in the AEO2008 
reference case (figure 10), reflecting both resource depletion in 
Alberta and Canada's growing domestic demand. Total net imports of 
liquefied natural gas (LNG) to the United States increase from 0.5 
trillion cubic feet in 2006 to 2.8 trillion cubic feet in 2030. U.S. 
LNG regasification capacity increases from 1.5 trillion cubic feet in 
2006 to 5.7 trillion cubic feet in 2009 with the addition of six new 
regasification facilities that are currently under construction (four 
along the Gulf Coast and two off the coast of New England). Given 
global LNG supply constraints, overall capacity utilization at the U.S. 
LNG import facilities is expected to remain below 50 percent through 
2030. The future direction of the global LNG market, with many new 
international players entering LNG markets and strong competition for 
available supply, is one of the key uncertainties in the AEO2008 
reference case.
Coal
    As coal demand grows in the AEO2008 reference case, U.S. coal 
production increases at an average rate of 1.0 percent per year (figure 
11). On a Btu basis, 60 percent of domestic coal production originates 
from States west of the Mississippi River in 2030, up from an estimated 
49 percent in 2006.

                         ELECTRICITY GENERATION

    Absent new environmental policy initiatives that would serve to 
accelerate the retirement of existing coal-fired power plants, the 
slowing rate of electricity growth reduces the need for new generating 
capacity. In the AEO2008 reference case, the natural gas share of 
electricity generation (including generation in the end-use sectors) 
remains between 20 percent and 21 percent through 2017, before falling 
to 14 percent in 2030 (figure 12). The coal share remains between 48 
percent and 49 percent through 2018, before increasing to 54 percent in 
2030. Net additions to coal-fired generating capacity in the AEO2008 
reference case total 103 gigawatts from 2006 to 2030, including 4 
gigawatts at CTL plants and 30 gigawatts at integrated gasification 
combined-cycle plants. Given the assumed continuation of current energy 
and environmental policies in the reference case, carbon capture and 
sequestration (CCS) technology does not come into use during the 
projection period.
    Nuclear generating capacity in the AEO2008 reference case increases 
from 100.2 gigawatts in 2006 to 114.8 gigawatts in 2030. The increase 
includes 16.4 gigawatts of capacity at newly-built nuclear power plants 
and 2.7 gigawatts expected from uprates of existing plants, partially 
offset by 4.5 gigawatts of retirements. Total electricity generation 
from nuclear power plants grows from 787 billion kilowatthours in 2006 
to 917 billion kilowatthours in 2030 in the AEO2008 reference case, 
accounting for about 18 percent of total generation in 2030. Additional 
nuclear capacity is built in some of the alternative AEO2008 cases, 
particularly those that project higher demand for electricity or even 
higher fossil fuel prices.
    The use of renewable technologies for electricity generation is 
stimulated by improved technology, existing State RPS programs, the 
availability of the renewable production tax credit for eligible 
generation placed in service before the end of 2008, and higher fossil 
fuel prices. Total renewable generation in the AEO2008 reference case, 
including combined heat and power (CHP) and end-use generation, grows 
by 2.2 percent per year, from 385 billion kilowatthours in 2006 to 654 
billion kilowatthours in 2030 (figure 13).

                ENERGY-RELATED CARBON DIOXIDE EMISSIONS

    Carbon dioxide emissions from energy use in the AEO2008 reference 
case increase from 5,890 million metric tons in 2006 to 6,859 million 
metric tons in 2030, an average annual increase of 0.6 percent (figure 
14). The energy-related carbon dioxide emissions intensity of the U.S. 
economy falls from 520 metric tons per million dollars of GDP in 2006 
to 339 metric tons per million dollars of GDP in 2030, an average 
decline of 1.8 percent per year. Increases in carbon dioxide emissions 
primarily result from a continued reliance on coal for electricity 
generation and on petroleum fuels in the transportation sector.

                               CONCLUSION

    As I noted at the outset, while EIA does not take positions on 
policy issues, its data, analyses, and projections are meant to assist 
policymakers in their energy policy deliberations. In addition to the 
work on baseline projections that I have reviewed this morning, EIA has 
also recently responded to requests from this Committee and others for 
analyses of the energy and economic impacts of alternative proposals to 
limit greenhouse gas emissions and other policy proposals. We look 
forward to providing whatever further analytical support that you may 
require on energy-related topics. We believe that such analyses can 
help to identify both potential synergies and potential conflicts among 
different energy-related objectives that are currently under discussion 
in this Committee and elsewhere.
    This concludes my testimony, Mr. Chairman and members of the 
Committee. I would be happy to answer any questions you may have.

    The Chairman. Thank you very much. Let me start with a few 
questions.
    You cite three areas that we legislated in as having 
influenced the changes in your forecast. I think the CAFE 
standard, the increased renewable fuel standard, and increased 
efficiency standards for various appliances, lighting included. 
Is there any way to give us a break down as to how much of the 
reduction in greenhouse gas emissions that you are able to now 
project, results from each of these three?
    Mr. Caruso. One of the reasons it's very difficult to 
disaggregate that is that there are a number of other factors 
going on that I mentioned, including the reduced economic 
growth outlook and a number of other modeling changes we've 
made. So to isolate just those provisions would be very 
difficult. I can tell you in broad terms that the CAFE 
standards, by far, have the largest impact. We have almost two 
and a half million barrels a day less oil demand in 2030 then 
we had without them. The other major impact on greenhouse gas 
emissions is the efficiency standards that were enacted for a 
number of types of equipment, largely in the residential 
sector. We have a significant reduction in demand in the 
electricity sector. Much of the new electricity generated 
beyond 2020 would have been coal so that has a significant 
impact on emission levels.
    I would be pleased to ask my team to provide a more 
detailed break out, but I have to raise a little flag here in 
that there's a number of other moving parts----
    The Chairman. Right.
    Mr. Caruso [continuing]. Making it often difficult to 
disaggregate some of the effects of the law, for example, the 
biofuels impact. We have more biofuels-to-liquids in this 
outlook as direct result of the renewable fuel standard. One of 
the things that did was reduce the amount of investments we see 
going into coal-to-liquids, for example. That had an impact on 
reducing greenhouse gas emissions.
    We could make an attempt to actually quantify that. I'd be 
happy to provide that for the record, Senator Bingaman.
    [The information referred to follows:]

    The energy impacts of the Energy Independence and Security Act of 
2007 (EISA) and its individual provisions can be measured in several 
different ways. For example, individual or grouped provisions can 
either be added to a variety of Annual Energy Outlook baselines that do 
not include EISA, or subtracted from a baseline that includes EISA. 
Other impact measures can be obtained by assuming that both EISA 
standards and those in existence prior to EISA are binding without 
alteration throughout the projection period, so that energy impacts can 
be calculated based on the difference in standards and measures of 
equipment stock turnover and utilization. This latter approach, which 
essentially adopts a ``frozen efficiency'' baseline reflecting the 
existing standard, tends to produce larger estimates for the impact of 
changes in efficiency standards.
    EIA has made several different calculations to provide ranges of 
impact estimates that would be suitable for a variety of purposes. 
Using National Energy Modeling System model runs that add or subtract 
EISA provisions to current baselines, EIA found that EISA reduces total 
U.S. energy consumption between 3.2 and 4.1 quadrillion Btu (2.7 to 3.3 
percent) in 2030. Those same calculations suggest that cumulative 
energy-related carbon dioxide emissions between 2008 and 2030 are 
reduced by 4.0 to 4.9 billion metric tons (2.7 to 3.2 percent). With 
respect to the three groups of provisions in EISA that were represented 
in the AEO2008 reference case projections for 2030, the renewable fuels 
standard (RFS) reduces net petroleum imports by 0.3 to 0.6 million 
barrels per day (1.9 to 4.9 percent), the energy efficiency standard 
(EES) provisions reduce electricity use by 130 to 148 billion 
kilowatthours (2.6 to 2.9 percent), and the Corporate Average Fuel 
Economy (CAFE) standard reduces light duty vehicle consumption by about 
1.2 to 1.4 million gasoline-equivalent barrels per day (12.1 to 12.9 
percent).If measured against a frozen-efficiency standard, which the 
National Highway Transportation and Safety Administration (NHTSA) and 
the Office of Management and Budget (OMB) use--where vehicle efficiency 
does not improve above the floor set by the previous CAFE standards, 
the CAFE standard in EISA reduces light duty vehicle gasoline-
equivalent barrels per day by between 2.1 and 2.2 million barrels per 
day (17.9 to 18.2 percent).




    The Chairman. Let me ask about this change in your 
projection as to the rate of growth of gross domestic product. 
You're now projecting that it will grow at a rate of 2.4 
percent per year between 2000 up to 2030. I think. Yes.
    Mr. Caruso. Yes.
    The Chairman. Between now and 2030. How much of a reduction 
is that from what you had earlier thought? Is that consistent 
with what OMB and CBO are projecting?
    Mr. Caruso. The answer to the first part of the question is 
in the earlier version of this outlook we were using 2.6 
percent GDP growth. So we've reduced that by two-tenths of 1 
percent. CBO and OMB typically only go out about 10 years. So 
it's consistent with their projections. But not many 
projections by public forecasters go out to 2030.
    We've used our own, in-house, macroeconomic analysis as 
well as the consulting firm, Global Insights, to come up with 
these numbers. The main reason for the revision is the 
macroeconomic analysts now are having a re-look at the impact 
of productivity, which is such a big part of that sharp growth 
we saw in the 1990s and even in the early part of this decade. 
We now see less productivity over the next couple decades.
    There also is some effect of the higher energy prices in 
that lower GDP projection.
    The Chairman. Let me just ask one final question. Do you, 
in this projection, do you assume that the production tax 
credit for renewable energy will be renewed or that it will 
expire?
    Mr. Caruso. We assume it will expire as the law currently 
indicates. We have run cases in the past where if you assumed 
extension in perpetuity it makes a huge difference in the 
renewable fuel numbers that are in the outlook. They would be 
significantly higher.
    We have done that case in previous annual energy outlooks, 
and extension beyond 2008 would make a huge difference.
    The Chairman. All right.
    Senator Domenici.
    Senator Domenici. Thank you, Mr. Chairman. Let me start by 
saying the EIA projects that increased oil production will 
result in a gradually lower oil prices between now and 2016. 
However we have recently seen financial sector analyses which 
conclude that unprecedented investments will be required to 
merely maintain existing production levels from aging oil 
fields and projecting that 100 million barrel per day may be 
the maximum production level possible in the near future. These 
production constraints are combined with concerns that demand 
appears to be increasingly inelastic.
    At Deutsche Bank, for one example, is forecasting the 
possibility of $150 per barrel of oil by 2015. I'm told that 
this is higher than your high case for that year. Can you 
explain the difference?
    Mr. Caruso. Yes. I think the fundamental difference is that 
we do believe that the higher prices will stimulate more 
investment in the new development of liquid resources. I think 
it's very important to make a distinction between crude oil 
alone which I think the Deutsche Bank report really focused on.
    For example, our latest outlook to 2015 indicates a total 
liquid demand and supply for 2015 of about 97 million barrels a 
day. Of that 97 million barrels a day only 77 million barrels a 
day is crude oil. There's going to be a lot of unconventional 
liquids, including biofuels and other contributors to the 
supply--natural gas liquids for example.
    All that having been said, the main point that Deutsche 
Bank is making is that because of the decline rates in older 
fields, which I mentioned in our reference case in Alaska and 
the Gulf of Mexico, it still requires a huge investment effort. 
I'm not in any way belittling the effort it's going to take. 
But we think that companies, with the stimulus of higher 
prices, will make those investments if access is available and 
the above ground risk is permitted.
    Senator Domenici. You identified LNG markets as a key 
uncertainty associated with the 2008 outlook. Is the EIA 
attempting to account for OPEC-like behavior among natural gas 
exporting nations in your existing model or updates to it?
    Mr. Caruso. We don't explicitly try to model a gas OPEC. 
But one thing we do to try to capture that uncertainty is the 
high and low natural gas price cases. For natural gas that 
makes a huge difference.
    With a high price case for natural gas you have a much 
lower demand for LNG. We see LNG as the marginal supplier to 
the gas market, so to the extent high, natural gas price 
reduces demand, we think most of that will come out of LNG.
    Another example of uncertainty is whether there will be an 
Alaskan natural gas pipeline, which we have in this outlook 
coming on stream in 2020 at two trillion cubic feet per year. 
To the extent that that either comes on later or sooner, almost 
all of that two trillion cubic feet per year would have to be 
supplemented by LNG to the extent that it would fall short of 
our timing or the volume.
    Senator Domenici. Now that pipeline is the one we've 
already approved.
    Mr. Caruso. It's still being----
    Senator Domenici. I mean we did----
    Mr. Caruso. Yes, at the Federal level, but now it's----
    Senator Domenici. The State hasn't completed----
    Mr. Caruso [continuing]. The State government is 
negotiating with the off-takers.
    Senator Domenici. Are they ever going to get that done, 
Senator? No, excuse me, I didn't----
    Senator Murkowski. We are eternally optimistic. We are 
encouraging it every step.
    Senator Domenici. Great. Mr. Chairman, I have some 
additional questions. I'll wait another round or submit them 
for the record. Thank you. Thank you, Mr. Caruso.
    Mr. Caruso. Thank you, Senator.
    The Chairman. Thank you.
    Senator Craig.
    Senator Craig. Thank you very much, Mr. Chairman and Mr. 
Caruso. I think the points that both Senator Domenici and our 
Chairman made, are valuable for us to see that when policy is 
put in place that you can take it into the out years and make 
those kinds of projections. It is significant that a two 
million barrel a day impact out there in 2030 is powerful 
stuff.
    You've cast some doubt as it relates to the ability to get 
to where we want to get in relation to ethanol production or 
the nonpetroleum liquids. Let me use this as an example because 
our frustration has ended up in Senator Domenici introducing 
the Clean Energy Investment Bank. I'm a co-sponsor of that 
because we saw the Department of Energy, in our opinion, 
falling short in its ability to move expeditiously once we 
acted to bring on board loan guarantees, grants, those kinds of 
things to go out to the outer edge of science and technology to 
bring cellulosic production on line.
    I have been watching very closely a facility in Canada that 
is substantially financed. It now has a demonstration plant up 
and running. It seems to be working at a capacity of about a 
million gallons a day of cellulosic.
    For the last 4 years this particular company has been 
waiting for DOE loan guarantees and grant programs in order to 
get the financial backing they need to move up into the next 
level of commercial scale production. I guess my question comes 
to that. Have you considered these types of delays in your 
projections, those that might be tied to the ability of this 
government to move expeditiously?
    Have you considered that once proven on a commercial scale 
there will be a significant influx of capital? For example, 
into cellulosic, to get us to where we get in those out years 
with the numbers we looked at, 32 billion and beyond in gallons 
annualized. I think the only way we're going to get there to 
meet those liquid energy non-hydrocarbon types of liquids is 
moving in an expeditious way there. Have those factors gone 
into consideration when you make these projections?
    Mr. Caruso. Yes. We've tried to look as hard as we can at 
the economics and the technology. We've worked closely with the 
program offices in the Department of Energy--got their latest 
assessment of how things are going and the time scale they're 
on, particularly on cellulosic.
    Senator Craig. Yes.
    Mr. Caruso. Which as you point out is really critical to 
being able to get to 36 billion gallons.
    Senator Craig. Right.
    Mr. Caruso. We've got the corn ethanol going up rapidly.
    Senator Craig. Yes.
    Mr. Caruso. Reaching 15 billion gallons as scheduled in the 
EISA. It's the cellulosic component that we think may be 
lagging behind a bit, and fail to meet the targets that were 
set in EISA 2007 by 2014 and 2015.
    There is a provision within the EISA as it amends the Clean 
Air Act that if the targets are missed by 20 percent or more 
for 2 consecutive years, the EPA Administrator can then adjust 
the volumes--and we have that being triggered. That's the 
reason why we think that the cellulosic volumes will fall 
behind a bit, and that's the reason that we come up with the 
conclusion that instead of 36 billion gallons of alternative 
fuels in 2030, we project 32.5.
    Senator Craig. So that's the shortfall?
    Mr. Caruso. The shortfall is about 3.5 billion gallons from 
meeting the targeted amount in the bill. It's largely the 
result of our assessment of where the technology and economics 
are at this point as we look out for 5 years. First of all to 
get to the 2012 target that was set actually in the EPACT 2005.
    Senator Craig. Yes. Yes.
    Mr. Caruso. Then updated in EISA 2007. I think if someone 
were here from the program office they would say that they are 
really working extremely hard and spending a lot of money to 
try to facilitate the breakthroughs in that technology. But as 
of the time that we've consulted with them, we think this is a 
pretty realistic assessment.
    As time goes on we certainly would continue to work with--
--
    Senator Craig. Yes.
    Mr. Caruso [continuing]. NREL and other program offices to 
update that.
    Senator Craig. I don't disagree they're hustling now. But 
as a result of some heavy pushing on the part of many of us 
here and when I look at these numbers of dollars going offshore 
everyday verses putting some risk capital out there. Not quite 
sure where it takes us, but knowing that we've got to do it.
    I look at that as a reasonable risk investment in relation 
to bringing technology on line. I think many of us do here. 
That's why we've urged it. Thank you.
    The Chairman. Senator Barrasso.
    Senator Barrasso. Thank you very much, Mr. Chairman. Thank 
you very much, Mr. Caruso, for being here. You know the 
Washington Post business section front page story forecast for 
crude oil rise to $105 on new trading high was in today's 
paper. They talk not just about supply and demand of oil, but 
also supply and demand of dollars in the world currency market. 
Do you try to take that into effect or into account as you try 
to work on some of these things?
    Mr. Caruso. As you can imagine, trying to relate the influx 
of speculative money into the commodities market has been a 
topic, really, of heightened interest. Most recently, the 
direct correlation, it seems, between the decline of the dollar 
and moneys flowing out of foreign exchange index funds into 
commodity index funds--including oil--seems to have put some 
upward pressure on the price of oil and other energy. We have a 
short term modeling effort that we use to publish our short 
term outlook.
    In a hearing before Senator Dorgan 2 months ago, we tried 
to look at what is the impact of some of these other, what we 
would consider non-fundamental, factors. Our model does 
continue to show the track pretty well of fundamental factors 
with the trend of the price. But clearly during short-term 
periods other factors, including commodity index funds and 
geopolitical events do move that price above and below that 
trend analysis.
    To try to predict it is extremely difficult.
    Senator Barrasso. Reading the report it almost seems like 
you think this is almost at a high point now. Then we're going 
to look at a decline over the next number of years, almost cut 
in half of this price. So would this be something you would 
consider a bubble now--that we're going to be able to work 
through?
    Mr. Caruso. Yes. I think it's difficult to say whether this 
is the peak because there's so much uncertainty on the 
geopolitical front and on some of the issues such as the value 
of the dollar. In the longer run we do think, as I mentioned to 
Senator Domenici, that high prices do stimulate investment on 
the supply side. We've seen it in deep water in the United 
States, Brazil and Angola.
    We've seen it in unconventional gas with the shale gas, 
Barnett Shale, and in the Piceance Basin unconventional gas 
there. So we do think that over time the economics should 
prevail, but----
    Senator Barrasso. I mean you read the reports: does a 
company make an investment? At $100 barrel oil it pays to put 
in windmills, you know, solar panels all of these things that 
lower prices that we may be predicting for the future then it 
isn't as cost effective to do it in terms of the return on the 
investment. So I'm trying to make that balance.
    Mr. Caruso. Yes. That's why we do the high price case--to 
say, what if we're wrong. You know, we've been wrong for the 
last several years. So the track record is very clear.
    Senator Barrasso. Last week we had some people here talking 
about the Strategic Petroleum Reserve. I think they're putting 
70 million barrel--70,000 barrels a day which is about a 
million barrels every 2 weeks, 25 million barrels a year. The 
paper today talks about as long the supply and demand are still 
relatively tightly balanced there's not a lot of spare 
production refinery capacity that, you know, any little 
incremental demand can spook a market or can drive prices 
disproportionate to that amount.
    I know you don't make policy recommendations. But I don't 
know if you share the information. Because we were discussing 
whether this is the wise time to be paying $100 a barrel to put 
70,000 barrels a day into the Strategic Petroleum Reserve when 
we may be able to get it a lot cheaper next year or 5 years 
from now.
    Mr. Caruso. You're right. The direction is clearly upward. 
Again referring back to Senator Dorgan's hearing in December, I 
was asked had we, had EIA been asked to do an analysis and at 
that time we had not.
    So I went back and as I promised I asked our people to look 
at that. I used 100,000 barrels a day as the hypothetical build 
for the first 10 months of 2008. Our analysis shows that it has 
about a $2-per-barrel impact on the global market based on our, 
the same modeling effort that I mentioned. That's about four or 
five cents per gallon converted into gasoline.
    Senator Barrasso. Because it seems that just doing the 
math. I'm out of time, Mr. Chairman. To get from the 750 
million barrels we have there now to the 1.5 billion that 
they're trying to get to.
    You're going to be putting, I mean, 70 to 100 thousand 
barrels a day for the next 25 to 30 years. So, ok. Thank you, 
Mr. Chairman.
    The Chairman. Thank you.
    Senator Dorgan.
    Senator Dorgan. Mr. Chairman, thank you very much. First of 
all, Mr. Caruso, thank you for your report. I think I share the 
thoughts expressed by Senator Domenici and some others. I think 
there's some good news in this report.
    I am struck however, you talked about trying to predict the 
short term issues is very, very difficult. Then we predict 
2030. You know, we don't know what's going to happen in 24 
months let alone 24 years. What you have done is useful.
    Keynes used to say in the long run we're all dead. We're 
interested in the long run nonetheless, but I'm very interested 
in the short run. I want to ask you a couple of questions that 
relate to some things Senator Barrasso asked you because I have 
been very interested in this.
    When you did your modeling with respect to SPRO, taking oil 
out of the supply, putting it underground, you talk about $2 
per barrel of oil. Did you consider that this is sweet, light 
crude as a subset and therefore will have a different impact on 
the price of oil?
    Mr. Caruso. Yes.
    Senator Dorgan. You did.
    Mr. Caruso. We did take into account the quality of the 
crude. We looked at what had been the impact of the different 
types of crudes, looking back over the past several years.
    Senator Dorgan. There are some who estimate that because 
it's sweet, light crude it has as much as a 10-percent 
influence on the price. I want to talk about two things. I want 
to talk about SPRO and I'll come back to that in a moment.
    I want to talk about this issue of the markets setting the 
price that have a disconnect to supply/demand. In today's 
newspaper it talks about Lawrence Goldstein, an economist at 
the Energy Policy Research Foundations says that yet, 
ironically you're looking at triple digit oil prices because 
the price is being set by non-physical investors. Wall Street 
Journal has an article talking about hedge funds and the excess 
speculation of hedge funds in the futures market.
    It talks about investment banks and the new speculation in 
the new futures market for oil by investment bankers who are 
actually off buying storage, a new phenomenon. Investment banks 
can take oil off the market, put it in storage and wait until 
the price goes up. So you have a substantial amount of 
additional speculation in the futures market.
    We have Fadel Gheit who's an analyst with the Oppenheimer 
Company said at this table. He says, ``There is absolutely no 
shortage of oil. I'm convinced oil prices shouldn't be a dime 
above $55 a barrel.'' That was 3 months ago.
    Oil speculators include the largest financial institutions 
in the world. I call it the world's largest gambling hall open 
24/7. Unfortunately it's totally unregulated. This is like a 
highway with no cops and no speed limit. Everybody is going 120 
miles an hour.
    I am fairly convinced and I'm not an expert in this area. 
But I'm fairly well convinced that in the short term what we 
have is an unbelievable amount of speculation in these futures 
markets, which means, in the short term, that you move away 
from the supply/demand relationships we are led to expect would 
set the price. That we now have, as I related to this morning's 
quote about the price being set by non-physical investors. Tell 
me your analysis of that, Mr. Caruso.
    Mr. Caruso. The way we've approached that, as I did at the 
hearing in December, is looking at the short term factors, the 
fundamental factors--typical macroeconomics, supply/demand, 
inventory levels and spare productive capacity. We looked and 
tracked that as to the history, and the tracking was reasonably 
good in terms of the kind of modeling characteristics.
    We were sometimes a little below, sometimes a little above. 
Our trend-line analysis indicated that those fundamental 
factors can explain most of the change in the price over the 
last 5 or 6 years. That's what we've been using in our short 
term outlook, which currently, by the way, is about a $90 
price. So $100, $104, I think it may have reached today----
    Senator Dorgan. Have you had a?
    Mr. Caruso [continuing]. Means that there's something else 
going on.
    Senator Dorgan. Right.
    Mr. Caruso. There's clearly been a surge in moneys coming 
into commodity markets, including energy, which has had some 
upward effect on the price above the trend line. Then we've 
seen other periods where you see that money, the open interest, 
actually go down. So there have been periods over this 5 to 6 
year timeframe where it's actually gone above the trend and 
also gone below the trend.
    So I think something is clearly going on. As I mentioned 
earlier it is very difficult to say whether that number is $5 
or $10. But I would, I think, strongly disagree that it's $50.
    Senator Dorgan. Yes. The implication of your answer is that 
there's about a 10-percent increase as a result of speculation. 
At least when you said your number is 90, it's 103.
    Let me ask you. Have you reached out and talked to the 
analysts who have been describing this publicly? Their 
analysis, that as they review these things there's no 
justification for the price above $50, $60, $70. Whatever it is 
they conclude.
    Have you reached out and talked to those folks to 
understand their analysis?
    Mr. Caruso. Yes. We talked to them all the time. In fact we 
have them in and have what we call forecasting seminars to try 
to understand what we find.
    When we meet with many of them they really don't have a 
quantitative assessment. It's mostly a qualitative assessment.
    Senator Dorgan. You shook your head affirmatively when I 
talked about the hedge fund positions in the futures market and 
the investment banks. Investment banks buying storage. You know 
all those things?
    Mr. Caruso. We have the same information that is publicly 
available. We don't have any, you know, we don't get any 
reporting directly from those entities.
    Senator Dorgan. You think that entry in those futures 
markets on the demand side has an impact on price? The question 
is just what impact.
    Mr. Caruso. I think it has had some impact. As I pointed 
out earlier, in some cases we've actually seen where that 
impact has, compared to our trend line analysis, actually been 
below it. When in some cases they've perceived for whatever 
reason that they should go short and actually had to----
    Senator Dorgan. I understand. But I'm talking as you----
    Mr. Caruso. Right now it's been mostly upward.
    Senator Dorgan. I don't mean to be talking about the manure 
and you keep talking about the pony. But the fact is what we're 
seeing at the moment is a trend line of substantial new 
speculation in futures market that's putting upward pressure on 
prices beyond that which would normally exist with the supply/
demand relationship.
    Mr. Chairman, are you going to have a second round because 
I do want to ask about SPRO at some length, but----
    The Chairman. Yes, we certainly will.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. Thank you, Mr. 
Caruso. I want to go back to the gas line that Senator Domenici 
raised.
    I think the last time we had the forecast that you 
presented we were again pushed back an additional 2 years. As I 
think I commented at that time that every time you come in and 
calculate where the Alaska gas line in the natural gas 
equation. We're 2 years further. I don't know if I want to see 
you next year if that's going to be the prognosis.
    Mr. Caruso. I think that's a safe assumption.
    Senator Murkowski. I would like to think that we're going 
to have this gas line. I do remain eternally optimistic that 
the State and the industry will figure out how we advance this. 
My question to you is what degree of confidence do you have 
that Alaska gas does become part of that picture?
    2020 is a ways off now. In the interim the economy of the 
lower 48, the rest of the country is going to be seeking that 
gas from somewhere. You've noticed some of the factors in your 
report, extra LNG, re-gasification capacity.
    If some of those issues can be worked out does the Alaska 
gas get locked out of the market at some point in your 
calculation if in fact those commitments have not been made?
    Mr. Caruso. I don't really think so. The reason is that we 
see the LNG as being more of a supplier on the margin because 
there's such a long lead time, as you know, in the building of 
that line.
    There will be a large advance notice once the construction 
starts. We're thinking it's, at least, probably a 9-year 
process. So I don't think that just the existence of new re-
gasification terminals will deter the pipeline. As is noted in 
our report, the ones that are under construction, under permit 
and construction, are double what we think LNG imports will be 
in 2030.
    Senator Murkowski. What about domestic shale opportunities 
that you've noted that you expect some increase in production 
there?
    Mr. Caruso. Shale gas?
    Senator Murkowski. Yes.
    Mr. Caruso. Yes, I think that's directly related to the 
price, to the extent that the natural gas price stays high. We 
could even see more shale gas under the reference case price 
scenario. We have that as the fastest growing source of 
domestic gas in this outlook.
    So it is important, but I don't think it's enough to lock 
out Alaskan gas. We think the economics of Alaskan gas under 
our current estimate, which is, as you know, subject to change 
as costs go up, still make it very attractive.
    Senator Murkowski. Let me ask then about oil production. 
Yes?
    Senator Domenici. Can I ask for clarification? You and Mr. 
Caruso were speaking about shale gas. That's not the shale oil 
in Colorado. That shale gas, where does it come from?
    Senator Murkowski. It's from Colorado, but there's some 
newer opportunities over on the East Coast that is being 
explored right now.
    Mr. Caruso. The biggest places for shale gas right now are 
in Texas and Oklahoma, the Barnett Shale. There's also some in 
the Rockies as well. But it's not directly related to the shale 
oil prospect.
    Senator Domenici. Shale gas is just a gas that you can get 
out of the ground----
    Mr. Caruso. Exactly.
    Senator Domenici. It's called----
    Senator Murkowski. Oil deposits, yes.
    Mr. Caruso. Yes, sir.
    Senator Domenici. We're not using a version of shale.
    Mr. Caruso. No.
    Senator Domenici [continuing]. Up in Colorado, that's not 
even in the equation yet.
    Mr. Caruso. It's gas produced from a shale formation, much 
like the Bakken shale in North Dakota is now producing a fair 
amount of new oil.
    Senator Domenici. Thank you, Senator.
    Senator Murkowski. With the oil production you've indicated 
that you expect to see domestic oil production rising because 
of what we're seeing with the high prices. That's going to 
encourage enhanced oil recovery but then we're going to see a 
decline there. But we're not necessarily seeing any new areas 
of production of domestic supplies of oil coming online.
    So, what does it look like 10, 20 years from now, if in 
fact, we have no new oil production domestically? Of course, 
this will then lead to my next question about the Alaska 
production. As you know there is a point where our Trans Alaska 
pipeline reaches a level where the flow of oil within that gas 
line requires or mandates that that line be shut down because 
you cannot efficiently, you can't move it down the line.
    So if we don't have increased production up North whether 
through ANWR or NPRA or any of the other opportunities that we 
have. We not only lose what remains up in the North Slope in 
terms of the production that we've been seeing. Give me the 
scenario for oil domestically if we don't see those new areas 
of production.
    You have the Alaska line going down. The way I describe it, 
it sounds pretty grim. But can you speak to that?
    Mr. Caruso. I think the only area where we see new 
production coming on line in this outlook is the deep water of 
the Gulf of Mexico. The other increase is in enhanced oil 
recovery, which has been stimulated by the higher prices. We're 
seeing some of that on shore.
    But due to lack of access we really don't see any new 
significant increases. As you pointed out that we have a 
continued decline in Alaska, although we do have the line 
continuing--the TAPS, Trans Alaska Pipeline System--continuing 
to operate throughout this timeframe.
    So, we have a short term gain which goes from about five 
million barrels a day in domestic crude oil production this 
year to a bit over six million in 2016. Then the decline 
continues again so that by the end of the 2030 timeframe we're 
about back to where we are now, a little over five million 
barrels a day. So we have a short term increase in domestic 
supply of crude and then a decline.
    Senator Murkowski. Did you do a run to assess the impact on 
prices if we were to be successful in opening ANWR in an 
analysis in terms of the cost?
    Mr. Caruso. We have not done that analysis, Senator.
    Senator Murkowski. I know that you had done it in previous 
years anticipating what----
    Mr. Caruso. Oh, opening----
    Senator Murkowski  [continuing]. A million barrels of extra 
production would be.
    Mr. Caruso. I'm sorry. Yes, we did do that in previous 
years. We have not done it for this Annual Energy Outlook. But 
we had done that at the request of Congress. I think the last 
one we did was 2007.
    Senator Murkowski. There are many of us who still believe 
that having an additional million barrels into production 
domestically would help with the price in this country and make 
a difference, so. Thank you, Mr. Chairman.
    The Chairman. Thank you very much. Let me ask a few 
additional questions. Then we'll just proceed here through our 
second round.
    I passed out a couple of things to you there. One is a 
chart* that called U.S. mid range abatement curve. This was 
developed by McKenzie and Company.
---------------------------------------------------------------------------
    * Charts have been retained in committee files.
---------------------------------------------------------------------------
    It's included in a publication by McKenzie and Company that 
the conference board came out with on reducing greenhouse gas 
emissions. How much would it cost? The other chart is similar 
but I'm trying to determine who prepared it. It looks like it's 
prepared in Europe because it's Euros per ton of CO2 
reduced.
    I guess what my initial idea from reading these is that 
this would be a very useful thing for us to have agreement on, 
if we could, for purposes of making policy. If in fact these 
are accurate and you can reduce greenhouse gas emissions much 
more substantially through building insulation which is what 
this one chart indicates, then you can through a voided 
deforestation over here on the right or one other of the items 
on the right. Then clearly that's where we ought to concentrate 
our efforts; on the areas that the greatest bang can be 
achieved for the dollar spent or the Euros spent or whoever 
spending it.
    Senator Domenici. Where did you find that?
    The Chairman. I'm looking at this chart now. You see 
building insulation is the on the far left hand which indicates 
that you save substantial amount of money by investing in 
building insulation, as I read this.
    Senator Domenici. All those things.
    The Chairman. Yes. All of those on the left you save a lot 
of money by going ahead and doing. On the right it's going to 
cost you money. Then you get into the question of whether it's 
worth the cost involved to go ahead and do those things. I mean 
in terms of the impact on the environment and other questions.
    But I guess I have two questions. First whether you have 
reviewed these particular charts and have any opinion on 
whether they are valid or whether your agency is capable of 
giving us an assessment of your own version of this so that we 
could have that for policymaking purposes. I think it would be 
very useful if we had a consensus within the Federal Government 
and within the country on what abatement measures yield the 
greatest results in terms of greenhouse gas emissions.
    Do you have any reaction to this?
    Mr. Caruso. Yes. I think the answer to your question is we 
would certainly take a crack at it and do our best. The couple 
comments are that some of these have already been implemented 
in the EISA bill.
    The Chairman. Right.
    Mr. Caruso. Some of our people have been in contact with 
the McKinsey analysts and have some disagreements as you might 
expect. I don't know what the actual costs are. So clearly we 
wouldn't--our numbers would be different and we'd be happy to 
take a crack at it.
    The Chairman. I'd appreciate it if you would. I would 
request that you do that. You know one obvious example of where 
I think we're not in agreement on how to make policy is the 
President's budget suggests we eliminate the Weatherization 
program.
    If in fact the greatest bang for the buck is putting more 
money into building insulation you would think we would want to 
go ahead and do that. So that's----
    Senator Domenici. If it was being done effectively.
    The Chairman. Yes. I think you'd want to know that. But 
presumably there's some assumption built in here that it can be 
done effectively.
    Senator Domenici. Oh, of course.
    The Chairman. If it's done effectively you have tremendous 
savings. I've never heard anybody argue that the reason we're 
not funding weatherization at the Federal level this year is 
because we don't think it can be effective. I mean it's just a 
question of priority of that compared to other things we want 
to put money into, as I understand it. So, at any rate I would 
appreciate it.
    Let me ask one other question.
    Senator Domenici. Senator, what is it that you want him to 
do?
    The Chairman. I would like him to see if he could look at 
these various graphs that we've distributed here and come up 
with their own.
    Senator Domenici. Ok.
    The Chairman. So that they would be telling us that in 
their opinion there are certain abatement measures we could 
take that would be the highest yielding in terms of greenhouse 
gas emission reductions. There are others that are going to 
cost us a lot more.
    Senator Domenici. I think that's an excellent idea in 
general. Excuse me for interfering.
    The Chairman. No, go ahead.
    Senator Domenici. But I think some experts have concluded 
that these are the effective items. Shouldn't he be permitted 
to consider others?
    The Chairman. Oh, sure. If there are some other measures 
that you think make more sense than the ones on these charts. 
But the McKenzie one, the way it was represented to me, is they 
looked at 250 different options for abatement of greenhouse gas 
emissions, and tried to rank those in order of highest 
yielding--lowest or highest cost then lowest yielding.
    If you can come up with more than 250, I'd be glad to have 
you include more.
    Mr. Caruso. Our comparative advantage, of course, is in 
those options directly related to energy and some of these are 
non-energy. But we will certainly do our best----
    The Chairman. Ok.
    Mr. Caruso [continuing]. Using what is in our database and 
our technology database.
    [The information referred to follows:]

    The greenhouse gas abatement curve from page 20 of Reducing U.S. 
Greenhouse Gas Emissions: How Much at What Cost by McKinsey and Company 
is based upon a complex methodology and numerous assumptions. EIA is 
working with McKinsey and Company to better understand the methodology 
and assumptions used. The greenhouse gas emissions abatement options 
contained in the report are based on energy projections contained in 
EIA's Annual Energy Outlook 2007. EIA hopes to assess the impact of 
updating the baseline to the Annual Energy Outlook 2008 reference case, 
which reflects the Energy Independence and Security Act of 2007; 
provide some insights on the general approach used in the McKinsey 
report; and provide greenhouse gas marginal abatement supply curves 
derived from National Energy Modeling System simulations. For now, EIA 
recommends that reviewers carefully note the caveats contained in the 
McKinsey report. For instance, McKinsey's analytical approach does not 
consider the cost of regulation, implementation, and any related 
Federal funds. For example, taking Chairman Bingaman's weatherization 
example, the McKinsey study does not specify any of the policy options 
that might be necessary to induce homeowners to improve building shell 
efficiency, such as price incentives or mandated building standards. On 
page xiv of the Executive Summary, under the abatement section that 
would include weatherization, they state, ``While this category of 
abatement options would cost the least from a societal point of view, 
persistent barriers tomarket efficiency will need to be overcome.'' 
Similar caveats about costs and policy options appear on pages 3 and 32 
of the report. Additionally, the savings shown in the McKinsey study 
are based on optimal sequencing among demand-side and supply-side 
options. EIA believes that the sequence in which carbon-mitigating 
measures are implemented will have a bearing on their effectiveness and 
costs. For example, if weather stripping and energy-efficient windows 
are installed after wind-power generation is added to the grid 
supplying electricity to that home, the carbon-saving value of the 
weatherization program would be diminished.

    The Chairman. That would be great. Let me just ask one more 
question. Could you give us a sense of how much of EIA's 
forecasted biodiesel consumption is expected to come from 
imports?
    I know that our domestic biodiesel industry is going 
through a difficult period here. What do you project in the 
future as far as imports of biodiesel verses domestic 
production of biodiesel?
    Mr. Caruso. In this particular outlook we don't have any 
finished biodiesel imports as part of biodiesel supply. The 
reason is because the $1 per gallon tax credit is set to expire 
after 2008. The second reason is that the EISA requirement for 
one billion gallons of biodiesels per year after 2011 is well 
within the domestic biodiesel capacity.
    So we think that the domestic biodiesel industry will be 
able to provide supply competitively. Therefore we don't expect 
finished biodiesel imports. We do expect perhaps some palm oil 
imports which would then be used as an input or a feedstock to 
create biodiesel. But in this outlook we don't have any 
finished biodiesel imports.
    The Chairman. All right.
    Senator Domenici.
    Senator Domenici. Mr. Chairman, I want to say to you that I 
thought this was a very important hearing. For the first time 
for this Senator, I was exceptionally pleased to find that we 
have a credible agency finding that legislation that we spent a 
lot of time on--that we were told would have a big impact on 
American people in terms of oil imports and CO2 
emission--that we did it, part of it after many years of 
contrarianism. It is rather refreshing to find that what we did 
is really effective.
    I think Senators that worked on it with us ought to know 
that there are certain things that we can do. They're hard, but 
these were very effective. I think there are a few left. Lots 
of them left when you get to CO2.
    I still think our energy challenges could be devastating. I 
want to close my remarks without a question by saying I 
believe, as I've said publicly, that the cost of oil is so high 
when compared to previous eras when we were so dependent and 
oil was $10, $20 a barrel, that I think it is making us poor.
    I think we are just literally getting poorer because so 
much of our wealth must go for this. We get nothing. You know 
there's no quid pro quo from the standpoint of our own growth, 
and I think our dependence on foreign oil is causing very 
serious consequences.
    I think the people don't know what they're feeling, but 
they're feeling this along with many other things. This is part 
of the real hardship feeling among our people. I think it's 
going to get worse.
    That's why I think a little good news is important. This is 
good news. Maybe if we find a few more, we should try to take a 
chance on them. I want to say, one example would be the 
offshore drilling that was such a success in bidding. You know, 
some of the Floridian waters we released in a bill that we 
fought hard for had had a moratorium on them.
    I think it's incumbent upon us as energy leaders to see 
what else we have in the offshore that we could take a look at. 
I think to just leave it out there because people have been 
crying moratorium is irresponsible. A moratorium made sense 
perhaps with $10 a barrel oil. It may not make sense with 110 
from the standpoint of an impact on the American people. Thank 
you.
    The Chairman. Thank you very much.
    Senator Dorgan.
    Senator Dorgan. Mr. Chairman, I would say to Senator 
Domenici, the same principle I think holds true with respect to 
a moratorium or an issue of filling SPRO. What might hold true 
at $27 a barrel oil may not hold true at $103 a barrel oil. I 
want to come back to the SPRO issue.
    That is that when oil is bouncing around $100, $200 and $3 
a barrel and you're pulling up to the gas pump and paying a lot 
of money for a gallon of gasoline. I understand what you have 
said today is that the activities of the Federal Government at 
this point to put oil underground is increasing the price of 
gas. You say about four or five cents a gallon right?
    Mr. Caruso. Yes, sir.
    Senator Dorgan. Five cents a gallon?
    Mr. Caruso. Yes, sir.
    Senator Dorgan. So, I mean, you look at the numbers of 
this. Others say it has a higher impact because it's a subset 
of oil, sweet, light crude which is pretty valuable subset of 
oil. But at any rate, the decision by our government to at 
record prices of oil be taking oil out of the supply side and 
sticking it underground has the impact of increasing the price 
of gasoline.
    Mr. Caruso. That's correct, sir.
    Senator Dorgan. I have a piece of legislation I've 
introduced here in the Congress. I've changed it since I've 
introduced it. I'm probably going to offer it to the bill 
that's on the floor today that would shut down, have a pause 
for at least 1 year if the price of oil is above $75 a barrel.
    It seems to me that just as Senator Domenici talked about a 
moratorium might be useful in one circumstance, but not 
another. I happen to on the Lease 181, just to go back to that 
point. I happen to think we ought to go back again and try to 
get more of that.
    We pared that back. You know the four of us that introduced 
the original legislation to be able to get some additional 
resources out of the Gulf of Mexico. It was a broader piece of 
legislation which I support.
    We had to pare it back in order to get it passed, but I 
think with the price of oil where it is, we ought to go back 
and revisit a portion of that and try to get more. If you look 
at where the potential is, the Gulf, off the West Coast or 
Alaska, by far the most significant capabilities come from the 
Gulf if you just look at the three. So I'd like to see us go 
back and get more of what was Lease 181.
    But at least at the moment what I'm hoping we'll be 
thoughtful as a Congress in how we address these things. The 
issue of buildings as being the biggest bang for the buck in 
conservation makes a lot of sense to me. So there's a lot of 
things we can do.
    But there's a lot of things we shouldn't do. We shouldn't 
sit around and take a look at the increased speculation in the 
futures market and say well, that doesn't matter. We don't 
maybe understand it, but it doesn't matter. I think it does 
matter with respect to the price of oil.
    On this issue of SPRO, my belief is that at $100 a barrel 
for oil, we ought not to be taking oil out of supply and 
increasing gas prices. That ought not be an affirmative action 
by the Federal Government. That's just dumb headed in my 
judgment.
    So I'm hoping that we can stop that. I'm hoping a group of 
us would say this has nothing to do with the oil companies. It 
has to do with the public policy by the Federal Government.
    Now you've said earlier, Mr. Caruso, that you don't make 
policy and you don't recommend policy. You come and give us the 
numbers and I appreciate that. I did want to say that I think 
your report does describe a couple of things that are 
important.
    I and some others on this panel felt that we should move on 
CAFE. So we moved on CAFE standards. Your analysis is that's 
going to have a significant impact going forward. We opened up 
some additional production. That has an impact.
    There's a series of things we've done with respect to 
renewable fuels. Tell us again the significant portions of 
policy from the legislation that we have completed here in the 
Senate that you think give us the best opportunity in the 
longer term to be less dependent on foreign oil.
    Mr. Caruso. The three are the CAFE standards, and any 
others that would improve vehicle efficiency, efficiency 
standards for appliances and other equipment, and the renewable 
fules standard that has already been passed in EISA. But as 
Senator Bingaman indicated in this cost abatement curve there 
are probably areas where more could be done.
    Senator Dorgan. Lighting standards are important?
    Mr. Caruso. Yes, sir.
    Senator Dorgan. You know, we did, I believe SEER 13 
standards for air conditioning. I mean those things sound like 
a foreign language to people. But the fact is these required 
efficiencies that we've been pushing on and been successful in 
have made a big difference. Haven't they?
    Mr. Caruso. They definitely have. I think the results are 
clear with both the RFS and CAFE with 2.4 million barrels a day 
less oil demand in this outlook than there was a year ago. The 
cumulative reduction in carbon dioxide emissions which I 
mentioned--you can attribute over five billion tons to the 
energy bill that you've passed.
    Senator Dorgan. Mr. Caruso, if you were running things, you 
wouldn't be putting oil underground at this moment, would you?
    Mr. Caruso. I have to defer that to my bosses at this 
point.
    Senator Dorgan. All right. Mr. Caruso, thank you.
    The Chairman. Senator Sessions.
    Senator Sessions. Thank you, Mr. Chairman. Mr. Caruso, I 
likewise have been intrigued but I likewise have a concern 
about storing this amount of oil at the current high prices. 
Let me ask you about domestic production.
    It seems to me we that have more interest in this country 
than just CO2 reduction. Would you agree that 
national security is an important issue for us?
    Mr. Caruso. Definitely, sir.
    Senator Sessions. That cost for the consumer is an 
important issue?
    Mr. Caruso. Yes, sir.
    Senator Sessions. It seems to me that the producing of oil 
and gas in this vast land of Alaska, ANWR or off our shores 
meets those standards. It helps us be more energy independent. 
It wouldn't be produced if the producers didn't think that they 
could make a profit by producing it cheaper than we could buy 
on a world market.
    What about the national interest in maintaining more of our 
wealth? If we don't produce oil and gas in our Nation, that 
does not mean we won't utilize oil and natural gas. We're going 
to see more natural gas imported. We're going to continue to 
see a rise in imports of our oil.
    For those who are trying to stop the utilization of oil, I 
don't see how they're making any progress overall other than 
denying us the right to produce what we have here.
    Would you agree that there are a lot of economic and other 
reasons for producing oil and gas at home rather than sending 
our money to Venezuela and other places that seem to be hostile 
to our interest?
    Mr. Caruso. Yes. That's what our analysis indicates to the 
extent that new regulations and law would support that--it 
would reduce oil imports and reduce our trade deficit as well.
    Senator Sessions. It would create jobs in the United States 
instead of jobs in Saudi Arabia or Iran or Venezuela, the 
countries that are producing so much of the world's oil and 
gas.
    Mr. Caruso. Yes, sir.
    Senator Sessions. It creates revenue whenever there's a 
production of oil and gas either to the Federal Government and 
now to some degree in the Gulf of Mexico. The States are able 
to receive some of those royalties from the sale of the oil and 
gas instead of having those royalties go to a foreign country 
when we consume it. We're helping those States with their 
financial condition as well as the jobs created in those 
States. Wouldn't you agree?
    Mr. Caruso. Yes, I agree with you. We need a significant 
amount of investment to meet the projected demands I mentioned 
to Senator Murkowski--earlier that the decline rate in the 
older fields alone requires significant new investments just to 
maintain our production levels even at the level that they're 
at now.
    Senator Sessions. I just couldn't agree more. I just don't 
agree with that we have an emotional feeling that if we produce 
oil and gas off our shores and in Alaska and in throughout the 
United States that we're not producing today that's somehow 
this makes us more dependent on oil and gas than we would be 
otherwise. Really I don't think that's true.
    I think it helps our economy. It helps our Nation. It helps 
create jobs.
    To me one of the things that seems to be a possibility, a 
real possibility, of a practical breakthrough solution of large 
proportions would be the continual improvement of the hybrid 
and a plug-in hybrid or fully electric automobile improved 
batteries. Would you agree that we're making some progress 
toward that? In your projections what kind of projections do 
you make?
    Mr. Caruso. We do have a significant increase in the 
alternatively fueled vehicles in this outlook, including 
hybrids. We do not have much if at all of the plug-in version 
of the hybrids as of now mainly because battery technology 
still is not sufficient to, we think to----
    Senator Sessions. This day it's not. But there was an 
article in, a big article, in Barron's recently about oil and 
the problems with oil and the individual who promotes clean 
fuels at Toyota, that's his job within the corporation.
    If you read the article carefully, it concludes that the 
future lies with plug-in hybrids. He indicated nuclear energy. 
So the combination of clean nuclear energy that could charge 
the batteries of our automobiles and could drive throughout the 
day would be a huge breakthrough if that could be made a 
reality, would it not?
    Mr. Caruso. It definitely would be a huge potential if that 
battery technology can be developed at a reasonable cost. So 
many of our miles are driven fairly close to home, so plug-in 
hybrids have great potential, but based on our current 
assessment the battery technology isn't there yet.
    Senator Sessions. If we continue to work it you would have 
the potential of reducing CO2. You would have the 
potential of reducing our dependence on foreign oil. Maybe, 
break the tide of tight supplies a little bit and take us in 
the right direction.
    So it would help us meet our CO2 goals as well 
as our economic goals. Thank you, Mr. Chairman.
    The Chairman. Senator Salazar.
    Senator Salazar. Thank you very much, Senator Bingaman for 
this hearing. Director Caruso, I guess first I have some 
questions concerning your charts. If I look at figure 2 where 
you have world oil prices are higher in 2008. You have your 
projections out into the future.
    If I'm reading that chart correctly, now in 2008, what you 
have us there is about $85 or so a barrel. Then moving on down 
to 2015, it seems that we're around $58 or so a barrel. How 
confident are you? What's the basis for you making that kind of 
prediction that we're going to go down from $100, I guess it's 
$103 today or something like that, down to $58 a barrel in 
2015.
    Mr. Caruso. This is our reference case. We use that as our, 
you know, base case. So it's our view that the longer-term 
impact of the current high oil prices and high prices we've 
experienced for several years will lead to two things.
    One, more exploration and development and investment in the 
upstream that will bring on both conventional and 
unconventional----
    Senator Salazar. Let me ask you this question. I mean, from 
my point of view, you know, and from many people I talk to, 
we're looking at, I think at $100 a barrel oil today. We see 
China coming into the market and competing for finite resource. 
We see India and others, rest of the world coming on board.
    I'm not confident in these projections in any way, shape or 
form. I mean, it seems to me if we're at 100 dollar a barrel 
oil today that we may very well be there in 2010 and 2012 and 
2015. Now your conclusion, as the expert that's informing us is 
that that's not the case. That by the year 2015 you think we'll 
be down to $58 a barrel. Are you confident in that conclusion?
    Mr. Caruso. No, I think the way I'd rather characterize it 
is that that's one scenario. But we also recognize that we've 
been wrong and been too low in our price projections in the 
last several years. That's why we also do a high price scenario 
which is in the same chart, where prices essentially don't 
retreat. They just keep going up--in fact, reach in nominal 
terms $185 by 2030.
    So our view is we need to do this on a risk basis. We think 
there's a significant risk that the reference case could be 
wrong, and therefore we should look at the high price case.
    Senator Salazar. Just a factual question for you on that 
same chart why is it that you would have the high water mark 
there for 2008 at approximately $80 to $83 a barrel when in 
fact we've gone up to $100.
    Mr. Caruso. That's the annual average, so it averages the 
whole----
    Senator Salazar. So if we look at the 2008 average that's 
what you will predict it will be is around $80.
    Mr. Caruso. That's our current assessment, $85.
    Senator Salazar. Let me ask you, moving onto figure 4 on 
the liquid fuel consumption, following up on my colleague Jeff 
Session's comments there. I see us at, you know, approximately 
15 million barrels per day in 2010 for the transportation 
sector and that trajectory continues to move upward into 2020 
and 2030. If we were able to move forward with some of the 
policies that have been advocated by Senator Sessions, Senator 
Bingaman, myself, with respect to advance vehicle technologies 
and plug-in hybrids, could that projection come down?
    Mr. Caruso. Yes, sir. Definitely. It's come down as I 
mentioned earlier by about 2.4 million barrels a day just from 
what you did in EISA 2007.
    Senator Salazar. That was based on the increase in CAFE 
standards.
    Mr. Caruso. CAFE standards, yes, sir.
    Senator Salazar. Ok.
    Mr. Caruso. We do have a significant increase in 
alternatively fueled vehicles as part of the fleet mix, but as 
I mentioned to Senator Sessions, it doesn't include hardly any 
plug-in hybrids. So a breakthrough in that area would change 
that number and to the extent it changes it would really depend 
on how significant the cost reductions would be in battery 
technology.
    Senator Salazar. So just a comment to my friend, Jeff 
Sessions from Alabama, you know I always talked about the set 
America free agenda as a way in which we could unify the 
country especially because of the foreign policy and 
implications here. I think that when we talked about these 
advanced vehicle technologies and moving forward with hybrid 
plug-ins and the like, I think it's an absolute agenda that's 
an imperative for us. I hope we're able to do a lot more with 
that.
    Let me move to on figure number 7, you have set forth the 
projections with respect to renewable fuels. We were very 
active in pulling the RFS together out of this committee. Are 
those projections that you have there for 2020 and 2030 around 
the different items that are part of this RFS portfolio from 
your point of view achievable?
    Mr. Caruso. Yes, sir. The projections we have are 
achievable. We do show a relatively small shortfall compared 
with the EISA values.
    As I mentioned, instead of 36 billion gallons in 2030 we 
are in this outlook assuming or projecting 32.5 billion and the 
main reason for that shortfall is the assumption on the ability 
of the cellulosic portion of that EISA requirement to be met. 
There are provisions that if along the way any component does 
not meet the EISA requirements, the EPA Administrator has an 
option to adjust that. Therefore, we have a small adjustment 
around 2016 and then again in 2022.
    Senator Salazar. Mr. Chairman, may I ask one more quick 
question?
    The Chairman. Sure.
    Senator Salazar. The amount they have for cellulose based 
ethanol. I look at 2020 and that looks, your projecting about 
2.5 billion gallons. My understanding from those who are 
involved at the National Renewable Energy Lab in Golden, 
Colorado as well as the company that is putting forward a 
demonstration project in Georgia, they believe they're about a 
year away or so from being able to move forward with the 
commercial deployment of cellulosic ethanol.
    If they are correct that we are within a year or two from 
being able to commercially deploy cellulosic ethanol would 
these numbers change looking out at 2020 and 2030 with respect 
to the green portion of the graph where you have those 
allocations for cellulosic ethanol?
    Mr. Caruso. I don't have the details of what the Georgia 
company and the NREL have said, but we do think that if there 
are significant breakthroughs in technology, these numbers 
would change, definitely. They're based on our best current 
judgment having talked to the NREL people as to where they are 
right now and where they might be by 2014 and 2015 when they 
have to meet these certain targets.
    As of now this is our best judgment. But I definitely agree 
that there's a great deal of uncertainty in this, and that if 
some of these technological breakthroughs occur these numbers 
would change upward.
    Senator Salazar. Thank you very much, Administrator Caruso.
    The Chairman. Thank you.
    Senator Murkowski.
    Senator Murkowski. Thank you. Mr. Caruso, on the 
alternative energies and the renewables, you are predicting 
some good increases and you just spoke to that to Senator 
Salazar. But in terms of the market share that we see coming 
from the renewable energy sector.
    If I understand your presentation here, you only anticipate 
it to grow by a few percentage points over the next couple 
decades. Why is it that we don't see a more pronounced growth 
then? You mentioned to somebody and it might have been to 
Senator Dorgan that your analysis does not include a 
continuation of the production tax credits that we have. Is 
that part of the reason?
    Mr. Caruso. It's definitely part of the reason, yes. The 
assumption that the renewable, I mean the production tax credit 
for renewables is allowed to expire at the end of 2008 makes a 
huge difference in the----
    Senator Murkowski. What would it look like? Did you do the 
analysis?
    Mr. Caruso. We have done it; I think Senator Bingaman has 
asked us to do that. I would hesitate to want to give you a 
number off the top of my head, but I remember it being a 
significant change. I would be happy to provide that for the 
record.
    [The information referred to follows:]

    In its Annual Energy Outlook 2008 (AEO2008) reference case, EIA 
assumes, consistent with laws in effect as of January 1, 2008, that the 
production tax credit (PTC) for new wind and other renewable generation 
will expire at the end of 2008. The Congressional Joint Committee on 
Taxation (JCT) requested that EIA model a scenario assuming a 10-year 
extension of the PTC based on the current structure of the law. By 
2018, the assumed PTC expiration date in the JCT analysis, wind 
capacity with the extension is projected to grow to almost 72 
gigawatts, compared to a 2018 capacity of approximately 31 gigawatts in 
the AEO2008 reference case. Through 2030, wind capacity with a 10-year 
PTC extension is projected at almost 74 gigawatts, suggesting little 
additional growth after the 2018 assumed expiration, but still 
significantly higher than the 40 gigawatts projected in the AEO2008 
reference case by 2030. A 10-year extension of the PTC is also 
projected to spur additional development in geothermal, landfill gas, 
and open-loop biomass generation, although the impact on the additional 
capacity of these resources is substantially less on an absolute basis 
than for wind, with less than 3 gigawatts of additional combined 
capacity for those resources by 2018 when compared to the AEO2008 
reference case.

    Senator Murkowski. I think that would be helpful to know 
what that actually looks like----
    Mr. Caruso. By----
    Senator Murkowski [continuing]. Because a lot think that 
continuation of those protection tax credits is going to be 
very, very important. It sounds like you would agree in terms 
of what's going on.
    Mr. Caruso. It would be very important nationally as well 
as for a lot of States that have their own RPS programs. I can 
also say that even with these relatively conservative 
assumptions on the production tax credit, the renewables 
component is the fastest-growing segment of the energy mix in 
this outlook. That's the first time I think I've been able to 
say that in 6 years of presenting these outlooks.
    Senator Murkowski. As I go back home, I don't care what 
part of the State I am in, I am inundated with questions about 
what are you guys going to do back here about the high price of 
fuel? In some of my smaller and more remote communities, I was 
out in a community just last week. They're paying seven bucks a 
gallon for their gasoline. Home heating fuel is absolutely 
through the roof.
    If we were to do one thing short term that would reduce the 
price of fuel, what would that be?
    Mr. Caruso. The problem is that, as you know too well----
    Senator Murkowski. Here's the silver bullet.
    Mr. Caruso [continuing]. It's a long-term issue and that 
involves requiring investment whether you're on the supply side 
or on the demand side in terms of efficiency. So in the short 
run it's really up to the consumer. They have to respond to the 
prices, as you indicated. Sometimes it's not possible because 
there is very little you can do in the short run.
    Senator Murkowski. You don't have any choice. Yes.
    Mr. Caruso. Yes.
    Senator Murkowski. So what you're saying is that in reality 
I can't tell my constituents that there is any one thing that 
we can do short term, short of----
    Mr. Caruso. Behavioral.
    Senator Murkowski. Consuming less. But when it's 50 below, 
it's kind of tough to tell people well, don't fill up your home 
heating fuel tank, so.
    Mr. Caruso. But the one thing you can say is that whatever 
we do, we should start now with even long-term solutions. I 
think what this outlook revision shows is that the EISA bill of 
2007 was the beginning of many of these policy changes.
    Senator Murkowski. We're making some headway. But to the 
individual it looks pretty glum right now. So, thank you.
    Mr. Caruso. Thank you, Senator.
    Senator Salazar [presiding]. Senator Sessions.
    Senator Sessions. Administrator Caruso, let me ask you a 
little bit about a sore spot that I'm hearing. I'm not able to 
give an answer to and that is why diesel fuel consistently is 
substantially more expensive than gasoline. Historically, I was 
under the impression that diesel fuel was a less expensive 
product. How is this occurred?
    Mr. Caruso. I think that's directly related to the refinery 
tightness we have in this country, the lack of investments that 
have been made in the refinery--sector that is, the secondary 
conversion of the crude oil after it leaves the primary 
distillation has been----
    Senator Sessions. Explain that a little more.
    Mr. Caruso. When crude oil goes into a refinery it goes 
through the first process which is primary distillation. It 
gets separated into broad categories of different products. But 
then it has to be further refined to make more specific 
products such as gasoline or diesel.
    Senator Sessions. It takes more refining and costs more to 
produce the gasoline.
    Mr. Caruso. Yes, and not enough investment has been made to 
increase the amount of the middle distillate part of the barrel 
which is where the diesel comes from. That's led to the 
tightest of supply.
    Senator Sessions. If you were in the business of marketing 
diesel fuel why wouldn't you want there to be a shortage of 
refineries so that the price would spike up and you could do 
well.
    Mr. Caruso. The main reason I would want to make the 
investments is that I could gain market share from my 
competitor and would have a greater----
    Senator Sessions. But it's not happening very effectively. 
Would you agree? I mean something, it seems to be an aberration 
in the marketplace to me.
    This complaint about we can't find a place to build a 
refinery, I don't think is accurate. I believe there are areas 
in my State that would welcome a refinery if they were 
confident that it was well managed. We have refineries already 
in our State.
    So I'm just a little bit unhappy about this. I hear it from 
truckers. I hear it from consumers. You buy a car that's diesel 
that gets better gas mileage and all of a sudden you're paying 
40 cents more a gallon.
    Why don't we have more diesel refineries?
    Mr. Caruso. I think we will, but right now there's also a 
global tightness. Europeans have moved very heavily into 
diesel-powered vehicles. Therefore there really isn't enough 
diesel availability.
    Normally, when you have a market aberration as you 
indicated, one solution is you could import that product from 
abroad and that's what happens a lot with gasoline, but right 
now there's very little excess diesel-making capability 
available in refineries abroad such as in Europe or Singapore.
    Senator Sessions. Are they buying our diesel fuel? Are we 
shipping diesel to Europe?
    Mr. Caruso. Not that I'm aware of. If it is, it's quite 
small.
    Senator Sessions. It seems to me then in our process what 
happens in Europe is not so important.
    Mr. Caruso. The reason it's important is that if our prices 
got high enough to attract imports that would put downward 
pressure on the price. That hasn't been happening, especially 
in the winter time when that same middle distillate part of the 
refinery output also supplies our home heating oil.
    Senator Sessions. Let me cut to the core of the question. 
Most of us try to understand that the free market works and 
prices tend to work in. But with regard to diesel I'm baffled 
why we're not seeing an adjustment. I am not such a pure free 
market person as to believe they aren't aberrations and 
dysfunctions that can occur within the system that would 
artificially allow these prices to remain higher.
    Do you see anything that we could do to encourage more 
refining capacity or otherwise to bring diesel fuel to a more 
natural price level?
    Mr. Caruso. I think anything to facilitate investment. As 
you pointed out, you think there are siting issues----
    Senator Sessions. But you know you got to subsidize diesel 
fuel when it's at this rate?
    Mr. Caruso [continuing]. That would be subsidized----
    Senator Sessions. There's something else in regulating or 
so political things that are frustrating the production of 
diesel fuel that leaves me concerned.
    Mr. Caruso. I wouldn't recommend subsidies. I'm just saying 
that right now there does appear to be an insufficient 
investment in diesel-making capability and, to the extent that 
there are any regulations or laws that are impeding that, I 
would look there, but right now you've got peak heating oil 
demand for that same part of the barrel.
    Senator Sessions. From a global warming perspective the 
Europeans have concluded and I'll ask you if you disagree that 
diesel gets better mileage and has less CO2 
emissions.
    Mr. Caruso. Absolutely. The more than 50 percent of new car 
sales in Europe are diesel as of----
    Senator Sessions. We're less than 10?
    Mr. Caruso. Way less than 10, we're probably less than 2.
    Senator Sessions. So, one reason I think price is a factor. 
Thank you. My time is up, Mr. Chairman.
    Senator Salazar. Thank you very much, Senator Sessions. 
Unless you have any additional questions we will conclude the 
hearing. The hearing is adjourned. Thank you very much, 
Administrator Caruso.
    Mr. Caruso. Thank you, Senator Salazar.
    [Whereupon, at 11:46 a.m. the hearing was adjourned.]
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

                              Department of Energy,
               Congressional and Intergovernmental Affairs,
                                       Washington, DC, May 2, 2008.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: On March 4, 2008, Guy Caruso, Administrator, 
Energy Information Administration, testified regarding EIA's revised 
Annual Energy Outlook.
    Enclosed are the answers to 11 questions that were submitted by 
Senators Domenici and Dorgan for the hearing record.
    If we can be of further assistance, please have your staff contact 
our Congressional Hearing Coordinator, Lillian Owen, at (202) 586-2031.
            Sincerely,
                                           Lisa E. Epifani,
                                               Assistant Secretary.
[Enclosures.]
              Responses to Questions From Senator Domenici
    Question 1. You noted in your testimony that previous ElA forecasts 
assumed that the Federal Production Tax Credit for renewable 
electricity would expire, thereby rendering renewable electricity 
expensive enough to trigger the so-called ``escape clauses'' included 
in many State RPS programs. However, in its 2008 assessment of 
increased renewable electricity demand, EIA ``assumes that the State 
RPS goals will be met'' even though the PTC is set to expire at the end 
of this year.
    Given that the federal PTC is set to expire at the end of 2008 and 
numerous attempts to extend the energy tax credits have failed, why has 
EIA assumed that State RPS targets will be realized? Why, wouldn't the 
expiration of the PTC trigger the State RPS ``escape clauses'' as EIA 
has predicted in previous forecasts?
    Answer. This year's Annual Energy Outlook reference case continues 
to assume, for modeling purposes, that the production tax credit for 
renewable electricity expires as currently called for in the law. 
However, we are now assuming that the States with renewable portfolio 
standards will continue to try and stimulate renewables, even if the 
tax credit is not extended. Extending the federal tax credit would 
certainly make it less expensive for these States to do so, and make 
renewables more attractive in all States, but we have not assumed that 
this occurs in the reference case. It is certainly possible that the 
expiration of the production tax credit might lead some utilities in 
States with renewable portfolio standards to use alternative compliance 
mechanisms, rather than building new renewable facilities, but we 
believe that most would try to find ways to stimulate the required 
renewables.
    Question 2. If the PTC is extended by the end of this year, how 
does that change EIA's renewable electricity forecast?
    Answer. The impact would depend on the length of the PTC extension. 
If the extension were only for a year to two, there might be a near-
term increase in renewable generation but the longer-term trend would 
continue to be driven by the renewable portfolio standards that exist 
in many States. A longer-term extension of the PTC could lead to 
significantly larger growth in renewable generation than we currently 
project in the EIA reference case.
    Question 3. You testified that total renewable generation in the 
reference case grows by 2.2% per year through 2030. How much growth can 
be attributed to combined heat and power use? How much can be 
attributed to end-use generation?
    Answer. In absolute terms, most of the increase in renewable 
ueneration between 2006 and 2030 occurs in the power sector as a result 
of investment in new wind facilities. However, end-use renewable 
generation does grow at a faster rate, 4.6 percent per year. Most of 
the increase in end-use renewable generation is projected to come from 
increased biomass use in biomass-to-liquids plants that also produce 
electricity for sale, followed by a much smaller increase in 
photovoltaic generation stimulated by programs to encourage the use of 
roof-top solar systems.
    Question 4. You testified that the slowing rate of electricity 
growth reduces the need for new generating capacity. Has EIA examined 
the role of Demand Response in contributing to this reduction?
    Answer. It is very difficult to separate out all of the forces 
contributing to slowing electricity demand growth. Across the country, 
regional wholesale electricity organizations, State public utility 
commissions, and the utilities that they regulate are trying to 
increase their investments in demand side management programs. Reports 
on these programs are generally available on each region's web site. 
For example, information on New England's demand response programs is 
available at http://www.iso-ne.com/genrtion_resrcs/dr/index.html, and 
information on New York's is available at http://www.nyiso.com/public/
products/demand_response/index.jsp. Although the demand for electricity 
continues to grow, the rate of growth has been slowing for more than 50 
years. In the 1950s, the use of electricity increased 9.0 percent per 
year. However, in every decade since then growth has slowed, falling to 
7.3 percent per year in the 1960s, 4.2 percent per year in the 1970s, 
3.1 percent per year in the 1980s, 2.4 percent per year in the 1990s, 
and only 1.2 percent per year between 2000 and 2005. It is likely that 
a portion of the slowing growth is due to utilities' investments in 
demand-side management. EIA's projections continue to reflect this 
trend, with the projected growth in electricity demand slowing further 
to 1.1 percent per year between 2006 and 2030.
    Question 5. According to the EIA forecast, the most rapid growth in 
total electricity consumption occurs in the commercial sector. In its 
assessment, has EIA included the anticipated energy savings from the 
2007 Energy Independence and Security Act--including establishing a 
Director of Commercial High-Performance Green Buildings and a Zero Net 
Energy Commercial Building Initiative--on the electrical consumption of 
commercial buildings?
    Answer. The specific EISA2007 provisions that are modeled in 
AEO2008 include the renewable fuel standard (RFS), new corporate 
average fuel economy (CAFE) standard for new light-duty vehicles, new 
appliance and lighting energy efficiency standards, provisions to 
reduce energy consumption in Federal buildings, and new industrial 
electric motor efficiency standards. Any anticipated energy savings 
from the Federal buildings provisions and efficiency standards 
affecting the commercial sector are included in the EIA projections. 
Activities under the Zero Net Energy Commercial Building Initiative are 
not included because they depend on future appropriations, which are 
uncertain. The coordination, negotiation, and promotion efforts of the 
Director of Commercial High-Performance Green Buildings are not 
included because these activities are beyond the level of detail 
modeled in AEO2008.
    Question 6. Has EIA assessed the anticipated energy savings from 
the efficiency portions of the 2007 Energy Independence and Security 
Act (i.e., the appliance standards; lighting standards, including the 
phase-out of incandescent light bulbs; federal building targets; and 
commercial buildings)?
    Answer. As noted in the answer to the previous question, the 
specific EISA2007 provisions that are modeled in AEO2008 include the 
renewable fuel standard (RFS), new corporate averne fuel economy (CAFE) 
standard for new light-duly vehicles, new appliance and lighting energy 
efficiency standards, provisions to reduce energy consumption in 
Federal buildings, and new industrial electric motor efficiency 
standards. EIA is currently developing separate impact assessments for 
major EISA2007 components, however, results for these analyses are not 
yet available.
    Question 7. Your analysis asserts that in the absence of policy 
changes, carbon capture and sequestration will not be deployed by 2030. 
Increased oil production in the 2008 Outlook is, in part, attributed to 
enhanced oil recovery using carbon dioxide, however. How significant is 
the contribution of this enhanced oil recovery to domestic production, 
and the CO2 comes from a man-made source, would EIA credit 
those operations with reducing the amount of CO2 emitted in 
the coming years?
    Answer. In the reference case of the AEO2008, domestic oil 
production from CO2-enhanced oil recovery is projected to 
more than triple, increasing from 350,000 barrels per day (or 6.8 
percent of total domestic production) in 2006 to 1.3 million barrels 
per day (or 23.4 percent of total U.S. production) in 2030. However, 
the projected use of CO2 from industrial sources is not 
driven by emission requirements but, rather, is strictly an economic 
decision to increase oil production. If a greenhouse gas reduction 
policy were enacted, rules and procedures for measuring, monitoring and 
crediting CO2 sequestered in oil fields would have to be 
established. Once such rules were established, EIA would be able to 
estimate how much of the CO2 sequestered in oil fields would 
be credited against industrial emissions.
    Question 8. Your testimony contends that the recently-passed 
biofuels mandate will not be fully met and will require waivers and 
other reductions. Has EIA looked at how much more significant our 
biofuels shortfall will be if the tariff is, in fact, renewed and 
imports are not available to make up the difference?
    Answer. EIA has not examined the impact of extending the tariff 
past 2009. If the tariff was extended, imported fuels would be more 
expensive relative to domestically produced fuels and the level of 
imports after 2009 would he lower than in the AEO2008 reference case. 
Imports would not be likely to disappear completely, as the AEO2008 
reference case projects imports of 800,000 gallons in 2008 compared to 
460,000 gallons in 2007, with the tariff in place. Imported biofuels 
are projected to contribute 3.4 billion gallons towards the Advanced 
Fuels requirement in 2022, so to what degree this amount would decrease 
is unclear. It is also possible that cellulosic ethanol or other 
bioluel technologies would become more profitable relative to imports 
and thus lead to more domestically produced bioluels.

               Responses to Questions From Senator Dorgan

    Question 1. The Energy Information Administration's budget request 
for FY 09 is $110.6 million. The Senate had provided your full request 
for FY 08 at $105 million but had to cut it back to $95.5 million to 
get to the President's demand that we cut $22 billion across the board 
for domestic programs. Can you explain your priority areas for your 
increase in your Fiscal Year 2009 budget request?
    Answer. The FY 2009 budget request increase supports five critical 
activities that were deferred due to EIA's FY 2008 $95.5 million 
program. Specifically, the $12.2 million increase in support services 
for FY 2009 would allow EIA to: address critical and growing petroleum 
survey data quality deficiencies, in order to reflect changes in the 
industry and assure statistical validity, accuracy, and reliability 
(+$3.7M); implement monthly ethanol and biodiesel surveys, as yell as a 
weekly ethanol survey, mandated by the Energy Policy Act of 2005 
(+$3.4M); resume replacing the aging National Energy Model, which is 
critical to improving our ability to assess and project supply, demand 
and technology trends impacting U.S and world energy markets (+$3.3M); 
enhance the availability and timeliness of international oil, gas, and 
coal markets data and analyses (+$1.1M); and provide for mandatory 
Information Technology infrastructure upgrades and strengthen cyber-
security to protect market-sensitive data (+$0.8M).
    Question 2. Your projections indicate that the U.S. will not 
achieve the Renewable Fuels Standard targets that were recently 
increased to 36 billion gallons by 2022 in the enemy bill signed by the 
President in December. You assume we will produce about 8.6 billion 
gallons of cellulosic ethanol by 2022. Let me remind you that since we 
enacted the first renewable fuels standard of 7.5 billion gallons by 
2012 in EPACT 2005, we are now on pace to exceed that goal in next year 
in 2009. So if we can produce nearly 8 billion gallons of corn ethanol 
in 4 years, what basis do you have to assume that we will only produce 
8.6 billion gallons of cellulosic ethanol by 2022?
    Answer. The recent expansion of corn ethanol capacity and 
production was driven by favorable corn prices, high crude oil prices, 
and the phase-out of methyl tertiary butyl ether (MTBE) as a gasoline 
additive. The renewable fuels standard in the Energy Policy Act of 2005 
may have reduced the risk of investment in corn ethanol capacity, but 
it has not been the primary driver of the corn ethanol expansion over 
the last two years as evidenced by the fact that ethanol use has 
exceeded the EPACT 2005 requirement.
    The production of ethanol from corn is a known technology. When 
ethanol demand increased, reflecting both the elimination of MTBE and 
the rapid increase in oil prices that increased the attractiveness of 
ethanol as a volume enhance in conventional gasoline, investors 
responded by adding capacity very quickly, which is still occurring.
    Cellulosic ethanol is not currently cost-competitive with corn 
ethanol. Significant technological advancements will be necessary 
before cellulosic biofuel production will begin to penetrate motor fuel 
markets. Another challenge arises from the saturation of the market for 
EIO blends by existing and planned corn ethanol capacity. As more 
ethanol is added to the market it must compete based on energy content 
rather than volume. The Energy Department's first round of funding for 
development of cellulosic biofuels technology is expected to result in 
6 plants being built with a combined capacity of 140 million gallons of 
cellulosic ethanol per year by 2011. A second round of funding is 
expected to result in 3 more cellulosic ethanol plants with combined 
capacity of about 6 million gallons per year by 2012.
    Question 3. In your assumptions, you also indicate that the 
existing 54 cent tariff on imported ethanol will not be renewed in 
2009, leading to a significant increase of imported ethanol. What basis 
do you have to make that assumption?
    Answer. For modeling purposes, the Annual Energy Outlook 2008 
reference case is based on the laws and regulations that were in effect 
at the time the projections were formulated. Currently, the ethanol 
import tariff is scheduled to expire in December 2008. In past editions 
of the Annual Energy Outlook, the ethanol blending tax credit was 
extended indefinitely past its scheduled expiration. Since the stated 
purpose of the import tariff is to offset the blending tax credit for 
foreign ethanol, the import tariff received the same treatment as the 
blending tax credit. For the AEO2008 reference case, the assumption 
regarding the ethanol blending tax credit was changed to make it 
consistent with all of the other policies represented, i.e., based on 
laws and regulations in place as of early this year. Without the 
blending tax credit, the stated purpose of the import tariff is voided 
and, therefore, the ethanol import tariff was also assumed to expire as 
scheduled.

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