[Senate Hearing 110-600]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-600
 
                               OIL DEMAND 

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   TO

  REVIEW THE STATUS OF EXISTING FEDERAL PROGRAMS TARGETED AT REDUCING 
 GASOLINE DEMAND IN THE NEAR TERM AND TO DISCUSS ADDITIONAL PROPOSALS 
                FOR NEAR TERM GASOLINE DEMAND REDUCTIONS

                               __________

                             JULY 23, 2008


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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
               Karen K. Billups, Republican Chief Counsel















                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Buiel, Edward R., Ph.D., Vice President and Chief Technical 
  Officer, Axion Power International, Inc., New Castle, PA.......    34
Chalk, Steven G., Deputy Assistant Secretary, Office of Energy 
  Efficiency and Renewable Energy, Department of Energy..........     5
Craig, Hon. Larry E., U.S. Senator From Idaho....................     3
Greene, David L., Corporate Fellow, Transportation Science and 
  Energy Division, Oak Ridge National Laboratory, Oak Ridge, TN..    10
Laitner, John A. ``Skip'', Director of Economic Analysis, 
  American Council for an Energy-Efficient Economy...............    16
Winkelman, Steve, Director of Transportation and Adaptation 
  Programs, Center For Clean Air Policy, Port Chester, NY........    28

                                APPENDIX

Responses to additional questions................................    67


                               OIL DEMAND

                              ----------                              


                        WEDNESDAY, JULY 23, 2008

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.

    The committee met, pursuant to notice, at 9:45 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 and get started? 
I'm not sure of Senator Domenici's schedule this morning, but 
we've got Senators here and witnesses. So let's go ahead and 
begin at 9:45 as we indicated.
    Average gas prices have been above four dollars since the 
beginning of June. As of June 21, gas prices averaged $4.06. I 
think they're higher than that today. It's about a $1.10 
increase over last year at this same time.
    These fuel prices have harmed our economy. They are harming 
our economy. They cause serious problems for many consumers.
    Some believe the only way to reduce the price of gasoline 
is to provide more supply through additional drilling. There 
are also, of course, ways that we can reduce demand which will 
also, I believe, affect gasoline prices. Today we've gathered a 
panel of experts to discuss a variety of near term proposals 
for reducing our dependence on petroleum and hopefully 
lessening the pain at the pump that United States consumers are 
currently experiencing.
    The witnesses have been selected to give us a comprehensive 
look at policy options in this area including relevant Federal 
programs; particularly those authorized in the 2005 legislation 
we passed, EPACT, and the 2007 legislation that the President 
signed last year. Another option we're hoping to look at here 
is increasing fuel economy and consumer response to incentives 
to purchase more fuel efficient vehicles, and efficient 
opportunities across the transportation system, the role of 
information technology in helping us accomplish these goals, 
transportation and development and policies to reduce the 
number of vehicle miles traveled and also advances in battery 
development to enable quicker electrification of our 
transportation system.
    So, we look forward to the testimony. I thank the witnesses 
for being here. Let me ask if Senator Craig wishes to make an 
opening statement before I introduce the witnesses.
    [The prepared statement of Senator Salazar follows:]

   Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado
    Mr. Chairman and Ranking Member Domenici, thank you for holding 
this hearing to discuss existing and potential federal programs to 
reduce gasoline consumption.
    The energy crisis that we currently face is dominating the minds of 
many citizens. Driving up to a filling station and seeing four dollar 
per gallon gasoline and nearly five dollar per gallon diesel is not 
something that anyone can get used to. I am hearing stories from all 
corners about folks trying to limit their gasoline consumption. The 
pain of high gas prices is only the most visible symptom of a much 
deeper and more systemic set of problems. Today's hearing, in my mind, 
is about what we can do to both help consumers--especially our most 
vulnerable citizens--in the immediate term and what we can do to 
shatter our dependence on petroleum-based fuels for transportation as 
quickly as possible.
    When we talk about encouraging reduction in gasoline consumption 
right now, I think it is critical to distinguish between those who have 
options and those who don't. Americans who live in urban areas 
generally have multiple options to reduce their gasoline consumption, 
including mass transit, bicycling, walking, and telecommuting, while 
those who live in rural areas typically do not have these options. Many 
rural Americans have to travel significant distances to their place of 
work or use large quantities of fuel for farm machinery. Furthermore, 
those in rural areas often do not have the income base to afford a 
transition to a hybrid vehicle; they might depend on owning a truck or 
other low-mileage vehicle for their livelihood. And of course many of 
our seniors on fixed incomes have very few options for changing 
vehicles or changing their transportation habits. Rising gasoline 
prices hit these families and individuals hardest. We've probably all 
heard stories of folks socking away their economic stimulus rebate 
check for gasoline. We need to think hard about what policies--whether 
it's a tax rebate or some other instrument--can help mitigate the 
burden on the most financially vulnerable Americans.
    In the longer term, we need to escape the fundamental fact that in 
this country the car has a death grip on mobility and that oil has a 
death grip on the car. The U.S. consumes 20.7 million barrels of oil 
every day. 68% of this is for transportation and about half--9.2 
million barrels--is consumed as gasoline by America's 235 million cars 
and light trucks. No matter how much we want to deny it, the truth is 
that OPEC and countries like China and India that subsidize 
artificially low gasoline prices for their citizens stack the deck 
against us in the global oil market. OPEC's power derives from oil's 
monopoly in the transportation sector.
    This monopoly is bleeding our economy and American wallets. 
Americans are sending the staggering sum of over $700 billion a year to 
foreign producers. A typical family will spend about $6,000 this year 
on liquid fuels, natural gas, and electricity. This amount has doubled 
since 2000, and equates to a $300 billion tax hike on working 
Americans.
    We have made a start in the right direction. I am proud of the work 
that we have done in this committee with the Energy Policy Act of 2005 
and the Energy Independence and Security Act last year, which 
established and then expanded the renewable fuels standard.
    Last year's bill also raised the CAFE standards for cars and light 
trucks by over 40 percent by 2020. And these policies are beginning to 
have an effect. Merrill Lynch estimates that we would be paying 15 
percent higher prices at the pump today without current domestic 
biofuels on the market. The Energy Information Administration tells us 
that the 2007 energy bill will reduce U.S. oil consumption by 1.1 
million barrels per day in 2020--half of what we currently import from 
the Persian Gulf--and by 2.5 million barrels per day by 2030. Simple 
arithmetic shows that the bill's 36.0 billion gallon renewable fuel 
standard in 2022 is equivalent to 1.6 million barrels of crude oil per 
day--1.6 million barrels that the U.S. will need not import.
    These policies are an important start, but they are only the 
beginning of the radical change we need to achieve. The RFS and the 
increase in CAFE standards point the way forward: displacement of the 
roughly 14 million barrels of oil we currently import per day is 
eminently achievable by aggressive movement towards high-efficiency 
vehicles and renewable biofuels and other alternative fuels.
    Yesterday I introduced legislation with Senators Brownback and 
Lieberman to accelerate the deployment of flex-fuel vehicles into the 
U.S. passenger vehicle fleet. Our bill, the Open Fuel Standard Act, 
will break oil's monopoly by making fuel flexibility a standard 
feature, ensuring that Americans have choice at the pump. There is no 
reason we can't do this today. At a cost of just $100 per car, FFV 
technology will enable Americans to choose how to fuel their car and 
where to send their dollars. In Brazil today, 90% of the automobiles on 
the road are FFVs, and most of those are manufactured by GM and Ford. 
It is time our domestic automobile manufacturers produce and sell FFVs 
on a mass scale in this country.
    FFVs will provide a platform on which alternative fuels can 
compete. Imagine the effect on consumption of oil and the average 
family's budget if, instead of filling up for $4.30 a gallon it was 
possible to choose alcohol fuels, which can be produced for about $2.00 
a gallon, or synthetic gasoline and diesel, produced from renewable 
biomass, which soon will be cost-competitive with petroleum-based 
products. If consumers have choice at the pump, they will almost 
overnight send a powerful signal to the world oil markets by choosing 
cheaper fuels produced from abundant domestic resources. We add about 
17 million new light-duty vehicles to our roads each year, and these 
vehicles have a lifespan of about 13 years. Increasing the number of 
FFVs on the roads is an investment we need to start making today and 
will pay lasting dividends.
    In their widely publicized meeting at the White House in November 
2006, the CEOs of the Big Three U.S. automakers reaffirmed their 
commitment to making 50% of their fleet capable of running on any 
mixture of alcohol and gasoline (FFVs) by 2012. Our legislation merely 
codifies that commitment and establishes a modest increase in that 
standard of 10% per year after 2012 to 80% by 2015. That trajectory 
matches the projected increase in supply of renewable biofuels under 
the 2007 renewable fuels.
    Flex-fuel vehicles and alternative fuels are a big piece to the 
puzzle, but not the only piece. We must also pursue advanced battery 
technologies to ``electrify'' a large chunk of the transportation 
sector by making low-cost long-range plug-in hybrid electric vehicles a 
reality. We need to encourage smart transportation and smart 
development. We need to promote telecommuting. We need to alter our tax 
policies to make early adoption of plug-in hybrids more affordable and 
remove the few perverse provisions that actually incentivize the 
purchase of gas-guzzlers. We need to do all of these things to 
fundamentally transform the transportation sector and rid ourselves of 
our need for oil for good.
    The key to energy security is using America's abundant natural 
resources to regain our strategic advantage in the world. Unlike in the 
case of oil, where national oil companies and countries in the Middle 
East control the vast majority of the resource and we have less than 2% 
of world oil reserves, the United States has abundant domestic coal, 
natural gas and biomass resources--enough to power all of America's 
trucks and automobiles for centuries.
    I look forward to discussing these and other policy options with 
this distinguished panel. Thank you, Mr. Chairman.

        STATEMENT OF HON. LARRY E. CRAIG, U.S. SENATOR 
                           FROM IDAHO

    Senator Craig. Mr. Chairman, thank you very much. To all 
the witnesses thank you for being with us today.
    We're at an interesting time in our country's history as it 
relates to energy. Mr. Chairman, I find it fascinating, of all 
of the dynamics that are out there at this moment, I was very 
curious over the last several years when the break point would 
occur. When the American consumer would finally say, we've had 
enough. We can't pay or we won't pay what at the pump.
    It didn't happen at $2. It started appearing to happen at 
$3. But clearly at $4 it has occurred. We know what's going on 
here in Washington, a very robust debate at this moment about 
what we ought to do as it relates to supply and demand and can, 
by our public policy actions we affect it in some way.
    But while that is going on, I'm fascinated by what the 
consumer is doing because they are doing something. We have 
seen the consumption in our country fall, flatten, to a point 
where demand is off approximately 3 percent from last year. 
That's directly a result of price.
    As a result of that, the market is beginning to react. 
Yesterday crude fell $3.09, down from the high 140s to 127, I 
think it was yesterday. All of that, in part, is a direct 
result of a consumer reaction, in my opinion, in what I read, 
to the price.
    So there is a price sensitivity out there, where we know. 
We hear it everyday when we go home. The American consumer can 
no longer afford to pay that.
    Last year I found it fascinating in when we were sitting at 
about $3.25, in an E-news system I have out in my State of 
Idaho, where long distances are traveled on a very regular 
basis by an awful lot of our citizens. I said how many of you 
would pay more if you could buy a car that got $5 more to the 
gallon. Sixty-five percent of those who responded said we 
wouldn't pay a dime more, if it cost us more.
    So it broke down this way. It cost a thousand dollars more 
to get $5 to the gallon, only 17 percent said they would pay. 
If it cost $3 thousand, only 11 percent said they would pay. If 
it cost $10 thousand only 1 percent said they would pay. In 
other words they weren't willing to offset in any way their 
reaction to that price at that time.
    Today if you travel across my State that 18 mile per gallon 
vehicle is sitting on a lot with a for sale sign on it because 
the consumer has made a decision that they can no longer 
afford. So what we do here and what we did in EPACT 2005 and 
what the consumer does is a very important part of the equation 
to deal with it. At the same time, finding more supply 
certainly is also an important part of the total equation for a 
long term transition to the kind of opportunities I think we've 
put together in Energy Policy Act of 2005. Again, of course, we 
responded in 2007.
    I hope we continue to respond as the marketplace adjusts, 
realigns itself. The break point has occurred. A decade from 
now we will look back on 2008 and 2009 as a significant shift 
in our attitudes toward hydrocarbons.
    Thank you.
    The Chairman. Thank you very much. Let me go ahead and 
introduce our witnesses.
    First is, on the left here, is Mr. Steven Chalk, who is the 
Deputy Assistant Secretary for Renewable Energy. Thank you for 
being here.
    Mr. Chalk. Thank you.
    The Chairman. Dr. Greene, who has testified to us before is 
a Corporate Fellow with the Center of Transportation Analysis 
at Oak Ridge National Laboratory.
    Mr. Skip Laitner is here. He is the Director of Economic 
Analysis for the American Council for an Energy Efficient 
Economy here in Washington.
    Mr. Steve Winkelman, Director of Transportation and 
Adaptation Programs with the Center for Clean Air Policy in 
Port Chester, New York. Thank you for coming.
    Dr. Edward Buiel, who is Vice President and Chief Technical 
Officer with Axion Power International in New Castle, 
Pennsylvania. Thank you for being here.
    Why don't each of you take 5 or 6 minutes and tell us the 
main points you think we need to understand about this set of 
issues. Then we will undoubtedly have questions.
    Mr. Chalk.

   STATEMENT OF STEVEN G. CHALK, DEPUTY ASSISTANT SECRETARY, 
OFFICE OF ENERGY EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF 
                             ENERGY

    Mr. Chalk. Thank you, Mr. Chairman, members of the 
committee. Thanks for the opportunity to discuss the Department 
of Energy's technology development programs targeted at 
reducing gasoline demand and transportation-related greenhouse 
gases in the near term. Addressing petroleum dependency is 
essential to ensure national prosperity, security, and 
environmental stewardship.
    Rising gasoline prices are having a significant impact on 
family budgets of many Americans and overall threatens our 
economic stability. Through bipartisan legislation, such as the 
Energy Independence and Security Act of 2007, otherwise known 
as EISA, we've initiated important advances in addressing this 
Nation's addiction to oil by increasing the renewable fuel 
standard, the RFS, and by increasing the corporate average fuel 
economy (or CAFE) of our vehicles. Durable, predictable 
policies like the RFS and the CAFE are crucial to industry 
investment in advanced technologies and infrastructure.
    Today I'll discuss the near term technologies that DOE is 
investing in on behalf of the taxpayers. However one important 
point I'd like to make is that if we're going to make a more 
urgent effort to reduce our petroleum use, we need to 
accelerate the rate at which technology is introduced by 
turning over current assets at a faster rate. For example, it 
takes about 15 years for a new automotive technology to achieve 
full market penetration.
    It's taken hybrid vehicles about 7 years just to reach 2 
percent of new vehicle sales. The average lifetime a vehicle is 
in the inventory is 15 years. So a vehicle sold today doesn't 
pop out of the inventory until 2022, 2023.
    Installing new infrastructure is equally daunting. It's 
taken 8 years to put in place over 1,400 E85 fueling stations. 
E85 is 85 percent ethanol, 15 percent gasoline. It's a blend. 
This is just 1 percent of the total number of stations that we 
have in the United States.
    So frankly, it takes time to fully realize the benefits of 
new automotive technology. Right now it's measured in decades. 
To greatly reduce petroleum consumption in the near term we've 
got to act decisively and with unprecedented speed and 
conviction. The technology will be there, but we need to devise 
programs that encourage consumers, fueling station operators, 
vehicle manufacturers, energy providers to change over their 
current assets at a faster rate.
    Now DOE is pursuing both short and long term technology 
options. Plug in hybrid vehicles (or PHEVs) are one of the most 
promising for the near term. These are hybrid vehicles where 
the battery is externally charged. The vehicle can potentially 
achieve 40 miles in all electric mode.
    DOE recently announced a new program to accelerate the 
development, demonstration and commercial introduction of 
PHEVs. However, the challenge to widespread plug in hybrid 
vehicles continues to be the battery. It's life, it's cost and 
it's the size of the battery pack. So our research is focused 
on lithium batteries that are projected to have two to four 
times the energy content on a volume basis or a weight basis 
compared to nickel metal hydride which is the type of battery 
that's used in today's hybrids.
    Additionally, we're helping to increase the efficiency of 
today's gasoline diesel engines. High efficiency combustion 
engines are really important for all technologies, today's 
vehicles, hybrids and plug in hybrid vehicles.
    The Department is also actively supporting advanced 
biofuels for basic science all the way to integration into our 
national fuel supply. Our goal is to make these cost 
competitive by 2012. Increased use of advanced biofuels such as 
cellulosic ethanol is going to have a very positive impact on 
the environment.
    Now while we continue to support fuel flexible vehicles and 
E85 infrastructure, the use of intermediate blends of ethanol 
is critical to acceleration of biofuels into the marketplace. 
The Department is leading a testing effort right now to 
determine the impacts of intermediate blends on existing 
vehicles and non-road engines. R and D of vehicles and fuels 
has been very successful.
    However, I want to emphasize again that the accelerated 
introduction of vehicle and infrastructure technologies is not 
only inhibited by the technology cost, performance, 
reliability, but also by the time it takes to introduce these 
technologies and replace incumbent investment. If we're to 
combat the economic and environmental impact of increased oil 
dependence in a more urgent manner, we need to evaluate 
programs that bring new technologies to the consumers faster 
and incentivize new vehicle and fuel infrastructure. This is a 
challenging issue because we're going to build new 
infrastructure, we have to look at the undue hardship we might 
cause to owners who have already invested in today's 
infrastructure.
    So Mr. Chairman, thank you again for holding this important 
hearing and for the opportunity to address how DOE is helping 
reduce gasoline consumption in the near term. This concludes my 
prepared statement. I'd be happy to answer any questions the 
committee members may have.
    [The prepared statement of Mr. Chalk follows:]

  Prepared Statement of Steven G. Chalk, Deputy Assistant Secretary, 
 Office of Energy Efficiency and Renewable Energy, Department of Energy
    Mr. Chairman, Ranking Member Domenici, Members of the Committee, 
thank you for the opportunity to appear before you today to discuss the 
status of existing Energy Department programs targeted at reducing 
gasoline demand and transportation greenhouse gases in the near term.
    Reducing petroleum dependency can help improve national prosperity, 
energy security, and environmental stewardship. Petroleum provides 
close to 40 percent of our total energy use, and, to date makes up 
about 48 percent of our trade deficit.\1\ Rising gas prices present a 
threat to our economic stability and the link between petroleum supply 
and our economy is direct and precarious. Likewise, our petroleum 
dependence contributes to climate change and threatens our energy 
security, as it puts our supply at risk to unpredictable global events.
---------------------------------------------------------------------------
    \1\ The 48 percent figure was calculated as a fraction of the goods 
trade deficit for the first four months of 2008, http://
www.eia.doe.gov/oiaf/aeo/index.html.
---------------------------------------------------------------------------
    The transportation sector accounts for about two-thirds of U.S. 
petroleum use.\2\ Correspondingly, transportation is also a significant 
contributor to climate change, accounting for 31 percent of our carbon 
dioxide emissions.\3\ To help curb our addiction to oil, President Bush 
announced the ``Twenty in Ten'' initiative in his 2007 State of the 
Union address. This initiative proposed to reduce projected gasoline 
usage by 20 percent in 10 years, to be achieved in two ways. First, the 
supply of renewable and alternative fuels would be increased to 
displace 15% of projected gasoline use. Second, the Corporate Average 
Fuel Economy (CAFE) Standards for cars and light trucks would be 
modernized to reduce projected gasoline use by an additional 5%.
---------------------------------------------------------------------------
    \2\ Transportation Energy Data Book, Edition 27, Table 1.13, http:/
/cta.ornl.gov/data/tedb27/Edition27_Chapter01.pdf.
    \3\ ``Emissions of Greenhouse Gases Report,'' EIA, November 28, 
2007, http://www.eia.doe.gov/oiaf/1605/ggrpt/.
---------------------------------------------------------------------------
    Congress responded to the Twenty in Ten initiative by passing the 
Energy Independence and Security Act of 2007 (EISA) that sets a 
mandatory renewable fuel standard (RFS) requiring fuel producers to use 
at least 36 billion gallons of biofuel in 2022 and set a national fuel 
economy standard of 35 miles per gallon by 2020. These EISA provisions 
will achieve substantial reductions in oil use and greenhouse gas 
emissions. However, there will be challenges in achieving these 
dramatic reductions.
    New technologies must meet criteria for cost competitiveness, 
performance and reliability. Products must meet those criteria with a 
high degree of confidence because consumers will expect products to be 
fully warranted. However, it is also critically important to accelerate 
the rate in which technology is introduced so that better and more 
efficient technology can replace current assets. Consider that it takes 
approximately 15 years for a new automotive technology to achieve full 
market penetration,\4\ it has taken hybrid vehicle technology seven 
years to achieve a U.S. market penetration of over 2%,\5\ and the 
average lifetime of a new vehicle is over 15 years.\6\ Placing new 
fueling infrastructure is equally daunting. It has taken eight years to 
place just over 1,400 E85 fueling stations, less than one percent of 
the total number of U.S. fueling stations.\7\ Therefore, the time it 
takes to fully realize the benefits of a new automotive technology is 
measured in decades.
---------------------------------------------------------------------------
    \4\ Light-Duty Automotive Technology and Fuel Economy Trends: 1975 
Through 2006, EPA420-R-011, July 2006, p. 62.
    \5\ Toyota Prius introduced in 2000, hybrid sales 2% of total 2007 
sales. Electric Drive Transportation Association, Hybrid Sales Figures, 
http://www.electricdrive.org/index.php?tg=articles&topics=7.
    \6\ Transportation Energy Data Book, Edition 24, Tables 3.9 & 3.10, 
http://cta.ornl.gov/data/chapter3.shtml.
    \7\  ``E85 Fueling Station Locations,'' DOE, http://
www.eere.energy.gov/afdc/ethanol/ethanol_locations.html.
---------------------------------------------------------------------------
    The Department of Energy is working to shorten the time between 
research and commercialization so Americans will be able to drive more 
fuel efficient vehicles while at the same time reducing greenhouse gas 
(GHG) emissions and criteria pollutants. As part of this plan, DOE is 
pursuing technologies that will significantly reduce petroleum use 
within five to ten years, as well as pursuing longer-term technologies. 
The Department continues to work with industry through its FreedomCar 
and Fuel partnership and 21st Century Truck Partnership. The Department 
and industry are on track to meet most of the FreedomCAR and Fuel 2010 
technical targets.
Plug-In Hybrid Electric Vehicle Technology (PHEV)
    Plug-in hybrid electric vehicles are one of the most promising 
technologies to decrease petroleum usage. DOE recently announced 
selections to accelerate the development, demonstration, and commercial 
introduction of Plug-In Hybrid Electric Vehicles (PHEV). Projects with 
Ford, General Motors, and General Electric/Chrysler, are targeted to 
demonstrate the technical and performance of PHEVs and result in the 
commercial introduction of at least three vehicle models.
    DOE's Advanced Vehicle Testing Activity provides benchmark data for 
its research and development programs and also assists fleet managers, 
who are often early adopters of alternative energy vehicles, in making 
informed vehicle purchase, deployment and operating decisions. This 
testing documents the petroleum reduction potential, the infrastructure 
requirements, and operator use patterns. The testing to date has 
demonstrated very high fuel economy in mostly urban applications. The 
challenge to widespread PHEV production continues to be limitations in 
battery life, size, and cost, issues that DOE is also working to solve.
Battery Accomplishments
    The battery research effort is supporting the development of 
durable and affordable advanced batteries covering the full range of 
vehicle applications. The higher fuel economy and reduced greenhouse 
gas emissions of today's hybrids (HEVs) are due in large part to the 
progress in battery technology resulting from the DOE's Energy Storage 
R&D activities.
    Current DOE HEV and PHEV research is focused on lithium batteries 
that are projected to have two to four times the energy content, on a 
weight or volume basis, of nickel metal hydride batteries. The first 
commercial HEV to use a lithium battery is expected to be the 2009 
Mercedes Benz S400 hybrid vehicle, which will use a lithium battery 
developed with DOE support.\8\ Lithium batteries developed with DOE 
support are also expected to be used in the Chevy Volt PHEV that is 
scheduled to be introduced in 2010. The Volt is designed to achieve a 
driving range of 40 miles on electric power, meeting the range needs of 
most urban commuters.\9\ With fuel economy expected to reach 120-150 
mpg, PHEVs could displace million of gallons of fuel.
---------------------------------------------------------------------------
    \8\ ``Mercedes-Benz S400 Hybrid Will Roll Out in 2009 With 
Breakthrough Li-Ion,'' Popular Mechanics, March 5, 2008, http://
www.popularmechanics.com/blogs/automotive_news/4253307.html.
    \9\ Chevrolet--New Electric Car, http://www.chevrolet.com/
electriccar/.
---------------------------------------------------------------------------
Combustion Engine Technology
    Developing and introducing high-efficiency combustion engines in 
conventional, hybrid electric and plug-in hybrid electric vehicles 
offers the most promise to improving fuel economy in the near future. 
DOE is helping to develop increasingly efficient combustion engines 
that meet the needs of consumers and businesses.
    Diesel engines are essential to trade and commerce. Over 90 percent 
of freight is moved by diesel-powered commercial vehicles (trucks). 
Unlike passenger vehicles, trucks cannot reduce their size and continue 
to maintain their freight capacity. Cooperative work by the Department 
of Energy and heavy duty diesel engine manufacturers has resulted in 
improvements in engine efficiency that still meet stringent EPA 
emissions standards.
    With the help of our research, a new fuel-efficient diesel engine 
meeting 2010 emissions standards was introduced by diesel manufacturer 
Cummins, Inc., and is being sold in Dodge Ram pickup trucks. In 2010, 
Cummins will introduce a new diesel engine co-developed with DOE for a 
Chrysler light-duty pickup truck/SUV. The diesel engines in both of 
these applications will provide an average of 30 percent fuel savings 
over gasoline-powered engines for comparable vehicles. For the future 
heavy-duty diesel vehicles, we are targeting an additional 20 percent 
improvement in fuel economy through further engine optimization and 
novel waste heat recovery strategies.
DOE Advanced Biofuels Research, Development, and Demonstration
    The Department actively supports biofuels production, from the most 
basic science research activities to efforts toward the integration of 
advanced biofuels into the national fuel supply. To help meet our long-
term energy needs, the Department's biomass research and development 
activities are designed to make biofuels from non-food feedstocks cost 
competitive by 2012.
    The biomass feedstocks of today include grains, as well as oilseeds 
from plants. Our goal is to allow future feedstocks to come from a 
variety of sources such as wastes and residues, and fast-growing energy 
crops. These future feedstocks may consist of agricultural residues 
like stalks and stems, as well as forest resources such as wood waste, 
forest thinnings, and small-diameter trees. Examples of energy crops 
include switchgrass, miscanthus, and hybrid poplar trees, in addition 
to algae and non-edible oilseeds like jatropha. Sorted municipal solid 
waste may also play a role.
    Cellulosic ethanol is expected to improve upon the positive energy 
balance of today's corn ethanol by delivering four to six times as much 
energy as needed for production.\10\ Additionally, cellulosic 
feedstocks can reduce life-cycle greenhouse gas emissions by 86 percent 
compared to gasoline.\11\
---------------------------------------------------------------------------
    \10\ Source: Wang et al, ``Life-cycle energy and greenhouse gas 
emission impacts of different corn ethanol plant types,'' Environmental 
Research Letters, May 2007.
    \11\ Ibid.
---------------------------------------------------------------------------
Flexible Fuel Vehicles
    Currently, there are more than six million flexible-fuel vehicles 
(FFVs) on our roads that can utilize ethanol blended gasoline up to 85 
percent ethanol and 15 percent gasoline (E85). Although this is a 
significant number, it is only 2.7% of the 222 million cars in the 
light duty fleet.\12\ We encourage all automobile manufacturers to meet 
and exceed stated voluntary targets for increasing sales of FFVs. We 
applaud the domestic auto manufacturers for their pledge to the 
President to make half of their vehicles E85 compatible by 2012.\13\ We 
are hopeful that this encouraging trend will continue and stand ready 
to work with the automotive industry to that end.
---------------------------------------------------------------------------
    \12\  Estimated Number of Alternative Fueled Vehicles in Use in the 
United States by Fuel Type, 2003-2006, http://www.eia.doe.gov/cneaf/
alternate/page/atftables/afvtrans v1.xls. For total number of vehicles 
on the road: 2006 data from TEDB Edition 27, Table 2.12.
    \13\ Biofuels, GM, http://prod.gm.gmgssm.com/experience/
fuel_economy/e85/index.jsp?deep=what∃=false. Ethanol Vehicles--
Flexible Fuel, Ford Motors. https://www.fleet.ford.com/Showroom/
environmental_vehicles/ethnol_vehicles.asp. Ethanol / Flexible Fuel 
Vehicles. Chrysler. https://www.fleet.chrysler.com/fleetcda/
portal?pageid=496d75dfeca67110VgnVCM100000e9261c35RCRD&sectionid=e 
726cce 1 be7f5110 V gnV CM 10000091 f4e735RCRD&ptitle=E85%20-
%20Flex%20Fuel.
---------------------------------------------------------------------------
    In order to improve the efficiency of future FFVs, the Department 
is partnering with industry to develop the next generation of engines 
for these vehicles. These projects are targeting production-ready 
engines optimized for use of ethanol at all blend levels. These 
projects seek to develop systems which can reduce or eliminate the fuel 
economy penalties associated with the reduced energy content of 
biofuels.
Intermediate Ethanol Blends
    The Department realizes that achieving large near-term gains 
through an FFV/E85 approach is difficult due to the pace of vehicle and 
infrastructure deployment. While we continue to strongly support the 
spread of FFVs and fueling infrastructure, there are important 
immediate steps which may provide relief sooner. The use of 
intermediate blends of ethanol--those between E10 and E85--in 
conventional (non-flexible-fuel) vehicles is one such approach. If 
found to be compatible with existing infrastructure, vehicles and non-
road gasoline engines, an intermediate-blends approach could accelerate 
the expansion of ethanol into the market. Intermediate ethanol-gasoline 
blends could also enable continued, uninterrupted growth in ethanol 
production and help to alleviate concerns about the looming ``ethanol 
blend wall'' where continued growth in ethanol production is 
constrained by E10 and the inability to rapidly accelerate deployment 
of E85.
    The Department is engaged in a testing effort to determine the 
impacts of intermediate blends on existing vehicles and on non-road 
engines. The testing program is being conducted in cooperation with the 
Environmental Protection Agency (EPA), U.S. Department of 
Transportation and other partners, and has benefited from input 
provided by the automotive industry, the energy industry and the 
manufacturers of small engines.
Clean Cities
    The Clean Cities deployment program supports local decisions to 
reduce petroleum use in transportation. To accomplish this goal, the 
program encourages the public and private sectors to reduce petroleum 
consumption by utilizing alternative fuels and increased vehicle 
efficiency. Specifically, it promotes the use of five major 
technologies: alternative fueled vehicles, hybrid electric vehicles, 
idle reduction technologies, fuel economy measures, and low-level fuel 
blends.
    Clean Cities carries out its mission through 86 geographically-
diverse coalitions nationwide.\14\ Coalitions operate at the community 
level, designing projects to suit their area's needs, resources, and 
strengths. Clean Cities also provides a number of resources to the 
public, including a station locator and mapping system that allows 
consumers and fleet managers to find local alternative fuel stations. A 
trip planning tool allows drivers to plan their journey and maps 
refueling locations along the route. The website also provides a list 
of federal and state incentives for the purchase and use of alternative 
fueled and fuel efficient vehicles. Clean Cities, in partnership with 
EPA, also sponsors the publication of the annual Fuel Economy Guide.
---------------------------------------------------------------------------
    \14\ Clean Cities Coalition Locations: http://www.eere.energy.gov/
cleancities/progs/coalition_locations.php.
---------------------------------------------------------------------------
Hydrogen Fuel Initiative
    Hydrogen also continues to be an important part of DOE's balanced 
portfolio through the President's Hydrogen Fuel and Advanced Energy 
Initiatives, along with strong collaboration with Industry through the 
FreedomCAR and Fuel Partnership. We have made tremendous progress--
doubled automotive fuel cell durability, decreased fuel cell cost by 
65%, and decreased the cost of hydrogen to be competitive with 
gasoline--since before these initiatives.
Commercialization
    Bringing these new technologies to market will take substantial 
capitalization. A principal purpose of the Energy Policy Act of 2005 
(EPACT) Title XVII loan guarantee program is to encourage early 
commercial use of new or significantly improved energy technologies. 
This program is an excellent opportunity to help secure capital to 
address key challenges such as scaling battery manufacturing. In late 
June 2008, DOE announced solicitations totaling over $10 billion in 
Federal loan guarantees, including guarantees that are applicable to 
reducing petroleum dependency in the transportation sector.
Conclusion
    Research and development of vehicles and fuels has led to new fuel 
saving technologies, some of which are in the marketplace today. 
Vehicle manufacturers continue significant research efforts to reduce 
fuel consumption or to replace petroleum, and investment in alternative 
fuels, such as biofuels remains strong. We believe that pursuit of the 
technology options described above has the most potential to reduce 
petroleum consumption in the near-term and long-term.
    However, accelerated introduction of new vehicle technologies is 
inhibited not only by improvements still required in cost, performance 
and reliability of these technologies, but also by the time it takes to 
introduce these technologies and replace incumbent technologies. It may 
be beneficial to evaluate ways to bring new vehicle technologies and 
infrastructure to consumers faster. Any approach should minimize undue 
hardship or economic downturn to owners who have invested in today's 
installed assets.
    Mr. Chairman, thank you again for holding this important hearing 
and for the opportunity to address how DOE is helping reduce gasoline 
consumption. This concludes my prepared statement, and I would be happy 
to answer any questions the Committee Members may have.

    The Chairman. Thank you very much. Before you start, Dr. 
Greene, let me just see if Senator Domenici had any opening 
comments he wanted to make before we heard from the rest of the 
witnesses.
    Senator Domenici. Senator, I think my timing is such that I 
am going to be with you for a while. So let's take the next one 
and see when I fit in.
    The Chairman. Ok. Dr. Greene, go right ahead.

STATEMENT OF DAVID L. GREENE, CORPORATE FELLOW, TRANSPORTATION 
SCIENCE AND ENERGY DIVISION, OAK RIDGE NATIONAL LABORATORY, OAK 
                           RIDGE, TN

    Mr. Greene. Thank you. Good morning, Mr. Chairman, 
distinguished committee members and guests. Thank you for the 
opportunity to comment on what can be done in the near term to 
reduce our demand for petroleum by increasing motor vehicle 
fuel economy.
    Before I do that I'd like to note that the Congress has 
already taken several important actions to promote fuel 
economy. The Energy Independence and Security Act requires a 40 
percent increase in fuel economy of passenger cars and light 
trucks by 2020. This requirement alone will save consumers 
about 60 billion gallons of gasoline a year in 2030, about a 
quarter of a trillion dollars worth at today's prices.
    There are many things consumers can do themselves to 
improve the fuel economy of their vehicles. There are also 
things Congress can do to help. By combining a number of 
individually small improvements, consumer's gasoline bills can 
be reduced significantly. Some actions can be taken 
immediately. Others will require a few years.
    With respect to immediate actions, the Department of Energy 
and EPA website, fueleconomy.gov itemizes and explains proven 
driving and maintenance tips. These tips have appeared on 
television, in newspapers and magazines and on the internet 
through programs such as the Alliance to Save Energy's Drive 
Smarter Challenge. Driver behavior is one of those.
    After a vehicle has been built, the greatest influence on 
its fuel economy is its driver. Typical drivers can increase 
their miles per gallon by about 10 percent by diligently 
applying fuel economy driving tips such as curbing aggressive 
driving, especially at highway speeds, observing speed limits, 
house cleaning their vehicles to remove excess weight that's 
not needed, planning trips to avoid cold starts and using their 
most efficient vehicle when possible and avoiding unnecessary 
idling. Regular maintenance according to manufacturer's 
specifications also promotes fuel economy.
    With respect to speed limits, reducing speed limits can 
save fuel and lives at a cost of increased travel time. For 
each 5 miles per hour above 55, fuel economy decreases by about 
7 percent. A retrospective study of the 55 mile per hour speed 
limit by the National Academy of Sciences found that it 
probably saved just under 2 percent of total highway fuel use 
but also improved highway safety. Similar strategies to improve 
the fuel economy of heavy trucks are enumerated on the EPA's 
Smart Way website.
    Other actions can be implemented over the next one to five 
years. I think the time has come to update the test procedures 
for determining compliance with the corporate average fuel 
economy standards. Several important, real world factors that 
affect in use fuel economy are not included in the city and 
highway test cycles used to determine compliance with CAFE 
standards.
    Most accessories such as air conditioners, power steering 
pumps and alternators are operated little or not at all on the 
CAFE test cycles. So there is little incentive for 
manufacturers to improve their efficiency in order to meet fuel 
economy standards. The standards also offer no incentive to 
reduce cooling loads by improved insulation or specially tinted 
glass. It's been estimated that adoption of such off cycle fuel 
economy technologies could raise real world fuel economy by 10 
percent or more.
    Strong consideration should also be given to reporting fuel 
economy to consumers in terms of fuel consumption per distance 
rather than distance per gallon of fuel. There's evidence that 
consumers misinterpret miles per gallon estimates assuming that 
the 5 mile per gallon difference between 15 mpg and 20 mpg is 
the same as the five mile per gallon difference between 45 and 
50. As a result fuel economy improvements tend to be 
undervalued for low MPG vehicles relative to higher MPG 
vehicles.
    Drivers of most vehicles cannot see how their driving 
behavior affects their vehicle's fuel economy. Some vehicles 
provide digital displays. Research is now ongoing at the 
University of California at Davis to better understand how fuel 
economy feedback devices can improve in use fuel economy. 
Congress may wish to explore ways to encourage the installation 
of these devices in all motor vehicles.
    Gasoline at $4 a gallon provides a strong economic 
incentive to increase fuel economy for both car makers and car 
buyers. Still there are good reasons to believe that the market 
for automotive fuel economy is not efficient and that market 
outcomes could be improved by means of economic incentives to 
vehicle purchasers. Extending and simplifying incentives for 
hybrid vehicles would raise new vehicle fuel economy and 
encourage the transition to more efficient electric drive 
systems.
    In the longer run, fiscal incentives for more energy 
efficient vehicles may be the most efficient policy. Not only 
for encouraging consumers to choose high fuel economy, but also 
for encouraging manufacturers to invent and adopt advanced fuel 
economy technologies. Fiscal incentives based on fuel 
consumption per mile can be indexed to vehicle attributes like 
NHTSA's footprint metric in the same way that fuel economy 
standards can.
    In my testimony I've concentrated on actions that 
individuals and Congress could take to increase passenger car 
and light truck fuel economy and thereby reduce the burden of 
high gasoline prices. But we won't solve our oil dependence 
problem unless we address all uses of petroleum throughout the 
transportation sector and throughout our economy. Light duty 
vehicles account for less than half of total United States 
petroleum use. Industry consumes almost a fourth. We burn an 
average of a million barrels a day of distillate fuel heating 
homes and other buildings.
    Only if we adopt a comprehensive strategy to reduce 
petroleum use and increase energy supply directed toward a 
measurable oil independence goal can we be confident of 
achieving energy security. Thank you very much.
    [The prepared statement of Mr. Greene follows:]

Prepared Statement of David L. Greene, Corporate Fellow, Transportation 
Science and Energy Division, Oak Ridge National Laboratory, Oak Ridge, 
                                   TN
   near term options to increase fuel economy and decrease petroleum 
                                 demand
    Good morning Mr. Chairman, distinguished committee members and 
guests. Thank you for the opportunity to comment on what can be done in 
the near term to reduce our demand for petroleum by increasing motor 
vehicle fuel economy. Before I do that, I would first like to note the 
important actions Congress has already taken to promote fuel economy. 
The Energy Independence and Security Act (EISA) of 2007 requires a 40% 
increase in the fuel economy of passenger cars and light trucks by 
2020. I estimate that this law alone will save consumers about 60 
billion gallons of gasoline a year by 2030. The Act also calls for a 
study of fuel economy standards for heavy trucks, a policy that has 
been successfully implemented in Japan. Just as important, you are 
allowing energy markets to work. Market responses to higher oil prices, 
though painful, are an essential part of both the long and short-run 
solution. I believe these measures have already sent a signal to world 
oil markets that the United States is serious about reducing its oil 
consumption in the longer term.
    There are many things consumers can do themselves to improve the 
fuel economy of their vehicles, and there are also things the Congress 
can do to help. By combining a number of individually small 
improvements consumers' gasoline bills can be reduced significantly. 
Some actions can be taken immediately, others will require a few years.
    Improving fuel economy, by itself, will not bring oil prices back 
to $30 a barrel. That will require a comprehensive, long-term strategy, 
one that addresses both climate change and energy security 
simultaneously, and one that sets measurable goals for both reductions 
in greenhouse gases and oil dependence (Greene and Leiby, 2008).
             immediate actions to increase miles per gallon
    Many consumers are already aware of actions they can take to get 
more miles per gallon. The Department of Energy (DOE) and Environmental 
Protection Agency (EPA) website, www.fueleconomy.gov, itemizes and 
explains a number of proven driving and maintenance tips. These tips 
have been publicized on television, in newspapers and magazines, and on 
the internet through programs such as the Alliance to Save Energy's 
Drive $marter Challenge at http://drivesmarterchallenge.org. However, 
as a provider of this information, I am well aware of its deficiencies. 
Often, the best information available is out of date and may not be 
accurate for today's automotive technology. Some of it is based on 
studies of a very limited number of vehicles and there are questions 
about how confidently it can be applied to all vehicles. Just this 
year, the DOE's Vehicle Technologies Program began an effort to update 
and validate the fuel economy information it provides to the public. I 
believe it is appropriate for the DOE to take on this responsibility 
and that the Congress should encourage it to expand and continue the 
effort.
Driver Behavior
    After a vehicle has been designed, engineered and manufactured the 
driver can have the greatest influence on its fuel economy. Different 
driving styles are a major reason why the fuel economy label says, 
``your mileage will vary''. What little research there is on the 
subject indicates that typical drivers can increase their miles per 
gallon by about 10% by diligently adopting the driving tips provided on 
fueleconomy.gov.

          Curb aggressive driving--5% improvement in city driving and 
        even more on the highway
          Observe speed limits--7-8% fuel economy benefit for every 5 
        mph slower at highway speeds
          Car ``housecleaning''--remove unnecessary weight from the 
        cargo compartment, as well as cartop carriers when not in use 
        (2% improvement for each 100 lbs. unloaded).
          Plan ahead--to combine trips to avoid cold-starts (especially 
        in cold weather), and use your most efficient vehicle as much 
        as possible.
          Avoid unnecessary idling--idling for more than a few seconds 
        wastes fuel versus shutting down the engine and restarting.
Vehicle Maintenance
    Proper vehicle maintenance can also improve fuel economy. Keeping 
tires inflated to the manufacturer's recommended pressure, keeping 
wheels properly aligned and balanced, oil changes on manufacturers' 
recommended intervals with the recommended grade of fuel saving oil, 
replacing dirty air filters and keeping you engine in proper tune can 
all help maximize miles per gallon.
Speed Limits
    Reducing speed limits can save fuel, but at a cost of increased 
travel time. For each 5 mph above 55 mph, fuel economy decreases by 
about 7%. For most Americans the value of their time would exceed the 
value of the fuel saved. A retrospective study of the 55 mph speed 
limit by the National Academy of Sciences (NAS) found that it saved 1-
3% of highway fuel use and also improved highway safety (NAS, 1984). 
Because many drivers now routinely exceed the speed limit by 5 mph or 
more, an alternative to lowering speed limits would be to more strictly 
enforce those we have now.
    The fact that not all vehicle travel occurs under free-flowing 
highway conditions limits the potential benefits of lower speed limits. 
According to the Federal Highway Administration (FHWA), less than 40% 
of all vehicle miles are traveled on interstates, freeways and 
expressways or principal rural roads (U.S. DOT, 2005). A substantial 
fraction of these miles will occur under congested conditions. Thus, a 
5 mph reduction in speed limits, if strictly enforced, would reduce 
fuel consumption by up to 7% on the roads where it applied, and 2-3% 
nationwide.
Heavy Trucks
    Strategies available to improve heavy truck fuel consumption 
include idle reduction (up to 1,000 gallons per truck per year), 
improved aerodynamics (up to 600 gallons per truck per year), wide base 
tires, automatic tire inflation systems, and hybrid powertrains (EPA 
$martway, www.epa.gov/smartway/smartway_fleets_strategies.htm).
                     near-term (1-5 years) options
Low Rolling Resistance Tires
    Americans spend about $20 billion purchasing 200 million 
replacement tires each year. A recent study by the NAS concluded that 
it was technically and economically feasible to reduce the rolling 
resistance of replacement tires by 10% (NRC, 2006), saving 1-2% or 1-2 
billion gallons in fuel consumption. To encourage more widespread use 
of low rolling resistance tires, Congress has required the National 
Highway Traffic Safety Administration (NHTSA) to develop and implement 
an energy efficiency labeling system for replacement tires, as 
recommended by the NAS panel. This is yet another accomplishment of the 
EISA of 2007. The effectiveness of this system remains to be seen. 
Congress might also consider establishing rolling resistance standards 
(relative to original equipment tires) for replacement tires.
Driver Training
    Fuel efficient driving behavior, correctly done, should also 
contribute to safe driving. Observing posted speed limits, avoiding 
aggressive driving behaviors, anticipating traffic situations and 
avoiding tailgating all improve fuel economy and traffic safety. A 
well-maintained vehicle is a more fuel efficient and safer vehicle. 
Unfortunately, higher fuel prices have encouraged what has been called 
``hypermiling'' which includes some extreme and unsafe driving 
practices such as drafting behind other vehicles to reduce aerodynamic 
drag or coasting with the engine off (in a vehicle not equipped for 
engine-off-at-idle). Congress might seek ways to encourage the 
inclusion of safe, fuel efficient driving practices in standard driver 
training curricula.
Updating Fuel Economy Test Procedures
    The time has come to update the test procedures for determining 
compliance with Corporate Average Fuel Economy (CAFE) Standards. 
Beginning with model year 2008, the Environmental Protection Agency 
fundamentally changed the fuel economy estimates it provides to the 
public on window stickers, in the Fuel Economy Guide and via 
www.fueleconomy.gov. These changes incorporate several important real-
world factors that affect in-use fuel economy but are not included in 
the city and highway test cycles used to determine compliance with CAFE 
Standards. These factors include use of air conditioning, cold starts 
and aggressive high speed driving. As a result, the standards provide 
no incentive for the adoption of certain technologies that can improve 
real-world fuel economy but are of little or no benefit on the city and 
highway test cycles. Because most accessories, such as air 
conditioners, power steering pumps, and alternators, are operated 
little or not at all on the CAFE test cycles, there is no incentive for 
manufacturers to improve their efficiency in order to meet fuel economy 
standards. The standards also offer no incentive to reduce cooling 
loads by improved insulation or specially tinted glass. It has been 
estimated that adoption of such ``off-cycle'' fuel economy technologies 
could raise real-world fuel economy by 10% or more (Duleep, Fulton and 
Perkins, 2005).
Voluntary Labeling of Used Cars
    While every new car bears a fuel economy label, used cars, which 
comprise the vast majority of sales transactions, do not. New car fuel 
economy ratings should be useful for used cars, since research 
indicates that fuel economy deteriorates very little with age for a 
reasonably maintained vehicle (Greene et al., 2006). The National 
Automobile Dealers Association is currently considering a voluntary 
labeling program for used cars and there may be ways in which Congress 
could facilitate such a program.
Individualized Fuel Economy Estimates
    In the belief that it's previous fuel economy numbers were biased, 
the EPA recently revised its procedures for calculating the fuel 
economy estimates it provides to the public. Despite this, most car 
buyers will remain highly uncertain about the fuel economy they will 
actually achieve in real-world driving. This is because the EPA's 
estimates are intended to be an average for all American drivers and 
not an individualized estimate for any particular driver. Many factors 
affect real-world fuel economy, especially traffic conditions, driving 
style, trip lengths, and climate. The result is tremendous variance in 
real world experience around the mean estimate (Figure 1).* For the 
data shown in Figure 1, a confidence interval that includes 95% of 
motorists is a band 16 mpg wide around the mean estimate. To improve 
the usefulness of MPG estimates to consumers we need more accurate 
predictions for individuals not less biased estimates for the average 
driver. This means finding ways to take account of driving style, 
traffic conditions, climate and possibly other factors to produce an 
individualized estimate. I believe the internet provides a means for 
creating such individual fuel economy estimates. With some research 
effort, I believe much better (but still not perfect) fuel economy 
information can be provided to consumers.
---------------------------------------------------------------------------
    * Figures 1-2 have been retained in committee files.
---------------------------------------------------------------------------
    Strong consideration should be given to reporting fuel economy to 
consumers in terms of fuel consumption per distance, rather than 
distance per fuel consumed. There is evidence that consumers 
misinterpret miles per gallon estimates, assuming that the 5 mile per 
gallon difference between 15 MPG and 20 MPG is the same as the 5 mile 
per gallon difference between 45 and 50 MPG (Larrick and Soll, 2008). 
Thus, fuel economy improvements tend to be undervalued for low MPG 
vehicles relative to higher MPG vehicles. Most of the rest of the world 
now reports fuel economy in terms of fuel use per distance traveled. 
This makes it easier for consumers to compare fuel economy among 
vehicles and to do such calculations as average city and highway 
estimates.
Fuel Economy Gauges to Provide Feedback to Drivers
    Drivers of most vehicles cannot see how their driving behavior 
affects their vehicle's fuel economy. Some cars now provide digital 
displays of instantaneous fuel economy so that drivers can see how 
speeding or aggressive driving behaviors waste fuel. While it is 
virtually certain that such devices will improve in-use fuel economy, 
current test procedures give no credit for them. Research is now 
ongoing at the University of California at Davis to better understand 
how fuel economy feedback devices can improve in-use fuel economy. 
Congress may wish to explore ways to encourage the installation of fuel 
economy feedback devices in all motor vehicles.
Pay-at-the-Pump Minimum Liability Insurance
    At a time of record high gasoline prices, it may seem strange to 
propose a policy that would increase the price of gasoline at the pump. 
However, pay-at-the-pump insurance would have no impact on the overall 
cost of driving. It would simply transfer the incidence of a fraction 
(perhaps one fourth) of the total cost of auto insurance to the cost of 
motor fuel. This would increase the cost of gasoline by $0.25 to $0.50 
per gallon but reduce the cost of auto insurance by an equal amount. 
Motorists would still be required to enroll with an insurance carrier 
to establish coverage and to purchase any additional insurance needed. 
The increased cost of gasoline would encourage manufacturers to adopt 
more fuel efficient technologies and consumers to choose more fuel 
efficient vehicles and operate their vehicles more efficiently. It 
would also reduce the problem of uninsured motorists since everyone 
would be purchasing a minimal amount of liability insurance on a pay-
as-you-go basis. It would also improve the economic efficiency of the 
insurance system by making at least a fraction of insurance payments 
proportionate to the amount of transportation done.
Incentives for Energy Efficient Vehicles
    Gasoline at $4/gallon provides a strong economic incentive to 
increase fuel economy for both car makers and car buyers. Still, there 
are good reasons to believe that the market for automotive fuel economy 
is not itself efficient and that market outcomes could be improved by 
means of economic incentives to vehicle purchasers (Greene, German and 
Delucchi, 2008).
    Extending and simplifying incentives for hybrid vehicles would 
raise new vehicle fuel economy and encourage the transition to more 
efficient electric drive systems (Kromer and Heywood, 2007). Incentives 
could be based on fuel consumption (on the quantity of fuel saved) 
rather than on a technical measure of degree of hybridization. For 
example, a hybrid pickup truck that got 18 miles per gallon instead of 
12 would benefit from a larger incentive than a hybrid passenger car 
getting 45 mpg instead of 30 because it would save 200 gallons more in 
a typical year of driving (333 gallons in driving 12,000 miles instead 
of 133). Of course, incentives for higher fuel economy have two 
drawbacks. First, some car buyers would have bought a hybrid vehicle 
anyway, especially at today's high fuel prices. Second, the incentives 
will be a drain on the treasury unless they are offset by comparable 
increases in revenue. The first problem can be mitigated but not 
eliminated by announcing incentives at least two years in advance to 
give manufacturers time to expand production. The second problem can be 
eliminated by implementing disincentives for inefficient vehicles.
    In the longer run, fiscal incentives for more energy efficient 
vehicles may be the most efficient policy not only for encouraging 
consumers to choose higher fuel economy but also for encouraging 
manufacturers to invent and adopt advanced fuel economy technologies. 
Feebates--fiscal incentives based on fuel consumption per mile--are a 
flexible market based policy for promoting fuel economy. Feebates can 
be indexed to vehicle attributes, such as NHTSA's footprint metric, in 
the same way fuel economy standards can (Greene, 2008). Feebates can be 
revenue neutral or can provide a net subsidy for new vehicle purchases. 
They can be a complement to fuel economy standards, or possibly even a 
substitute for them.
                        concluding observations
    In my remarks I have concentrated on actions individual motorists 
can take to increase fuel economy and thereby reduce the burden of high 
gasoline prices, or things Congress can do to promote light duty 
vehicle fuel economy. Yet we cannot solve our oil dependence problem 
unless we address all uses of petroleum throughout the transportation 
sector and throughout our economy. Light-duty vehicles account for less 
than half of total U.S. petroleum use. Other transportation vehicles 
account for more than one-fourth of petroleum demand. Industry consumes 
almost another fourth and we burn up an average of 1 million barrels 
per day of distillate fuel heating buildings. All of these uses must be 
addressed. Only through a comprehensive strategy to reduce petroleum 
use and increase energy supply, directed towards a measurable oil 
independence goal, can we be confident of achieving energy security.

    The Chairman. Thank you very much.
    Mr. Laitner, go right ahead.

  STATEMENT OF JOHN A. ``SKIP'' LAITNER, DIRECTOR OF ECONOMIC 
  ANALYSIS, AMERICAN COUNCIL FOR AN ENERGY-EFFICIENT ECONOMY 
                            (ACEEE)

    Mr. Laitner. Thank you and good morning, Chairman Bingaman, 
Vice Chairman Domenici, other distinguished members of the 
committee and the staff. I'm now celebrating some 38 years of 
working the energy policy arena. After all this time, I've 
never been more confident of telling this committee and 
Congress as a whole that the United States is never better 
positioned to move onto a path of sustainable energy production 
and consumption, one that promotes both productivity and 
economic prosperity, if we choose to develop it.
    The underpinning of this opportunity is a huge potential 
for cost effective investments in energy efficiency throughout 
all sectors of the economy on the order of 45 to 50 billion 
barrels of oil equivalent between now and the year 2030. This 
is about two and a half times bigger than what some have 
suggested might be available for off shore drilling. It's about 
five and a half times greater than what we will get from the 
improved CAFE standards enacted by Congress last December.
    The good news is that if we were to invoke the spirit of 
Leonardo da Vinci's model, Sa pare de vere, meaning to know or 
to learn how to see things. Then we might also see the 
development of that 45 to 50 billion barrels of energy 
efficiency could generate a significant downward pressure on 
oil prices. Increase both the resilience and the robustness of 
the American economy again, if we choose to develop it.
    It is in that context I want to spend a quick minute 
talking not about one OPEC, but about at least two different 
OPECs, to talk about them in the context of the American 
ingenuity. Not surprisingly, yes, the first OPEC is all about 
that conventional commodity we call oil. I think it's fair to 
say without any implied commentary whatsoever that in effect 
the OPEC countries have us over a barrel.
    Yet there are other forms of OPEC like power which might 
give us some added bargaining power with these oil rich 
nations. If the first OPEC is about oil for example a second 
OPEC equivalent might be information and communication 
technologies. For example, if we know how to see, then we might 
begin to imagine the semi conductor and broadband industries as 
having the ability to deliver an OPEC equivalent in terms of 
energy efficiency.
    How? Very simply. It's easier to move electrons and 
information than it is to transport people and goods.
    This is true even when we consider the relatively small 
amount of energy needed to power the ICT technologies. When we 
consider the relatively big energy that broadband technologies 
can deliver us in savings. In effect we're talking about 
companies like Intel, AMD, Dell, Hewlett Packard, EMC, Agilent 
Technologies and Cisco systems.
    Together with the very fast broadband now being developed 
by companies like Verizon, Sprint and others, we can power new 
broadband services which substantially reduce our dependence on 
transportation fuels. By way of highlighting the potential 
contribution of these technologies let me offer the results of 
a real time experiment I conducted just a moment ago. From an 
energy perspective it's unclear whether either of our 
Presidential candidates have included a complete picture of the 
energy efficiency resource in their campaign materials.
    I confess I've not yet read any of their literature. Yet, 
just moments ago, I ordered a book written by each candidate 
and they are both now in this hearing chamber. I used no 
gasoline to head to the bookstore to buy them.
    There were no packaging materials used in the shipping of 
them. Neither UPS nor FedEx used fuels to deliver them to me 
here today. In fact I bought them moments ago using my e-book, 
the Amazon Kindle.
    I downloaded them within a minute time. They are now here 
to be read at some point where I have the leisure to do so. So 
there was no paper wasted in their production. No shopping 
trips made to purchase them. No unnecessary packaging to have 
them delivered.
    I also saved $5 over the normal purchase price of each 
book. Despite my cost savings, each author now has the benefit 
of an additional royalty from this hearing and in my purchase 
of their books. That's but one small example of how information 
communication technologies can help reduce the cost and the use 
of energy.
    If we had the time there are several other OPEC equivalents 
we could explore. But the time is short. So let me now turn to 
a minute to discuss the role of policy in delivering these 
energy cost savings.
    In all of this, yes, the market does respond to direction 
and information. Hence policy solutions will play a pivotal 
role in the strengthening of the continued development, 
dissemination and widespread adoption of these energy efficient 
technologies. In that regard, ACEEE recommends at least ten 
policy actions to complement, actually, those that have been 
described previously, which might be undertaken by this 
Congress that might provide a near term market signal and more 
critically to change the direction of energy usage through 
energy efficiency.
    Our proposals include the immediate passage of a joint 
resolution to affirm the energy efficiency resource directing 
Federal agencies to develop it at all levels with current 
budget and authority. They also include an emergency 
supplemental transit appropriation, the creation of a crush 
your credit to retire older and inefficient trucks and cars and 
the launch of a national telecommuting and video conferencing 
initiative to reduce unnecessary travel. We should provide an 
array of incentives that parallel the automotive X prize and 
the freedom prize. All designed to stimulate new innovations in 
energy productivity.
    More can be discussed, but Mr. Chairman, with these opening 
remarks I thank you for the opportunity to be here today. I'll 
be happy to answer questions.
    [The prepared statement of Mr. Laitner follows:]

 Prepared Statement of John A. ``Skip'' Laitner, Director of Economic 
   Analysis, American Council for an Energy-Efficient Economy (ACEEE)
                                summary
    This testimony responds to an invitation from the Senate Energy & 
Natural Resources Committee to explore the economic potential of cost-
effective investments in more energy-efficient technologies, especially 
as those investments favorably impact petroleum prices and improve the 
robustness of the American economy. As discussed in this testimony, 
there is a huge potential for cost-effective investments in energy 
efficiency throughout all sectors of the U.S. economy: on the order of 
46 billion barrels of oil equivalent between now and 2030. This is 
about 2.5 times bigger than what some have suggested might be available 
from off-shore drilling. And it is about 5.5 times greater than what we 
will get from the improved CAFE standards enacted by Congress last 
December. That magnitude of further gains in energy efficiency could 
generate a significant downward pressure on oil prices, and increase 
both the resilience and robustness of the American and the 
international economies--if we choose to encourage those more 
productive investments.
    Policy solutions will play a pivotal role in strengthening the 
continued development, dissemination, and widespread adoption of 
energy-efficient industrial and transportation technologies and 
systems. In that regard, ACEEE recommends 10 policy actions that might 
be undertaken by this Congress to immediately provide that signal, and 
more critically, to change the direction of energy usage through 
increased energy efficiency.
    The set of 10 proposals offered here is intended to accomplish two 
specific objectives. The first is to provide an immediate catalyst by 
launching an effort over the next few months that can ``save oil in a 
hurry.'' If undertaken with sufficient robustness, these initial 
proposals might generate an immediate downward pressure on oil prices 
to the benefit of consumers and businesses. The second is to begin the 
process of fundamentally restructuring our transportation 
infrastructure--a step that will be necessary if we are to change the 
energy use path that our transportation system is currently on. Many of 
these suggestions lay the groundwork for a shift in the larger 
transportation policy, an opportunity that is afforded the next 
Congress by next year's reauthorization of the transportation bill.
Introduction
    My name is John A. ``Skip'' Laitner. I am the Director of Economic 
Analysis for the American Council for an Energy-Efficient Economy 
(ACEEE), a nonprofit organization dedicated to increasing energy 
efficiency as a means of promoting economic prosperity, energy 
security, and environmental protection. I am here today at the 
invitation of the Senate Energy & Natural Resources Committee to 
explore the role of productive investments in more energy-efficient 
technologies, as well as energy conservation behaviors, as both might 
positively improve the robustness of the U.S. economy. I thank you for 
the opportunity to testify here today. Indeed, I applaud the Committee 
for its willingness to more closely examine (and hopefully act on) the 
potential contribution of energy efficiency as it strengthens the 
productivity of our economy.
    What might we initially conclude in this last respect? As we shall 
see, there is a huge potential for cost-effective investments in energy 
efficiency across all sectors of the economy: on the order of 46 
billion barrels of oil equivalent between now and 2030. This is about 
2.5 times bigger than what some have suggested might be available from 
off-shore drilling. And it is about 5.5 times greater than what we will 
get from the improved CAFE standards enacted by Congress last December. 
That magnitude of further gains in energy efficiency could generate a 
significant downward pressure on oil prices and increase both the 
resilience and robustness of our economy and economies around the 
world--if we choose to encourage those more productive investments.
    Despite the potential for significant improvements in energy 
productivity, most current policy assessments and economic modeling 
exercises fail to adequately capture the many ways in which individual 
or business energy consumption patterns might change in response to 
both economic and noneconomic policies and programs. As a result, 
policy reviews are based on these narrowly specified assessments and 
models consistently overlook the large energy efficiency benefits that 
we can achieve by encouraging the accelerated adoption of more 
productive technologies and more energy-aware behaviors and 
preferences. Frankly, such assessments significantly underestimate the 
cost-effective energy savings that can be achieved, while often 
overestimating the costs of achieving greater gains in energy 
productivity.
    The inaccuracy of many past and current assessments has large and 
important implications for both energy and climate change mitigation 
policies. In the remainder of my testimony here today, I will expand on 
these notions as I try to answer three questions in response to the 
Committee's invitation:

          1. What is the magnitude of recent gains in energy efficiency 
        and how do they compare to ongoing investments in conventional 
        energy resources? Perhaps more importantly, what might be the 
        approximate scale of both near-term and mid-term efficiency 
        opportunities? And especially, what might we say about 
        opportunities for immediate reductions in the demand for 
        petroleum resources in ways that enhance overall economic 
        productivity?
          2. What are the kinds of policies that might be encouraged to 
        shape more productive behaviors and patterns of investments in 
        cost-effective and more energy-efficient technologies?
          3. Can we say anything about the economic returns associated 
        with the accelerated adoption of energy-efficient technologies 
        and more energy-aware behaviors?

    In responding as fully as I can to each of these questions, let me 
divide up my remaining testimony into five major parts. The first 
section following this introduction provides an energy and economic 
context that I hope will be helpful in responding to the Committee's 
request. The next three sections will deal specifically with each of 
the questions posed--especially in the context of our transportation 
system and its potentially beneficial impacts on oil prices. The last 
section will provide a summary and conclusions.
                     energy consumption in context
    As one of the richest and more technologically advanced regions of 
the world, the United States has expanded its economic output by more 
than three-fold since 1970. Per capita incomes are also twice as large 
today compared to incomes in 1970. Notably, however, the demand for 
energy and power resources grew by only 50% during the same period.\1\ 
This decoupling of economic growth and energy consumption is a function 
of increased energy productivity: in effect, the ability to generate 
greater economic output, but to do so with less energy. In today's 
testimony I would like to reaffirm the compelling evidence that 
suggests that even greater energy productivity gains can be achieved 
but also highlight the evidence suggests that there is significant room 
for improvement in the policies that currently shape our demand for 
energy. In short, we have reasons to be optimistic; but as we shall 
see, there is also some serious work ahead.
---------------------------------------------------------------------------
    \1\ These and other economic and energy-related data cited in the 
testimony are the author's calculations as they are drawn from various 
resources available from the Energy Information Administration (2008a, 
2008b, 2008c, and 2008d).
---------------------------------------------------------------------------
The Success of Energy Efficiency to Date
    The members of this Committee may be surprised to learn just how 
big of a role that energy efficiency has already played in supporting 
the growth of our economy over time. In the figure shown on the 
following page, we examine the historical context of efficiency gains 
estimated through 2008 as they might compare to the development of new 
energy supplies since 1970. In effect, the figure compares the 
projected level of energy consumption in 2008 to that which might have 
been necessary had the economy continued to rely on 1970 technologies 
and market structure.\2\
---------------------------------------------------------------------------
    \2\ Strictly speaking, the term energy efficiency as used here can 
be more broadly defined as a reduction in energy intensity; that is, a 
reduction in the number of Btus needed to support a dollar of economic 
activity. This change results from two key drivers. This first is a 
change in market structure as we move away from energy intensive 
industries as a source of income to higher value-added services. The 
second is what we typically think of as energy efficiency--more 
efficient lighting and consumer products, greater fuel economy in our 
vehicles, and more efficient power plants and industrial processes. The 
United States has benefited from both economic drivers; and both were 
made possible by a combination of behaviors, innovations, and 
productive technology investments. From a macroeconomic perspective the 
evidence suggests that anything we can do that positively reduces 
energy use while maintaining incomes and economic prosperity can be 
termed ``energy efficiency.'' It is in that larger sense that I use the 
term here today.
---------------------------------------------------------------------------
    In 1970 Americans consumed an estimated 68 quadrillion Btus (quads) 
for all uses of energy--whether heating and cooling our homes, schools, 
and businesses; powering our many industrial processes; or transporting 
both people and freight to the various places they needed to go. If we 
converted all forms of energy consumed in 1970 to an equivalent gallon 
of gasoline, it turns out that the U.S. economy required about 2,700 
gallons of gasoline equivalent for each man, woman, and child living in 
the U.S. at that time. Had the United States continued to rely on 1970 
market structure and technologies to maintain its economic growth, 
today we would be consuming an estimated 211 quads of energy resources. 
In per capita terms, that would be equal to roughly 5,500 gallons of 
gasoline per person. But in fact, the actual level of consumption 
estimated for 2008 appears to be just under 104 quads of energy (in 
rounded numbers). Again on a per capita basis, this means that the U.S. 
economy still requires no more than about 2,700 gallons of gasoline per 
resident--the same amount as in 1970.
    In examining these numbers more closely, however, several important 
insights deserve to be highlighted. First, although we currently enjoy 
a much broader set of goods and services in today's economy, we have 
been able to achieve this expanded level of economic output while 
maintaining constant levels of energy use per capita. This has been 
achieved through investments in energy efficiency. Second, although the 
same level of goods and services hypothetically could have been 
achieved through the consumption of 211 quads of energy per year, we 
have been able to achieve this level of output with less than half that 
amount of energy. In effect, investments in energy efficiency have 
allowed us to reduce total energy use by the equivalent of 107 
quadrillion Btus in 2008 (relative to what our energy use would have 
been without those efficiency gains.) As such, energy efficiency has 
``fueled'' roughly 75% of the new growth in energy service demands in 
the United States since 1970. Demand for new conventional energy 
resources, on the other hand, fueled just one-quarter of the new energy 
service demands (or about 36 Quads, as shown in the above figure). As a 
result, energy efficiency has been dubbed the farthest-reaching, least-
polluting, and fastest-growing U.S. energy success story of the last 40 
years. It is also the most invisible, the least understood, and in 
serious danger of being overlooked when it comes to future investments.
    In a report published this past May, ACEEE noted that in 2004 the 
U.S. invested an estimated $300 billion in energy efficiency (Ehrhardt-
Martinez and Laitner 2008). This was about three times the amount 
invested in traditional energy infrastructure, whether power plants or 
oil and gas wells. Meanwhile, those investments in energy efficiency 
are estimated to have generated approximately 1.7 quads of energy 
savings in 2004 alone--roughly the equivalent of the energy required to 
operate 40 mid-sized coal-fired or nuclear power plants. Despite these 
important contributions to our Nation's energy productivity, the 
analysis points out that the contributions of energy efficiency have, 
in large part, remained invisible and often go unrecognized. Moreover, 
the report indicates that efficiency resources, although proven, remain 
seriously underdeveloped. In other words, substantial gains in 
efficiency are still available if we decide to pick up the pace of 
efficiency investments.
The Magnitude of Future Efficiency Potential
    American economist Kenneth Boulding once commented that ``Images of 
the future are critical to choice oriented behavior.'' In effect, 
Boulding was suggesting that unless we are able to visualize future 
opportunities, we are less likely to realize their full potential. In 
that same spirit, therefore, ACEEE believes it is important to 
visualize the larger potential of energy efficiency to enable the 
development of policies and technologies that might enhance our overall 
energy productivity. While our preliminary assessment indicates that 
the efficiency market is already large, the more important questions 
are how large can the market ultimately be, and how rapidly can it be 
developed?
    Notably, a recent United Nations Foundation study called energy 
efficiency both the largest and least expensive energy resource, 
suggesting that the G-8 and other Nations could double historical rates 
of efficiency improvement by 2030 (Expert Panel on Energy Efficiency 
2007). This is true whether we are talking about buildings or industry, 
or whether we are talking about transportation efficiency gains. If the 
United States were to follow that course--and other ACEEE studies 
suggest this can be a highly cost-effective policy path, total U.S. 
energy consumption in 2030 could be reduced to the level of energy 
consumed in the years 1996-1997--as a result of efficiency gains alone. 
Assuming that policies, market forces, and new financing mechanisms are 
put in place to facilitate substantial investments in energy 
productivity, we might have an economy in the year 2030 that is about 
70% larger than it is today, but one that uses no more energy than was 
required in the mid-1990s.\3\ That would be a clear benefit for 
consumers, for business, and for the global climate. But, again, will 
be the outcome only if we choose to develop and promote that more 
productive investment path. And that is the huge task ahead . . . 
---------------------------------------------------------------------------
    \3\ In December 2007 the Energy Information Administration's 
forecast, the Annual Energy Review 2008 indicated that energy 
consumption would increase to about 124 quads by 2030. With the passage 
of the Energy Bill by Congress earlier this year, EIA subsequently 
revised its forecast to 118 quads by 2030. Building on that trend, an 
additional 20% savings by 2030 would imply a total energy use in a 
high-efficiency scenario would be on the order of 94.4 quads. EIA data 
suggests that actual energy use was about 94.2 quads in 1996. The 
difference between those projected values (i.e., 118 quads in the 
reference case versus 94.6 quads in the energy productivity case) is 
23.6 quads. The cumulative savings over the 2008 through 2030 time 
horizon would be just under 269 quads compared to the reference case 
consumption pattern. With each barrel of oil equal to 5.8 million Btus, 
this level of savings is comparable to 46 billion barrels of energy 
efficiency equivalent. This is the figure cited at the beginning of 
this testimony. This comparative scenario analysis draws on a study and 
modeling analysis by Laitner et al. (2006).
---------------------------------------------------------------------------
                understanding the transportation system
    With this hearing focusing more specifically on gasoline demand, 
let me first reiterate the importance of energy productivity gains in 
all uses of energy within our economy--whether we are talking about 
petroleum, coal, natural gas, or renewable fuels. I will then expand 
and highlight the efficiency potential within the transportation 
sector; and more specifically the likely implications of greater 
efficiency on petroleum prices.\4\
---------------------------------------------------------------------------
    \4\ This section of the testimony draws heavily on a report 
released earlier this year through the Civil Society Institute (Laitner 
2007).
---------------------------------------------------------------------------
Gasoline Consumption in the Larger Energy Context
    I hesitate to provide any current estimate of energy expenditures 
since both energy demand and prices are anything but stable or 
predictable. Nonetheless, and only in the spirit of helping understand 
the financial burden created by our current levels of energy demand and 
(in)efficiency, let me provide this context: in 2008 the U.S. will 
spend something on the order of $1.3 to $1.5 trillion for its total 
energy consumption. Despite only a 10% increase in overall energy 
consumption, the Nation's energy bill will be close to twice what we 
spent only a decade ago. I expect that energy expenditures will be 
about 10-12% of the Nation's Gross Domestic Product (GDP). More 
specifically, gasoline and petroleum expenditures will approach 
something on the order of $540 and $800 billion, respectively.\5\ 
Ignoring the price of energy for a moment, and looking only from the 
perspective of physical energy quantities, gasoline will consume 
perhaps 44% of all petroleum used this year in the U.S. and only 17% of 
our Nation's total energy requirements. This suggests that we can help 
moderate gasoline prices by looking for efficiency improvements in all 
uses of petroleum, as well as exploring opportunities to lower or 
eliminate unnecessary gasoline consumption more directly. To that 
extent, then, a more meaningful set of energy policies would include an 
economy-wide perspective.
---------------------------------------------------------------------------
    \5\ Again, these values are highly speculative and intended only to 
provide a magnitude that might help this committee think about the 
larger economic impact of our continuing levels of demand and 
inefficiencies.
---------------------------------------------------------------------------
Transportation Energy and Efficiency Opportunities
    Notwithstanding the larger set of opportunities to promote cost-
effective gains in energy efficiency, there is a significant benefit in 
focusing on our transportation system. When we climb into our cars or 
other vehicles to get where we want to go, we're really climbing aboard 
an incredibly extensive and highly diverse transportation system. It 
involves the obvious things like roads, bridges, tractor trailers and 
shipping containers, but it also includes a much larger array of 
elements--each with inefficiencies that if corrected, or even changed 
in reasonably minor ways, can help reduce the need for gasoline and 
other petroleum products. Among the less obvious aspects of the 
transportation system are traffic signals and controls, information and 
enforcement activities, and the scheduling, coordination, and 
management of facilities, goods, and services. Perhaps even less 
obvious is all the freight that must be hauled--to get the food from 
the farm to the processing plant and then to the grocery store; to get 
the lumber from the forests to the mills, from the mills to the lumber 
yards, and finally to our homes and offices; or to get the clothing, 
medicines, books, and consumer electronics to the stores for purchase 
by consumers and businesses.
    Adding up all the energy required by these various transportation 
needs, it appears that we need about 14.6 million barrels of oil (or 
oil equivalent) each day to maintain current levels of use (and 
inefficiencies). Cars and other light duty vehicles demand 9.1 million 
barrels per day, or about 62% of the total. While the average fuel 
economy for automobiles has grown from 13 miles per gallon in 1973 
compared to perhaps 23 miles per gallon today\6\--a respectable 70% 
over that period--there are more and more cars which are driving more 
and more miles. The end result is that we are using more and more 
gasoline and other petroleum fuels. And the kinds of cars we are 
driving have also changed. In the mid-1970s only one out of five new 
light-duty vehicles sold was a pickup or other light truck. Today 
trucks, sport utility vehicles and minivans comprise nearly half of the 
total sales for new light duty vehicles (Davis and Diegel 2007). Their 
overall fuel economy is substantially less at 17.7 miles per gallon. As 
a result, all the gains in fuel efficiency have been eaten away by 
horsepower wars and the growing sales of less-efficient trucks, 
minivans, and SUVs. The result is an average fuel economy of 20.3 miles 
per gallon for all light-duty vehicles on the road today (EIA 2008a).
---------------------------------------------------------------------------
    \6\ I might note that all of the gains in fuel economy occurred 
over the period 1975-1986, and that today new vehicles are still below 
the average reached in 1986.
---------------------------------------------------------------------------
    There is some good news in this. Whether we are talking about 
passenger cars, railroad trains, trucks, aircraft or ships, over the 
next twenty years the potential for technology improvements that 
increase the fuel efficiency of individual vehicles is significantly 
greater than is generally imagined or appreciated. But an even larger 
``system gain'' in energy efficiency is possible if we make wholly 
achievable cost-effective improvements in system operations, in 
infrastructure and in land use patterns--in addition to those vehicle 
efficiency improvements.
The Many Efficiency Opportunities in Transportation
    To gain further insight into the full opportunity for system 
efficiency improvements, let's start with the more familiar area of 
vehicle efficiency improvements. Even a cursory look at the ``Best of 
2008'' cars makes it clear that gains in energy efficiency come from a 
wide range of technologies. Hybrid vehicles such as the Toyota Prius or 
the Honda Insight have been claiming the limelight when it comes to 
high miles-per-gallon vehicles, but fuel-efficient technologies are 
also being installed in more conventional cars as well. Intelligent 
engines with features such as cylinder deactivation, turbocharging, 
direct injection, and variable valve control; advanced transmissions, 
including 6-7 speed automatics or continuously variable transmissions 
(CVTs); and lightweight materials, engine-off-at-idle, friction 
reduction, and improved aerodynamic designs all do their part to help 
make these cars more energy-efficient. By extending these and other 
technologies to include more of the new car and new truck fleet (in 
effect, so that the best becomes the typical), there is a huge 
potential to improve the energy efficiency of conventional vehicle 
technology (IEA, 2005). A recent report of technology experts funded by 
the United Nations Foundation called for a 35% increase in fuel economy 
by 2020 and a 60% increase by 2030 for new light-duty vehicles (Expert 
Group on Energy Efficiency 2007).
    These advanced technologies admittedly increase the manufacturing 
costs of vehicles but at the same time they also reduce the energy 
costs of operating them. DeCicco et al. (2001), for example, suggested 
that fuel economy standards could increase from 37 to 70% over a 15 
year period with no more than a 4.5 to 6.6% increase in costs. In other 
words, a car that might cost an additional $1200 might also save 150 
gallons of gasoline annually. With current gasoline prices in the range 
of $4 per gallon, this might imply a typical payback of two years. 
Similarly, a car that might cost an extra $3000 might save 190 gallons 
of gasoline which means that at $4 per gallon, the extra investment 
would pay for itself in about four years. Although a shorter payback 
period would be better, either of the technology upgrades would 
generate a positive return for a vehicle with an expected life of 17 
years or more. Perhaps even more impressive and more recently, the 
California Air Resources Board estimates that meeting California 
tailpipe standards (which will result in vehicles that reach roughly 35 
mpg in 2016) will cost on average $1000 per vehicle. At $4 per gallon 
of gasoline, this will save about $700 per vehicle per year, yielding a 
1.5 year payback. (For other comparative estimates of costs and savings 
associated with vehicle efficiencies, see IEA 2006, tables 5.2 and 5.6; 
and Vattenfall 2007.)
    At the same time, the actual fuel economy that is achieved while 
driving those motor vehicles can be greatly affected by how they are 
operated and how they are maintained. Whether in the form of speeding 
and aggressive driving, excessive engine idling, improper tire 
pressure, and even poor choice of motor oil, the behavior and 
maintenance decisions of drivers can also affect the on-road fuel 
economy. One recent study concluded that programs which promote 
improvements in driving style through training and technology aids 
could generate a 10% reduction in typical fuel consumption and 
therefore in greenhouse gas emissions (ECMT/IEA 2004).
    Even though automobiles now use about two-thirds of the 
transportation fuel consumed in the United States, large savings are 
also possible in the movement of freight as well as the movement of 
passengers in business, air, and train travel. One professor of 
transportation logistics has suggested that heavy trucks might save 32% 
of energy use through a combination of improved fuel efficiencies, and 
better coordination to reduce empty backhauls and unnecessary travel 
(McKinnon 2007). Still another ACEEE study lists tractor-trailer 
technologies that can reduce fuel consumption by 39% across the fleet 
of those heavy duty vehicles. The paper as a whole shows the potential 
to reduce oil consumption through efficiency gains across many 
different sectors (See Elliott et al. 2006, especially Tables 10 and 
11). Although rail transport is one of the more energy-efficient 
transportation modes, the IPCC suggests that substantial opportunities 
for further efficiency improvements remain. These include reduced 
aerodynamic drag, lower train weight, regenerative breaking and higher 
efficiency propulsion systems, all of which can make significant 
reductions in rail energy use. While passenger jet aircraft produced 
today are 70% more fuel efficient than equivalent aircraft produced 40 
years ago, the IPCC notes that a 20% improvement over 1997 aircraft 
efficiency is likely by 2015 and ``possibly 40 to 50% improvement is 
anticipated by 2050. Still greater efficiency gains will depend on the 
potential of novel designs such as the blended wing body, or propulsion 
systems such as the unducted turbofan'' (Kahn et al. 2007).
Emergence of Information Technologies
    One especially interesting opportunity that is emerging is the use 
of broadband and information and communication technologies (ICT) to 
increase transportation efficiencies by decreasing travel demands and 
increasing transportation system efficiencies (Laitner and Ehrhardt-
Martinez 2008). A new study released just last month by the Climate 
Group (2008), with assistance from McKinsey and Company and on behalf 
of the Global e-Sustainability Initiative (GeSI), found that ICT has 
the potential of reducing energy-related global greenhouse gas 
emissions by 15% by 2020 through a combination of smart buildings and 
smart grids and also smart transportation and travel reduction/
dematerialization.
    Smart vehicle technologies, for example, provide a range of 
innovative means for reducing transportation-related energy consumption 
while maintaining the services on which we depend. Vehicles are 
increasingly integrating sophisticated communications and information 
technologies that collect and communicate information regarding vehicle 
performance, routes and maps, road and traffic conditions, energy 
consumption, and environmental variables. As more and more vehicle 
manufacturers integrate on-board wireless technology, smart cars will 
increasingly be able to communicate with regional data centers as well 
as other vehicles on the road to share road data, travel information, 
traffic conditions, and other information. Moreover, on-board display 
devices will make this information readily accessible to drivers 
through the use of networks of sensors and communications devices. 
Maximum energy-efficiency gains can be provided through a combination 
of intelligent transportation systems (ITS) and smart vehicle systems 
that rely on a variety of sophisticated electronic technologies 
including GPS, sensors, processors and on-board communications 
equipment. In the future, these technologies will enable automated 
management of traffic flows, allow drivers to avoid congested roads, 
and locate and map the shortest routes to specified destinations--
resulting in shortened drive times, reduced energy consumption, and 
lower greenhouse gas emissions.
    Governments and businesses are also looking to integrate high-tech 
supply chain logistics and warehousing technologies. Advanced logistics 
technologies can help companies reduce fuel use, costs, and carbon 
emissions through:

   Intermodal shipping strategies that utilize a variety of 
        shipping modes including rail resulting in reduced traffic 
        congestion and idling time and increased shipping mode 
        flexibility allowing shippers to choose the most fuel-
        efficient, cost-effective, reliable and timely mode of 
        transportation.
   Improved truck tracking and logistics management to improve 
        scheduling the pickup and delivery of goods so as to reduce 
        wait times, maximize the size of truck loads, and reduce the 
        number of wasted ``backhaul'' of empty trailers.
   Improved routing of traffic by providing real-time 
        information about the quickest routes to reduce travel time and 
        idling.
   Improved tracking and management of store and warehouse 
        inventories to improve the management and flow of goods and 
        increase the viability of intermodal shipping opportunities.

    These strategies can minimize inefficient freight operations, 
saving fuel, increasing revenue for trucking companies, and reducing 
carbon dioxide emissions. For example, according to the US 
Environmental Protection Agency, the use of intermodal shipping for 
long distance shipments (over 1000 miles) cuts fuel use and greenhouse 
gas emissions by 65%, relative to truck transport alone (EPA 2004).
    Still another transportation option is the use of telecommuting and 
videoconferencing. The emergence of information and communication 
technologies enables high quality work to be completed from a home 
office location in a way that saves gasoline--even after other energy 
uses are considered. For example, while a telecommuter may save 
gasoline as a result of a net reduction in commuter travel, there is 
some increased energy use associated with working in the home office. 
But even with a full accounting of those increased uses, a new estimate 
by the Consumer Electronics Association indicates that the regular 
telecommuting of some 4 million workers is now saving an estimated 840 
million gallons of gasoline equivalent. More critically, the report 
suggests that the potential could grow to 25 or even 50 million workers 
which would significant increase current levels of energy savings (TIAX 
LLC 2007). By the time we include other ICT-enabled services ranging 
from expanded videoconferencing to increased electronic banking and 
other retail and entertainment services, the suggestion is that 
``normal'' transportation efficiency gains could be greatly 
complemented by new patterns of working and living enabled by 
information and communication technologies.
                  the need for a new policy framework
    Even with all this good news about the potential for greater system 
efficiencies, however, transportation energy use is likely to increase 
by another 16% between now and 2030--in the absence of additional 
policy intervention that might otherwise guide an optimal mix of 
technology improvements and new services demands.\7\ This result is 
driven, in large part, by an increase in vehicle and air miles 
traveled. Despite the run up in oil prices, the Energy Information 
Administration estimates that travel demands may be twice as high as 
the rate of population growth over that same period of time (EIA 
2008a). One significant downside of the continued demand for petroleum 
resources is that it is likely to result in further increases in energy 
costs for businesses and consumers. The growth in energy use will also 
increase the environmental burden associated with the continued 
emissions of greenhouse gases.
---------------------------------------------------------------------------
    \7\ It's worth noting that before passage of the Energy 
Independence and Security Act (EISA) in December 2007, the Energy 
Information Administration projected a 28% growth in transportation 
energy between 2008 and 2030. With the anticipated improvements in fuel 
economy under EISA, as well as a somewhat slower economy coupled with 
significantly higher energy prices, EIA has moderated that growth to 
only 16% as noted above.
---------------------------------------------------------------------------
    A more successful outcome, one that achieves an optimal 
configuration of transportation technology systems, will require 
smartly crafted policy solutions to overcome important social, economic 
and structural barriers. Yet, at a recent transportation policy forum 
sponsored by the U.S. General Accounting Office (described as the 
audit, evaluation, and investigative arm of the United States 
Congress), participants said that ``the Nation's transportation policy 
has lost focus and that the Nation's overall transportation goals need 
to be better defined.'' They further noted that ``the federal share of 
total transportation spending continues to decline'' (U.S. Controller 
General 2007). The evidence certainly seems to point in that direction.
    Despite the availability of highly cost-effective measures to 
substantially raise fuel economy standards for both cars and heavy 
trucks at least since the early 1980s, we have not done so until very 
late last year. The Energy Independence and Security Act (EISA) enacted 
by Congress in December 2007, among other things, will increase the 
average fuel economy of new cars and light trucks combined from 25 to 
35 miles per gallon by 2020. This is a positive step that will increase 
the average fuel economy of our national fleet of cars and light trucks 
over time. Unfortunately, this modest gain in average fuel economy is 
unlikely to offset the growth in overall travel within the United 
States. A more realistic focus on both climate change and world energy 
policies will require a more aggressive improvement in our system-wide 
energy and transportation efficiencies. Hence, a meaningful set of 
long-term policies should address an even greater level of fuel economy 
improvements, as well as significantly reducing overall travel demands, 
while maintaining a higher quality of life.
    Following the recommendations of the United Nations Foundation 
panel of experts, for instance, a longer-term focus would increase fuel 
economy standards for light cars, trucks and heavy duty freight 
vehicles by at least 60% by the year 2030. There is an emerging 
consensus that--with the right set of policies, and with further 
investment in research and development activities directed toward 
transportation systems--a 60% improvement is still an economically 
achievable target (Expert Group on Energy Efficiency 2007; and Langer 
2007). At the same time there should also be an emphasis on reducing 
the demand for travel through a combination of funding for alternative 
transportation systems as well as changes in land use and economic 
development policies.
    Initial thinking suggests that, with supportive policies, a 20% (or 
greater) reduction in total vehicle travel might be possible by the 
year 2030 (Ewing et al. 2007 and Langer 2007). Alternative 
transportation technologies would include rail and mass transit systems 
as well as a greater emphasis on improving the logistics of freight 
shipments. Both approaches would either reduce travel or encourage the 
use of more fuel efficient modes of transport (e.g., piggybacking truck 
shipments with rail transport). A smarter transportation policy would 
also embrace greater reliance on telecommuting and videconferencing in 
ways that reduce both automobile and air travel. Economic development 
and land use policies might encourage production technologies that can 
be located closer to where new goods and services are actually needed. 
In this way travel demands can be reduced even further (Laitner and 
Ehrhardt-Martinez 2008, and The Climate Group 2008).
    Policy solutions will play a pivotal role in strengthening the 
continued development, dissemination, and widespread adoption of 
energy-efficient transportation technologies and systems. Without a 
sensible framework of policy objectives and targets, the unfolding of 
these many technologies and their efficiency gains might follow any 
number of less productive paths.
Specific Policy Recommendations
    At a minimum, the market needs a strong, clear, and persistent 
signal to help it organize and direct its own efforts as well as smart 
investments toward a more productive pattern of economic activity. To 
that end, ACEEE suggests the following 10 policy actions that might be 
undertaken by this Congress to immediately provide that signal, and 
more critically, to change the direction of energy usage through 
increased energy efficiency. These proposals are intended to accomplish 
two specific objectives. The first is to create an immediate catalyst 
by launching an effort over the next few months which can ``save oil in 
a hurry.''\8\ If undertaken with sufficient robustness, these initial 
proposals might generate an immediate downward pressure on oil prices 
to the benefit of consumers and businesses. The second is to begin the 
process of fundamentally restructuring and stimulating new productive 
investments in our transportation infrastructure--a step that will be 
necessary if we are change the energy use path that our transportation 
system is currently on. Many of these suggestions lay the groundwork 
for a shift in transportation policy that is afforded the next Congress 
by next year's reauthorization of the transportation bill.
---------------------------------------------------------------------------
    \8\ In fact, this phrase references a 2005 workshop convened by the 
International Energy Agency and a resulting book by that same name. The 
book identified a series of immediate measures that might save up to 
1.7 million barrels of oil per day, at a cost ranging from $1 to $100 
per barrel, if such measures were implemented by all members of the 
IEA. (2005). This perspective can provide a useful model of immediate 
effort for the U.S. as well.

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          1. Enact an Immediate Joint Resolution.

    An immediate joint resolution, quickly followed by the other policy 
actions described below, would send a clear and strong signal to 
consumers, businesses, and the energy market in ways that would help 
organize a more productive pattern of economic activity. The resolution 
should affirm the Nation's energy efficiency potential across all fuels 
and all sectors of the economy. It should direct all agencies to 
immediately implement all cost-effective gains in energy efficiency--
consistent with their current authority and funding. Moreover, it 
should emphasize a coordinated effort among all agencies.

          2. Enact Emergency Transit Supplemental Funding.

    Mass transit represents one of the few short-term alternatives to 
driving personal vehicles for many consumers, and we have seen recent 
surges in rider-ship since gas prices have surged. However, many 
transit agencies are struggling to close budget gaps created by 
dramatic increases in fuel, forcing them to curtail service at the time 
when demand is on the increase. The congress should pass an emergency 
funding supplemental to assist transit agencies with meeting their 
increased fuel bills, and make available funds at 80% federal match to 
supplement local and state investments in expanded capacity.

          3. Establish a Crusher Credit for Inefficient Low-Mileage 
        Cars.

    This provision would accelerate retirement of the most fuel-
inefficient and polluting light trucks when coupled with additional 
incentives for clean and efficient new vehicles. Under rules to be 
issued by the Secretary of the Treasury, owners of vehicles presented 
for destruction (crushing, shredding) will receive a voucher redeemable 
upon the purchase of a new vehicle meeting the eligibility requirements 
of the Alternative Motor Vehicle Credit contained in the Energy Policy 
Act of 2005. The recommended offset for the cost of the program is the 
extension of the federal ``Gas Guzzler Tax'', currently applicable only 
to passenger cars, to light trucks, at a level sufficient to fully 
offset anticipated program costs.

          4. National Telecommuting and Videoconferencing Initiative.

    Direct the appropriate agencies to immediately launch a campaign to 
encourage and enable immediate cost-effective telecommuting and 
videoconferencing. In addition, all federal agencies should be directed 
to establish telecommuting and videoconferencing to the maximum extent 
possible.

          5. Develop Policies to Expand Alternative Modes of Freight 
        Movement.

    In preparation for next year's Transportation Bill reauthorization, 
Congress should commission a study of the potential fuel savings 
potential of expanding alternative modes of freight movement and 
identify policies that could be implemented to realize these savings

          6. Co-Funding of Local Land Use Planning.

    Congress should establish a program to co-fund local governments' 
efforts to update zoning and land use regulations in such a way as to 
encourage compact development compatible with transit service.

          7. Study of Role of Information and Communications 
        Technologies in Improving Transportation System Efficiency.

    Direct the National Academies to undertake a study into the role 
that Information and Communication Technologies (ICT) could have in 
reducing travel delays and improving the efficiency of transportation 
infrastructure.

          8. Establish a National Energy-Efficient Maintenance and 
        Driver Education Program.

    To improve the efficiency of new drivers, it will be critical to 
change behavior. Congress should direct the Department of 
Transportation to develop information regarding driving practices, car 
maintenance, and fuel efficiency that can be incorporated into driver 
education programs. Auto inspection programs, for example, might 
include fuel economy recommendations. So you not only get a 12-point 
safety inspection, but you can also get a 12-point efficiency 
inspection.

          9. Direct the Collection of Energy Efficiency Data and 
        Indicators.

          The role of energy efficiency is largely invisible in the US 
        economy. Congress should direct and fund the Department of 
        Commerce, Department of Energy and Environmental Protection 
        Agency (among others) to collaborate in the development of a 
        National Energy Efficiency Data Center (NEEDC). The purpose of 
        this new center will be to collect, organize, disseminate and 
        archive energy efficiency and social science statistics and 
        technology costs, particularly those related to public policies 
        and programs.

          10. Explore Other Incentive Mechanisms.

    The Automotive X Prize is a $10 million inducement price and was 
announced in March of 2008. It is sponsored by the X Prize Foundation 
and Progressive Insurance. The prizes will be awarded to teams with 
cars that can win a staged race while maintaining a fuel efficiency 
rating of 100 miles per gallon and better.\9\ In that same spirit 
Congress might direct appropriate agencies to explore ways to 
complement this initiative, but also to look for other inducements and 
prize incentives (both within and outside of government) which might 
encourage a more entrepreneurial and smarter use of our investment and 
energy resources across the many dimensions of our economy.
---------------------------------------------------------------------------
    \9\ The X PRIZE Foundation, best known for the successful $10 
million Ansari X PRIZE for private suborbital spaceflight, is an 
educational nonprofit whose mission is to bring about radical 
breakthroughs for the benefit of humanity by holding $10 million dollar 
(or larger) competitions to solve some of the world's greatest 
challenges.'' See http://www.progressiveautoxprize.org.
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                          a note on investment
    One of the underappreciated elements in the growth of the economy 
and improvements in the Nation's energy overall energy efficiency is 
the vital role of investment. The chart* on the following page 
highlights the annual percentage change in all three elements over the 
period from 1990 through 2008 (estimated). What's the bottom line? In 
the period 1992 through 2000, we had a significant period of capital 
deepening in which investment as a percent of GDP climbed from a 
typical level of about 13% to a record 17.7% in 2000. The events in 
2001 had an obvious impact in market confidence in both that year and 
2002. After a recovery that lasted through 2006, we had negative growth 
in 2007, and it appears we'll see this again in 2008.
---------------------------------------------------------------------------
    * The chart has been retained in the committee files.
---------------------------------------------------------------------------
    What may not be initially apparent is the role of investment in 
improving our energy intensity (energy productivity). Following a 
robust 2.7% decline in the Nation's average energy intensity over the 
period 1973 through 1986, the rate of change flattened out to 0.8% 
through 1996. Tracking the surge of investment in 1996 through 2001 
(shown in the figure above), our intensity declined 2.9% annually. The 
decline in energy intensity moderated at 1.6% over the years 2001 
through 2006. Of immediate concern is the complete flattening in that 
rate of change in 2007 and 2008. I might suggest this flat improvement 
in our energy productivity is driven, in part, by the negative rate of 
investment, which significantly tightens the market with respect to 
energy supply. One might reasonably conclude that this is among the 
reasons for the higher energy prices we are seeing here today. Perhaps 
more to the point is that the proposals we recommend here today will 
stimulate more productive investment in ways that increase our energy 
productivity. This, in turn, is likely to generate a downward pressure 
on energy prices.
                        likely economic returns
    At this point we might ask how all of these energy efficiency 
policies, behaviors and investment decisions could reduce the economic 
damage of high fuel prices. Generally energy efficiency reduces the 
toll taken by high energy prices in two ways: first, by reducing 
consumption, and therefore the amount of energy for which consumers 
must pay; and second, by reducing prices. As but one example of the 
possible impacts, ACEEE estimates that the U.S. could reduce oil 
consumption by 9-13% by 2015 and 15-21% by 2020 through energy 
efficiency (Elliott et al. 2006). The measures to accomplish this are 
all cost-effective; that is, the efficiency improvements typically cost 
less than half what they save in petroleum costs. With regard to price 
reduction, the complex and global nature of oil and petroleum markets 
makes predicting price nearly impossible. We can nonetheless be 
confident that by giving the market a greater ability to respond to the 
price signal and by increasing the supply margin, energy efficiency can 
decidedly help relieve the run-up in prices. To the extent that 
speculation in futures markets is responsible for high prices, the 
adoption of policies that cost-effectively ease inefficient consumption 
in the near term will serve to combat these rising price effects.
    Drawing on a broader variety of related studies and assessments, we 
can say that as long as such energy efficiency investments are cost-
effective--in effect, investments that pay for themselves over a 3-7 
year period--the economy should be strengthened. This point was 
reinforced by another new study released by ACEEE earlier this month 
(Laitner and McKinney 2008). This latest report, Positive Returns: 
State Energy-Efficiency Analyses Can Inform U.S. Energy Policy 
Assessments, concluded that energy efficiency investments are likely to 
stimulate a small but net positive benefit for the American economy. 
The report's conclusions were drawn from a review of approximately four 
dozen state-and regional-level efficiency potential studies that were 
undertaken over the past 16 years. Overall, the studies demonstrate the 
potential for an average of 23% efficiency gain with a nearly 2 to 1 
benefit-cost ratio. Moreover, they suggest that a 20% additional gain 
in energy efficiency by 2030 could provide an estimated 800,000 net 
jobs while a 30% efficiency improvement might generate as many as 1.3 
million net jobs. Finally, the report notes that efficiency-led 
policies that emphasize greater energy productivity are likely expand 
the Nation's economy (as measured by our GDP) by about 0.1% by 
2030.\10\
---------------------------------------------------------------------------
    \10\ This result might make more sense when we realize that energy-
related sectors of the economy contribute a significantly smaller rate 
of value-added per dollar of revenue received that almost all other 
sectors of the economy. Based on 2006 economic data for the U.S. 
economy, energy-related sectors contributed about 43 cents of value-
added per dollar of revenue while all other sectors contributed about 
54 cents per dollar of revenue. The same is also true for employment. 
Energy-related sectors of the economy support less that two jobs per 
million dollars of revenue while all other sectors support an average 
of seven jobs (IMPLAN 2008). The recent run-up in oil prices greatly 
lessens the rate of contribution the energy-related sectors provide the 
Nation's economy, especially as those energy dollars pull resources 
away from all other sectors. By the same token, any cost-effective 
change in the pattern of production away from energy should strengthen 
the Nation's overall economy. This is particularly true to the extent 
that the new production recipe reduces the levels of imported energy.
---------------------------------------------------------------------------
                              conclusions
    Given the full array of evidence, we can conclude that energy 
efficiency can provide a significantly large contribution toward 
stabilizing energy prices and strengthening the robustness of the U.S. 
economy. The good news is that there are large opportunities to promote 
an even greater level of productive investments in energy-efficient 
technologies--should we choose to develop and pursue those options. 
Policy solutions will play a pivotal role in strengthening the 
continued development, dissemination, and widespread adoption of 
energy-efficient transportation technologies and systems. The more 
quickly we act, the more quickly the benefits can accrue to both 
consumers and businesses.

    The Chairman. Thank you very much.
    Mr. Winkelman.

 STATEMENT OF STEVE WINKELMAN, DIRECTOR OF TRANSPORTATION AND 
ADAPTATION PROGRAMS, CENTER FOR CLEAN AIR POLICY, PORT CHESTER, 
                               NY

    Mr. Winkelman. Mr. Chairman, Ranking Member Domenici, 
members of the committee, thank you for the opportunity to 
testify today. My name is Steve Winkelman. I'm the Director of 
the Transportation Program at the Center for Clean Air Policy, 
also called CCAP, an environmental think tank based in 
Washington, DC. I respectfully request that my full statement 
be made part of the record.
    The Chairman. Everyone's statement will be included in the 
record.
    Mr. Winkelman. CCAP helps governments at all levels 
implement energy policy solutions that balance economic and 
environmental concerns. CCAP conducts technical analyses and 
facilitates dialog among stakeholders to craft practical 
solutions. Partners include oil and car companies, 
environmental groups, Federal agencies and state secretaries of 
transportation.
    At CCAP we encourage our partners to ask the climate 
question. From an infrastructure development to your daily 
commute if you build it, fund it or do it, ask what the 
implications are for greenhouse gas emissions. Answering the 
climate question will go a long way toward addressing gasoline 
demand.
    Petroleum demand fell by 3 percent during the first half of 
this year. But with limited travel choices Americans are left 
vulnerable to high fuel prices and hit hard in the pocketbook. 
Federal policies can expand travel choices for all Americans 
and increase our resilience to oil price shocks and protect the 
global climate.
    During World War II, Americans rose to the challenge of 
constrained resources. They gathered scrap metal for recycling 
and planted victory gardens that produced 40 percent of all 
vegetables. Back then children walked to school.
    Today Americans are responding to high fuel prices with 
creativity and common sense. As a result the number of miles 
driven declined 2 percent in the first quarter of this year. 
More people are riding transit, biking, combining trips, 
telecommuting and even planting vegetable gardens.
    I am fortunate to be able to walk from home and to walk my 
son, Benny, to school each day. Unfortunately too many 
Americans find they have little choice but to drive long 
distances to meet their basic needs. According to the American 
Public Transportation Association, public transit saves four 
billion gallons of gasoline each year. Americans are getting on 
the bus and train in record numbers.
    The year 2007 saw the highest ridership in 50 years and 
it's still growing. But while transit companies are seeing 
record demand for their product, high fuel prices are forcing 
many agencies to cut service and raise fares. It would be as if 
Toyota cut back production on the Prius because too many people 
want one.
    The 2007 Energy bill set new standards for vehicles and 
fuels that would cut gasoline demand 20 percent below 1990 
levels by 2030. However, the Energy Department forecasts a 50 
percent increase in driving, sending gasoline use and 
CO2 emissions to 20 percent above 1990 levels 
instead of 30 percent below as required for climate protection. 
In other words, increased driving is projected to cancel out 
gasoline savings from the 2007 Energy bill.
    Cutting gasoline use therefore requires a comprehensive 
approach that includes improved travel choices. Public transit 
agencies are in need of emergency Federal assistance to 
accommodate record ridership, expand service and cope with 
rising fuel bills. State and local governments need Federal 
assistance to help expand pedestrian and bicycle facilities. 
Smart growth policies that encourage infield development will 
be critical to reducing future gasoline. Because what we build 
today will last for a century.
    CCAP proposes a Federal climate incentive program to help 
state and local governments expand travel choices. We believe 
that there is no, one size fits all, solution. The solutions 
must be developed locally with the diversity of measures 
applicable to urban, suburban and rural areas.
    Next year, Congress will have a major opportunity to ask 
the climate question. Will the next transportation bill reduce 
our petroleum dependence or aggravate the problem? Will the 
next $300 billion that we spend on transportation build upon 
the savings from the Energy bill or cancel them out?
    Federal transportation funding formulas currently reward 
increased fuel consumption and increased driving. It's time to 
reverse course. The next transportation bill which we call, 
``Green TEA,'' should improve travel choices for all Americans, 
support smart growth planning, increase freight system 
efficiency. Green-TEA should provide state and local 
governments with the tools, data and resources they need to 
implement the transportation and land use policies that cut 
petroleum demand, reduce greenhouse gas emissions and grow the 
economy.
    My grandmother used to tell a joke about a man who 
desperately wanted to win the lottery. He prayed everyday for 
good luck. When he was an old man he begged, please, I'm old. 
I'm tired. All I ask is to win the lottery. A voice rang out 
from the heavens and said, look buddy, meet me halfway. Buy a 
ticket.
    If we want to inflate ourselves from oil price shocks. If 
we want to protect our communities from the impacts of global 
warming, it's time for us to buy that ticket. We must make new 
investments in public transportation, bike lanes and even 
sidewalks. If we ask the climate question, together we can 
develop the choices that we will need to thrive.
    Thank you.
    [The prepared statement of Mr. Winkelman follows:]

 Prepared Statement of Steve Winkelman, Director of Transportation and 
   Adaptation Programs, Center for Clean Air Policy, Port Chester, NY
    Mr. Chairman, Ranking Member Domenici and Members of the Committee: 
good morning. Thank you for the opportunity to testify before you 
today. My name is Steve Winkelman. I am the Director of the 
Transportation and Adaptation Programs at the Center for Clean Air 
Policy (also called CCAP), a Washington DC and Brussels-based 
environmental think tank.
    I respectfully request that my full statement be made part of the 
record.
    CCAP helps governments at all levels design and implement energy 
and climate policy solutions that balance economic and environmental 
concerns. CCAP conducts technical and economic analyses and facilitates 
dialogue among stakeholders from government, industry and environmental 
groups to craft practical and effective solutions.
    For example, CCAP's ``VMT and Climate Policy Dialogue'' includes 
state secretaries of transportation, directors of Metropolitan Planning 
Organizations, local governments, federal agencies, car companies, oil 
companies and environmental groups who are working together to develop 
options for advancing smart growth in climate policy and integrating 
climate considerations into transportation policy.
    At CCAP we encourage our partners in government and industry to 
``Ask the Climate Question.'' From manufacturing, to infrastructure 
development to daily commuting: if you build it, fund it, buy it or do 
it ask what the implications are for greenhouse gas emissions and your 
vulnerability to the impacts of climate change.
    Answering the Climate Question will go a long way toward addressing 
the topic of today's hearing--reducing gasoline demand.
    According to the American Petroleum Institute, petroleum demand 
actually fell three percent during the first half of 2008, compared to 
the first half of 2007. But, with limited travel choices, Americans are 
left vulnerable to high fuel prices; they are hit hard in the 
pocketbook and the national economy suffers. Federal policies can 
increase travel choices for all Americans, and increase our resilience 
to high fuel prices, while reducing greenhouse gas emissions.
    Some 65 years ago, during World War II, Americans rose to the 
challenge of constrained resources. They gathered scrap metal for 
recycling and planted Victory Gardens that produced an estimated 40 
percent of all vegetables consumed nationally. And back then, all 
children walked to school (even if it wasn't really uphill both ways).
    Today, Americans are responding to high fuel prices with creativity 
and common sense. As a result, the number of miles Americans drive 
declined by two percent in the first quarter of 2008 compared to the 
first quarter of 2007.
    More people are taking public transit, walking, biking, combining 
trips, carpooling, telecommuting, going to four day work weeks, 
shifting to online shopping and even planting vegetable gardens. In 
effect, they are asking the Climate Question: Do I need to make this 
trip? Can I combine trips? Could I walk a half mile? How can I use less 
of this high-priced fuel?
    I am fortunate to be able to work from home and walk my son, Benny, 
to nursery school. Unfortunately, too many Americans find they have 
little choice but to drive long distances to meet their basic needs. 
Most children can no longer even walk to school. In 1969, half of all 
American school children walked or biked to school. In 2001? Only 15%. 
And high fuel prices are compounding the pain of the housing 
affordability crisis.
    According to the American Public Transportation Association, public 
transit currently saves the equivalent of four billion gallons of 
gasoline each year. And Americans are getting on the bus and train in 
record numbers: 2007 saw the highest ridership in 50 years, and we've 
already seen a three percent increase in 2008. But while transit 
companies are enjoying record demand for their product, high fuel 
prices are forcing many agencies to cut service and raise fares. It 
would be as if Toyota cut back production of the Prius, or Ford pulled 
back on the Focus because too many people want them.
    Whether fuel prices remain high for an extended period, or come 
back down and stay there for a while, Americans need more efficient 
choices for getting where they need to go.
Climate Change Considerations
    With the Energy Independence and Security Act of 2007, your 
Committee set new efficiency standards for vehicles and new greenhouse 
gas requirements for fuels. Together, these measures would reduce 
gasoline demand and transportation CO2 emissions to 20 percent below 
1990 levels by the year 2030.
    However, the U.S. Department of Energy forecasts a 50 percent 
increase in the number of miles Americans will drive through 2030. This 
increase in driving would cancel out the benefits from the Energy 
Bill's new CAFE standards and fuel requirements. Gasoline use and CO2 
emissions in the year 2030 would be 20 percent above 1990 levels, 
instead of 30% below as required for climate protection. (I provide 
graphs and further technical details in the appendix of my written 
testimony.)
    Reducing gasoline demand will therefore require a comprehensive 
approach that includes improving transportation choices. To do that 
effectively, we must focus new land use development in central 
locations and near transit stations to shorten vehicle trips and foster 
more walkable communities. As we document in the book, Growing Cooler: 
The Evidence on Urban Development & Climate Change, people drive fewer 
miles in places where things are closer together, and when they have 
more travel options such as walking and transit. In other words, we 
need to Ask the Climate Question when we make development and 
infrastructure decisions.
    I would like to commend the Committee for your foresight in 
pursuing the transportation/land use connection via your direction in 
the 2005 Energy bill for the National Academies' Transportation 
Research Board to conduct a study on the issue. It is my understanding 
that that study will be completed next May.
How can Federal Policy Help?
    Public transit agencies are in immediate need of emergency federal 
assistance to accommodate record numbers of riders, restore service 
cuts, expand service, maintain or reduce fares, and cope with rising 
fuel bills.
    Increasing the dollar cap on fringe benefits for employee transit 
passes and expanding policies and incentives to promote telecommuting 
could provide immediate relief for many employees.
    New federal grants could help state and local governments expand 
pedestrian and bicycle facilities to make walking and biking safer and 
more convenient. For example, expanding the Safe Routes to School 
program would improve the health of our children and save gas.
    Smart growth policies that encourage infill and transit-oriented 
development will be critical to reducing future gasoline demand, 
because what we build now will last for a century--and will determine 
whether our children will have viable alternatives to paying high oil 
prices. In the short-term, Location Efficient Mortgages can help people 
afford homes in neighborhoods where they don't need a second car.
Climate Policy
    CCAP has developed a policy proposal for a federal incentive 
program that requires state and local governments to develop goals to 
slow growth in driving and reduce transportation greenhouse gas 
emissions. Allowance value from a federal cap-and-trade program would 
be used to fund goal development and implementation.
    Importantly, CCAP believes that there is no one-size-fits-all 
approach, and that solutions must be developed locally--not dictated by 
the federal government. We anticipate a diversity of measures 
applicable to urban, suburban and rural areas ranging from infill 
development and transit improvements, to intermodal freight. CCAP 
recommends a bottom-up `discovery process' in which states and local 
governments conduct scenario analyses and engage stakeholders to 
determine goals appropriate to local conditions.
Transportation Policy
    Next year, Congress will have a major opportunity to Ask the 
Climate Question.

   Will the next transportation bill reduce our dependence on 
        petroleum or exacerbate it?
   Will federal transportation spending make Americans more 
        secure or more vulnerable?
   Will the next $300 billion we spend on transportation build 
        upon the gains from the Energy Bill, or cancel them out?

    Current federal transportation funding formulas actually reward 
increased fuel consumption and increased driving. CCAP proposes that we 
reverse course.
    The next federal surface transportation bill, which we have dubbed 
``Green-TEA,'' should improve travel choices for all Americans, support 
smart growth planning, develop truly high speed rail, expand freight 
rail, increase freight system efficiency. For example, Green-TEA should 
cover the 12-year back up in funding for ``New Starts'' transit 
projects. And transit funding guidelines should ensure that the 
benefits of more efficient land use, such as decreased car ownership 
and increased walk trips, receive appropriate credit.
    Green-TEA should provide state and local governments the tools and 
resources to plan and implement transportation and land use policies 
that will cut petroleum demand, reduce greenhouse gas emissions and 
bolster the economy.
    Finally, Green-TEA should fund substantial improvements in fuel use 
and travel data. In recent years key federal travel surveys have been 
eliminated or scaled back. If we are serious about reducing petroleum 
demand and greenhouse gas emissions, we will need new surveys and 
better data to provide accurate and timely assessment of our progress, 
and to evaluate policy effectiveness. To get things moving, the 
Committee could direct the National Academies to conduct a study on 
what it would take and cost to improve fuel use and travel data to at 
least the quality levels achieved in other industrialized countries.
Closing Thoughts
    Americans are driving less. They are doing the best they can to 
cope with high fuel prices. Some are making the best of it, like my 
friend Bonnie Baker, who now walks her daughter one mile to summer camp 
and another mile and a half to the coffee shop on the way home. She's 
saving money and feeling good, and some of her neighbors have expressed 
interest in joining her! Many others are frustrated with long waits for 
the bus, or the lack of shopping within walking distance.
    But you don't have to take my word for it. Over the last several 
years, surveys by home builders, realtors and developers indicate that 
at least one-third of Americans in the market for a home want to live 
in convenient, walkable ``smart growth'' neighborhoods. Communities 
like Portland, Oregon, Charlotte, North Carolina, Newark, New Jersey, 
and Arlington, Virginia, and Sacramento, California are realizing that 
smart growth and transit-oriented development can cut fuel costs, 
reduce long-term infrastructure expenditures, improve quality of life 
and bolster the local economy.
    I'm reminded of the old joke about the man who wants more than 
anything to win the lottery. He spends his whole life praying to win 
the lottery, but never actually goes out and buys a ticket. If we want 
to insulate ourselves from oil price shocks, if we want to protect our 
communities from the impacts of global warming it's time for us to buy 
that ticket. We must make new investments in public transportation, in 
bike lanes and, yes, even in sidewalks.
    Americans have shown time and again that we are innovative and 
resilient. If we remember to Ask the Climate Question, together we can 
develop the choices we will need to thrive.
    Thank you for your attention.
             appendix: why how much we drive matters a lot
Transportation Greenhouse Gas Emissions
    Transportation sector CO2 emissions account for almost 
one third of the US total and are growing rapidly. Transportation 
CO2 emissions are a function of three factors: vehicle 
efficiency, fuel characteristics and the amount we drive as measured in 
vehicle miles traveled, or ``VMT''. CCAP refers to this as the three-
legged stool (Figure 1)*.
---------------------------------------------------------------------------
    * Figures 1-3 have been retained in committee files.
---------------------------------------------------------------------------
    Proposals for national climate legislation would set a cap on most 
GHG emitters, which in the case of transportation would be set at the 
level of petroleum refiners and importers. A GHG emissions cap could 
send a price signal to consumers of up to $0.50 per gallon of gasoline 
in 2030.\1\ A price signal of that magnitude will be ineffective on its 
own unless there are good choices of vehicles, fuels and convenient 
alternatives to driving.
---------------------------------------------------------------------------
    \1\ For example, see: http://www.epa.gov/climatechange/downloads/
s2191_EPA_Analysis.pdf
---------------------------------------------------------------------------
    A number of market failures hamper provision of low-GHG travel 
choices. For example, consider the multitude of public and private 
entities involved in planning, financing and operating transportation 
infrastructure, and the many stakeholders engaged in land use planning, 
permitting and development. Therefore, complementary policies are 
needed to address market failures and encourage the development of more 
efficient vehicles, low-GHG fuels and to increase travel choices. To be 
clear, in a comprehensive cap-and-trade system, if the transportation 
sector achieves fewer reductions, other sectors will make up the 
difference. But placing a heavier burden on other sectors may drive up 
compliance costs, whereas increasing transportation choices would make 
it easier to meet the GHG cap, reduce consumer vulnerability to higher 
fuel prices and could minimize net societal costs.
    CCAP analysis and experience leads us to the conclusion that it is 
necessary to make progress on all three legs of the stool to meet GHG 
reduction goals. In fact, projected improvements in vehicles and fuels 
are determined to be insufficient to achieve climate goals due to 
forecasted growth in driving (measured as VMT). This point is 
particularly pertinent to those industries that are typically in the 
crosshairs of regulation: electricity generation, petroleum refining 
and vehicle manufacturing--if growth in driving is not addressed, then 
power, oil and car companies may face stiffer regulation.
    The Energy Independence and Security Act of 2007 requires new 
passenger vehicles to achieve at least 35 miles per gallon by 2020, 
which would lead to a 41 percent increase in fleet-wide fuel economy by 
2030 (see Figure 2, green line).\2\ The Energy Bill also sets a low GHG 
fuel requirement that CCAP calculates would reduce lifecycle GHG 
emissions by 10 percent by 2022 (see Figure 2, purple line). If we 
assume no growth in VMT, these measures would reduce CO2 
emissions from cars and light trucks to 20 percent below 1990 levels in 
2030 (see Figure 2, dark blue line). That's just into the range of 
what's needed to be on path to 60 percent below 1990 levels by 2050. 
While other sectors would need to overcompensate if deeper GHG cuts 
were determined to be necessary, I submit that this would represent a 
rather respectable effort on the part of the transportation sector 
toward achieving the climate target.
---------------------------------------------------------------------------
    \2\ US DOE/EIA, Annual Energy Outlook 2008, http://www.eia.doe.gov/
oiaf/aeo/index.html
---------------------------------------------------------------------------
    Even in an aggressive case, with a 50 mpg CAFE standard in 2030, 
and an additional 10 percent reduction in fuel GHGs, passenger vehicle 
GHG emissions would be only four percent below 1990 levels in 2030, 
still well above the target range. There is a clear need to get 
reductions from all three legs of stool: vehicles, fuels, and VMT.
Success Stories
    Residents of the New York City region drive two-thirds fewer miles 
each year than the national average. By accident of history, New York 
City had the good fortune to develop around pedestrian and transit 
infrastructure, but has had the economic wisdom to maintain it.
    In the Portland, Oregon region, after three decades of growth 
management, transit-oriented development and improvements to pedestrian 
and cycling facilities, the amount of driving per capita decreased by 
six percent from 1990-2005, while national VMT per capita increased by 
10 percent over the same time period.
    In Arlington, Virginia, research by Dennis Leach shows that 20 
years of focused development around Metro stations has resulted in no 
net increase in local traffic despite substantial economic and 
population growth. More than a third of residents take transit to work 
and 12 percent of households do not own cars, versus four percent for 
the region as a whole. Development that would have covered 14 square 
miles in a suburban setting, takes up only two square miles around 
Metro stations in Arlington. Critically, eight percent of the County 
land use accounts for 33 percent of real estate tax revenues--providing 
a crucial funding stream for enhanced transit operations and other 
local services.
    Pre-project modeling for the Atlantic Station infill redevelopment 
project of an old steel mill site in downtown Atlanta projected a 30 
percent reduction in driving vis-`-vis suburban locations. Actual 
measurements to date indicate a 75 percent reduction in daily driving 
per resident of the mixed-use development.
    The Sacramento Area Council of Governments (SACOG) has calculated 
that implementation of the regional 2050 Blueprint smart growth land 
use plan would result in CO2 emissions 14 percent lower than 
under business-as-usual trends. Importantly, SACOG calculates avoided 
infrastructure costs of more than $9 billion through 2050 
(transportation and utility) and increased transit operating costs of 
$120 million per year. CCAP calculated consumer fuel cost savings of 
$650 million per year (at $2.50 per gallon) resulting in a net societal 
economic benefit. From a CO2 perspective, CCAP calculates a 
negative cost (i.e., a savings) of -$200 per tonne CO2. This 
net savings compares very favorably to measures such as carbon capture 
and storage, which costs +$30/tonne and ethanol at +$200/tonne range. 
With a long backlog of deferred infrastructure maintenance, and 
strained public resources, polices that can reduce the need to build 
new infrastructure are most welcome indeed.

    The Chairman. Thank you very much.
    Dr. Buiel, you're the final witness. Go right ahead.

 STATEMENT OF EDWARD R. BUIEL, PH.D. VICE PRESIDENT AND CHIEF 
TECHNICAL OFFICER, AXION POWER INTERNATIONAL, INC., NEW CASTLE, 
                               PA

    Mr. Buiel. Mr. Chairman, distinguished members of the 
committee and guests, thank you for inviting Axion Power to 
testify at this mornings hearing. We are here to talk about 
ways of reducing this country's dependence on oil. Axion is a 
manufacturer of lead acid batteries.
    We are currently developing several new advanced lead acid 
battery technologies for a variety of applications including 
hybrid vehicles, plug in hybrid vehicles, battery electric 
vehicles and conventional retrofit programs for existing 
vehicles to battery electric vehicles and plug in hybrid 
vehicles. We're also working on batteries for military 
applications that include hybrid drive trains, hybrid trucks, 
hybrid buses, hybrid trains, energy storage for renewable power 
generation, such as wind and solar, truck APU systems, to 
prevent overnight idling of trucks, emergency back up power and 
various other applications.
    Axion has also been working to demonstrate these new 
advanced lead acid battery technologies in a variety of vehicle 
programs. These programs again include the hybrid electric 
vehicle, plug in vehicle, plug in hybrid electric vehicles, 
battery electric vehicles and conventional vehicle retro fit 
programs. We are currently working with two of the largest lead 
acid battery manufacturers in the United States.
    As we explain in more detail in our written testimony, 
there's about 250 million registered vehicles in the United 
States. They have an average life span of about 9 years. 
Thirty-five percent of these vehicles are 11 years of age or 
older.
    The total world production of hybrid electric vehicles was 
only 500,000 in 2007. Although it is increasing rapidly, the 
2007 production rate only represents 0.2 percent of the 
registered vehicles in the United States. Even by doubling the 
average fuel economy it is hard to see how hybrid electric 
vehicles by themselves will have an effect on United States oil 
consumption in the near term. More details on this are in our 
written testimony.
    It seems appropriate that we as a Nation should consider 
all the available options to reduce fuel consumption. One of 
the programs that we are working on at Axion is a low cost 
battery solution that would enable the retro fitting of 
conventional vehicles as either electric or plug in electric 
vehicles. Kits are currently available from several sources to 
complete the retro fit of several dozen popular vehicle types.
    Pick up trucks and SUVs tend to lend themselves well to the 
retro fit program because of their ability to carry extra 
weight and because they have the needed available space to 
house the batteries. In our more detailed testimony we describe 
one such program that was completed on an S10 pick up truck. 
The cost of the program was $10,000.
    This included $2,000 for lead acid batteries, $4,500 for 
the kit that included the motor controller, the motor and other 
necessary components, $500 for miscellaneous supplies and 
$3,000 in labor costs. All of these costs in this project 
represent retail level pricing. Only a single prototype vehicle 
was converted and the cost would be significantly reduced if 
performed on a larger volume.
    The resulting vehicle had a range of approximately 40 to 50 
miles depending on how the vehicle was driven. For every 1 
percent of the total vehicles in the United States that are 
converted to electric vehicles, there is a corresponding 
reduction of more than 1.7 billion gallons of gasoline used per 
year. Pursuing advanced lead acid batteries for new electric 
vehicles in the future is the next step in our opinion.
    Advanced lead acid batteries provide a significantly less 
expensive alternative for consumers than the current market 
options. A new electric vehicle that has a projected increased 
cost using nickel metal hydride or lithium ion batteries are 
more than $25,000. Advanced lead acid battery solutions would 
be less than half that number. Please reference the written 
testimony for more information on this specific project.
    Currently the vast majority of battery R and D has focused 
on lithium ion. Lithium ion is the battery of choice for 
current, new, plug in hybrid electric vehicle and battery 
electric vehicle production. Lithium ion has many performance 
advantages over battery technologies such as lead acid.
    However, several other important factors should be 
considered. These include safety, which has largely prevented 
the adoption of lithium ion in hybrid vehicles up to this 
point. Cost, manufacturing base in the United States, 
sustainability and source of raw materials, again there's much 
more detailed information in our written testimony that we've 
provided.
    The written testimony that was provided also goes into a 
lot of these points in more detail and focuses especially on 
what consumers are presently willing to pay for a plug in 
hybrid electric vehicles and battery electric vehicles. We 
consider this a very important point if we're going to achieve 
the widespread adoption of any new vehicle technology. The 
report also explains why lead acid battery with their strong 
manufacturing base in the United States, excellent recycling 
and recoverability programs and the availability of the 
required raw materials within North America are a natural fit. 
We are not saying that lead acid is the only solution to move 
the electric fleet forward. But we are saying that it's one of 
the solutions and should be pursued vigorously.
    Plug in HUV and/or battery electric vehicles either new or 
converted from conventional ICE vehicles based on lead acid 
batteries would also help us develop some of the needed 
improvements to our electrical generating and distribution 
infrastructure. It would also help create distributed charging 
systems for electric vehicles that need to become prominent in 
shopping centers, places of work or anywhere a vehicle is 
parked for a prolonged period of time. These systems would 
also, could also be used for lithium ion battery vehicles in 
the future.
    Another very important concept that needs to be considered 
is the idea of electrified highway or the idea that we can 
charge our electric vehicles while driving on major highways 
and interstates in the United States. This by itself would have 
a tremendous impact on the cost of electric vehicles. Would 
help reduce the needed range of these vehicles and allow these 
vehicles to be used on long trips without frequent, multi hour 
stops to recharge their batteries.
    It would also have a huge impact on the trucking industry 
where you would likely see a reduction on the cost of equipment 
and a decrease in operating costs. Again this is a longer term 
idea that is a project that Axion is currently working to 
develop. We'd like to see participate in a demonstration 
project in 2009.
    In conclusion it seems prudent that with a large fleet of 
vehicles in the United States we should promote through 
research dollars and tax incentives a wide range of solutions 
aimed at accelerating a reduction in gasoline consumption that 
would result in a decrease in our oil dependence. Mr. Chairman, 
ranking members, thank you for allowing Axion to speak at 
today's hearing.
    [The prepared statement of Mr. Buiel follows:]

Prepared Statement of Edward R. Buiel, Ph.D., Vice President and Chief 
   Technical Officer, Axion Power International, Inc. New Castle, PA
              1 overview of different vehicle technologies
    In recent years many new vehicle technologies have emerged mainly 
in response to rising fuel prices and environmental concerns. These new 
technologies include:

   HEV--Hybrid Electric Vehicles
   BEV--Battery Electric Vehicles
   FCV--Fuel Cell Vehicles
   DID--Direct-Inject Diesel/Advanced Diesel
   FFV--Flex Fuel Vehicle
   PHEV--Plug in Hybrid Electric Vehicle
   TGDI--Turbo Gasoline Direct-injection
   ICE--Internal Combustion Engine / Traditional Gasoline

    A new survey taken by the global market research firm Synovate [1], 
found that when consumers were educated on the different available 
vehicle technologies, a large percentage, who would normally be 
expected to buy a traditional ICE vehicle decided on one of the other 
available technologies. Before and after education, the percentage of 
customers who said they would buy an ICE vehicle dropped from 76% to 
45%, and for FFV the number decreased from 55% to 42%. In contrast, the 
decision to purchased PHEV vehicles increased dramatically from 33% to 
64%, HEV from 57% to 64%, and BEV from 33% to 35%. The consumers that 
chose to remain with the ICE technology cited battery cost and life 
concerns as their main reasons for not considering BEVs and PEVs.
    Additional important facts from the survey of consumers who were 
looking to purchase a new vehicle include [1]*:
---------------------------------------------------------------------------
    * Figures 1-5 have been retained in committee files.

          1. 66% of consumers will chose vehicles that reduces their 
        monthly fuel expense.
          2. 75% of consumers said they would consider paying $1,500 
        more for a vehicle that achieves 30% better fuel economy.
          3. 25% of consumers are willing to pay $2,000 or more extra 
        for a vehicle that is significantly better for the environment.
          4. 25% of consumers surveyed expressed a willingness to pay 
        $2000 or more above the cost of an HEV to purchase a PHEV 
        (roughly $4500 more than a normal combustion engine vehicle)

    The main conclusions from this study is that consumers are willing 
to pay more for technologies that achieve better fuel economy and are 
better for the environment. However, the amount they are willing to pay 
is only $1500-2000 for conventional ICE and HEV technologies and up to 
$4500 (25% of consumers) for a vehicle that would spend a larger 
portion of time in an electric only mode of operation.
           2 hybrid vehicle influence on us fuel consumption
    Current HEV vehicles achieve between 30-50 mpg [2]. Although this 
is an improvement over the current average fleet fuel economy in the US 
of 22 mpg (Source: 2009 Fuel Economy Guide [3]) for cars and light 
trucks, this will not significantly affect US dependence on oil. The 
three main reasons for this are dilution of this technology in a large 
fleet of conventional ICE vehicles, marginal improvement of fuel, and 
low customer adoption rates and low manufacturer production rates. 
Total world wide production rates for hybrid electric vehicles is 
growing however only about 500,000 hybrid vehicles were produced world 
wide in 2007 [4].
    There are currently over 250,000,000 registered highway vehicles in 
the United States and the average vehicle life is 9.0 years and 
increasing, according to a report released by R. L. Polk & Co. [5] and 
increasing. 35% of these vehicles are 11 years or older [6]. In order 
to determine the effect of hybrid vehicles on gasoline consumption, we 
can assume that approximately 1/9th (11.1%) of the vehicles on the road 
are replaced each year based on the average vehicle life span and 
assuming that the total number of vehicles is somewhat constant. If we 
further assume that 10% of these vehicles will achieve double the 
average fuel economy of a standard passenger vehicle, then the decrease 
in gasoline consumption as a result of the introduction of more 
efficient HEV and other technologies is 1/2 x 11.1 % x 10% or 0.5%. It 
is difficult to see how this would have a significant effect on 
gasoline consumption in the near term. This also assumes that offset of 
conventional ICE vehicles was not offset by an increase inthe total 
number of vehicles which could easily over shadow the gains made by the 
introduction of these more efficient vehicles.
 3 assessment of vehicle retrofitting programs to achieve accelerated 
                       gasoline demand reduction
    Further reductions in gasoline consumption can be achieved by the 
introduction of vehicles that can operate for prolonged periods in 
electric only mode. These vehicles include PHEVs, BEVs, and 
retrofitting existing passenger vehicles to operate as BEVs (RBEVs). 
The following sections have been designed to address the minimum 
requirements of RBEVs and an analysis PHEVs and BEVs is beyond the 
scope of this report. This report is not designed to promote any single 
technology and all technologies should be pursued vigorously in order 
for the cumulative efforts to accelerate the decrease in gasoline 
consumption.
3.1 Minimum RBEV Range Requirements
    Considering the daily driving distances for US driver shown in 
Figure 4, 75% of US drivers drive fewer than 50 km (31 miles) per day 
and 90% less than 100 km (62 miles). For a RBEV, a 50-60 mile range 
would be sufficient for 90% of Americans daily driving needs. Such a 
vehicle would be considered limited compared to today's ICE vehicles 
however this may prove adequate for many 2-car families.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Although Lithium ion batteries offer the best energy density 
resulting in the longest vehicle range, this technology also suffer 
from safety problems that may require further materials R&D to resolve. 
Honda [3] and Toyota [6] both discussed safety concerns at the recent 
AABC conference. Panasonic EV Energy (the joint venture between Toyota 
and Panasonic) announced on May 27, 2008 that they would spend $290 
million on a plant to produce 100,000 NiMh batteries per year. This 
decision to focus on NiMh batteries instead of lithium ion is a further 
indication of concerns by the dominant producers of HEVs that safety is 
still a major concern for lithium ion batteries. Again, this technology 
has many merits and should continue to be pursued vigorously as a long 
term solution for BEVS, PHEVs, and HEVs. However, safety concerns and 
battery cost favor lead acid batteries and advanced lead acid batteries 
for near term use in RBEVs.
    Manufacturability should also be a major long-term concern for the 
United States. In order to guard against interruptions in the supply of 
critical commodities, it would seem prudent to focus on US made 
products. As shown in Figure 5,* the majority of Lithium ion batteries 
are currently produced in Japan, China, and Korea. There are currently 
no large volume manufacturers of Lithium Ion Batteries in the United 
States [7] although Electro Energy and EnerDel both have manufacturing 
facilities in the US.
    In contrast, the United States currently produces an estimated 120 
million lead acid batteries per year and employs over 100,000 people in 
this sector (Source: Battery Council International). 99% of lead acid 
batteries produced in the United States are recycled back into new lead 
acid batteries. The recover rate for lead, plastic, and acid is 
currently 95-99%. In terms of sustainability, you could therefore say 
that lead acid batteries represent the model by which all other 
materials should be judged.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Additionally, all electric vehicles will have significant range 
limitations due to charge time. Charge times as long as 2-3 hours and 
ranges of less than 200 miles will make long distance travel very 
difficult and subsequently will stall the adoption of electric 
vehicles. This limitation could be significantly improved by utilizing 
the concept of on-the-road-charging (OTRC). OTRC would allow the 
vehicles to charge and drive for prolonged periods. A vehicle with a 
50-60 mile range may be all that is necessary in order to provide a 
driver with the needed range to drive through a city to an Interstate, 
to charge while driving the bulk miles of his/her journey, and then be 
fully charged when the vehicle leaves the interstate to travel the 
remaining miles to his/her destination. Such a capability would also 
allow for better use of heating/cooling which is a considerable 
challenge, especially heating in cold temperatures, for electric 
vehicles. The following two illustrations are designed to provide an 
idea on how this could work.
           5 axion's advanced lead acid battery technologies
    Even though the first generation of EV-1 vehicle was capable of 
meeting the cost and range requirements for 75% of Americans, Axion has 
made further improvements to lead acid batteries that make them more 
suitable for use with HEV, PHEV, and BEV vehicle technologies. These 
three technologies include: PbC Technology; Carbon Additive Technology; 
and Embossed Grid Technology.
5.1 PbC Technology
    Axion's core technology is the development of a hybrid battery/
supercapacitor called the PbC Technology. This technology uses a 
standard lead acid battery positive electrode, a new proprietary carbon 
negative electrode to replace the standard lead negative electrode in a 
lead acid battery, and the same manufacturing process as a conventional 
lead acid battery. In addition, the new PbC Battery uses the same case, 
cover, separator, acid, and other materials that are standard in 
conventional lead acid battery construction. This is important in order 
to keep the cost of this new battery technology close to the same level 
as conventional lead acid batteries.
    As shown below,* the cells that feature the PbC negative carbon 
electrode are similar to the standard cell configurations.
---------------------------------------------------------------------------
    * All pictures have been retained in committee files.

   Longer cycle life
   Faster recharge rates
   No sulfation of the negative electrode
   Lighter weight
   Higher power capability

    All of these advantages are very important for use with hybrid 
vehicle operation. The elimination of the problem with sulfation of the 
negative electrode is also critical in allowing for regenerative 
braking in any type of electric vehicle without greatly decrease 
battery life. This is the main problem prevent the use of a standard 
lead acid battery in HEV, BEV, PHEV, and RBEV applications.
5.2 Carbon Additive Technology
    Axion has also developed a carbon additive solution for the 
standard negative electrode of a lead acid battery. This technology 
allows for much better resistance to sulfation of the negative 
electrode when compared to a conventional lead acid battery and may 
prove sufficient for several vehicle applications. Currently this 
technology is being developed by Axion mainly for use in hybrid train, 
hybrid truck, and hybrid bus applications where the cost of the 
batteries is the dominating factor.
    Axion has developed a novel new continuous paste mixing process 
which allows for higher carbon loadings in paste when compared to 
conventional lead acid battery mixing technologies.
5.3 Embossed Grid Technology
    Axion's third new lead acid battery technology was developed to 
improve the power, cycle life, and endurance of the positive electrode. 
This grid technology features a continuous sheet of lead that is 
embossed with a pattern to allow for the support of the active 
material. This technology is currently in a preproduction 
commercialization phase and will be used in all of the Axion vehicle 
demonstration batteries.
            6 axion's additional hev, phev, and bev projects
    Axion is also working to demonstrate the use of Axion's three 
advanced lead acid battery technologies in HEVs, PHEVs, and BEVs.
6.1 HEV Project
    The HEV project consists of retrofitted two Hybrid Civic vehicles 
with advanced lead acid batteries based on Axion PbC Technology.
    This project will be completed in conjunction with Provector who 
has already retrofitted Honda Civic vehicles with advanced lead acid 
batteries in the UK. Once these vehicles are completed, they will be 
put through a series of drive cycle tests to 100,000 miles to 
demonstrate the success of the Axion new battery technology. Axion will 
also work to develop an aftermarket replacement battery kit for the 
Hybrid Civic that will be manufactured in Pennsylvania as a result of 
this project that will features Axion's advanced lead acid batteries.
6.2 PHEV Project
    The PHEV project would consist of modifying two Toyota Prius' with 
an extended range advanced lead acid batteries with a capacity of 
around 20.0 kWh. This substantially increases the existing capacity by 
about 15 times (from 1.3 kWh).
    This project will be completed in conjunction with Electric 
Transportation Applications (Phoenix, AZ) who has already retrofitted 
Toyota Prius vehicles as PHEV vehicles. Once these vehicles are 
completed, they will be put through a series of drive cycle tests to 
100,000 miles to demonstrate the success of the Axion new battery 
technology. Axion will also work to develop an aftermarket PHEV 
conversion kit for the Toyota Prius that will be manufactured in 
Pennsylvania as a result of this project and feature Axion's advanced 
lead acid batteries.
6.3 BEV Project
    The BEV project would consist of modifying a pure electric vehicle 
that was developed by Advanced Composites (Harrisburg, PA) with Axion's 
advanced lead acid batteries. This vehicle has already been constructed 
and is currently using conventional lead acid batteries. The main goal 
of this project is to demonstrate the versatility of Axion's advanced 
lead acid battery technology by, for the first time, allowing this BEV 
vehicle to make use of regenerative braking. Previous versions of the 
vehicle could not make use of regenerative braking because the high 
power charge/discharge resulted in sulfation of the negative electrodes 
and premature failure of the batteries. Using Axion's PbC and/or 
Axion's Carbon Additive technology, we expect to eliminate the 
sulfation problem and greatly enhance the performance and viability of 
this vehicle. Since the vehicle has already been constructed and fitted 
with lead acid batteries, a limited amount of time and expenses are 
projected for this project.
    This project will be completed in conjunction with Advanced 
Composites. Once the vehicle is outfitted with Axion's new battery 
technology, it will be put through a series of test to determine range 
and applicability for commuter, delivery, and other vehicle 
applications.
      7 energy and environmental benefits of phev and bev projects
7.1 Energy Benefits--Fuel conservation
    Compared to other electric vehicle technologies, the PHEV, BEV, and 
RBEV projects could result in a dramatic decrease in gasoline/diesel 
fuel consumption. 90% of American's daily commuting mileage could be 
converted to electric only operation. This would result in a reduction 
of 500 gallons (approximated $2,000 per year at $4.00/gallon of fuel) 
per vehicle per year assuming a 22 mpg average fuel economy and 11,000 
miles / year average miles driven per year. This corresponds to a 
reduction of 250 million gallons of fuel per year for every 500,000 
vehicles that could be produced as PHEV, BEV, or RBEV. For the average 
consumer, charging the battery would cost roughly $3.00 (assuming 
$0.12/kWh and a 25% over charge). In order to cover the same distance 
of 75 miles in electric only mode, a standard car would consume 3.4 
gallons of fuel which costs $13.60 at $4.00 / gallon. This is a 
reduction of 78% and an annual reduction of $1560 per consumer. In 
broader terms, for every 1% conversion from ICE vehicles to BEVs, 
PHEVs, or RBEVs there is a corresponding reduction of 1.25 billion 
gallons of gasoline consumption per year.
7.2 Environmental Benefits
    Axion's current HEV, PHEV, BEV, and RBEV projects will be equipped 
with data acquisition systems that would collect and record real data 
from the actual ``real-Axion Power International, time'' use of these 
vehicles to determine further environmental benefits of these 
technologies.
    HEVs would likely reduce the gasoline consumption, unburned 
hydrocarbons, oxides of nitrogen, and air CO2 emmisions by 
50%:


            Table V: Environmental Benefits of HEV technology
------------------------------------------------------------------------
 Estimated Emission Reductions per 500,000
                 vehicles                           Tons per year
------------------------------------------------------------------------
Gasoline Fuel Reduction                              125 million gallons
Unburned hydrocarbons (HC) and oxides of                     12,000 tons
 nitrogen (NOX)
  (assumption: 44 kg per vehicle per year:
 source CARB)
Air pollutant reduced per year (specify)               1.25 million tons
 CO2
  (assumption 19.6 lbs/gallon of gasoline:
 source US DOT)
------------------------------------------------------------------------

    PHEV, BEV, and RBEVscould eliminate the gasoline consumption, 
unburned hydrocarbons, oxides of nitrogen, and air CO2 
emmisions:

     Table VI: Environmental Benefits of PHEV and BEV technologies.
------------------------------------------------------------------------
 Estimated Emission Reductions per 500,000
                 vehicles                           Tons per year
------------------------------------------------------------------------
 Gasoline Fuel Reduction                             250 million gallons
Unburned hydrocarbons (HC) and oxides of                     24,000 tons
 nitrogen (NOx)
  (assumption: 44 kg per vehicle per year:
 source CARB)
Air pollutant reduced per year (specify)                2.5 million tons
 CO2
  (assumption 19.6 lbs/gallon of gasoline:
 source US DOT)
------------------------------------------------------------------------

                            8 going forward
    Axion is not working alone in the areas we have spoken of in this 
report. Rather we are working with two of the three largest battery 
manufacturers in North America. Since we first established an MOU 
relationship in 2004, our vision remains the same going forward in that 
Axion will continue to develop technology products that can and will be 
manufactured on the assembly lines of much larger lead acid battery 
companies. In addition to our work, the entire lead acid battery 
industry continues to develop products of their own. Both cases would 
be helped by a dollar infusion for research and demonstration projects. 
While hundreds of millions of dollars have gone into other types of 
battery technologies, very, very little has gone into the enhancement 
of lead acid batteries.
    Certainly tax credits for consumers and corporations that invest in 
converting their vehicles from ICE to any of the electric alternatives 
(HEV, PHEV, BEV, or RBEV) would be a further inducement to moving the 
conversion process forward quickly. If we do not all act together--
business, consumer and government--America will be forever mired in oil 
dependency.

    The Chairman. Thank you very much. Thanks to all of you. 
Let me ask a few questions. We'll just do 5-minute rounds here. 
Let me start with a question to you, Mr. Chalk.
    We enacted as part of the 2005 bill several different 
provisions that were intended to move us toward a more 
efficient use of petroleum and I've got that whole list here. 
There were Federal procurement of stationary, portable and 
micro fuel cells, diesel emission reduction authorizations, 
fuel cell school buses, railroad efficiency, clean school bus 
program. As far as I can tell and I haven't totally researched 
this, there's never been funding provided, never been funding 
requested by the Administration for these.
    Are you familiar with this set of programs? If so, could 
you tell me anything now or for the record could you tell us 
what the Administration has done to implement any of these?
    Mr. Chalk. Yes, sir, Mr. Senator. What we can do is go back 
and for the record go down the whole list and update you on the 
actions to date.
    Just to pinpoint a few. The fuel cell school buses, for 
instance, we felt it was premature, that we don't have the 
reliability of fuel cells for vehicles so that we didn't want 
to present a safety issue by exercising that particular one at 
this point in time. We'll go back and go through all of them 
and give you where we are as far as the status of implementing 
those various pieces.
    The Chairman. That would be great. If you could get that to 
us by the time we come back into session in early September. 
That would be very useful.
    Mr. Chalk. Ok.
    The Chairman. Because this may well be a subject we're 
still debating then. I think it's almost certain we will be.
    There have been various suggestions. Some of them we heard 
this morning for how we deal with this problem. Which I think 
you referred to, Mr. Chalk, which was the turnover of current 
assets in the fleet, that we have a fleet of vehicles out 
there.
    I think you indicated that a car sold today is almost as 
likely to be in the fleet of cars being used in the 2022. So I 
guess the question is are there practical things we could look 
at? I know Mr. Laitner, you proposed that we have a tax credit 
for we provide the people for scrapping vehicles that have very 
poor gas mileage.
    I know Andy Grove, the former head of Intel, has talked 
about how we should retro fit the most inefficient vehicles in 
our fleet. I don't know if that's a practical suggestion in 
terms of the cost involved. Any of you have an opinion on which 
of these things makes sense?
    I think in each case we're talking about charging the 
United States taxpayer for the cost of doing this. I think we 
need to try to understand if the benefit would be great enough 
to justify that.
    Mr. Chalk. Let me give an analogy maybe and then an 
example. An analogy might be the transition to high definition 
TVs. You can go out and buy a new TV or if you don't want to do 
that right now you can get a rebate and go to Circuit City or 
Best Buy and buy a converter box. That way you can convert and 
you can adapt to the new signal.
    So we could evaluate programs. What if we made all new 
vehicles fuel flexible? The consideration there has to be is, 
if we were to do that, could the current legacy vehicles in the 
inventory then adapt to higher blends of ethanol and so forth.
    If we really want to make a big impact in an urgent 
timeframe we've got to do something with those vehicles that 
are in the inventory. There's got to be some kind of retrofit 
program. Of course the challenge then is to how do you 
incentivize that? But it has to be in context I would say to 
what we're sending overseas everyday for imported oil.
    The Chairman. Dr. Greene, did you have any thoughts on 
this?
    Mr. Greene. Yes, I think this question of accelerated scrap 
is to improve fuel economy and reduce oil consumption has been 
studied. In general does not appear to be a cost effective 
strategy. The variation in fuel economy across cars is perhaps 
on the order of two or three times, you know, for a very 
efficient car to a very inefficient car.
    What the scrapage programs sometimes work for is pollutant 
emissions where the pollution created by a high polluting car 
may be 100 times the pollution of a very low pollution car. 
Sometimes accelerated scrapage is cost effective in that 
situation. But I've not seen a study showing that it's cost 
effective for improving fuel economy because the difference 
between a high fuel economy car and a low fuel economy car is 
not of that same magnitude.
    The Chairman. Let me go ahead and defer to Senator Craig 
for his questions.
    Mr. Laitner. Might I respond to that comment very quickly 
because in fact----
    The Chairman. Sure.
    Mr. Laitner. We've done an analysis showing that such a 
program can be cost effective. But it has to be smartly 
designed. We'll be able to provide you with more of those 
details at a later time.
    But there are now about 90 million vehicles that would 
qualify as inefficient, roughly speaking, cars and light trucks 
on the order of less than 20 miles a gallon. So we understood 
that would be the pool that we might suggest a scrapage would 
be taken from. Then the obligation would be to buy a fuel 
efficient car.
    We would define as 25 percent above the current CAFE 
standards in that particular year. With some other conditions I 
think you'll find that it can be cost effective. Not only in 
terms of directly but again, as among the signals that we're 
trying to provide the market in terms of the demand for oil and 
its impact on price.
    The more we systematically approach a robust signal to the 
market provided with a series of actions, this being one of 
them. But others as well, including the other petroleum fuels 
that are used in industry and in locomotive or other types of 
transportation equipment. That combination will bring the 
prices down and it's the downward movement of the price that 
can add a complement to the well-being, to the benefit of the 
program. So not just directly, but the price impacts as well.
    The Chairman. Alright. Thank you.
    Senator Craig.
    Senator Craig. Mr. Chalk, I'm going to ask you the 
question, but you all might wish to respond to it because I 
have felt for the last file while it's not wise politically to 
say, the bad news is gas was $4. But the good news is gas was 
$4. America is now rethinking, in a very aggressive way, what 
we can do, both short term and long term.
    So let me speak short term recognizing that what we're 
talking about, not only in EPACT 2005, but in 2007 is more long 
term. Now we are faced with an immediate problem and a huge 
redistribution of wealth outside our country that I don't think 
we can take much longer as a country. The 1.2 billion a day or 
whatever that figure is based on 65, 70 percent dependency.
    So I want to focus short term to a fleet of automobiles 
that transitions over a longer period of time. One of the 
factors that's happening in this hemisphere, but it's a product 
of EPACT also. As we attempted to create a world gas market, by 
that I mean natural gas, liquification, porting and all of 
that. While it is moving slowly, it is moving.
    But high gas prices have also produced new technologies and 
a greater will to explore. That exploration is producing 
phenomenal results in a way that we did not anticipate it 
might. While gas prices are falling, interestingly enough, 
natural gas prices are falling faster as a percentage of total 
value than crude.
    I've asked a variety of fuel economists, is there a short 
term silver bullet? While they hesitate, they do say, and in 
fact we have a rather prominent figure out there speaking at 
the moment about it, the reality of using natural gas to retro 
fit existing fleets for a period of time. That deals with the 
problem of the guzzler. That deals with the problem in my state 
of the need for heavy long distances vehicles, farm trucks, 
ranch trucks, construction trucks.
    I have a growth State. We travel long distances in Idaho 
crushing that Ford F150 is not a very exciting idea to the 
average Idahoan. They want it. They feel they need it, but they 
can't now afford it.
    Is there a way to change it? Is there a way to adjust over 
a periodof time while we bring on all of these other ideas and 
realities we're talking about without distorting the market so 
that we don't bring them on. That I fear almost as much as 
that. I am an avid, aggressive, pro-driller. I think we need to 
look at supplies also.
    Having said that, Mr. Chalk, is it reasonable, can we, 
retrofit natural gas? Do we go to the average consumer? Do we 
go to fleets only and say to fleets you're going to retro fit?
    That's going to be the law in essence. Are we distorting 
that gas market in a way we might damage it for a period of 
time, especially if we get to silly on climate change and force 
fuel shiftings and for electrical production? Is this a 
reality, a short term reality, based on rapidly increasing gas 
supplies and the worldization, if you will, of a gas market?
    Mr. Chalk. First I would say that there's no silver bullet. 
We need all these options.
    Senator Craig. I don't disagree.
    Mr. Chalk. We've got to push through these more 
aggressively.
    Senator Craig. You're talking short term?
    Mr. Chalk. Yes. I think it's worth considering the 
proposal. Obviously, the specific proposal you're talking about 
is to replace a lot of that natural gas with wind power. That 
we can find a way then to use that domestic natural gas which 
has better well to wheel greenhouse gases for the 
transportation sector.
    Senator Craig. I didn't factor in wind power. But wind 
power is coming on much more rapidly than many of us 
anticipated it might. So it could be a factor.
    Mr. Chalk. Yes, my point is we can't have significant 
electricity generation, transportation, home heating, all on 
natural gas. I think we need to shift the electricity to wind 
and other renewable electricity resources, re-evaluate the 
feasibility of natural gas than for other uses like 
transportation, possibly replacing home heating oil. Because 
it's domestic and because environmentally it will perform 
better in terms of greenhouse gases and criteria pollutants.
    So, yes, we think it's a proposal that needs closer 
examination.
    Senator Craig. Reaction from the rest of the panel?
    Mr. Laitner. Yes, Senator Craig, I appreciate your question 
and your comment. I agree that perhaps someone in Idaho may not 
particularly enjoy scraping their Ford 150. The beauty of what 
we're proposing, first of all to put it in a context.
    We're proposing a series of structured steps. Yes, the 
crusher credit is one, but also accelerating the ability for 
telecommuting, tele-working, video conferencing. For example, I 
recently went to Stockholm, Sweden.
    I had a very good meeting with people there by walking two 
blocks down in my street and had a high quality meeting with 
about 20 people. I saved about 180 gallons of fuel, something 
like that. It benefited us here by my not doing that, using 
teleconferencing sorts of arrangements.
    If I have a colleague or friend in Illinois that wants to 
scrap his or her truck. That's something they can do to the 
benefit of your people in Idaho. The choice is there.
    They are not mandated. But we're giving the opportunities 
so that the extent others do take advantage of these, it 
benefits everybody across the board. Leaves much more flexible 
freedom and that structured set of policies I outlined about 
ten of them.
    David is suggesting some others. The complement would 
provide the market with a signal that would steady it. Then 
provide flexibility in the production system that would allow 
that market to stabilize and the price to come down to the 
benefit of the economy as a whole.
    My point is these are things that can be done fairly 
quickly. We can save oil much more quickly than we imagine if 
we put our mind to it. But there has to be a will, a political 
sense that yes, this is a reality upon us. There are some steps 
we need to take and we should follow it.
    It's in that sense that this one independent idea is among 
several that should be part of the solution.
    Mr. Winkelman. Senator, petroleum is a fabulous fuel. It's 
very efficient. If you look at transit companies, what they've 
gone to are hybrid electric--hybrid diesel buses as the 
technology of choice in terms of delivering the power they 
need.
    So I don't know the details in the natural gas technology. 
But acceleration of hybrid technologies for heavy duty diesel 
for agricultural and rural purposes could be quite important. 
Petroleum is valuable, so let's use it where it's most 
important to use that pick up in a rural setting and not take 
two tons of steel with you when you get a gallon of milk in the 
suburbs.
    In rural areas also, if you look at a traditional rural 
town center, Main Street is walk able. So if we focus on 
redevelopment in those areas, those mom and pop shops may 
actually be cost effective because the long drive out to the 
discount center is actually a lot more expensive. Finally 
freight system efficiency overall, expand freight rail and 
efficient movement of the system benefits all in terms of 
safety, in terms of movement of goods and the flow of the 
system which will benefit folks in every area.
    Mr. Buiel. Yes, Senator.
    The Chairman. Why don't you make your comments sort of 
quick so that we can get on to these other questioners?
    Mr. Buiel. The S10 pick up that we converted had a range of 
about 50 miles. It cost about $10,000 and had an ROI of 2 to 3 
years. Without any incentives, any tax breaks or anything.
    If you look at some of the new advanced battery 
technologies that feature lithium ion or nickel metal hydride, 
those have a ROI of 27 years. So I would say there is an option 
right now. It's one that we could pursue. It's one that is 
being pursued, mainly by individuals in small companies where 
it's something the retro fit program is something that we 
should look at in a lot more detail. Thank you.
    Senator Craig. Thank you, gentlemen.
    The Chairman. Alright. Senator Barrasso.
    Senator Barrasso. Thank you very much, Mr. Chairman. Mr. 
Greene, I appreciate the range of the suggestions you had. You 
mentioned that you can raise fuel efficiency by about 10 
percent by just adopting some of these issues in terms of 
driving. These are things people are doing voluntarily.
    Before the Federal Government mandates how private citizens 
choose to conserve, are you aware to the extent, if there is of 
which any of the recommendations that you have are currently 
being implemented by the Federal Government for its own fleet. 
Is that being done?
    Mr. Greene. That I'm sorry I don't know about then.
    Senator Barrasso. Recommendations for the Federal 
Government on the way they ought to be doing things?
    Mr. Greene. In terms of how they're maintaining and 
operating----
    Senator Barrasso. In terms of being efficient. I mean, you 
talked about how the average person on the street can do this 
and is increasing their efficiency.
    Mr. Greene. I think the same recommendations apply.
    Senator Barrasso. Mr. Chalk, do you know if the Federal 
Government is doing any of these, taking any of these under 
advisement, recommending it for members of our own fleet?
    Mr. Chalk. We're constantly promoting those all the time. 
One of the internal efforts that we have with the Department of 
Energy, we have about 15,000 vehicles, is to convert over time, 
in a couple of years, all of those over to alternative fuel 
vehicles and where all the DOE complexes are to have an 
alternative fuel station on that site or nearby that site.
    Senator Barrasso. You know, kind of following up what the 
Chairman had asked earlier, he talked a lot about the ideas 
that had come about of the 2005 Energy Policy Act. Do you feel 
that you're using more of a shotgun approach or are you really 
focused on a couple of things in terms of putting all the eggs 
in the same basket and watching the basket or really spreading 
out in terms of how efficient you're being and how effective?
    Mr. Chalk. We are focused, I think, in three main areas. 
One is trying to take leadership through our Federal Energy 
Management Program to cut energy use by 30 percent, at least, 
by 2015 across the whole Federal Government. DOE, as I 
mentioned, has an internal initiative really to be the first 
one out of the box, be really aggressive on that. Then our role 
as part of the Federal Energy Management Program is to promote 
those practices throughout the Federal Government because the 
Federal Government is the biggest single energy user in the 
world.
    Second, I think we're very, very focused on non-food, 
advanced biofuels. Right now biofuels, I think, are really the 
only mechanism that we have that are making a difference in 
moderating car and gasoline prices. If we didn't have the bio 
fuels and the current blended in current gasoline stock, we 
estimate that gasoline would cost anywhere from 25 cents to 45 
cents more per gallon. So that to us is critical.
    Senator Barrasso. Higher.
    Mr. Chalk. The RFS is critical.
    Senator Barrasso. Higher than what it is now.
    Mr. Chalk. Pardon me.
    Senator Barrasso. You said 25 to 40 percent higher----
    Mr. Chalk. Higher than it is now. If we didn't have the 
ethanol you'd have to replace that ethanol with gasoline and 
you'd be paying higher prices.
    Thirdly, the major emphasis right now is plug in hybrid 
vehicles. Again, this allows us to bring in electricity as a 
fuel depending on how the electricity is made we can provide 
extraordinary environmental benefits. Again we have lots of 
renewable energy.
    If nuclear comes on and over the next few years we'll have 
other options as well as clean coal. So our electricity mix 
right now is very diversified. If we use that as a fuel, we can 
get that same diversification because right now we're 97 
percent dependent on petroleum.
    Senator Barrasso. I see American families cutting back, 
sacrificing, conserving. I'm just not encouraged or convinced 
at this point that I see the same effort by the Federal 
Government to conserve on its use of energy.
    Mr. Winkelman, I had a question for you, if I could. I 
appreciated your comment where you say there was no one size 
fits all approach. For States like North Dakota, Montana, 
Idaho, New Mexico, Wyoming, rural areas, we don't have the 
opportunity to have some of the mass transit things that you 
talk about.
    You talk about the joy of being able to walk your son to 
school. That's not a possibility for many people in our part of 
the country. Do have some suggestions specific to rural 
America?
    Mr. Winkelman. Senator, I think certainly the biggest 
opportunity go in the rural areas are in vehicle efficiency, in 
terms of short term. So using the more efficient vehicle, 
keeping tires inflated. Things that people are doing all over 
the country though, about combining trips, planning ahead, make 
a big difference.
    The idea of expanded broadband so if you're not, if your 
job doesn't involve hauling things in a pick up, if you can 
actually telecommute some days, that can help. Shopping online 
as well and again, really, I go back to actually, probably I 
don't know in your community 50 years ago if children did walk 
to school if more people sort of lived closer in. We're not 
going to turn the clock back.
    But if we look at where new development goes to the extent 
it revitalizes those traditional rural town centers, that means 
you can have that walk able downtown, so shopping and such can 
happen. It's an interesting fact that many don't know, only 25 
percent of all miles driven relate to their work trip. 
Therefore shopping trips, entertainment, other trips, there's a 
lot of opportunities to address those.
    Finally, for the State as a whole, not necessarily for 
individuals, but improved freight system efficiency again is 
critical for making sure that we're moving our goods in a way 
that's energy efficient. Expanded freight rail, expanded inter 
motor facilities, even a strategic bottleneck--strategic 
capacity expansion to remove bottlenecks can help flow and 
improve fuel efficiency. So that set of measures can be helpful 
in the short term that we're all feeling the price signal.
    Senator Barrasso. Thank you, Mr. Chairman, my time's 
expired.
    The Chairman. Senator Salazar.
    Senator Salazar. Thank you very much, Senator Bingaman.
    Mr. Chalk, I have a question for you concerning flex fuel 
vehicles. Let me preface it by saying that some of the work 
that we have done in this committee has been very helpful in 
moving us in the right direction. I think you'll find broad 
bipartisan agreement among people who are part of the Set 
America Free Coalition on the kinds of the things that we need 
to do to get rid of our dependence on foreign oil. But some of 
those things are long term as we make the transition over to 
biofuels, alternative energy and other things that are part of 
our portfolio.
    My question has to do with respect to flex fuel vehicles. 
Senator Brownback and Lieberman and myself introduced 
legislation that would mandate that we have 50 percent of our 
vehicles being flex fuel by the year 2012 and 80 percent by the 
year 2015. What is your view on that? Does the Administration 
have a point of view on whether that kind of mandate would end 
up the transition of the national vehicle fleet system in the 
way that we want?
    Mr. Chalk. We believe that a proposal like that which is 
long term and durable is really necessary. The domestic 
automakers have actually committed to provide half of their 
fleet to be fuel flexible by 2012. We would like to see that 
even go farther and be 100 percent.
    As I mentioned earlier, we need some type of retrofit 
program so that we can address the legacy vehicles so they 
could also properly run on that fuel.
    Senator Salazar [presiding]. In terms of new vehicles 
though, your position would be that we ought to go further than 
50 percent and go to 100 percent by when? By 2012?
    Mr. Chalk. We ought to evaluate a very strong policy for 
going to 100 percent.
    Senator Salazar. Ok. Then with respect to the legacy 
vehicles, the position would be that we figure out ways of 
retrofitting them to be able to go flex fuel?
    Mr. Chalk. We have to address that. I think if say E85 is 
not compatible in some legacy vehicles, again, the vehicles are 
in the fleet for 15 years. So a vehicle that was sold 12, 13 
years ago, we have to make sure that it still meets emissions 
requirements, still performs the same.
    So I think you have to address that and you have to address 
cars that are under warranty. Whether we hurt that warranty 
when we start filling it up with something different. Those 
issues have to be addressed. But I very much feel that we have 
to make bold moves like that if we're going to do something in 
an urgent manner.
    Senator Salazar. Let me ask you a related question. In 
terms of the infrastructure and distribution system for the 
alternative fuels, I know that we have made some headway in 
terms of retail establishments out there that now provide 
ethanol and other kinds of biofuels. But it seems to me that we 
have a long ways to go there. I would ask you the question as 
to whether you agree with that assessment that we still are 
only at the very beginning stage of that?
    Then second of all if you agree with that assessment, what 
is it from a policy point of view that you think we could do to 
try to get the infrastructure and the distribution system up to 
where we need it to be in order to bring in this flex fuel 
national vehicle fleet system?
    Mr. Chalk. Yes, I would suggest it's a dual strategy. E85 
stations, I think we installed about 300 or 400 last year. So 
they're going in at a rate roughly one a day right now.
    But those tend to be in the Midwest, concentrated in that 
area. So I would also suggest that we have a blend strategy. So 
right now, gasoline if you buy it an area that requires 
reformulated gasoline is E10. We're doing testing right now for 
higher blends of ethanol in gasoline.
    Flex fuel vehicles would be able to take E20, 30, 50, so we 
can have a higher blend strategy as well as promoting fuel flex 
vehicles with straight E85. So I would propose that we 
aggressively pursue both of those.
    Senator Salazar. So what's the timeline for you? How fast 
can we get this done?
    Mr. Chalk. I think we have to go and evaluate that. But I 
think policies like the RFS and the CAFE that are in EISA are 
model policies to push and push them in the direction with all 
vehicles being fuel flexible.
    Senator Salazar. Ok. Dr. Greene, and if there are any other 
comments.
    Mr. Greene. Yes, I'd just like to comment on the question 
of the availability of infrastructure, the E85 stations. The 
studies that we've done and that National Renewable Energy 
Laboratory have done looking at the experience of the State of 
Minnesota indicate that for most of the history of E85 sales in 
that State there's been a surplus of FFEs and a shortage of 
stations. So increasing the amount of stations has been the 
most important factor in Minnesota in increasing purchases of 
E85, more important than the run up in price of gasoline.
    So and they are now approaching about 10 percent of the 
stations, so with E85 availability. So I think that getting the 
E85 availability is----
    Senator Salazar. Is Minnesota an aberration to what we see 
happening everywhere else around the country in terms of E85 
stations coming on board?
    Mr. Greene. Yes, in a sense that they've made a greater 
effort.
    Senator Salazar. Is that coming from the State level as a 
policy initiative of the State or why is Minnesota up to the 
point where they have 10 percent of their stations converted?
    Mr. Greene. I think the commitment of the state is clearly 
important, but I couldn't say exactly how to attribute the 
credit let's say, for making that happen. But it's clear that 
the binding constraint, if you will, on E85 sales has been the 
availability of fuel at stations.
    Mr. Chalk. There are about 1,500 stations compared to 
165,000 gas stations nationwide. So you can see that that is a 
critical issue.
    Senator Salazar. Thank you very much. Mr. Chairman, I know 
that my distinguished member/partner in this committee, Senator 
Menendez is waiting.
    The Chairman [presiding]. So is Senator Sessions. I think 
Senator Sessions was here first. So we'll go to him and then 
Senator Menendez.
    Senator Sessions. I know Senator Salazar and I share a 
concern of national security is also a big part of our need to 
reduce our dependence on oil. I just note today's Washington 
Times that Mr. Chavez from Venezuela arrived in Moscow 
yesterday on a billion dollar shopping list of armaments 
including submarines and helicopters. It's his third visit, in 
2006 when he purchased $3 billion in armaments.
    He doesn't know what to do with the money and a lot of 
these other countries don't either. It's really our money that 
has been extracted from us as a result of high prices. So we 
have a lot of reasons to take firm action.
    I think that leads us in a position for bipartisan 
agreement, Mr. Chairman. I think there is a real possibility 
that if we make up our mind to do some things that work, we can 
do so. I certainly am willing to work with my colleagues and 
see what we can do.
    I would just ask on ethanol, Mr. Chalk, we're using all the 
ethanol we produce now. President Bush, one time made the point 
that we don't want to transport ethanol all the way across the 
country at great expense of energy to have a national mandate. 
It should be regional.
    If we produce more ethanol, presume that we'll use that. So 
it's not so much the E85 engines, is it? Aren't we able to use 
all the ethanol we can produce? Shouldn't we figure out how to 
produce more without impacting adversely our food prices and 
other things?
    Mr. Chalk. That is a challenge, Senator. About 25 percent 
of the corn crop is devoted to ethanol. We have targets that 
are growing in the renewable fuel standard so we need to keep 
pushing our technology, accelerating it, which is based on all 
non-food sources and hit those targets at a faster pace with 
non-food based ethanol.
    It's an important piece of the economy in terms of rural 
development and jobs.
    Senator Sessions. I would just say that I think we are 
going to have a breakthrough in cellulosic. I talked to some 
people, an individual today, that's absolutely convinced. We're 
at the point, I think we'll make that breakthrough and 
hopefully if we have an inability to disseminate it, we need to 
take government action.
    Dr. Greene, diesel automobiles run approximately 35 percent 
further on diesel fuel than a similar gasoline automobile. 
Diesel powered automobiles get more miles per gallon than 
hybrids. In addition to being fuel efficient they emit fewer 
CO2 emissions than similar hybrids or gasoline 
engines certainly.
    According to the EPA if 33 percent of American drivers 
switched to diesel, oil consumption in United States would be 
reduced by approximately 1.5 million barrels a day which would 
cut imports by as much as 10 percent. Based on these facts will 
a sustained policy to promote diesel fuel, conserve gasoline 
and help us be more efficient? Can Congress do more?
    I know a diesel engine is more expensive, 1,500, 2,000 
dollars maybe more in some cases. What are your thoughts on--I 
would just note that Europe has 50 percent of its automobiles 
are diesel. We have only 3 percent in the United States.
    Mr. Greene. Yes, I think I agree with almost everything you 
said about diesels. I think hybrids, full hybrids, vehicle 
system will emit fewer greenhouse gas emissions than a diesel. 
Diesel fuel has more carbon in it and so that works against the 
diesel in terms of greenhouse gas emissions.
    But it is 30 percent or 35 percent more fuel efficient. 
Diesels have been held back in this country by the difficulty 
in meeting our NOX emissions standards. But 
technical solutions are now available and we will see clean 
diesels in the marketplace soon.
    I think we already have them, some, using this blue tech 
system. But I think we'll see more and more diesels. I think 
they in many ways are complementary to hybrid technology in the 
sense that hybrid technology is most effective in urban 
applications where there's a lot of stop and go driving. 
Diesels are more effective in long distance operations and for 
vehicles that have to do towing and carry loads.
    So I think we'll see a lot of complementarity. I agree that 
it's appropriate for the Federal Government to encourage the 
market for hybrids as well as encourage the market for diesels.
    Senator Sessions. Mr. Chalk, is there some reason that we 
have only 3 percent of our automobiles are diesel where Europe 
has 50 over us? Isn't it true that compared to a conventional 
gasoline engine it emits less CO2 and less 
NOX?
    Mr. Chalk. Yes, sir. It's more efficient so it emits less 
CO2.
    Senator Sessions. Finally what can we do here? What should 
we be doing?
    Mr. Chalk. I think because of the RFS and the ethanol focus 
that we have on cellulosic, we're focused on that because we 
know we can do that in a short timeframe. But it's really 
geared toward light duty.
    I think what you're bringing up is diesel and we need to do 
more for heavy duty. Worldwide heavy duty is usually a much 
bigger energy user than light duty. This country is different, 
but we need to come up with a substitute for petroleum based 
diesel and do more for bio-based diesel.
    Senator Sessions. What are we doing anymore? Are the things 
that you would recommend Congress do to, briefly, to increase 
diesel utilization in the----
    Mr. Chalk. I think we need to evaluate whether we should 
have a bigger program targeted toward biodiesel. It's not 
sustainable to do biodiesel off soy beans, to look at other 
potential avenues to create a diesel-like fuel. That way alleve 
our or reduce our oil use in the heavy duty sector, which is 
growing, and again worldwide heavy duty is a much bigger issue 
than light duty.
    I think that's the piece that we're not addressing through 
CAFE and our current focus on renewable fuel standard. There is 
some diesel in the renewable fuel standard, but it's not as big 
of an impact as the gasoline portion or the ethanol portion for 
light duty.
    The Chairman. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. Thank you all 
for your testimony. Mr. Winkelman less than a year ago we 
finally pushed the Administration to raise CAFE standards for 
the first time in decades.
    In April the National Highway Transportation Safety 
Administration proposed rules to implement this change. Now 
unbelievably to me, at least, they based their analysis on the 
assumption that gas will cost $2.26 in the year 2016. So we 
long for 2016.
    When you model the costs and benefits for raising mileage 
standards using such a low price point that means that the 
proposed increase in CAFE standards is going to be much lower 
than it should be, we're facing the largest oil crisis since 
the 1970s. Yet it seems to me that the Bush Administration is 
still pursuing undermining the very essence of what the 
Congress tried to do. So I don't think it's realistic to see 
cheap gas in the year 2016, let alone in 2030.
    So that's why several of us in the Senate have joined in 
sending a letter to the Energy Information Administration 
asking them to re-evaluate their forecasts which were the basis 
of the Administration's proposal. So first, let me ask the 
obvious. Do you think that gas will cost $2.26 in 2016?
    Mr. Winkelman. Boy, if I knew the answer to that I'd be a 
pretty wealthy man. We did a straw poll of a meeting we held 
with a number of State secretaries of transportation, Federal 
experts and others. I think there's an expectation that at 
least the amount of driving will continue to grow but perhaps 
not at the same rate.
    That's really where really I focus. I think that it assumes 
some higher fuel prices in the future, maybe not as high as 
current level.
    Senator Menendez. I think it's pretty safe to say thatwe're 
facing a little over four dollars a gallon today, that that is 
unlikely to happen in 2016, even with reduced demand. So if gas 
continues to cost four dollars a gallon what do you think is 
the maximum feasible fuel economy for our fleet?
    Mr. Winkelman. In what timeframe?
    Senator Menendez. In the timeframe? Let's put the same 
timeframe, 2016.
    Mr. Winkelman. In 2016. With fleet turnover it takes a 
while in the current, the new standard is 35 miles per gallon 
for new vehicles in 2020. But if you sort of look in that 
timeframe----
    Senator Menendez.--2020.
    Mr. Winkelman. What's cost effective, I would expect that 
40, 45 miles per gallon could be cost effective in that 
timeframe with these fuel prices. But I would defer to Dr. 
Greene, who's really the expert on that and has those numbers 
in his head.
    Senator Menendez. Do you want to extrapolate the numbers in 
your head, Dr. Greene?
    [Laughter.]
    Mr. Greene. Could I address first the oil part of your 
question? I think that we had a run up similar to this in oil 
prices from 1979 to 1985 and prices did collapse in 1986 as a 
consequence of both increased supply and reduced demand 
worldwide. This is a question that has to do with market power 
of the oil producers and their ability to hold oil prices high.
    If we see the oil producers having to cut back on 
production to keep price high then we can expect their prices 
will come down sometime in the future. If they don't have to 
cut back production to keep prices high, then there's no 
telling when the prices will come down. This I think has to do 
with the question of whether oil supply outside of OPEC is 
peaking now or not.
    It's a critically important question. Our supply peaked in 
1970 and then in effect enabled OPEC to control the world oil 
market shortly thereafter. So I think this is a really 
important question for us to understand.
    Senator Menendez. But notwithstanding all of that and the 
other thing that we didn't have in 1970 was the incredible 
economies of China and India creating a huge demand. So it's 
fundamentally different in terms of the present timeframe, not 
withstanding the other elements. I mean do you see gas prices 
being $2.26 in the year 2016?
    Mr. Greene. I think Mr. Winkelman was correct in being 
hesitant in predicting that. I think it could be if oil is not 
peaking now. There are lots of factors that could--and how fast 
the world responds. How much it responds and how effectively it 
responds to high prices. It's possible.
    On the other hand it's also possible that prices stay this 
high. We can make gasoline out of coal at this kind of price 
and make a lot of money doing it. We could make certainly, 
gasoline out of oil sands and heavy oil. We can make bio fuels 
at these prices and make money.
    So there are many ways to increase supply at $130 a barrel 
of oil. But then there's also the question of climate change 
and whether things like making gasoline out of coal which 
doubles the carbon dioxide emissions is going to be acceptable.
    Senator Menendez. Dr. Greene, let me just say, 2016 is a 
little less than 8 years from now. To believe, especially as we 
are having major debates on the floor of trying to get the 
energy tax credits moved forward so that we can incentivize and 
commercialize and bring to the marketplace many of the various 
essences of what we're talking about as different renewable 
fuel sources. That's going to take its time to get.
    I don't believe that anyone can sit here and tell me that 
in 2016 that gas prices are going to be $2.26 a gallon. I think 
it is purposely underestimating the amount of where gas prices 
will be so that in fact we have a different effort on CAFE 
standards than where we need to be. Because I believe, 
obviously, if we would look at how much oil we would save in 
2016 if we set a standard based on what gasoline really costs 
that that would be far more significant.
    I think that's what at work here. I understand nobody wants 
to say what the gas price is in 2016. But I've got to be honest 
with you. I don't believe it's going to be $2.26.
    Mr. Winkelman. Senator, I mean, perhaps I'll stick my neck 
out a little bit. But you know, I think I agree it's hard to 
imagine that price in 2016. What's harder to imagine is that 
our current policies assume that price whether it's fuel 
economy policies or transportation infrastructure.
    The way our society is built from the freight system to 
suburbs to transportation infrastructure assumes low cost 
gasoline. That's going to take some time to transition. So it's 
very risky whether you look at oil security or climate change 
to make decisions assuming low cost gasoline.
    Senator Menendez. That was the essence of what I was trying 
to put forth. Thank you, Mr. Chairman.
    Mr. Greene. Could I just comment quickly that I'm not 
arguing that we shouldn't make our plans based on gasoline at 
$3 or $4 a gallon. There are other reasons for doing that. The 
price of oil may very well may be high enough to make gasoline 
stay at $3 or $4 a gallon over this time period.
    So I'm not arguing with you on that point. All I'm saying 
is that it's uncertain. When we're making policies to try and 
drive down the price of oil we should make sure that our 
policies are robust in case we succeed.
    Senator Menendez. I would suggest and then I'll stop, Mr. 
Chairman. I would suggest that in fact having a more realistic 
gas price as the essence of the denominator by what you're 
going to make this determination would actually pursue the very 
essence of that policy.
    Mr. Greene. Yes, I certainly agree with that. So I didn't 
want to----
    Senator Menendez. Let me just say for the record I hope 
that gas prices are $2.26 in 2016, Mr. Chairman. I don't want 
anybody to confuse my insistence on that I don't think it will 
be that. But I certainly aspire for it to happen.
    Mr. Laitner. Senator, if I might add just one other 
comment. A colleague, Charlie Maxwell, who is an oil 
forecaster, who coined the phrase, ``Energy Crisis'' in 1973, 2 
years ago was suggesting that our production capacity might be 
looking at $150 to $200 barrel oil price 2 years ago by 2020. 
That would seem to militate in favor of the current level of 
prices well above $2.16 or $2.26.
    I would invite maybe a serious look at some of the work 
these folks are suggesting that we don't often hear about.
    The Chairman. Thank you very much. I know Senator Lincoln 
arrived here. But she's still getting oriented.
    Let me ask a couple of questions. Dr. Greene, you have in 
your testimony, you say the time has come to update the test 
procedures for determining compliance with CAFE standards. 
Beginning with model year 2008, the EPA fundamentally changed 
the fuel economy estimates it provides to the public on window 
stickers in the fuel economy guide.
    But then you say these changes incorporate several 
important real world factors that effect in use fuel economy, 
but are not included in the city and highway test cycles used 
to determine compliance with CAFE standards. Could you indicate 
to me what--is this a problem in the legislation we passed or 
is this a problem with the way it's being implemented or what 
is the problem here? What needs to be done to get these fuel 
economy standards updated throughout the system?
    Mr. Greene. I think there is a legislative requirement here 
because the legislation specifies the test cycles that will be 
used and those are the city and highway cycles. Manufacturers, 
understandably, don't want the test cycles changed because 
they're accustomed to the test cycles they have. They're used 
to dealing with them.
    But these test cycles don't include high speed driving. 
They don't include aggressive acceleration. They don't include 
use of air conditioning.
    The EPA has recognized those problems in revising the way 
it reports fuel economy information to the public. But the EPA 
does not have the authority nor does the NTSA have the 
authority to change the test cycles that are used for 
compliance with the CAFE standards. That would require some 
legislation, I believe.
    The Chairman. Ok. So we should change the law related to 
the test cycles that are used to determine CAFE, compliance 
with CAFE standards?
    Mr. Greene. That's my opinion, yes.
    The Chairman. Ok. Let me go ahead and defer to Senator 
Lincoln for her questions at this point.
    Senator Lincoln. Thank you, Mr. Chairman. I appreciate all 
of your efforts. You've been wonderful in helping us try to 
find the sweet spot of where we need to be.
    I come today really with the concern from someone who 
represents a rural state. We've got a lot of hard working 
families out there, low income, hard working families. 
Disproportionately in our rural state you have low income hard 
working families that live in rural areas which mean they have 
to travel greater distances.
    Oftentimes because of the work that they do they have to 
use larger vehicles whether it's trucks or vans or farm 
equipment or what have you. So they're seeing a 
disproportionate share of the burden that exists right now with 
these prices. We've had studies that came out that were 
performed in May, I guess that indicated that on average 
working families in Arkansas are spending 8 percent of their 
income on fuel.
    In some of the smaller, more rural counties they're 
spending up to 11 or 12 percent of their income just on fuel, 
which has taken a huge hit, particularly with the fact that 
they're seeing an increased cost of food and other things. So I 
guess I'm wanting to ask if any of you all have an idea or 
seeing a greater emphasis on how we deal with these issues in 
regard to low income families. Again, a state like mine we rank 
48th in the country in terms of income which means, you know 
the majority of these people are hard working.
    But they're low, you know, less than 25, let's see, 50 
percent of the people I represent have adjusted gross incomes 
of less than 50 or less than 25,000 a year. Eighty percent of 
them have an adjusted gross income of less than 50,000. So if 
they're spending 8 to 12 percent of their income on fuel it's 
taking a real toll.
    I know that in some of the testimonies that we've read 
here. I know Dr., is it Buiel?
    Mr. Buiel. Buiel.
    Senator Lincoln. Buiel. You cited a study that found 
consumers are willing to pay more for technologies that achieve 
better fuel economy. But the amount they're willing to pay in 
States like mine is sometimes unaffordable. I mean, 1,500 to 
2,000 for conventional hybrid electric vehicles, up to 4,500 
for plug in electric hybrid.
    I guess it just concerns me that technology that's going to 
allow customers to achieve greater gas mileage and limit the 
effects on the environment are more and more expensive. One, 
you know, the solutions of how we get more and more of these 
technologies out quicker. I know we've talked in the extenders 
package and others on how we can create a greater opportunity 
to get more of this technology out there.
    It's not just the research that produces the technology. 
It's also the delivery mechanism. I know in visiting with a lot 
of our oil marketers and others, the delivery of renewable 
fuels.
    They've upgraded their systems in many ways. They use--
they've met our standards in terms of their tanks and their 
piping and other things like that. So we don't have the 
corrosion and the leaking underground storage tanks and others. 
But unfortunately many of those systems are put together with 
glues that if we increase the amount of alcohols in our fuels, 
it's going to erode the newer technology that they just spent 
all this money implementing.
    So maybe you can elaborate, any of you all can elaborate on 
whether it's what we do in focusing on what low income, working 
families are faced with. How we're going to make better 
accessible the new vehicle technologies and the new fuels to 
these low income folks, getting it out there, the 
infrastructure that's needed out there. I don't know that you 
all have talked much about infrastructure today or not. I don't 
know. I've been watching a little bit.
    Also if you could elaborate on the potential for vehicle 
retrofitting programs for existing passenger vehicles, whether 
it's electric. I saw a program, night before last on how we're 
seeing a lot of people that are retrofitting their existing 
vehicles with batteries. It seems kind of cumbersome and 
impractical. I don't know.
    When I was growing up all the farmers in our community 
retrofitted their trucks to burn propane which is about half 
the price right now what they're seeing with diesel. You know, 
any options there you can enlighten us with?
    Mr. Winkelman. Senator, if we look at this from a national 
security perspective, we don't think much of spending several 
billion dollars on national security.
    Senator Lincoln. That's right.
    Mr. Winkelman. We think of it as a national security 
priority to give people that couple thousand dollars it takes 
to afford that more efficient pick up truck or vehicle. That 
could go a long way. If you look at it in terms of the amount 
of money it costs to save a gallon of gasoline or the 
perspective I come from often, the amount it costs to reduce a 
ton of CO2, ethanol is about $100 to $200 a ton.
    Fuel economy is negative cost per ton which means it pays 
back. Which means, there's net societal savings in compact 
development, transit. Smart growth policies also are negative 
cost per ton meaning there are net benefits for society.
    So if we look at that and if we think of the amount of 
money we spend on our priorities. We make this a priority. I 
think there could be immediate assistance.
    But there also needs to be that demand for saying we need 
more efficient vehicles. We are an entirely new regime with 
these fuel prices.
    Senator Lincoln. That's right.
    Mr. Winkelman. Changes that we thought people would never 
make. People will never drive less. People will never, you 
know, care about fuel economy more than they care about their 
cup holder or their floor mat when they buy new car. That's 
changing.
    So all of the assumptions have changed and so the policies 
need to change to rise to that occasion.
    Senator Lincoln. There's no doubt that we've got to change 
the culture. You're exactly right. At $4, $4.50 a gallon, it's 
changing the culture of the way people think. Yes, sir?
    Mr. Laitner. Senator, I think you're asking an important 
question. One that really speaks to the need for a broad range 
of steps or policies that provide a signal to the marketplace. 
We've identified in our testimony the ability, short term, to 
save oil in a hurry if we have a fairly disciplined or rigorous 
approach at all levels. Whether it's providing immediate 
transit subsidy or investment to mass transit because they're 
overwhelmed by what the system cannot accommodate right now to 
what we call the crusher credit to a resolution directing and 
reaffirming the importance of the efficiency resource.
    All of these together offer a systematic signal to the 
market that I think will start putting a downward pressure on 
price. If we achieve say a ten dollar barrel reduction fairly 
quickly, whether your individual voters and people can respond 
initially. If everybody participates at some level, a $10 drop 
in the barrel of oil might save us on the order of $75 to $80 
billion a year right there.
    So a systematic set of structured approaches. Whether a 
person can go out and buy a more expensive automobile, a more 
efficient automobile will benefit by others taking actions 
where they can. Whether it's the Federal Government doing its 
job to ferret out inefficiencies at all levels. Whether it's 
promoting things like video conferencing or telecommuting, 
those save gasoline in the short run that help stabilize and 
bring downward pressure on prices.
    So it's the set of things together that I think at the near 
point in time that will help your voters in the immediate 
sense.
    Senator Lincoln. They definitely need some immediate 
assistance. That's for sure. Dr. Greene?
    Mr. Greene. Yes, Senator, if I could comment that just in 
my remarks I listed a number of immediate actions that can be 
taken by people to improve their fuel economy and save fuel.
    Senator Lincoln. Checking tires and that kind of stuff.
    Mr. Greene. Many of these things they'll already know. But 
some of them might not be so obvious such as trying to combine 
short trips. People don't realize how inefficient cold start 
driving is relative to driving with the engine warmed up.
    But there's a whole list of these things. Each one of them 
is a small thing. But put together they can save perhaps 10 
percent or so in fuel right now.
    They can be found on fueleconomy.gov. They can be found on 
the EPA Smart Way site. I think we could do more to make these 
available and known to people than we're doing now actually. 
Even though a lot of these things are already known and a lot 
of your constituents are already practicing them.
    I also want to note that I talked about incentives for 
efficient vehicles. One of the things I noted was that there 
should be greater incentives for a large pick up truck or SUV 
if it's used as a diesel engine or if it's converted to a 
hybrid system than for a small passenger car. Why, because it's 
saving more fuel than the passenger car.
    I think these kinds of things we could incorporate into our 
incentive systems for hybrid and diesel vehicles.
    Senator Lincoln. That's an important issue that I think a 
lot of times when we bring up, up here, you know it just is 
seen as a regional battle or regional differences. But I'm a 
farmer's daughter. I grew up on a farm.
    There's no way that my dad could carry the equipment he 
needed around in the back of a compact car. You know, so it is 
a part of doing business. Just saying we're going to do without 
those vehicles.
    Yet we also have an automobile parts plant in my former 
congressional district, the Eastern part of my State, and 
they've gone dormant. I mean they've, you know, temporarily 
shut down because the demand for pick up trucks and others has 
gone away. To me it makes sense that we would be looking at 
ways that we could still produce some of those vehicles with 
retrofitting or other things.
    It doesn't seem like when you see these programs on 
television. We hear you all talk that making these shifts are 
that difficult. But we don't seem to be doing it. Thank you.
    The Chairman. Let me call on Senator Salazar for any 
additional questions and then Senator Sessions.
    Senator Salazar. Mr. Chairman, I think this hearing has 
been an excellent hearing. One suggestion that I would make to 
you and to members of the committee that the staff memorandum 
that was prepared by Deborah Estes and Kellie Donnelly, I think 
lists much of what we have been working on in a bipartisan way 
to get to oil savings. I think it would be a good thing for us 
to require a report back from the Department of Energy on where 
they are on each of the specific sections.
    The Chairman. We did. We requested that. Mr. Chalk has 
agreed that they'll have that for us when we return in early 
September.
    Senator Salazar. I think that will be very useful for us as 
we make our decisions about how we move forward. Because I 
think in many of these ideas we have taken through the crucible 
of legislation. The question is where we are relative to the 
status of their implementation. Then what additional things we 
might be able to do.
    But anyway, let me ask just this very simple question. I 
would ask each of you to take 30 seconds or so to respond to 
it. Much of what we talk about in the 2005 and 2007 act is 
going to take some time to implement. You know, 2012, 2015. 
We're talking about longer term agenda.
    We have a problem right now, today. We all know what it is. 
People are very concerned.
    So if you were to form a congressional point of view and 
our authority require action in the United States of America 
immediately to reduce our consumption of gas. What would the 
top two things be that you would recommend to the Energy and 
Natural Resources Committee in the United States Senate? What 
would the top two things? Each of you gets two items.
    So how about I start with Mr. Chalk since you've been 
working with us for a long time on this issue. Start with you 
and we'll just go right across. Take about 30 seconds.
    Mr. Chalk.
    Mr. Chalk. Overall, as I mentioned in my testimony, I think 
all of these technologies are near or are ready to enter the 
market. We need mechanisms that will allow faster adoption. The 
example I gave is that it took 7 years for hybrid vehicles to 
reach 2 percent.
    We've really got to address that issue.
    Senator Salazar. So expedite the adoption of many of the 
policies that we have. What would be your second one, like in 
short term? What do we do immediately?
    Mr. Chalk. I think we have to take a harder look. I think 
we can do more for our vehicle efficiency. I think we can do 
more with an array of alternative fuels.
    Senator Salazar. Ok.
    Dr. Greene. Two things.
    Mr. Greene. Yes, I think the first thing is I would re-
double our efforts, maybe quadruple our efforts to make sure 
that people understand how their driving behavior effects fuel 
efficiency. How maintenance and such effects fuel efficiency. I 
would do more to make sure that the information we're giving 
them is accurate and as individualized as possible.
    The second thing I think is a comprehensive system of 
incentives for purchasing more fuel efficient vehicles as well 
as disincentives for purchasing less fuel efficient vehicles. I 
mentioned this. Sometimes it's called fee-bates.
    But I think that is a complementary system to fuel economy 
standards.
    Senator Salazar. So consumer education and incentives for 
fuel efficient vehicles. Those would be your two top 
priorities.
    Mr. Laitner.
    Mr. Laitner. Yes, thank you. I would suggest in my policies 
numbers one and four. The first one is, again, a directing the 
Federal Government to within its current budget authority and 
with its ability as it stands now to determine all efficiency 
measures that can be implemented in ways that are not now being 
advanced.
    I've talked with colleagues. I'm a former EPA employee. 
I've talked to a number of my former DOE and EPA colleagues who 
are just chomping at the bit waiting to be able to bring forth 
their own creativity and their own willingness to develop much 
more in the way of efficiency opportunities they can support.
    Senator Salazar. So additional fuel efficiency measures 
that we have not yet put into place in policy. That's one.
    Mr. Laitner. Exactly. There are a wealth of things that can 
be done.
    Senator Salazar. What else?
    Mr. Laitner. The second one would be my recommendation for 
a national telecommuting and teleconferencing initiative. We 
can do considerably more than we're seeing now in the way of 
allowing teleworking, telecommuting, videoconferencing in huge 
numbers that in effect allows ICT, Information Communication 
Technology, be an OPEC equivalent resource.
    Senator Salazar. Ok.
    Mr. Winkelman.
    Mr. Winkelman. Yes, Senator. The first would be, as I 
proposed, emergency funding for transit. As you know the 
regional transit district in Denver and transit agencies around 
the county are either cutting service, raising fairs or faced 
with cutting service due to high fuel prices.
    So they need immediate assistance due to state and local 
budget problems. They don't have the money for operations.
    Senator Salazar. Ok. Emergency funding for transit. Second?
    Mr. Winkelman. Second is providing resources for states and 
metropolitan planning organizations to develop plans to reduce 
fuel use and greenhouse gas emissions. In your region, Dr. Ka, 
at the Denver Regional Council of Governments has developed 
those sorts of plans so that states and local governments going 
forward can figure out what works in their community. Whether 
it's inter-motor rail in a rural area or transit in a--so a 
requirement in resources.
    Senator Salazar. Thank you, Mr. Winkelman.
    Dr. Buiel.
    Mr. Buiel. I think with 250 million vehicles on the road 
and an average lifespan of 9 years we really need to focus on 
anything. So the two that I'll pick are two that I think aren't 
being pursued right now. The first is the retrofitting of 
vehicles, complete with subsidies and tax incentives and also 
possibly financing options. So those vehicles, you know, pay 
back in 3 years. So with a 5-year, you know, 5-year financing 
that could actually directly affect people in rural states 
immediately.
    The second thing I would look at is infrastructure. We need 
to start developing the distributed charging infrastructure 
that I talked about in my written testimony. We also need to 
talk about the electrified highway. Because it enables electric 
vehicle technologies at a much lower cost to the consumer and 
also provides them with much the same driving experience that 
they're used to.
    If somebody wants to drive, you know, from New York to 
Florida and not have to stop every couple hours and wait 3 
hours for the vehicle to charge. You're going to need to be 
able to charge the vehicle while it's driving on a major 
interstate. So those are the two that I choose.
    Senator Salazar. Thank you, Dr. Buiel. Thank you, Mr. 
Chairman.
    The Chairman. Senator Sessions.
    Senator Sessions. Mr. Chairman, I do think this is a 
national crisis. It's time for us to take firm action. I look 
forward to working in a bipartisan way to doing that.
    I just have been handed a note that indicates that the 
majority leader, Senator Reid has propounded a unanimous 
consent request that we just have one vote on the Republican 
package and one vote on the speculation package. Which I think 
is a saying that we don't have time to do that before we break. 
I believe that's a mistake.
    I think we just should stay here. Do some things. Make this 
work. It's also sort of an admission that nothing is going to 
get done of a serious nature.
    This is an excellent hearing. Thank you very much for doing 
it. I've learned some things I did not know. I'm more confident 
that we can make progress than I was before this committee 
started.
    I would just ask you, Mr. Boone Pickens is running ads 
saying that we ought to utilize natural gas for vehicles and 
replace that electric generation that we're using natural gas 
for today with wind. I understand that Secretary Bodman, Mr. 
Chalk, once said that utilizing natural gas for electric power 
is like taking a bath in fine scotch. I don't know if that's 
accurate. But it does seem to me that we are--we could use 
natural gas more for automobile and vehicular use, buses and 
fleets.
    Dr. Greene, I'll just start with you. You've studied all 
this. How do you feel about Mr. Pickens' suggestion that we use 
natural gas more for vehicles?
    Mr. Greene. There are certain applications which vehicles 
running directly on compressed natural gas are a good choice. I 
don't think we will want to convert our entire vehicle fleet to 
compressed natural gas. It's also possible to convert natural 
gas to distillate fuel or gasoline. We may want to consider 
some of that as well.
    I don't see this as the sweeping solution to everything. I 
also think we should do more with wind power than we're doing. 
But I don't see this as the silver bullet solution. I think 
it's, again, one of the things we can do.
    Senator Sessions. With the pressure we tend to be placing 
on the electric generation industry to produce more electricity 
with less emissions seems to be driving them toward natural gas 
more and more. Mr. Chalk, is that a good direction? Should we 
utilize nuclear or other sources of energy more that natural 
gas?
    Mr. Chalk. We believe we need all the options-nuclear and 
clean coal options as well as other renewables. Wind power is a 
great example. That was the second fastest growing power plant 
in terms of new capacity added last year, second only to 
natural gas.
    So it's been very successful. The United States is the 
world leader in annual installations of wind power. We believe 
that it's feasible that 20 percent of our electricity can come 
from wind power.
    So wind power can replace some of the natural gas. Again, I 
would agree we don't want to put all of our transportation on 
natural gas. But we ought to look at areas that we may not be 
focused on like heavy duty that we talked about before. See 
what domestic natural gas can do for that to replace petroleum-
based diesel, much of which is imported.
    So I think that's very worthy of evaluation.
    Senator Sessions. Let me ask you directly. Isn't it a fact 
that if we are to significantly impact our global warming gas 
emissions and reduce them substantially and do so in a way that 
does not drive up cost dramatically in the next 20 or 30 years 
we need to expand nuclear power?
    Mr. Chalk. We need to expand nuclear power as well as clean 
coal and renewable options. Yes.
    Senator Sessions. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Lincoln.
    Senator Lincoln. Thank you, Mr. Chairman. Just a couple of 
final comments. First I'd like to agree with Dr. Buiel. Retro 
fitting vehicles and distributing infrastructure, I think are 
critical ways that we could have an immediate impact. I hope 
that we'll make some headway on that.
    The last thing I'd just like to comment and see, I guess, 
Mr. Chalk, I guess your comments here. The famous saying, ``If 
you build it, they will come.'' We have built a government 
fleet that's pretty amazing in terms of its consumption. 
Whether it's the military, whether it's the postal service, 
whether it's the park service, you know any of the Federal 
agencies out there.
    We continue to look at ways to decrease our demand for 
energy. I'm really interested in what you think the Federal 
fleet's role is going to be in that equation. In section 701 of 
the Energy Policy Act of 2005 we encouraged Federal agencies to 
purchase flex fuel vehicles.
    Those vehicles operate on alternative fuels exclusively 
unless a waiver is obtained. The Energy Independence Security 
Act of 2007 also included new Federal vehicle fleet 
requirements that new vehicles be low greenhouse gas emitting 
vehicles. That the fleet reduce by 20 percent its petroleum 
consumption and increase by 10 percent its alternative fuel.
    I mean, if we move those numbers up. If these alternative 
fuels and the production of alternative fuel vehicles and 
others know they have a given marketplace. The Federal 
Government is going to participate in that marketplace. I mean, 
does that not jump start some of what we need to see jump 
started?
    I mean, are we still just buying these vehicles and parking 
them on the lower 40 and not using them. I mean, what is the 
Federal Government doing? What can it do to really be a more 
useful participant in this shift from an old, you know, an old 
energy economy to a new energy economy?
    Mr. Chalk. Yes, Senator, you're right. The Federal 
Government is the biggest single energy user in the world. So 
we can potentially be in a role of being an early adopter. 
Secretary Bodman has made a commitment to change all of our 
vehicles at DOE, 15,000 of them, over to alternative fuel 
vehicles. To have alternative fuel vehicle sites at all of our 
national laboratories and major operations.
    Senator Lincoln. By when?
    Mr. Chalk. By the end of 2010, I believe. This is an 
internal initiative. We feel we have to be the lead because we 
have the Federal Energy Management Program where we're trying 
to coach other agencies on how to do this as well. So our 
timeframe is very aggressive.
    Senator Lincoln. How well are they taking that coaching? I 
mean what about the park service? What about the military? What 
about the postal service? What about?
    Mr. Chalk. Very well. A lot of this is being done by 
private financing. So we have energy savings performance 
contracting where I believe a couple of years ago we more than 
doubled. I think a couple of years ago it was $500 million in 
contracting for private companies to come in, pay the first 
cost and they get paid back through the energy savings.
    That contracting has more than doubled over the last year, 
year and a half. So we now have over a billion dollars of 
energy service performance contracting done. So it doesn't take 
necessarily appropriations up front to make these changes and 
this transformation.
    If there's actual energy savings, there's utility savings. 
That's how you can pay back the private sector. They can do the 
first cost which is often a problem for many Federal agencies.
    Senator Lincoln. So if the producers of alternative energy 
know that there's going to be X amount of gallons or megawatts 
or whatever consumed and automobile manufacturers know that 
there's going to be X number of these purchased just by the 
Federal Government. I mean, is that considered a considerable 
help in jump starting this industry?
    Mr. Chalk. That is critical help. It's just like the RFS. 
It goes out to 2022. It's predictable policy. You know that 
market is going to be there.
    So maintaining those policies in place is critical for 
private investment.
    Senator Lincoln. So you're saying DOE will be completely 
retrofitted or whatever by 2010?
    Mr. Chalk. That's our goal, our internal initiative, by the 
end of 2010.
    Senator Lincoln. Are there any other agencies that have 
that internal initiative?
    Mr. Chalk. I don't believe so. But I can check back for the 
record to see if anyone else is doing that as aggressively.
    Senator Lincoln. Great. We'd appreciate that. Thank you, 
Mr. Chairman. Great hearing.
    Mr. Winkelman. Senator, may I comment on that?
    Senator Lincoln. Sure, I guess. Mr. Chairman?
    Mr. Winkelman. On the fleet issue I think the term 
alternative fuel has been thrown around for decades without 
necessarily saying--without assessing the merits in terms of 
costs, energy or greenhouse gases. So for example, I think on 
the heavy duty side whether it's pick up trucks, government 
fleets or long range trucks, hybrid diesels offer a lot of 
advantages. But DOE could look into that and compare how would 
converting the fleet to hybrid diesels compare to other 
alternative fuels out there.
    Because again, I think petroleum is an efficient fuel. We 
have that existing infrastructure. It's about using it well and 
see how those compare out. When you have in niche fleets of 
vehicles you run into the problem of the fueling 
infrastructure. So that's an important issue to study.
    Mr. Chalk. I guess to respond to that, what we would like 
to do is not necessarily compare the technologies, but set the 
attributes that we want in terms of impact on the environment, 
efficiency and be technology neutral. If any technology can 
achieve those attributes, that would be fine.
    The Chairman. Alright. Thank you all very much. I think 
it's been useful testimony. That will conclude the hearing.
    [Whereupon, at 11:37 a.m. the hearing was adjourned.]
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

                                      Department of Energy,
                                 Washington, DC, November 12, 2008.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: On September 23, 2008, Howard Gruenspecht, 
Acting Administrator, Energy Information Administration, testified 
regarding why diesel fuel prices have been so high, and what can be 
done to address the situation.
    Enclosed are the answers to six questions submitted by you, 
Senators Domenici and Lincoln to complete 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, Congressional and Intergovernmental Affairs.
[Enclosures.]
                    Questions From Senator Bingaman
    Question 1. Is the recent surge in demand for diesel for electric 
generation a short term or long term factor? What are alternative 
options for low-cost, off-grid electrification? Might this be a good 
application for biodiesel?
    Answer. Diesel generators are often used in response to emergency 
situations, when commercial electricity supplies are disrupted. As a 
result, spikes in diesel generation are most often short-term 
phenomena, rather than long-term solutions to providing electricity. 
For instance, disruptions to coal transportation systems in China last 
year during particularly harsh winter weather resulted in an increase 
in diesel generation. Many South American countries rely on diesel 
generators when drought conditions lower hydroelectric supplies.
    In the long-run, electricity providers seek more cost effective 
solutions to supplying reliable electricity generation rather than 
continuing to rely on diesel generators. In China, for instance, there 
are plans to expand nuclear, coal-fired, and renewable generation. 
Unfortunately, these solutions can take a long time to implement 
because of the need to expand the infrastructure to support the 
expansion of electricity, including transmission lines, railroads and 
highways.
    It is likely that diesel generators will continue to be used as 
short-term solutions to emergency situations, because they can be used 
to quickly respond to power disruptions, so that the use of biodiesel 
to fuel generators would be possible. In remote areas with no access to 
national grids and where it is difficult and expensive to expand 
transmission lines, renewable energy sources--for example, micro 
hydroelectric facilities, wind, solar, and other off-grid renewable 
technologies--could also provide relatively cost-effective power 
solutions.
    Question 2. NPRA has stated that U.S. diesel exports are not clean 
enough to be consumed inside the U.S. Are there export data to back up 
this claim? Might there be other domestic applications for some of that 
diesel? For instance, could it be used for heating oil?
    Answer. This year's distillate exports include both low sulfur and 
ultra-low sulfur distillate that could be used in the U.S. EIA uses 
export data provided by the U.S. Bureau of the Census that does not 
break out ultra-low sulfur diesel from low sulfur, but we confirmed 
that some of the product being exported included ultra-low sulfur 
diesel. The high sulfur distillate market (fuel with greater than 500 
ppm sulfur) includes home heating oil and fuel for electric generating 
use. Historically, high sulfur distillate represented more than half of 
total distillate exports. For example, in 2000 high sulfur exports 
represented 77 percent of the exported volumes, while in 2007 they 
represented 51 percent. This year, high sulfur exports dropped to 13 
percent of total distillate exports, both because most U.S. distillate 
production (88 percent) is now low or ultra-low sulfur distillate and 
because some of the major export areas needing distillate, such as 
Europe, now use low sulfur or ultra-low sulfur product.
                    Questions From Senator Domenici
    Question 1. On the second page of your written testimony, I noticed 
that in the past year, the cost to refine a gallon of gasoline has 
declined, while the cost to refine a gallon of diesel has increased. 
According to your chart, the cost to refine gasoline dropped by 31 
cents, but the cost to refine diesel increased by 18 cents. Can you 
explain why these numbers went in opposite directions?
    Answer. Figure 1 of the testimony, presents a simplified view of 
price components to help explain variations in retail prices. The 
component labeled as the ``wholesale crack'' in the figure is not 
refining costs to produce the products shown. Rather, the wholesale 
crack, defined as the wholesale price of gasoline or diesel minus the 
cost of crude oil to the refinery is a measure of the revenue available 
to cover remaining refining costs and refining profits associated with 
gasoline or diesel production after crude costs are removed. This 
revenue varies in the short run as a result of basic supply and demand 
forces in the markets for crude and products.
    Figure 2 in the testimony displays time series of wholesale diesel 
and gasoline crack spreads. Looking at gasoline, it shows that during 
2007 the wholesale price were often much larger than crude oil costs, 
implying high profitability. This year. however, gasoline markets have 
had ample supply relative to demand as a result of declining demand, 
increased use of ethanol (and thus less need for crude-based gasoline), 
and increased availability of gasoline imports. This ample supply 
reduced the wholesale gasoline crack spread, and at times, pushed 
gasoline prices below the price of crude oil resulting in financial 
losses for gasoline production. At the same time, the distillate 
market, which includes diesel, and is distinct from gasoline market, 
tightened considerably worldwide as a result of growing demand, 
particularly in the electricity generating sector. That pulled diesel 
prices up relative to crude oil cost, improving refining profits from 
diesel production.
    Since 2002, EIA has broken out the price of diesel into its 
component costs--refining, distribution and marketing, taxes, and crude 
oil. In May 2002, refining accounted for 5.1 percent of the price of 
diesel, but since then, and even as the price of oil has increased 
substantially, refining costs have consistently been much higher.
    Question 2. I understand that one factor in this increase may be 
the decision to mandate the use of Ultra-Low Sulfur Diesel fuel. EPA 
initially estimated this would cost no more than 5 cents per gallon. 
The transition to ULSD is important to improving air quality, but has 
it come at a greater cost than we expected? Can you describe any other 
factors that may account for the substantial increase in refining as a 
percentage of the price of diesel??
    Answer. The data represented in Figure 1 reflects the sum of 
refining costs and profits which varies. The ``wholesale diesel crack'' 
component will vary both as a percent of total price and as an absolute 
value with the changing distillate and gasoline supply-demand balances 
in the short run. We do not have any direct measure of how the cost of 
producing diesel fuel has increased over time. Both heating oil and 
diesel fuel tend to move together with the general distillate market 
tightness or looseness, so looking at the difference between diesel 
prices and heating oil prices over time will help to isolate the impact 
diesel specification changes such as the move to ultra low sulfur 
diesel (ULSD) may have had. Prior to 2005 and the hurricane impacts on 
prices, wholesale diesel prices on the Gulf Coast would normally 
average one to three cents above No. 2 fuel oil (heating oil). After 
the ULSD program began in 2006, diesel has been averaging 13-14 cents 
per gallon over No. 2 fuel oil. This implies that the ULSD program may 
be contributing about 10 cents per gallon to the price of diesel fuel.
    This is relatively consistent with the studies done on ULSD 
production costs. For simplicity, EPA, EIA, NPC and others use single 
numbers to discuss cost estimates. But these costs are difficult to 
compare. EIA's 2001 report, Transition to Ultra-Low Sulfur Diesel 
explains the difficulties in comparing costs in greater detail. For 
example, costs will increase with the relative amount of ULSD produced 
compared to 500 ppm sulfur or high sulfur distillate, with the amount 
of ``cracked stock'' (distillate material that comes from fluid 
catalytic cracking or coking units) that needs to be desulfurized, with 
the scale of the units used to desulfurize the distillate, and whether 
new or revamped units could be used. The clean diesel program has 
grown, with more of the distillate market being required to use low or 
ultra-low sulfur fuel, which alone would be expected to result in 
increasing costs.
    Question 3. The military has undertaken a program aimed at 
providing a greater share of their energy needs with domestically 
produced fuel--much of this work has focused on taking greater 
advantage of our domestic coal reserves.
    What impact do you believe coal-to-liquids fuels could have on the 
price of diesel?
    Answer. Given the amount of coal-to-liquids distillate fuels EIA is 
projecting in the AE02008 reference case in 2030, approximately 137,000 
barrels per day, and the amount of diesel fuel use projected in 2030, 
4.871 million barrels per day, the price effect would be likely be 
limited. In general, adding new supply to an extremely tight market for 
all distillate range material should lower prices to some extent for 
all midrange distillate products, but EIA has not performed 
quantitative analysis on this topic.
                     Question From Senator Lincoln
    The rise in both gas prices and diesel prices are especially 
worrisome in a rural state like Arkansas, where families have to drive 
long miles to work and school and the grocery store. The combination of 
lower incomes, high fuel prices, and the heavy dependence on pickup 
trucks and vans and use of farm equipment is putting an even tighter 
squeeze on family budgets. Rural residents do not have mass transit or 
grocery stores nearby and few alternative fuel options available to 
ease the pain at the pump.
    Question 1. I do believe that most of our energy policy option will 
focus on the long-term, as we are not going to solve this problem 
overnight. However, in you expert opinions, what do you believe are 
Congress' most immediate options for providing relief to hard-working 
families and businesses which rely mostly on diesel fuel?
    Answer. The Administration has pursued, as you note, significant 
strategies to increase both the efficiency of motor vehicles and the 
supply of alternative fuels for transportation use. These measures have 
included increased fuel economy standards for both cars and light 
trucks, mandates for greater use of non-petroleum fuels and incentives 
for their production, biofuels research, incentives for advanced hybrid 
vehicles, and increased access to domestic resources for increased 
domestic energy production. Despite these long-term initiatives, world 
oil prices rose to very high levels, peaking in the summer of 2008. The 
resulting gasoline prices of about $4.00 per gallon, and diesel prices 
even higher prompted widespread public concern.
    Fuel prices have fallen sharply since their mid-2008 peak under the 
combined influence of consumer adjustments and weaker economic growth 
both in the United States and worldwide. These lower fuel prices 
provide significant relief to hard-working families and businesses. 
Additionally, the Department of Energy remains focused on long-term 
energy security through alternative fuels, increased domestic energy 
production and gains in energy efficiency.
                                 ______
                                 
    Responses of David L. Greene to Questions From Senator Bingaman
    Question 1. Why do you believe that scrapping is not a cost-
effective option for transitioning the US fleet towards higher fuel 
economy? Please provide data to support your answer.
    Answer. Accelerated scrapping, in general, can be economically 
justified when there is a very large difference between the external 
costs caused by older versus newer vehicles. Accelerated scrappage 
implies retirement of a vehicle before its economically useful life is 
over. The cost of accelerated scrappage is therefore the destruction of 
this residual value. Assuming that used car markets are efficient, only 
when the present value of the external costs produced by the vehicle 
exceed its remaining value in use can accelerated scrapping be cost-
effective.
    Four factors mitigate against a large reduction in greenhouse gases 
from accelerated scrappage of used vehicles. First, older vehicles have 
a limited life expectancy. For example, based on estimated survival 
rates for passenger cars, a 25-year-old (1982 model year) vehicle has a 
remaining life expectancy of 4 years (Davis, Diegel and Boundy, 2008, 
table 8.10). Second, older vehicles tend to be driven less. Whereas a 
brand new vehicle will on average be driven 14,500 to 15,500 miles in 
its first year, a 25-year-old vehicle will on average be driven only 
about 5,000 to 6,000 miles (Davis, Diegel and Boundy, 2008, table 
8.10). Third, the average fuel economy of new vehicles has changed very 
little in 25 years. When new, the per-mile greenhouse gas emissions of 
an average 25-year-old vehicle were quite close to those of an average 
new vehicle. According to the EPA (2007, table 1), a new 2007 passenger 
car got 23.4 miles per gallon (adjusted EPA combined estimate) whereas 
a 1982 vehicle got 22.2 miles per gallon. This implies a difference of 
only 0.0023 gallons per mile or 0.02 kg CO2 per mile. 
Fourth, fuel economy, unlike pollutant emissions, deteriorates very 
little with vehicle age. One recent study estimated an average 
deterioration rate of 0.0723 miles per gallon per year (Greene et al., 
2006). Thus, a 25-year-old vehicle would lose 1.8 miles per gallon from 
its EPA estimate when new.
    Using data from the sources cited above, I estimate that an average 
functioning 25 year-old vehicle, scrapped in 2007 would have burned 140 
gallons more gasoline and emitted fewer than 1.5 metric tons more 
CO2 over its 4 remaining years of life than it would have if 
it had the same fuel economy as a new 2007 model year vehicle of the 
same type. At $1 per gallon, the energy security externality would be 
worth $140. At $50/t CO2, the greenhouse gas emission 
reduction would be worth less than $75. Unless the vehicle's market 
value were less than $215, scrapping it on the basis of the petroleum 
and greenhouse gas reduction benefits would not be cost-effective.
    Of course, the younger the used vehicle, the longer its remaining 
expected lifetime. For example, according to the same data sources, a 
16-year-old vehicle would have 6-7 years of remaining life expectancy. 
Its annual usage would be more like 8,000 miles per year, but its fuel 
economy would be closer to that of the 2007 model year vehicle.
    Accelerated scrappage can sometimes be cost-effective for avoiding 
pollutant emissions, since rates of pollutant emissions for very old 
vehicles can be an order of magnitude or more greater than new vehicles 
(OTA, 1992). Thus, there may be additional factors that could make 
accelerated scrappage cost-effective. However, it is highly unlikely 
that it could be cost-effective on the basis of petroleum savings or 
CO2 emissions alone.
    Question 2. Can you submit for the record any analysis you've done 
of the effects on consumer behavior of feebates or how such a system 
might be structured? In particular, are you aware of any analysis of 
how such a system may be structured to enhance the effects of the newly 
reformed CAFE system?
    Answer. Yes, I can submit a study I completed that has been 
accepted for future publication in the peer-reviewed journal, 
Transportation Research D--Environment (Greene, 2008). This paper 
analyzes the functioning of a feebate system based on the same 
attribute used in the reformed CAFE system, vehicle footprint. The 
paper also discusses how such a system could be phased in over time, 
beginning as a net subsidy for new vehicle purchases and gradually 
achieving revenue neutrality as manufacturers have the opportunity to 
redesign all their makes and models.
    Question 3. All of you have given us a number of proposals to help 
reduce demand for oil over the short term. Can you submit for the 
record any analysis you have that would give us a basis for comparing 
the oil savings and potential costs, both to the taxpayer and the 
consumer, of each?
    Answer. I can submit an analysis conducted for the International 
Energy Agency (Duleep et al., 2004) that quantifies the oil savings 
potential of various options for improving the in-use fuel economy of 
light-duty vehicles. I can also point to rigorous analyses by the 
National Research Council on the overall cost and benefits of lower 
speed limits (TRB, 1984) and improved tire inflation (TRB, 2006). To 
the best of my knowledge, most of the proposals have not been subjected 
to rigorous cost-benefit analysis.
    Responses of David L. Greene to Questions From Senator Domenici
    Question 1. In your opinion, what is the single most important 
action we can take in the near-term to decrease our Nation's demand for 
gasoline?
    In my opinion, the single most important action that can be taken 
in the near term to decrease out Nation's demand for gasoline is to 
allow markets to respond to the high price of petroleum. After that, I 
think that a comprehensive system of financial incentives for inventing 
and adopting energy-efficient vehicle technologies could have the 
greatest impact in the near and longer term. In my opinion, markets 
undervalue fuel economy due to a combination of uncertainty about 
future fuel savings and consumer loss aversion. Feebates are an example 
of an incentive system that solves this problem by shifting the 
incidence of the incentive to increase fuel economy to the purchase 
price of the vehicle. In the very near term (1-2 years), feebates would 
serve mainly to encourage consumers to make more fuel-efficient 
choices. In the longer run, feebates encourage manufacturers to devote 
R&D resources to inventing fuel economy technology and to implementing 
that technology for increasing fuel economy rather than horsepower.
    Question 2. Please describe the deficiencies in providing accurate 
fuel economy information. Is there a plan to improve the usefulness of 
miles per gallon estimates?
    Answer. There is no single fuel economy number for any car that is 
accurate for all driving conditions and driving styles. Fuel economy is 
not a measure, like vehicle mass or length, that can be assigned a 
single number and will be accurate under all conditions. It varies with 
speed, driving style, traffic conditions, and trip length, among other 
factors. The EPA's fuel economy numbers may therefore be good 
estimators of the average fuel economy of a large number of motorists 
but poor predictors of the fuel economy of any specific individual 
(Greene et al., 2006). The key to developing more useful fuel economy 
estimates lies not in making them higher or lower but rather in doing a 
better job of predicting what any individual can expect to achieve. 
This will require collecting data on real-world fuel economy that 
includes relevant factors such as traffic conditions, driving style, 
temperature, and trip length. Data voluntarily supplied to the DOE/EPA 
website www.fueleconomy.gov may be adequate to accomplish this 
analysis, but it is not a statistically random sample and additional 
data collection may be required. It will require developing simple ways 
of eliciting information on these factors from anyone desiring a more 
accurate fuel economy estimate, and then a method for calculating that 
estimate and providing it to the customer. The internet provides the 
technology to do this. How many consumers would be interested enough to 
use it remains to be seen.
    There is also a need for more up-to-date information on how driving 
behavior and maintenance affect fuel economy. Little rigorous 
measurement has been done in this area over the past twenty years. Much 
of the information on how speed affects fuel economy, for example, is 
more than 10 years old. While the basic physics don't change, cars' 
aerodynamics, horsepower and gear ratios do. Here too there is a need 
for more specific information since not all vehicles have the same 
speed v. fuel economy profiles. Studies of how such things as dirty air 
filters or air conditioner use affect fuel economy are also out of 
date. Earlier this year, the Department of Energy began a small effort 
to fill some of these gaps in knowledge and to validate the fuel 
economy tips it is providing to the public. At the current level of 
effort, it will be at least 5 years or more before all of the driving 
and maintenance information is reasonably up to date.
    Question 3. From the list of options referenced in your testimony 
that could improve energy efficiency, which are the least expensive to 
initiate? What options require the most investment?
    Answer. The least expensive options are those that consist of 
educating or providing improved information to the public. Driving and 
maintenance tips, individualized fuel economy estimates, and voluntary 
fuel economy labels for used vehicles would likely cost on the order of 
10 million dollars for public service advertising, research and 
analysis, and implementation (this is not a precise estimate but is 
given to indicate my opinion of the order of magnitude). On the other 
hand, many motorists are well aware of these opportunities to increase 
fuel economy. The Department of Energy and Environmental Protection 
Agency have made these tips available via the internet for almost a 
decade, and the information has been featured by the news media on the 
internet, in magazines, on television and even on gas pumps. Still, 
many consumers are not aware of all of their options for improving fuel 
economy, and what little research has been done on the subject 
indicates that the knowledge needs to be refreshed and reinforced to be 
effective over time.
    Intermediate in cost, in my opinion, would be changing the test 
procedures used to certify CAFE numbers for light-duty vehicles. There 
would be some cost to the government to validate the test procedures 
and to do a rulemaking. However, the work that EPA has already done to 
develop new numbers for reporting to consumers will be very useful in 
developing new CAFE test procedures. Most of the cost would be borne by 
vehicle manufacturers and suppliers who would have to develop a new 
understanding of how their vehicles would perform over the new test 
cycles and how different technological options would change that 
performance. If the new cycles involved more than two tests, 
certification costs would also increase somewhat. These costs could be 
reduced by making use of the test cycles EPA has already developed for 
air conditioner use, aggressive driving and cold start, since 
manufacturers are already familiar with these test cycles.
    Question 4. What financial incentives do you believe are necessary 
to encourage manufacturers to invent and adopt advanced fuel economy 
technologies?
    Answer. In my opinion, the real-world operation of the market for 
fuel economy prevents it from reaching the optimal level of fuel 
economy, as defined by the maximum expected net value of fuel savings 
to consumers. The reason is that future fuel savings can be very 
uncertain and consumers are known to be loss averse. I believe this 
phenomenon is often expressed in terms of short payback periods on the 
order of two to four years. One way to get around this market 
deficiency is to shift the incidence of future fuel costs to the 
purchase price of the vehicle. Feebates are a potentially efficient way 
to do this (Greene, et al., 2005). Feebates on the order of $1,000 to 
$2,000 per gallon per 100 miles (a 25 MPG vehicle consumes 4 gallons 
per 100 miles) would provide a powerful incentive for manufacturers to 
invent and adopt fuel efficient technologies. Feebates generally offer 
a rebate to vehicles with fuel consumption rates below a reference 
gallons-per-mile point and levy fees on those with high rates of fuel 
consumption. However, there is enormous flexibility in how reference 
points can be defined. For example, in the paper on feebates* cited 
above in response to Senator Bingaman's question #2, I show how 
feebates reference points can be made a function of a vehicle's 
footprint (track width times wheelbase).
---------------------------------------------------------------------------
    * Document has been retained in committee files.
---------------------------------------------------------------------------
    Economic analysis indicates that rebates applying to only a few 
types of vehicles or gas-guzzler taxes without comparable rebates are 
far less efficient incentives for fuel economy improvement via advanced 
technology than a complete feebate system applying to all vehicles.
                                 ______
                                 
    Responses of Edward R. Buiel to Questions From Senator Bingaman
    Question 1. How soon would you be able to scale up production of 
advanced lead acid batteries to integrate into new plug-in hybrid 
electric vehicles?
    Answer. We have several technologies currently in production and we 
are working with 2 of the largest lead acid battery manufacturers in 
the United States. All of the technologies that we are working on are 
designed to be produced on conventional lead acid battery production 
lines with conventional equipment.
    Question 2. What would be a ballpark estimate of the cost for such 
a vehicle?
    Answer. The current retail level pricing cost to retrofit a single 
vehicle is $10,000. We expect that this could be reduced 25-40% with 
larger scale production.
    Question 3a. Considering a possible vehicle retrofit program using 
advanced lead acid batteries, how would such a program be structured?
    Answer. There are already several companies producing retrofit kits 
for vehicles for many different vehicle models. Some of the companies 
are working to educate performance racing shops and other repair 
centers all over the United States to complete the retrofits. This 
would allow small, medium, and large businesses to build the retrofit 
kits that could be installed all over the country.
    Question 3b. How do you plan to address the numerous safety, 
pricing, and reliability concerns?
    Answer. Lead acid batteries currently have very few safety concerns 
when compared to other battery advanced technologies. The main concern 
is an inadvertent shorting of the terminals of the higher voltage 
battery and much of this can be addressed with the design of suitable 
connectors and electronic isolation of the batteries when the vehicle 
is not in operation.
    Retrofitted vehicles would also benefit from a federal testing and 
certification program similar to what has been established for buses. 
The Pennsylvania Transportation Institute at Penn State currently 
oversees the operation of the Federal Transit Administrations new model 
bus testing program. We envision that any company planning to build and 
sell more than 50 electric vehicle retrofit kits would be required to 
provide a vehicle for safety and reliability testing to a similar 
testing facility that would oversee the certification of the vehicle 
and systems.
    Lead acid batteries are currently the cheapest battery technology 
available for EVs. A 20 kWh battery which is required for to provide a 
driving range of 50-60 miles would cost about $2000 for lead acid 
batteries. Possibly as high as $3000 for advanced lead acid batteries. 
Lithium ion and NiMH batteries will cost approximately $1000/kWh when 
all of the necessary engineering and module costs are included which 
results in a cost of at least $20,000.
    Conventional deep cycle lead acid batteries for golf carts and 
other motive applications typically achieve 600 deep cycles. These 
batteries come with a 3-year prorated warrantee. If the average 
consumer where to drive 50-60 miles at least 200 times per year, this 
would result in about a 3 year life. As explained in our testimony, 
this would be more than adequate to provide a significant return on 
investment to the consumer (initial cost was $10,000). Replacing the 
battery for $2000 would pay for itself in just a few months and again 
last for another 3 years. Lead acid batteries are also recycled and the 
lead, plastic, and acid can be reused to make new lead acid batteries. 
Currently 99% of the lead acid batteries used in this country are 
recycled making lead acid batteries an excellent sustainable technology 
for vehicle use. The opposite is true for other advanced battery 
technologies.
    Question 4. All of you have given us a number of proposals to help 
reduce demand for oil over the short term. Can you submit for the 
record any analysis you have that would give us a basis for comparing 
the oil savings and potential costs, both to the taxpayer and the 
consumer, of each?
    Answer. Axion's testimony includes detailed information on fuel 
savings, CO2 reductions, and NO2 reductions for 
every 500,000 vehicles that are retrofitted in the United States.
    Responses of Edward R. Buiel to Questions From Senator Domenici
    Question 1. In your opinion, what is the single most important 
action we can take in the near-term to decrease our Nation's demand for 
gasoline? Also, what is the most inexpensive action we can take 
immediately to reduce demand?
    Answer. In our opinion, the cost, performance, and current and 
forecast production rates of hybrid, plug-in hybrid, and electric 
vehicles will take decades to reach double digit reductions in this 
Nation's demand for gasoline. With over 250 million vehicles registered 
in the United States, any solution must not only focus on new 
technologies for the future but also on cost effective retrofitted 
programs for existing vehicles. These programs are currently being 
developed mainly by small and medium sized businesses that would 
greatly benefit from federal funding.
    Question 2. Please describe the pros and cons of the different 
types of rechargeable batteries (ie. lead-acid battery, nickel metal 
hydride, lithium-ion battery, etc) available today in the market. In 
addition, please describe the different uses for these batteries.
    Answer. We have developed the following table to include a variety 
of the important performance attributes of batteries.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             Availability
                                                                         Power                    Ability to                  and Cost of  Manufacturing
              Battery Type                  Energy        Weight      Density Low     Safety      be Recycled      Cost           Raw       Base in the
                                            Density                      Temp.                     into New                  Materials In        US
                                                                                                   Batteries                    the US
--------------------------------------------------------------------------------------------------------------------------------------------------------
PbC Battery                                        0             -             +             +            ++             +            ++             ++
--------------------------------------------------------------------------------------------------------------------------------------------------------
Lithium Ion                                       ++             +            --             -            --             -           - -             --
--------------------------------------------------------------------------------------------------------------------------------------------------------
NiMH                                               +             0           - -             +            --             -             -              -
--------------------------------------------------------------------------------------------------------------------------------------------------------
- - Very Poor
-     Poor
0     Neutral
+     Good
++     Excellent

    Question 3. How can Axion's work with lead-carbon based battery 
technology help with intermittent wind and solar technologies? Also, 
how can it assist with grid buffering and hybrid electric vehicle 
markets?
    Answer. Axion is currently working to install a grid based energy 
storage system in conjunction with NYSERDA (New York State Energy and 
Resource Development Authority). We believe that as the United States 
becomes more dependent on wind and solar power generation that energy 
storage is going to play a very crucial in order to maintain the 
stability of the grid. Axion is currently also working on demonstrated 
both the economic and performance benefits of advanced lead acid 
batteries in these applications.
    Question 4. What is the current market for retrofitting traditional 
gasoline vehicles to battery electric vehicles?
    Answer. The current market is very small with only a few companies 
supplying retrofit kits for about 30-50 vehicles however this could 
easily grow to a large number using existing repair garages, 
performance shops, and service centers. Better engineered and more cost 
effective retrofit kits need to be developed and training programs need 
to be established for installers. Axion is currently working with 
several other companies, national labs, universities, and other 
organizations to promote these ideas.
                                 ______
                                 
    Responses of John A. ``Skip'' Laitner to Questions From Senator 
                                Bingaman
Introduction
    This memorandum responds to a set of questions posed by Senators 
Jeff Bingaman and Pete Domenici following testimony I was asked to 
provide to the Senate Energy Committee on July 23, 2008. In preparing a 
full set of responses, I will first recap my testimony to provide an 
appropriate context for understanding the thrust of both the questions 
and their answers. I will then respond, in subsequent fashion, first to 
questions asked by Senator Bingaman and then to ones asked by Senator 
Domenici. Following this full set of responses, I will offer a set of 
conclusions based on this full memorandum.
The Energy Efficiency Potential
    In my original testimony I noted the huge potential for cost-
effective investments in energy efficiency throughout all sectors of 
the U.S. economy: on the order of 46 billion barrels of oil equivalent 
between now and 2030. This is about 2.5 times bigger than what some 
have suggested might be available from off-shore drilling. And it is 
about 5.5 times greater than what we will get from the improved CAFE 
standards enacted by Congress last December. That magnitude of further 
gains in energy efficiency could generate a significant downward 
pressure on oil prices, and increase both the resilience and robustness 
of the American and the international economies--if we choose to 
encourage those more productive energy efficiency investments.
    Policy solutions will play a pivotal role in strengthening the 
continued development, dissemination, and widespread adoption of 
energy-efficient industrial and transportation technologies and 
systems. In that regard, ACEEE continues to recommend the set of 10 
near-term policy actions described in my original testimony. If they 
are undertaken with sufficient robustness, this set of policy proposals 
can ``save oil in a hurry'' (IEA 2005). By this I mean we can take 
actions which lead to significant savings within a year to 18 months 
compared to normal reference case forecasts or projections. These near-
term policy initiatives would likely generate an immediate downward 
pressure on oil prices to the benefit of consumers and businesses. Many 
of these suggestions lay the groundwork for a shift in the larger 
transportation policy, an opportunity that is afforded the next 
Congress by next year's reauthorization of the transportation bill. 
They also have significant implications for other uses of energy as 
well.
    While we did not provide a proposal-by-proposal estimate of 
specific cost-effectiveness in the original testimony, I noted that the 
full set of efficiency gains--again, as much as 46 billion barrels of 
oil equivalent potentially available through 2030, if we should choose 
to make the appropriate investments--would be fully cost-effective. By 
cost-effective, I mean that such investments would more than pay for 
themselves over their effective lifetimes. Building on this initial 
background, I now turn to answer the specific questions posed following 
the hearing on July 23, 2008.
    Question 1. Can you please expand on the opportunities that you 
mentioned for IT and communication technology to reduce energy demand?
    Answer. As noted in my oral comments during the hearing, it is much 
easier and much less energy intensive to move information and electrons 
around than it is to transport people and goods. This is true even when 
we consider the relatively small amount energy needed to power ICT and 
broadband technologies compared to the significant energy use they 
avoid. Hence, any time we can transmit data and information in a way 
that substitutes for the physical movement or processing of 
commodities, goods, and services, there is a very strong likelihood for 
net gains in energy efficiency. The example I demonstrated in the 
hearing underscored this potential. Yes, there was a very small amount 
of electricity used to order and download two different books onto my 
AmazonKindle, and then to electronically bill my account. Yet, there 
was no paper wasted in their production of the books, no shopping trips 
made to purchase them, and no unnecessary packaging or petroleum 
resources to have them delivered. And I saved about five dollars over 
the normal purchase price of each book. Despite my own cost and energy 
savings, each author now has the benefit of an additional royalty from 
my purchase of their book. That is but one small example of how 
information and communication technologies can help reduce the cost and 
use of energy.
    The most immediate impact for reducing energy, and especially for 
reducing the use of petroleum fuels, is likely to be through 
telecommuting, teleworking, and videoconferencing. As one example, an 
analysis for the Consumer Electronics Association indicates that the 
regular telecommuting of some 4 million workers is now saving an 
estimated 840 million gallons of gasoline equivalent. More critically, 
the report suggests that the potential could grow to 25 or even 50 
million workers (TIAX LLC 2007). If the relationships were to hold and 
we encouraged, say, 40 million workers, to move to a telecommuting work 
style, that 840 million gallons of savings would grow to about 8.4 
billion gallons. How big is that? Translating that level of energy 
productivity gains would suggest a daily savings of more than 500,000 
barrels of oil--or about 2.5 percent of current consumption. This is 
about what we now import from either Ecuador or Columbia.
    Still there is more to be saved if we begin to think about other 
forms of working, especially if we better understand the opportunities 
associated with Videoconferencing. Cisco Systems ``TelePresence'' and 
HP's Halo Video Exchange Network both offer smart new opportunities for 
a greater than an order of magnitude of energy savings compared to 
normal business travel. So if we use one gallon of gasoline equivalent 
in the form of electricity, then we might avoid anywhere from 10-60 
gallons of gasoline equivalent. To get an idea of this opportunity, I 
encourage the committee to look at an online video of this emerging 
technology (see, for example, http://www.youtube.com/
watch?v=akzNWS5dygQ&feature=related), and then to also download a paper 
by Howard Lichtman (2006) describing the potential larger productivity 
benefits of this possibility (see, http://www.hp.com/halo/pdf/
Telepresence--Paper.pdf). More broadly, anything that can be done with 
system optimization and the use of real-time data is likely to save 
energy through the enhanced and accelerated use of information and 
communication technologies, (see, Laitner and Ehrhardt-Martinez 2008, 
and the Climate Group 2008). For a broader overview of the potential 
economic impacts of the digital economy, see Atkinson and McKay (2007).
    Question 2. Can you provide any studies or data on the potential of 
information and communication technologies to produce efficiencies and 
reduce demand?
    Answer. This was generally answered in the response to the question 
above. Let me expand on one critical area that has not really been 
highlighted to this point: Investment in traffic signal operations and 
intelligent transportation systems.
    Intelligent Transportation Systems (ITS) is the coordination and 
continued study of traffic flow patterns within a given city or 
metropolitan area. Traffic signals are linked via a centralized 
monitoring center to optimize the flow of traffic. In some more advance 
systems, the monitoring center receives data regarding pavement 
temperature to improve traffic flow and safety in icy conditions. ITS 
also has the benefit of reducing the number and severity of crashes. 
More immediately, however, improved traffic signal operations can 
reduce idling and waiting times, and they can save energy.
    Our system of an estimated 272,000 traffic lights nationwide has 
recently been given a performance grade of D (NTOC 2007). If we 
improved that to a grade level A, we would see significant benefits in 
quality of life and protection of the environment. Among these benefits 
would be a reduction in traffic delays and travel time on the order of 
a 25 percent from current levels. For typical households, improved 
traffic signal timing might save them more than 100 hours per year in 
avoided car time. More to the point of this Committee, however, we 
might also see reductions in fuel consumption of up to 10 percent (NTOC 
2007). For example, if a typical household now uses one tank of 
gasoline per week, it might save five full tanks or about 75 gallons of 
gasoline per year. Nationwide this amounts to a savings of almost 17 
billion gallons of motor fuels per year. And, of course, there would be 
concomitant reductions in harmful emissions of carbon monoxide, 
nitrogen oxides, and volatile organic compounds. And there would also 
be a huge reduction in carbon dioxide emissions.
    Based on 2001 data, we spend about $110.5 billion in federal, state 
and local funds for highway transportation. When we approach the issue 
of traffic signal operations from a performance-based decision-making 
perspective, the National Transportation Operations Commission (NTOC) 
views improved traffic signal operations as a strategy that has a 40:1 
benefit-cost ratio. Spending less than 1 percent of the current funds 
allocated to highway transportation amount on traffic signal operations 
would create a customer benefit benefits of as much as $45 billion per 
year. This is a benefit equivalent to 41 percent of the total 
expenditure on highway transportation. This corresponds to a price of 
less than $3 per U.S. household with resulting benefits of $100 per 
household (NTOC 2007). This level of savings, about 1 million barrels 
per day, is about what we import from the country of Qatar on an annual 
basis.
    Question 3. What sectors would have the greatest benefits from 
implementing communication and information technologies?
    Answer. As suggested in the response to the first question above, 
the service, education, and government sectors would more immediately 
benefit as they incorporate new practices and methods of telecommuting, 
teleworking, and videoconferencing. But there are also substantial 
potential savings in improved logistics associated with the movement of 
both freight and passengers. And as noted in the answer to the question 
above, there are large potential savings associated with intelligent 
transportation systems and improved traffic signal operations (NTOC 
2007). Over the next several years, the electricity sector would 
clearly benefit through smart grid applications (see, for example, 
Kannberg, L. D. and D. P. Chassin, et al. 2003, and IBM Corporation 
2007, and with a further discussion in Laitner and Ehrhardt-Martinez 
2008). Finally, there are developments in the world of materials 
science, which together with new production processes and information 
technologies, are now beginning to benefit the manufacturing sectors in 
some surprising ways. Although perhaps more longer-term, an emerging 
technology known as selective laser sintering, together with other 
digital or instant manufacturing technologies (also known as on-demand 
manufacturing), can generate significant productivity gains (Amato 
2003). There have been some preliminary descriptions and technology 
characterizations of this opportunity, but there have been little 
analysis in the way of understanding the short-term productivity 
benefits. We hope to have a more detailed look at such technologies by 
early next year and, of course, we would be happy to share our findings 
with the Committee and its staff.
    Question 4. What is the role of the federal government in 
encouraging the use of these technologies?
    Answer. The most critical role of the federal government is two-
fold. First, the expertise within government can help assess the full 
efficiency opportunity and develop the metrics to gauge overall 
economic performance of an agency or a private business. Second, a 
critical role of government is to encourage the development, use, and 
deployment of these productive new technologies as we've described them 
elsewhere.
    Question 5. All of you have given us a number of proposals to help 
reduce demand for oil over the short term. Can you submit for the 
record any analysis you have that would give us a basis for comparing 
the oil savings and potential costs, both to the taxpayer and the 
consumer, of each?
    Answer. The measures to accomplish this are all shown generally to 
be cost-effective; that is, the efficiency improvements typically cost 
less than what they save in petroleum or other energy costs. In the 
case of measures designed to ``save oil in a hurry'' (referencing a 
2005 workshop convened by the International Energy Agency) the IEA 
identified a series of immediate measures that might save up to 1.7 
million barrels of oil per day in developed countries at a cost ranging 
from $1 to $100 per barrel, if such measures were implemented by all 
members of the IEA. (2005). Drawing from the available literature, we 
can generally say with confidence that there are significant savings 
available literature with a benefit cost-ratio on the order of 2 to 1. 
That is, policies which stimulate productive investments in more 
energy-efficient technologies over perhaps a 15-20 year period will 
return $2 in energy savings for every dollar of investment and policy 
and program expenditure (Laitner and McKinney 2008).
    At the same time, we might ask the question of what we've lost by 
failing to act more quickly on this issue. For example, in 2001 my 
ACEEE colleague Steven Nadel and Howard Geller published a report which 
identified nine specific policy recommendations that could have ``a 
substantial impact on the demand for energy in the United States while 
also providing positive economic returns to American consumers and 
businesses (Nadel and Geller 2001). For the most part we've failed to 
act on those policies. In a separate analysis I've estimated that since 
2001 our Nation has foregone an energy bill savings approaching $260 
billion through July 2008 as a result of not acting on those efficiency 
investment opportunities.
    At the same time, we can offer examples of how the policies we 
suggested in my original testimony might look from a cost standpoint. 
For example, one of the programs we suggested is the development of a 
``Crusher Credit.'' We envision this as a federal incentive for the 
voluntary retirement of fuel-inefficient vehicles (primarily older cars 
and light trucks) registered to private and commercial owners in the 
United States. It is intended to operate for four years, 2009-2012, and 
to incent the early retirement of one million vehicles per year. As 
this policy initiative stimulates the investment in new vehicles, we 
anticipate fuel savings to reach the equivalent of about 80,000 barrels 
per day (ACEEE 2008). If we assume the average credit is about $5,000 
per vehicle to save perhaps 250 gallons of gasoline per year, this 
implies an effective $2.18 per gallon of gasoline equivalent (assuming 
a vehicle life of about 15 years at a 7 percent discount rate). In some 
respects this may be one of the more expensive policies that we 
recommend, but it is still shown to be highly cost-effective. And to 
the extent that the collective set of policies which we describe might 
reduce the price of oil by as little as $10 per barrel, our Nation may 
save on the order of about $70 billion per year. As we might imagine, a 
greater drop in the price of oil would have an even larger positive 
economic impact.
    Responses of John A. ``Skip'' Laitner to Questions from Senator 
                                Domenici
    Question 1. In your opinion, what is the single most important 
action we can take in the near-term to decrease our Nation's demand for 
gasoline? Also, what is the most inexpensive action we can take 
immediately to reduce demand?
    Answer. This is a difficult question to answer since there is no 
single magic bullet. Rather, it is a coherent, integrated, and 
consistent set of energy efficiency policies that are most likely to 
generate the optimal set of benefit for the American economy. But 
within that context, I would have to say that the largest immediate 
source of savings might be provided by a serious commitment to 
telecommuting and videoconferencing initiatives, together with 
investments in logistics management and traffic flow operations.
    Question 2. Your policy recommendations include enacting a Joint 
Resolution directing agencies to immediately implement all forms of 
energy efficiency. Both the 2005 Energy Policy Act and last year's 
energy bill directed the agencies to undertake numerous energy 
efficiency activities, including the obligation to decrease the energy 
consumption in federal buildings annually by certain percentages to 
reach a 30% reduction by the year 2015. What additional cost-effective 
policies can the agencies undertake?
    Answer. Both the 2005 Energy Policy Act and last year's energy bill 
are important initiatives. And a 30 percent reduction in federal 
building energy use is an ambitious but a cost-effective and important 
target. But there is more that can be done. I might highlight several 
steps in this regard. First, I might recommend that, just as federal 
employees were expected to do with respect of security measures 
following 9/11, we might expand the education of all federal workers 
and ask them to take an online course, followed by an online test to 
earn a required certification. In this way we can promote a greater 
energy awareness not only within our federal operations, but in our 
personal lives and in learning how to encourage a greater collaboration 
with members of the public, as well as the many partners and 
stakeholders who now participate in a wide variety of governmental 
programs. In effect, this kind of effort would be directed to stimulate 
greater internal and external energy productivity gains at all levels 
of the American economy. Second, we might ask each agency to re-examine 
the overall energy intensity per employee and see what might be done to 
enlarge that savings opportunity through public outreach (as perhaps an 
offset against their own energy use within the federal government), 
through expanded use of teleworking, telecommuting, and 
videoconferencing initiatives, and through improved fleet management 
and the management of an agency's total transportation needs. Finally, 
they might also examine ways to positively impact energy efficiency 
savings through the purchase and leasing of all durable and non-durable 
goods required by the federal government.
    Question 3. You note in your written testimony that the U.S. has 
expanded its economic output by more than three-fold since 1970. 
However, the demand for energy and power resources grew by only 50% 
during the same period.
    Answer. Yes, and that reduced demand for energy was made possible 
by on-going investments in more energy-efficient technologies and 
operations since 1970. In effect, there has been an invisible 
investment boom in energy efficiency at all levels of the economy. Our 
suggestion is that we make routine efficiency gains much more visible, 
that learn from them, and we then identify the larger benefits that are 
still available should we choose to pursue them (Ehrhardt-Martinez and 
Laitner 2008). By one estimate there are still on the order of 46 
billion barrels of energy efficiency which are recoverable for a net 
positive benefit to the economy. Again, this is about 2.5 times greater 
than some have suggested might be recoverable through off-shore 
drilling. More to the point, these efficiency gains can be made 
available more quickly than most new supply-side opportunities--if we 
choose to make those more productive investments.
    Question 4. In your opinion, was energy demand reduced mainly 
because of market forces or government-led energy efficiency 
requirements?
    Answer. The market is hugely dynamic system that produces and 
delivers an amazing variety of goods and services. Most recently, a 
process of capital deepening--especially in the period 1996 though 
about 2001, generated a significant level of efficiency improvements 
within the U.S. But there have been a wide variety of programs and 
incentives which have also enabled those productivity gains. It is hard 
to disentangle the mix of market forces and government policies. The 
critical point is that if we are to full optimize our more efficient 
use of all resources, it will take a smart blend of both market forces 
and energy policies to achieve the net benefits we describe throughout 
my original testimony.
    Question 5. What successful energy efficiency practices has the 
business community undertaken?
    Answer. In a Google search there were 850,000 references to the 
terms energy efficiency and best practices. This suggests a significant 
array of best practices are now identified and implemented. These range 
from the use of teleworking, telecommuting and videoconferencing 
practices to the use of better metrics to assess overall performance. 
Even with the encouragement of ``best practices,'' however, the economy 
continues to underperform with respect to the potential gains from 
large-scale energy productivity investments and best practices. The 
reasons might be two-fold. The first is the lack of access to immediate 
expertise in a timely fashion. A typical business has a difficult 
enough time to focus on its core expertise. For the most part 
maintaining a working and timely knowledge of efficiency improvements 
may be beyond the capabilities of routine production operations. This 
is especially true for small to medium sized firms. In fact, there is a 
critical need for improved engineering, logistical, and financial 
skills that are specifically directed toward energy productivity gains 
in ways that can immediately benefit an industrial site or operation. 
The second reason is that efficiency gains remain largely invisible. 
Efficiency is the cost-effective investment in the energy we don't use 
to produce goods and services. In many ways efficiency is not an 
obvious opportunity. Hence, there is a critical need to make these 
investments and best practices more obvious and more real in order for 
the private sector to take real advantage of such opportunities.
Final Comments and Conclusions
    Given the full array of evidence, we can conclude that energy 
efficiency can provide a significantly large contribution toward 
stabilizing energy prices and strengthening the robustness of the U.S. 
economy. The good news is that there are large opportunities to promote 
an even greater level of productive investments in energy-efficient 
technologies--should we choose to develop and pursue those options. 
Policy solutions will play a pivotal role in strengthening the 
continued development, dissemination, and widespread adoption of 
energy-efficient transportation technologies and systems. The more 
quickly we act, the more quickly the benefits can accrue to both 
consumers and businesses.
                                 ______
                                 
     Response of Steve Winkelman to Question From Senator Bingaman
    Question 1. All of you have given us a number of proposals to help 
reduce demand for oil over the short term. Can you submit for the 
record any analysis you have that would give us a basis for comparing 
the oil savings and potential costs, both to the taxpayer and the 
consumer, of each?
    Answer. My primary recommendation is to provide emergency federal 
assistance to help public transit agencies accommodate record numbers 
of riders, restore service cuts, expand service, maintain or reduce 
fares, and cope with rising fuel bills.
    According to the American Public Transportation Association (APTA), 
public transit currently saves the equivalent of four billion gallons 
of gasoline each year.\1\ At the current $3.75 a gallon, saving four 
billion gallons of gasoline would save consumers some $15 billion per 
year. A 10 percent increase in ridership could save consumers another 
$1.5 billion per year. Another APTA study concludes that an individual 
can save more than $8,000 per year by using public transportation 
instead of driving.\2\ These savings come from a combination of direct 
substitution of private car for transit vehicles, as well as shorter 
trips, and more walk trips accommodated by transit-oriented development 
patterns.
---------------------------------------------------------------------------
    \1\ APTA, ``Public Transportation Reduces Greenhouse Gases and 
Conserves Energy,'' February 2008. http://www.apta.com/research/info/
online/greenhouse brochure.cfm
    \2\ APTA, ``Public Transit Users Avoid High Gas Prices: Save Over 
$8,000 Per Household Annually,'' July 2008. http://www.apta.com/media/
releases/080731 transit savings.cfm
---------------------------------------------------------------------------
    According to a recent APTA survey, diesel costs are about $1.00 
higher in 2008 than in 2007, costing transit agencies about $750 
million per year.\3\ As transit agencies face growing and record 
ridership and high fuel prices, emergency federal assistance to transit 
agencies could help accommodate new riders and keep fares down, which 
also helps attract new passengers.
---------------------------------------------------------------------------
    \3\ APTA, ``Impact of Rising Fuel Costs on Transit Services_Survey 
Results,'' May 2008. http://www.apta.com/research/info/online/fuel 
survey.cfm
---------------------------------------------------------------------------
    The exact relationship between emergency federal support for 
transit funding and oil demand reduction will depend upon location-
specific factors such as current ridership capacity and local land use 
patterns.
    An example I included in my written testimony illustrates the 
longer-term costs and savings from comprehensive smart growth policies 
such as compact and pedestrian-friendly development patterns, transit 
expansion and transit oriented development. The Sacramento Area Council 
of Governments (SACOG) has calculated that implementation of the 
regional 2050 Blueprint smart growth land use plan would result in 
avoided infrastructure costs of more than $9 billion through 2050 and 
increased transit operating costs of $120 million per year. CCAP 
calculated consumer fuel cost savings of $650 million per year (at 
$2.50 per gallon) resulting in a net societal economic benefit. With a 
long backlog of deferred infrastructure maintenance, and strained 
public resources, polices that can reduce the need to build new 
infrastructure are most welcome indeed.
    A recent book, Street Smart, edited by Reconnecting America and 
sponsored by APTA and the Community Streetcar Coalition, estimates the 
private investment in local development leveraged by public investments 
in transit. According to the book, initial public investment of $73 
million in the Portland Streetcar, helped attract $2.3 billion in 
private investments within two blocks of the line, a more than 30-fold 
return on investment.\4\ Similarly a $20 million public investment in 
the Little Rock Streetcar helped leverage $200 million in private 
investment, and a $60 million public investment in the Tampa TECO 
Streetcar helped leverage $1 billion in private investment. The authors 
are careful to note that streetcar investments don't directly cause 
private developers to make invest in development, but streetcars can 
make the market much more attractive for developers, especially when 
coupled with policy changes (e.g., zoning, permitting) that support 
transit-oriented development.
---------------------------------------------------------------------------
    \4\ G. Ohland and Poticha (eds), Street Smart, Reconnecting 
America, 2006, pp. 3-4.
---------------------------------------------------------------------------
    Responses of Steve Winkelman to Questions From Senator Domenici
    Question 1. In your opinion, what is the single most important 
action we can take in the near-term to decrease our Nation's demand for 
gasoline? Also, what is the most inexpensive action we can take 
immediately to reduce demand?
    Answer. My primary recommendation is to provide emergency federal 
assistance to help public transit agencies accommodate record numbers 
of riders, restore service cuts, expand service, maintain or reduce 
fares, and cope with rising fuel bills.
    The most inexpensive action we can take to immediately reduce 
gasoline demand could be employer and federal support for employee 
telecommuting and compressed work weeks. Commute trips to and from work 
accounts for about 25% of household travel. Thus, telecommuting one day 
per week could immediately cut household travel by 5%.
    Question 2. In your testimony, you reference several localities 
that have implemented smart-growth strategies that have helped them 
reduce energy demand. What financial mechanisms have these communities 
used to finance these initiatives?
    Answer. Implementation of smart growth polices typically requires 
partnerships across different levels of government and with the private 
sector. Financial mechanisms include local sales taxes, tax increment 
financing, and value capture approaches such as joint development and 
equity participation.\5\ In addition to financing policies and 
projects, a critical government role is to help create favorable 
conditions for smart growth, infill and transit-oriented development. 
Public funding for transportation and land use planning, alternatives 
analyses and `visioning' processes is a key starting point for 
identifying, generating support for and implementing smart growth 
policies.
---------------------------------------------------------------------------
    \5\ J. Parzen and A. Sigal, ``Financing Transit-Oriented 
Development,'' in H. Dittmar and G. Ohland (eds.), The New Transit 
Town, Island Press, 2004, Chapter 5.
---------------------------------------------------------------------------
    Public policies and investments can leverage major new private 
investments by improving conditions for developers to conduct infill 
and transit-oriented development. A recent book, Street Smart, edited 
by Reconnecting America and sponsored by APTA and the Community 
Streetcar Coalition, estimates the private investment in local 
development leveraged by public investments in transit. According to 
the book, initial public investment of $73 million in the Portland 
Streetcar, helped attract $2.3 billion in private investments within 
two blocks of the line, a more than 30-fold return on investment.\6\ 
Similarly a $20 million public investment in the Little Rock Streetcar 
helped leverage $200 million in private investment, and a $60 million 
public investment in the Tampa TECO Streetcar helped leverage $1 
billion in private investment. The authors are careful to note that 
streetcar investments don't directly cause private developers to make 
invest in development, but streetcars can make the market much more 
attractive for developers, especially when coupled with policy changes 
(e.g., zoning, permitting) that support transit-oriented development.
---------------------------------------------------------------------------
    \6\ G. Ohland and Poticha (eds), Street Smart, Reconnecting 
America, 2006, pp. 3--4.
---------------------------------------------------------------------------
    Below I provide some examples of public support and finance 
mechanisms for smart growth policies and projects.
Albuquerque, New Mexico
    According to a recent book, The New Transit Town, edited by Hank 
Dittmar and Gloria Ohland, transit agencies are experimenting with 
equity participation to improve private investor appeal and to share in 
project returns. For example,

          The City of Albuquerque is an equity investor in a 500,000 
        square foot commercial and residential development in downtown 
        Albuquerque. In return for contributing the land, building a 
        635-space public parking garage, and providing the project with 
        tax abatements, the city will receive 25 percent of the cash 
        flow after expenses and debt service in years six to twelve and 
        50 percent in years twelve to twenty or until 125 percent of 
        its investment is returned, in addition to any other public 
        revenues the project generates for the city.\7\
---------------------------------------------------------------------------
    \7\ Parzen and. Sigal, op cit., pp. 92-93.

Arlington, Virginia \8\
---------------------------------------------------------------------------
    \8\ This discussion of Arlington, Virginia is based on information 
provided by Dennis Leach, the County Director of Transportation.
---------------------------------------------------------------------------
    As I noted in my written testimony of July 23, 2008, over the past 
decades Arlington, Virginia has pursued policies to focus new 
development around Metro stations, resulting in no net increase in 
local traffic despite substantial economic and population growth. As a 
result of this compact, transit-oriented development, eight percent of 
the County land use accounts for 33 percent of real estate tax revenue. 
The increased tax revenue from the mixed use development in the Metro 
corridors has enabled the County to provide substantial funding for a 
wide range of community services including expanded transit and 
reinvestment in the community's aging infrastructure.
    Arlington County has created a general land use plan that 
identifies development use and densities that would be acceptable in 
exchange for appropriate community benefits, with the highest potential 
densities around transit. The community benefits list includes: 
undergrounding utilities, upgrading pedestrian, bike and transit 
facilities, public art, affordable housing, etc.
    As a result of its location, policies and investments, Arlington 
has a large, stable, and diverse tax base. However, the County is 
challenged with funding the next generation of transportation 
infrastructure investments needed to support community development.
Charlotte, North Carolina
    Funding for Charlotte's new Lynx light rail system came from 
federal, state and a local sales tax.\9\ The City also provided zoning 
flexibility to support private investment in transit-oriented 
development. The planned Center City Streetcar is a key element of 
Charlotte's 2025 Transit System Plan aimed at creating an integrated 
transportation system that fosters local economic development.
---------------------------------------------------------------------------
    \9\ Ohland ands. Poticha, op cit., p. 40. A. Marshall, ``More than 
just a train,'' Governing, June 2008. http://www.governing.com/
articles/0806trans.htm.
---------------------------------------------------------------------------
Chattanooga, Tennessee
    The Eastgate Mall was built on farmland eight miles from downtown 
Chattanooga in the early 1960s. In 1986 the Hamilton Place Mall opened 
and many stores left Eastgate. By the early 1990s, Eastgate had a 
vacancy rate higher than 70 percent. The City of Chattanooga, the 
County Planning Agency and private developers have developed and 
pursued a plan to convert the dying mall site to a new mixed-use town 
center with offices, shops and restaurants along with educational and 
civic organizations. The site has attracted thousands of jobs within 
walking distance of shopping, services and institutions such as the 
YMCA which moved to the Eastgate Town Center, helping to revitalize the 
Brainerd neighborhood.\10\ Public investment in planning has leveraged 
private development and has helped make walking a more convenient and 
realistic travel option.
---------------------------------------------------------------------------
    \10\ Benfield et al., Solving Sprawl, NRDC 2001, p. 100.
---------------------------------------------------------------------------
Little Rock, Arkansas
    The Little Rock Streetcar started service in 2004 and was financed 
primarily with $16 million in federal funding and $4 million in local 
funding, helping to leverage some $200 million in private development. 
The initial project connects the River Market District (created via a 
1994 local sales-tax measure) with other downtown destinations and 
North Little Rock.\11\ A recent extension connected the streetcar to 
the Clinton Library and Heifer International.
---------------------------------------------------------------------------
    \11\ Ohland ands. Poticha, op cit., pp. 51 0952.
---------------------------------------------------------------------------
New Jersey
    A recent New Jersey state law established the Urban Transit Hub Tax 
Credit Program, which provides tax incentives to developers building 
near transit hubs in a few key urban centers.

          New Jersey recently introduced a new initiative designed to 
        encourage investment and job growth around urban transit hubs, 
        which are defined as heavy rail stations in nine urban 
        municipalities--Camden, East Orange, Elizabeth, Hoboken, Jersey 
        City, Newark, New Brunswick, Paterson, and Trenton. The Urban 
        Transit Hub Tax Credit Program provides tax credits equal to 80 
        percent to 100 percent of the qualified capital investments 
        made within an eight-year period. Taxpayers may apply 10 
        percent of the total credit amount per year over a ten -year 
        period against their corporate business tax, insurance premiums 
        tax, or gross income tax liability.\12\
---------------------------------------------------------------------------
    \12\ http://www.state.nj.us/njbusiness/financing/geographic/urban 
transit.shtml

    The New Jersey Department of Transportation's (NJDOT) Transit 
Village Program provides $3 million a year in grants for transit-
oriented development efforts.\13\ NJDOT is also working with cities and 
towns to assess how smart growth land use planning can increase travel 
choices and minimize transportation infrastructure investments.
---------------------------------------------------------------------------
    \13\  http://www.state.nj.us/transportation/community/village/
---------------------------------------------------------------------------
Portland, Oregon
    Portland's success with transit-oriented development has its roots 
in the statewide planning program adopted in the early 1970s, which 
included a requirement for cities to develop urban growth boundaries. 
In the 1990s, Portland's Land Use, Transportation and Air Quality 
(LUTRAQ) planning effort provided the framework and quantitative 
analysis for assessing how smart growth and transit-oriented 
development can reduce energy consumption, air pollution and greenhouse 
gas emissions. Portland has employed a broad variety of policies to 
increase travel choices, including transit system expansion, plans and 
regulations to encourage transit-oriented development, and improvements 
to bicycle and pedestrian facilities. Finance mechanisms for Portland's 
streetcar projects have included increased parking rates, a local-
improvement district, tax-increment financing, sponsorship and 
advertising.\14\
---------------------------------------------------------------------------
    \14\ Ohland ands. Poticha, op cit., pp. 4-7.
---------------------------------------------------------------------------
Rock Hill, South Carolina
    The Bank of America Historic Tax Credit Fund, which provides equity 
to developers, invested $1 million in the Dalton Building a mixed-use 
housing and office property on Rock Hill's main street.\15\ This is an 
example of private equity helping developers make use of public tax 
credits through reuse of old buildings in older communities that are 
already pedestrian accessible.
---------------------------------------------------------------------------
    \15\  Parzen and. Sigal, op cit., p. 107.
---------------------------------------------------------------------------
Sacramento, California\16\
---------------------------------------------------------------------------
    \16\ Based on input from Mike McKeever, Executive Director of 
SACOG.
---------------------------------------------------------------------------
    The Sacramento Area Council of Governments (SACOG) has undertaken a 
state-of-the art ``Blueprint'' regional land use planning process. The 
Blueprint laid the ground work for the region's Master Transportation 
Plan, making possible fuel use and greenhouse gas emissions savings 
from integrated transportation infrastructure and land development 
patterns.
    The Blueprint planning process was financially supported through a 
number of revenue sources. By far the largest funding source was by 
prioritizing existing federal and state planning funds to this purpose. 
State grants helped with travel model improvements and economic 
analysis. Additional federal and private foundation support helped with 
the project's citizen outreach effort. Local business and development 
organizations funded housing market research and some of the costs of 
the large regional conference at the end of the process. Planning and 
citizen engagement activities to implement the Blueprint have been 
funded through existing federal and state planning funds, the State of 
California Blueprint grant program, a federal earmark, and a grant from 
US EPA.
Tampa, Florida
    A $60 million public investment in the Tampa TECO Streetcar helped 
leverage $1 billion in private investment within three blocks of the 
streetcar line. This was achieved via partnership among the city, the 
regional transit authority, the metropolitan planning organization, the 
state DOT and the Federal Transit Administration. Operating funds are 
supported by a tax-assessment district along the streetcar route, sales 
of station naming rights, advertising and fares.\17\
---------------------------------------------------------------------------
    \17\ Ohland ands. Poticha, op cit., pp. 48-50.
---------------------------------------------------------------------------
    Question 3. In the early 70s, it was anticipated that our energy 
demand would be much higher than it currently is today. In your 
opinion, why did these projections generally overestimate actual 
demand?
    Answer. I have not analyzed the energy demand projections from the 
early 1970's, so am unable to comment in any depth on this question. It 
is likely that actual energy end-use efficiency improvements exceeded 
expectations at the time. I would also expect that shifts from a 
manufacturing toward a more service-oriented economy played some role, 
as well as export of energy-intensive manufacturing to other countries.
    I recommend that current federal energy demand forecasts be 
adjusted to reflect recent consumer travel and vehicle purchase 
behavior. Even though oil prices have come down somewhat since the July 
hearing, if gasoline remains above $3.00 per gallon, I expect that 
consumers will remember the high prices and think twice before 
purchasing inefficient vehicles, making nonessential trips and will 
consider the travel cost implications of residence and employment 
locations.
    Question 4. What immediate and near-term steps can suburban or 
rural areas take to reduce gasoline demands?
    Answer. In the near-term, residents of suburban and rural areas can 
combine trips, eliminate non-essential trips and maximize use of 
internet based shopping and work. In addition they can employ a host of 
measures to improve vehicle efficiency including tire inflation and 
moderate driving practices (e.g., reduce high acceleration events).
    Suburban and rural areas can also take steps now to increase the 
walkability of their town or village centers so that, for example, some 
shopping and recreational trips can be taken by foot. Pursuing 
development and zoning policies that encourage compact, centralized 
development can shorten vehicle trips, enhance the practicality of walk 
trips and bolster local businesses that may be becoming more 
competitive vis-a-vis distant discount centers due to high motor fuel 
costs.
    Question 5. You noted in previous Senate testimony that a July 2007 
report from the American Association of State Highway and 
Transportation Officials (AASHTO) set a goal of cutting Vehicle Miles 
Travelled growth in half by 2055. What steps is the AASHTO taking to 
meet this ambitious goal?
    Answer. I forwarded your question to AASHTO for their response, 
which I have attached in a separate document.
                               attachment
    Question 1. You noted in previous Senate testimony that a July 2007 
report from the American Association of State Highway and 
Transportation Officials (AASHTO) set a goal of cutting Vehicle Miles 
Traveled growth in half by 2055. What steps is AASHTO taking to meet 
this ambitious goal?
    Answer. The origin of the AASHTO goal cited by Senator Domenici was 
a report titled A New Vision for the 21st Century, which was approved 
by AASHTO's Executive Committee in July, 2007. That report came about 
through a national conference AASHTO convened in Maryland. In May, 2007 
AASHTO brought together transportation experts from across the Nation, 
representing users, builders and providers of our transportation system 
for a three-day Transportation Vision and Strategies for the 21st 
Century Summit. The resulting report, A New Vision for the 21st 
Century, recognized that to make a positive contribution to the issue 
of global climate change, transportation policies need to reduce 
dependence on foreign oil, reduce energy consumption, and reduce travel 
demand, relative to current trends. To achieve these goals AASHTO 
called for:

   Supporting the President's goal to reduce oil consumption by 
        20 percent in 10 years,
   Doubling the fuel efficiency of new passenger cars and light 
        trucks by 2020, the entire fleet by 2030,
   Reducing the projected growth in vehicle miles traveled-from 
        three trillion in 2006 to five trillion, rather than seven 
        trillion, by 2055, and
   Reducing the percentage of commuters who drive alone to 1980 
        levels, and
   Increasing the percentage of those who ride transit, car 
        pool, walk, bike, or work at home.

    To achieve the proposed reduction in VMT growth, AASHTO proposed:

   Doubling transit ridership by 2030,
   Significantly expanding the market share of passengers and 
        freight moved by rail rather than trucks,
   Reducing the percentage of commuters who drive alone to 1980 
        levels, and
   Increasing the percentage of those who ride transit, 
        carpool, walk, bike and work at home.

    This year AASHTO and its members have been working diligently to be 
part of the climate change solution. AASHTO has undertaken a number of 
climate change activities, including:

   Publishing, in April 2008, a Primer on Transportation and 
        Climate Change,
   Developing a Climate Change Technical Assistance Program to 
        supply AASHTO members with timely information, tools and 
        technical assistance to assist them in meeting the difficult 
        challenges that arise related to climate change, and
   Organizing a Transportation Vision Conference in Spring, 
        2007 which included discussions regarding sustainability and 
        climate change.

    The states are proactive on climate change; thirty-six governors 
have developed aggressive plans to reduce greenhouse gas emissions from 
electric energy generation, industry, and transportation. To reduce GHG 
emissions from the transportation sector, changes will be needed in 
four areas: (1) improving fuel economy of vehicles; (2) developing new, 
lower-carbon fuels; (3) reducing the growth in transportation demand, 
as measured in vehicle miles traveled (VMT), and (4) improving system 
efficiency.
    Evidence shows that VMT growth trends have been tapering off for 
decades, most dramatically in recent years. The following is VMT growth 
rates by decade from the 1950's to the 2000's:

   1950's: 4.8%
   1960's: 4.3%
   1970's: 3.8%
   1980's: 3.2%
   1990's: 2.5%
   2000's: 1.4%

    Rather than growing at the predicted rate of 2% or more annually, 
VMT has been increasing at approximately one-half of a percent since 
2004. And in the past year, VMT has actually declined in response to 
sharply higher gasoline prices. The recent VMT trends suggest that VMT 
growth is abating on its own, in response to market forces, lessening 
the need for any regulatory intervention by the federal government.
    In tandem with efforts to develop cleaner vehicles and fuels and to 
reduce growth in VMT, it also is possible to reduce greenhouse gas 
emissions by improving system efficiency. Traffic congestion 
contributes to greenhouse gas emissions because vehicle engines operate 
less efficiently--and therefore produce higher emissions per mile--when 
they are driven at low speeds in stop-and-go traffic. In 2002, traffic 
congestion wasted 5.7 billion gallons of fuel. The optimal speed for 
motor vehicles with internal combustion engines is about 45 mph. At 
lower speeds, CO2 emissions per-mile are several times 
higher than at 45 mph. At higher speeds, CO2 emissions per 
mile increase as well, but somewhat less sharply. As such, congestion 
relief can play a role in reducing greenhouse gas emissions. If we can 
reduce the amount of fuel burned by vehicles stalled in traffic that is 
a gain. If we can improve the flow of traffic so fuel is burned at more 
optimal efficiency rates then that will also produce a gain.
    All four of these areas are important, but ultimately, we need zero 
carbon fuels. A breakthrough in vehicle and fuel technology is 
essential for the world as a whole to achieve the necessary reductions 
in GHG emissions. Reducing GHG emissions in the U.S. alone would 
accomplish very little, if emissions elsewhere continue to rise at 
their current rates. Developing countries in particular are 
experiencing rapid increases in automobile ownership, economic growth, 
and personal incomes. Developing countries will only be able to reduce 
their GHG emissions if they have access to much cleaner vehicles. The 
U.S. should be leading the way toward the development of these new 
technologies, both to reduce U.S. emissions and to reduce emissions 
worldwide.
    A policy recommendation prepared for action by AASHTO's Board of 
Directors proposes that the Nation establish a major national R&D 
initiative to transition the entire transportation vehicle fleet to 
zero-carbon fuels. The goal by 2050 should be to transition our vehicle 
fleet from internal combustion engines powered by petroleum to new 
engines powered by electricity generated from renewable sources. Before 
then, we must continue to make major improvements in the fuel economy 
of existing engines and broaden the availability of highly efficient 
gasoline/electric hybrid engines, including plug-in hybrids.
                                 ______
                                 
                                      Department of Energy,
                                  Washington, DC, October 24, 2008.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate 
        Washington, DC.
    Dear Senator Bingaman: On July 23, 2008, Steven Chalk, Deputy 
Assistant Secretary, Office of Energy Efficiency and Renewable Energy, 
testified regarding the status of existing federal programs targeted at 
reducing gasoline demand in the near term and to discuss additional 
proposals for short term gasoline demand reductions.
    Enclosed are the answers to five questions submitted by you and 
Senator Domenici for the hearing record. The remaining answers are 
being prepared and will be forwarded to you as soon as possible.
    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 Congressional and Intergovernmental Affairs.
[Enclosures.]
                    Questions From Senator Bingaman
    Question 1. Is the recent surge in demand for diesel for electric 
generation a short term or long term factor? What are alternative 
options for low-cost, off-grid electrification? Might this be a good 
application for biodiesel?
    Answer. Diesel generators are often used in response to emergency 
situations, when commercial electricity supplies are disrupted. As a 
result, spikes in diesel generation are most often short-term 
phenomena, rather than long-term solutions to providing electricity. 
For instance, disruptions to coal transportation systems in China last 
year during particularly harsh winter weather resulted in an increase 
in diesel generation. Many South American countries rely on diesel 
generators when drought conditions lower hydroelectric supplies.
    In the long-run, electricity providers seek more cost effective 
solutions to supplying reliable electricity generation rather than 
continuing to rely on diesel generators. In China, for instance, there 
are plans to expand nuclear, coal-fired, and renewable generation. 
Unfortunately, these solutions can take a long time to implement 
because of the need to expand the infrastructure to support the 
expansion of electricity, including transmission lines, railroads and 
highways.
    It is likely that diesel generators will continue to be used as 
short-term solutions to emergency situations, because they can be used 
to quickly respond to power disruptions, so that the use of biodiesel 
to fuel generators would be possible. In remote areas with no access to 
national grids and where it is difficult and expensive to expand 
transmission lines, renewable energy sources--for example, micro 
hydroelectric facilities, wind, solar, and other off-grid renewable 
technologies--could also provide relatively cost-effective power 
solutions.
    Question 2. NPRA has stated that U.S. diesel exports are not clean 
enough to be consumed inside the U.S. Are there export data to back up 
this claim? Might there be other domestic applications for some of that 
diesel? For instance, could it be used for heating oil?
    Answer. This year's distillate exports include both low sulfur and 
ultra-low sulfur distillate that could be used in the U.S. EIA uses 
export data provided by the U.S. Bureau of the Census that does not 
break out ultra-low sulfur diesel from low sulfur, but we confirmed 
that some of the product being exported included ultra-low sulfur 
diesel. The high sulfur distillate market (fuel with greater than 500 
ppm sulfur) includes home hearting oil and fuel for electric generating 
use. Historically, high sulfur distillate represented more than half of 
total distillate exports. For example, in 2000 high sulfur exports 
represented 77 percent of the exported volumes, while in 2007 they 
represented 51 percent. This year, high sulfur exports dropped to 13 
percent of total distillate exports, both because most U.S. distillate 
production (88 percent) is now low or ultra-low sulfur distillate and 
because some of the major export areas needing distillate, such as 
Europe, now use low sulfur or ultra-low sulfur product.
    Question 3. When will testing be completed on the use of 
intermediate blends of ethanol in conventional vehicles (between El0 
and E85). Is it possible to approve the use of E12 at this time, or is 
further testing required?
    Answer. DOE has completed the first set of tests of intermediate 
ethanol blends on vehicles and small non-road engines. An interim 
report that summarizes data available to date has been peer reviewed 
and will be released publicly in early Fall 2008. A number of 
additional studies that consider the effects of blends on materials, 
durability, drivability, and emissions are underway or planned. These 
individual studies have a variety of end dates, with completion of the 
longest-term study on catalyst durability expected in 2010. DOE will 
issue reports in the interim as results become available from the 
various tests, with a final report expected upon completion of the 
durability testing in 2010.
    EPA has the authority to determine whether a particular fuel is 
substantially similar to gasoline and therefore can be used in 
conventional vehicles. DOE cannot comment nor make a determination on 
the acceptability of E12 or any other intermediate ethanol blend at 
this time.
                     Question From Senator Lincoln
    The rise in both gas prices and diesel prices are especially 
worrisome in a rural state like Arkansas, where families have to drive 
long miles to work and school and the grocery store. The combination of 
lower incomes, high fuel prices, and the heavy dependence on pickup 
trucks and vans and use of farm equipment is putting an even tighter 
squeeze on family budgets. Rural residents do not have mass transit or 
grocery stores nearby and few alternative fuel options available to 
ease the pain at the pump.
    Question 1. I do believe that most of our energy policy option will 
focus on he long-term, as we are not going to solve this problem 
overnight. However, in your expert opinions, what do you believe are 
Congress' most immediate options for providing relief to hard-working 
families and businesses which rely mostly on diesel fuel?
    Answer. The Administration has pursued, as you note, significant 
strategies to increase both the efficiency of motor vehicles and the 
supply of alternative fuels for transportation use. These measures have 
included fuel economy standards for both cars and light trucks, 
mandates for greater use of non-petroleum fuels and incentives for 
their production, biofuels research, incentives for advanced hybrid 
vehicles, and increased access to domestic resources for increased 
domestic energy production. Despite these long-term initiatives, world 
oil prices rose to very high levels, peaking in the summer of 2008. The 
resulting gasoline prices of about $4.00 per gallon, and diesel prices 
even higher prompted widespread public concern.
    Fuel prices have fallen sharply since their mid-2008 peak under the 
combined influence of consumer adjustments and weaker economic growth 
both in the United States and worldwide. These lower fuel prices 
provide significant relief to hard-working families and businesses. 
Additionally, the Department of Energy remains focused on long-term 
energy security through alternative fuels, increased domestic energy 
production and gains in energy efficiency.
                    Questions From Senator Domenici
    Question 1. On the second page of your written testimony, I noticed 
that in the past year, the cost to refine a gallon of gasoline has 
declined, while the cost to refine a gallon of diesel has increased. 
According to your chart, the cost to refine gasoline dropped by 31 
cents, but the cost to refine diesel increased by 18 cents. Can you 
explain why these numbers went in opposite directions?
    Answer. Figure 1 of the testimony, presents a simplified view of 
price components to help explain variations in retail prices. The 
component labeled as the ``wholesale crack'' in the figure is not 
refining costs to produce the products shown. Rather, the wholesale 
crack, defined as the wholesale price of gasoline or diesel minus the 
cost of crude oil to the refinery is a measure of the revenue available 
to cover remaining refining costs and refining profits associated with 
gasoline or diesel production after crude costs are removed. This 
revenue varies in the short run as a result of basic supply and demand 
forces in the markets for crude and products.
    Figure 2 in the testimony displays time series of wholesale diesel 
and gasoline crack spreads. Looking at gasoline, it shows that during 
2007 the wholesale price were often much larger than crude oil costs, 
implying high profitability. This year, however, gasoline markets have 
had ample supply relative to demand as a result of declining demand, 
increased use of ethanol (and thus less need for crude-based gasoline), 
and increased availability of gasoline imports. This ample supply 
reduced the wholesale gasoline crack spread, and at times, pushed 
gasoline prices below the price of crude oil resulting in financial 
losses for gasoline production. At the same time, the distillate 
market, which includes diesel, and is distinct from gasoline market, 
tightened considerably worldwide as a result of growing demand, 
particularly in the electricity generating sector. That pulled diesel 
prices up relative to crude oil cost, improving refining profits from 
diesel production.
    Question 2. Since 2002, EIA has broken out the price of diesel into 
its component costs-refining, distribution and marketing, taxes, and 
crude oil. In May 2002, refining accounted for 5.1 percent of the price 
of diesel, but since then, and even as the price of oil has increased 
substantially, refining costs have consistently been much higher.
    I understand that one factor in this increase may be the decision 
to mandate the use of Ultra-Low Sulfur Diesel fuel. EPA initially 
estimated this would cost no more than 5 cents per gallon. The 
transition to ULSD is important to improving air quality, but has it 
come at a greater cost than we expected? Can you describe any other 
factors that may account for the substantial increase in refining as a 
percentage of the price of diesel?
    Answer. The data represented in Figure 1 reflects the sum of 
refining costs and profits which varies. The ``wholesale diesel crack'' 
component will vary both as a percent of total price and as an absolute 
value with the changing distillate and gasoline supply-demand balances 
in the short run. We do not have any direct measure of how the cost of 
producing diesel fuel has increased over time. Both heating oil and 
diesel fuel tend to move together with the general distillate market 
tightness or looseness, so looking at the difference between diesel 
prices and heating oil prices over time will help to isolate the impact 
diesel specification changes such as the move to ultra low sulfur 
diesel (ULSD) may have had. Prior to 2005 and the hurricane impacts on 
prices, wholesale diesel prices on the Gulf Coast would normally 
average one to three cents above No. 2 fuel oil (heating oil). After 
the ULSD program began in 2006, diesel has been averaging 13-14 cents 
per gallon over No. 2 fuel oil. This implies that the ULSD program may 
be contributing about 10 cents per gallon to the price of diesel fuel.
    This is relatively consistent with the studies done on ULSD 
production costs. For simplicity, EPA, EIA, NPC and others use single 
numbers to discuss cost estimates. But these costs are difficult to 
compare. EIA's 2001 report, Transition to Ultra-Low Sulfur diesel 
explains the difficulties in comparing costs in greater detail. For 
example, costs will increase with the relative amount of ULSD produced 
compared to 500 ppm sulfur or high sulfur distillate, with the amount 
of ``cracked stock'' (distillate material that comes from fluid 
catalytic cracking or coking units) that needs to be desulfurized, with 
the scale of the units used to desulfurize the distillate, and whether 
new or revamped units could be used. The clean diesel program has 
grown, with moe of the distillate market being required to use low or 
ultra-low sulfur fuel, which alone would be expected to result in 
increasing costs.
    Question 3. The military has undertaken a program aimed at 
providing a greater share of their energy needs with domestically 
produced fuel--much of this work has focused on taking greater 
advantage of our domestic coal reserves.
    What impact do you believe coal-to-liquids fuels could have on the 
price of diesel?
    Answer. Given the amount of coal-to-liquids distillate fuels EIA is 
projecting in the AEO2008 reference case in 2030, approximately 137,000 
barrels per day, and the amount of diesel fuel use projected in 2030, 
4.871 million barrels per day, the price effect would be likely be 
limited. In general, adding new supply to an extremely tight market for 
all distillate range material should lower prices to some extent for 
all midrane distillate products, but EIA has not performed quantitative 
analysis on this topic.
    Question 4. Plug-in vehicles hold great promise in our ongoing 
efforts to lessen our dependence on foreign sources of oil. However, 
U.S. transmission infrastructure has increased by only 6.8% since 1996. 
In last year's energy bill, Congress encouraged the modernization of 
the electricity grid in ``Smart Grid'' provisions that include the 
deployment and integration of plug-in electric and hybrid electric 
vehicles.
    What kind of infrastructure improvements must we undertake to 
accommodate the eventual use of plug-in vehicles?
    Answer. The total amount of generating capacity (power) may not 
need to grow at the same rate that electricity generation (energy) will 
increase to charge the vehicles. This assumes that many plug-in 
vehicles are charged at off-peak times (mostly at nighttime) when 
capacity demand is down. In November 2007, Pacific Northwest National 
Laboratory published a study that found, ``The existing electricity 
grid has sufficient capacity to fuel 73% of the Nation's cars, pickup 
trucks, and SUVs for a daily average drive of 33 miles.''\1\
---------------------------------------------------------------------------
    \1\ http://www.pnl.gov/energvieedietd/pdfs/
phev_feasibility_analysis_combined.pdf.
---------------------------------------------------------------------------
    Other related infrastructure needs will include case-by-case 
decisions to upgrade power distribution networks and residential sites. 
For example, the local utility may need to implement smart chargers to 
encourage consumers to recharge their vehicles overnight to take 
advantage of off-peak electricity and time-of-day pricing. Special 
infrastructure such as smart metering and smart charging devices will 
be needed if PHEVs are used in a vehicle-to-grid mode to help with grid 
voltage regulation and reduce grid congestion during peak use periods.
    Question 5. Although there are 240 million light duty vehicles in 
the U.S., there are only 6 million flexible-fuel vehicles that can use 
a blend of 85% ethanol and 15% gasoline on the road.
    I understand that the domestic auto manufacturers have pledged to 
make half of their vehicles E85 compatible by the year 2012. Have we 
made any progress there? Also, how limited are we by the current 
distribution and fueling infrastructure for E85?
    Answer. The domestic car companies assert that they are committed 
to delivering on their promise to make half of their vehicles E85 
compatible by 2012. None of the foreign car companies have made such a 
pledge. Flexible fuel vehicles (FFVs) in 2007 represented 14% of total 
domestic vehicle sales, up substantially from 5% in 2005.\1\ General 
Motors is leading in this area and has increased its FFV production 
from 395,010 to 764,465 between 2006 and 2007. That is approximately 
19% of their 2007 North American sales. Note that some of the original 
equipment manufacturers (OEMs) have also included the use of biodiesel 
in their vehicles with diesel engines in their strategy to achieve the 
50% production goal. (The chart below was produce by National Renewable 
Energy Laboratory (NREL) with data extracted from R.L. Polk and other 
information provided directly from OEMs).
---------------------------------------------------------------------------
    \1\  R.L. Polk data
----------------------------------------------------------------------------------------------------------------
                                                                     FFV % of     Diesel % of  Diesel + FFV % of
                                                         Year       Total Sales   Total Sales     Total Sales
----------------------------------------------------------------------------------------------------------------
Chrysler                                                    2005            0%            4%                 4%
                                                            2006            1%            7%                 8%
                                                            2007            6%            3%                 9%
----------------------------------------------------------------------------------------------------------------
Ford                                                        2005           10%            7%                17%
                                                            2006            7%            9%                16%
                                                            2007           10%            4%                14%
----------------------------------------------------------------------------------------------------------------
 GM                                                         2005            5%            3%                 8%
                                                            2006           11%            3%                14%
                                                            2007           19%            3%                22%
----------------------------------------------------------------------------------------------------------------

     The U.S. is very limited in E85 infrastructure to support the 
fleet of E85 vehicles. There are a total of 168,000 fueling stations in 
the U.S. and slightly more than 1,500 E85 capable stations (less than 
1% of the total).\2\,\3\ These E85 fueling stations serve just eight 
percent of the total U.S. population. The U.S. is also limited in its 
ability to move ethanol in large quantities to terminals where it can 
be shipped to fueling stations, primarily because ethanol is not 
compatible with the existing pipeline infrastructure. DOE is also 
investigating the use of intermediate blends of ethanol (e.g., E15, 
E20). The infrastructure requirements for these blends would likely be 
significantly reduced. Since it is envisioned that intermediate blends 
could be introduced to the entire existing fleet of vehicles, the 
Vehicle Technologies Program is primarily focused on determining 
whether existing vehicles are adversely affected by various blend 
levels.
---------------------------------------------------------------------------
    \2\ See http://wwwl.eere.energy.gov/vehiclesandfuels/facts/2004/
fcvt_fotx344.html
    \3\  http://www.eere.energy.gov/afdc/fuels/stations_counts.html
---------------------------------------------------------------------------
    Question 6. In fiscal years 2007 and 2008, DOE allocated $14.6 
million to test the impacts of intermediate blends on existing systems. 
What is the status of that ongoing research?
    Answer. DOE has completed the first set of tests of intermediate 
ethanol blends on vehicles and small non-road engines. An interim 
report that summarizes data available to date has been peer reviewed 
and will be released publicly in September 2008. This report will 
include emissions and temperature data for 13 vehicles as well as 
emissions, temperature, and durability data for a variety of small non-
road engines. Additional vehicle studies assessing the impacts of 
intermediate ethanol blends on drivability, emissions, materials, and 
durability are underway or planned. DOE also plans to undertake studies 
that will consider the impacts of these fuels on other specialty 
engines, such as marine and motorcycle engines. DOE will continue to 
issue new reports as data from ongoing studies becomes available and is 
peer reviewed.
    Question 7. Is the Hydrogen Fuel Initiative meeting its goals? If 
so, can you tell us how?
    Answer. The Department's Hydrogen Program continues to make 
significant progress toward meeting its goals. Through the accelerated 
research and development enabled by the Hydrogen Fuel Initiative, the 
Program has accomplished the following:

   Developed fuel cell components with improved performance and 
        durability that have been demonstrated in fuel cell stacks 
        which were build by industry and which doubled the lifetime 
        from 1,000 hours in 2003 to 2,000 hours in 2006; on track 
        towards meeting the target of 5,000 hours, equivalent to 
        150,000 miles.\1\ Developed a fuel cell membrane electrode 
        assembly and achieved more than 7,000 hours durability, 
        exceeding the 2010 membrane target of 5,000 hours.\2\
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    \1\ http://www.hydrogen.energy.gov/pdfs/
5036fuel_cell_stack_durability.pdf
    \2\ http://www.hydrogen.energy.gov/pdfs/review08/fc_l_debe.pdf
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   Reduced the projected high volume cost of fuel cells by 
        65%--from $275 per kilowatt in 2002 to $94 per kilowatt today--
        on track towards meeting the target of $30 per kilowatt in 
        2015.\3\,\4\
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    \3\ http://www.hydrogen.energy.gov/pdfs/review08/fc_7_james.pdf
    \4\ http://www.hydrogen.energy.gov/pdfs/5005_fuel_cell_cost.pdf
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   Lowered the cost (untaxed) of producing hydrogen at a 
        fueling station using natural gas from $5 per kilogram in 2003 
        to $3 per kilogram (projected for high volumes), demonstrating 
        that hydrogen can be cost competitive with gasoline.\5\
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    \5\  http://www.nrel.govklocs/fy07osti/40382.pdf
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   Developed a hydrogen purification membrane that meets 2010 
        targets for sulfur tolerance, predicted economic life, and 
        operating conditions and surpassed targets for hydrogen 
        production rate, product purity, and cost, to enable hydrogen 
        production from coal gasification.\6\
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    \6\ http://www.hydrogen.energy.gov/pdfs/review08/pd_39_jack.pdf
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   Initiated operation of an integrated lab scale system with 
        peak hydrogen production of 2,000 liters per hour, on track 
        towards enabling hydrogen production using nuclear power.\7\
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    \7\ http://www.hydrogen.energy.gov/pdfs/review08/pd_25_pickard.pdf
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   Through Centers of Excellence (collaborative teams of 
        research groups, selected through a competitive solicitation 
        process, each working on specific types of hydrogen storage 
        materials) and independent projects, identified potential 
        materials for low-pressure vehicular hydrogen storage with 50% 
        improvement in capacity compared to 2004.\8\
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    \8\ http://www.hydrogen.energy.gov/pdfs/5037_h2storage.pdf
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   Through basic science research, expanded understanding of 
        how hydrogen interacts with metal surfaces and developed a 
        bacterial enzyme that catalyzes hydrogen production, with a 
        high tolerance for oxygen and increased robustness for 
        producing hydrogen under non-biological conditions.''\9\,\10\
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    \9\ http://www.hydrogen.energy.gov/pdfs/review07/pl_0_kung.pdf
    \10\ Paul W. King, Drazenka Svedruzic, Jordi Cohen, Klaus Schulten, 
Michael Seibert, and Maria L. Ghirardi, Proc. SPIE Vol. 6340, 63400Y 
(2006)
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   Produced several resources to share important safety and 
        permitting information with communities, including a 
        ``Technical Reference for Hydrogen Compatibility of Materials'' 
        and a ``Permitting Compendium for Hydrogen Fueling Stations and 
        Stationary Installations.'' \11\,\12\
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    \11\ http://www.ca.sandia.gov/matIsTechRef/
    \12\ http://www.hydrogen.energy.gov/permitting/
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   Developed educational materials and conducted workshops for 
        various key target audiences including teachers, safety and 
        code officials, state and local government officials, potential 
        early adopters, and the public. Among the resources developed 
        is an online training tool to introduce first-responders 
        (primarily fire fighters but also law enforcement and emergency 
        medical personnel) to hydrogen, its properties as compared to 
        other commonly used fuels, and initial emergency response 
        actions; to date more than 6,000 users have accessed the 
        course.\13\
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    \13\ http://www1.eere.energy.gov/hydrogenandfuelcells/education
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   Through the DOE Hydrogen Technology Program's Technology 
        Validation efforts and 50-50 industry cost shared projects, 
        demonstrated 122 vehicles and 16 fueling stations, achieving a 
        fuel cell system efficiency of more than twice that of gasoline 
        vehicles, a projected durability of 1,900 hours (equivalent to 
        57,000 miles), and a driving range of up to 190 miles.\14\,\15\
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    \14\ http://www1.eere.energy.gov/hydrogenandfuelcells/
tech_validation/fleet_demonstration.html
    \15\ http://www.nrel.gov/hydrogen/cdp_topic.html

                                    

      
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