[Senate Hearing 110-654]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-654
 
                            SUMMIT ON ENERGY 

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   TO

   CONSIDER HOW WE ACHIEVE A MORE SECURE, RELIABLE, SUSTAINABLE AND 
           AFFORDABLE ENERGY FUTURE FOR THE AMERICAN PEOPLE.

                               __________

                           SEPTEMBER 12, 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................     8
Cohn, Gary, Co-President, Managing Director and COO, Goldman 
  Sachs, New York, NY............................................    67
Deutch, John, Professor of Chemistry, Massachusetts Institute of 
  Technology, Cambridge, MA......................................    21
Domenici, Hon. Pete V., U.S. Senator From New Mexico.............     9
Krenicki, John, Vice Chairman, President and CEO, General 
  Electric Energy Infrastructure, Atlanta, GA....................    61
McConnell, Hon. Mitch, U.S. Senator From Kentucky................     6
Odum, Marvin, President, Shell Oil Company.......................    27
Reicher, Dan, Director, Climate Change and Energy Initiatives, 
  Google.Org, San Francisco, CA..................................    19
Reid, Hon. Harry, U.S. Senator From Nevada.......................     1
Roberts, James, Chief Executive Officer, Foundation Coal 
  Corporation, Linthicum Heights, MD.............................    64
Rowe, John, Chairman and CEO, Exelon Corporation, Chicago, IL....    62
Steenland, Douglas, President and CEO, Northwest Airlines, 
  Minneapolis, MN................................................    66
Verrastro, Frank, Director, Energy and National Security Program, 
  Center for Strategic and International Studies.................    12
Wagoner, Richard, Chairman and CEO, General Motors, Detroit, MI..    68
Yergin, Daniel, Chairman, Cambridge Energy Research Associates, 
  Cambridge, MA..................................................    14

 
                            SUMMIT ON ENERGY

                              ----------                              


                       FRIDAY, SEPTEMBER 12, 2008

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:35 a.m. in room 
SDG-50, Dirksen Senate Office Building, Hon. Harry Reid 
presiding.

 OPENING STATEMENT OF HON. HARRY REID, U.S. SENATOR FROM NEVADA

    Senator Reid. There are many who deserve credit and thanks 
for organizing this summit. I appreciate the work that Senator 
McConnell has done. He and I have done our best to put together 
a fair group of witnesses.
    Of course Senators Bingaman and Domenici who are so unique, 
both coming from the same State, being chair and ranking member 
of that committee off and on over the last several years, 
appreciate their good work. Of course, I again extend my 
appreciation to those who are here from government. There are 
academics here, people from industry.
    Especially I want to thank Senator Conrad whose idea this 
was, lead organizer of this summit, suggesting this was 
something we should do. So he's pushed relentlessly to have 
this done. Of course, we've all watched with interest the work 
that's he's done on a strictly bipartisan basis coming up with 
some energy legislation that we'll see in the next few days.
    I think we've seen two diverging trends in this energy 
debate. One I think is very encouraging and one perhaps, not 
so. On the one side, as the fall campaigns heat up, we've seen 
energy move into a more partisan realm with candidates looking 
to score points with sound bites that really solve nothing.
    But on the other side, we're seeing increasing consensus. 
When all political dust settles our energy challenges can't 
fall into political partisan bickering. We've got to understand 
that it's, the issue, is bigger than any one of us, any one 
political party.
    I think an encouraging trend toward bipartisanship is some 
things that's happened the last few days. We've seen the gang 
of ten, which has continued to work on their product. They 
recognize, and we all recognize, their work is certainly not 
perfect. Compromise never is.
    But we've seen also, for example, yesterday, Senators 
Baucus and Grassley come up with what they think is a way to 
move forward on this. We've seen the month's long work of two 
Senators, Cantwell and Ensign. Democrat and Republican working 
to move forward on what they believe is an answer to a 
significant problem we have in the energy world.
    So these are all good signs. In Nevada this last August, on 
the 19th, I had the final day of a 2-day summit on energy. It 
was a national summit. It was really worked out so well.
    We had coming together, industry, labors, sportsmen, 
environmentalists, Democrats and Republicans. To come with a 
serious purpose to find a solution to some of the problems we 
have with energy. It was unique that I was sharing the stage 
with T. Boone Pickens.
    He wanted to make his presentation on a blackboard. The 
President of the University said when he requested that, they 
don't use blackboards anymore. So he had to go to the girl's 
volleyball department.
    The only one they could find in the University. Boone did a 
great job as a teacher up there telling us what he thinks 
should be done. What he thinks should be done is a direction 
that a lot of us believe is the right direction.
    He and Al Gore have gotten together, recognizing that the 
security of our Nation is extremely important. One of the 
answers to a more secure Nation is not being dependent on 70 
percent of our oil being imported from foreign sources. So 
today's summit is the latest step in this bipartisan trend.
    But I have to say that this bipartisan trend has been a 
hallmark of Bingaman/Domenici's work on the Energy Committee 
for a long, long time. So we're going to hear today from noted 
academic leaders, America's high tech giants and oil company 
executives. With energy legislation, we hope, moving to the 
floor next week as Senator McConnell and I think it will. This 
is a rare opportunity to put our ideas directly into action.
    But the legislation of this work period is just one of many 
steps we must take. It is important. I think we all agree that 
a problem as big as this requires comprehensive solutions. I 
wish we had a magic formula that we could mix up and solve all 
of our problems.
    I wish we could have a silver bullet to solve our problems. 
I think the only silver bullet we have is to decrease our 
consumption of fossil fuels. There are a number of ways we can 
do that, conserve energy, of course. We can do this painlessly 
in a number of ways by improving efficiency of our buildings, 
our household appliances.
    We also need to move to renewable energy which is so 
important. We all recognize that. We also need to demand a 
better fuel efficiency from our automobiles.
    Most people in this room probably never saw a Model T. But 
some of us have. A hundred years ago when the Model T was 
introduced, this little vehicle averaged 13 to 21 miles a 
gallon.
    Since then we've invented television, taken to the skies, 
landed on the moon, put a man on the moon. But most of our cars 
and trucks in 2008 average 13 to 21 miles a gallon, just like 
the Model T. So we can do better. We have to do better.
    One part of the solution is the advanced technology vehicle 
manufacturing incentives program that a number of people are 
talking about. So I want to do everything I can to see if we 
can secure funding to implement this important program as soon 
as possible, hopefully this year. We also, of course, need to 
bring down prices for the oil we use in many different ways. We 
have to go after speculators, price gougers and oil producing 
nations who game or cheat the system and leave American 
consumers paying the bill.
    Finally, I think we can all agree that we need to view this 
not as a crisis. It's hard to put that out of our calculation, 
but as an opportunity. An opportunity to see if America can 
move back into the world of being the most efficient automobile 
manufacturer in the world, automobiles made here in America.
    That solar panels and wind turbines will power the planet 
in the years to come can be built by American workers, that the 
transition from fossil fuels of old to renewable fuels of 
tomorrow can create jobs, protect our national security and 
cleanse our environment.
    Already State and local governments are joining with the 
private sector. These entrepreneurs who have made our country 
so successful see the light. That there is money to be made in 
this world that we have created where people who are willing to 
invest not only can make money, but make a better world.
    So thank you all for being a part of this program. I think 
it's long time past for the Federal Government to take a lead 
to help clean our country and move to a clean revolution in 
every city and town across our country. The American people 
demand that we do something differently. They're demanding 
bold, new ideas and creative solutions. I'm confident the day's 
panel will help move meaningfully to that end and move away 
from what we have now which is status quo.
    On behalf of Senator McConnell, we have some business on 
the floor. We're in session today. We created it so there will 
be no votes, but there is work that we have to do. So if you 
would be good enough to excuse us after we complete our 
statements, Senator Bingaman and Domenici. We would appreciate 
it.
    Senator McConnell.
    [The prepared statement of Senator Snowe follows:]
  Prepared Statement of Hon. Olympia J. Snowe, U.S. Senator From Maine
    I want to thank Chairman Bingaman, Ranking Member Domenici, as well 
as the Majority and Minority Leaders for holding this timely summit on 
how we achieve a more secure, reliable, sustainable and affordable 
energy future for the American people. I also want to thank our broad 
collection of experts for their time and their insight into how our 
country can reestablish a coherent energy policy that will both enhance 
our nation's security and ultimately provide Americans with clean and 
economical energy.
    I am encouraged by the development of this summit, and I hope that 
we can build upon this event to forge a resolution to a crisis that is 
afflicting every American. In June of this year, Senator Ben Nelson and 
I wrote to Senate leadership, and later to the President, calling for 
an energy summit that would bring together the President, the Bicameral 
Leadership of Congress, and key stakeholders to move beyond this energy 
paralysis that is costing Americans every single day at the pump and 
invoking fear as winter approaches.
    Specifically we stated that, ``The partisan stalemate on energy 
issues must end and we believe it will require good-faith efforts from 
both ends of Pennsylvania Avenue. Accordingly, we urge you to convene a 
national energy summit with the President with the goal of developing a 
consensus on sensible proposals that can address the crisis facing all 
of our constituents.''
    I continue to believe it is essential that such a national summit 
be convened, to truly develop consensus legislation that can be passed, 
implemented, and produce tangible results for the American people. I 
hope that today's summit is the beginning of more serious discussion of 
the most pressing issue facing the American people.
    Americans will not accept anything less than an energy revolution, 
a sentiment that is leaps and bounds beyond the half measures that 
Congress has proposed. Clearly, we must expand our vision beyond a 
patchwork energy policy and boldly lead the United States to a future 
in which America's energy is no longer controlled by unstable suppliers 
and rogue nations.
    On Wednesday, September 10, 2008, this stark reality was 
illustrated once again when the OPEC Cartel announced that the 
petroleum market was oversupplied and that overall production will be 
reduced by 520,000 barrels per day. As the New York Times reported, 
``the cartel's members appeared deeply split, with one camp, led by 
Iran and Venezuela, advocating reductions in output to stem further 
price declines, and another, led by Saudi Arabia, wishing to allow 
prices to fall further.''
    The reverberations of this decision, made in part by America's 
enemies, are profound and chilling. According to Michael Stoddard of 
Environment Northeast, the price of heating oil will translate into a 
shift of $11 billion from the Northeast to foreign countries, and 
collectively America will transfer an estimated $700 billion to foreign 
countries. For individual families, the consequence of a nonexistent 
energy policy is that they are paying roughly $3,500 just to stay warm 
during the winter.
    At the same time, the opportunity to reestablish our energy policy 
is firmly in our own hands. Sheikh Zaki Yamini, a Saudi Arabian oil 
minister of the 1970s and the architect of the 1973 oil crisis, 
recently offered an interesting prediction on the future of oil: ``The 
Stone Age did not end for lack of stone, and the Oil Age will end long 
before the world runs out of oil.'' The point is, when less expensive 
and cleaner energy alternatives are viable, oil will be displaced 
irrespective of the level of world supply. If we are to hasten the 
arrival of that day--as costs, as well as environmental and national 
security concerns dictate we must--it is imperative that our federal 
government provide the incentives and assistance to encourage 
entrepreneurs to lead the way to a new energy paradigm that ends the 
oil age.
    The foundational shift in our energy markets highlights the anemic 
federal effort to adopt the next generation of energy technology and 
policies. We are not only in the midst of an energy crisis but also a 
crisis of confidence in our governmental institutions--both Congress 
and the Administration--to actually do something about it. The 
manifestations of our current energy policy, or lack thereof, are 
discernible in some of the greatest issues facing America. The critical 
issues of climate change, the trade imbalance, an inflexible foreign 
policy in the Middle East--are all directly related to our energy 
policy, and with increasing clarity we are witnessing the consequences 
of petroleum dependency. Concurrently, clean energy production has 
undergone rapid technological advances in the past decade, and its 
costs have dropped appreciably.
    Clearly, it is illogical to produce additional energy when that 
energy is wasted through inefficiency. It is imperative that we promote 
energy efficiencies that enhance the use of existing resources. As Dan 
Reicher has stated before the Senate Finance Committee, ``energy 
efficiency is our cheapest, cleanest, and fastest energy option.'' 
Accordingly, I believe a long-term energy plan should encourage energy 
efficiency with the same level of commitment as we have invested in the 
production of clean energy.
    That is why I long have championed energy efficiency tax credits as 
a Member of the Senate Finance Committee and worked to ensure that the 
2005 Energy Bill included landmark tax credits for energy efficient 
buildings. One tax credit, that provides a $2,000 credit for the 
construction of new, energy-efficient homes, already has saved our 
country 51 gigawatt hours of electricity since it was created in 2005. 
I also fought for revolutionary tax incentives for commercial buildings 
and retrofitting existing homes that were enacted into law. Current 
practices saddle future generations with the costs of inefficient 
buildings, and given our current circumstances, it is unacceptable that 
we continue to construct porous buildings that waste expensive energy 
purchased offshore.
    Yet, Congress already has allowed one of my provisions that assists 
homeowners in improving the efficiency of their homes to expire at the 
beginning of this year. This is the antithesis of the energy policy 
that our nation must employ to address rising energy costs. For 
example, a taxpayer could use a $300 tax credit, included in the tax 
extenders package, to purchase a high efficiency oil furnace, which 
would save over $180 annually according to calculations based on 
Department of Energy data and recent home heating prices. This tax 
credit is essential to save home heating oil and reduce our reliance on 
foreign oil. Other energy efficiency tax incentives, such as the 
commercial buildings deduction, expire at the end of this year and, 
incredibly, the future of these credits is in limbo because of 
Congressional inaction.
    At a time when we must be investing in energy efficiency, it is 
incomprehensible that these tax credits have not been extended. Our 
failure to provide an extension for these incentives works directly 
against their very purpose. We must come together to find a way to 
provide long-term extensions of these provisions to instill the 
confidence necessary for consumers to know that if they make the right 
investment, that they will have a tax incentive to reward them for the 
energy efficiencies that they gain through retrofitting their home, or 
building more efficient new homes and commercial buildings.
    Furthermore, it is beyond my comprehension that Congress has failed 
to extend renewable production tax credit [PTC]--a key catalyst for 
moving our country to self sufficiency through increased use of wind, 
wave, biomass, and geothermal power--which is set to expire December 
31st. As a Member of the Finance Committee, I long have been a champion 
of this critical incentive and on December 14th, 2006, I sent a letter 
with 41 of my Senate colleagues to the President requesting that we 
extend the renewable energy PTC, at least through the end of 2013.
    Specifically, the letter stated, ``The PTC is a vital component in 
financing new renewable energy projects. As you know, it is crucial to 
our national security that we expand and strengthen investment in 
renewable energy resources. The continued development of energy also 
will spur significant economic development opportunities, stabilize 
prices by diversifying the electric generation supply, and help reduce 
greenhouse gas emissions.''
    At a time when job losses are crippling a struggling economy, a 
long-term extension of this tax credit could create 100,000 jobs, yet 
we have failed to promote a palpable opportunity to energize our 
economy and reduce our reliance on foreign oil. So we are not only 
forfeiting the opportunity to promote energy independence, but also the 
collateral job creation that accompanies greater clean energy 
investment exactly at a time when our economy requires a tangible 
boost.
    Just imagine where we might be if we had approved these extensions 
last January! As a result of Congress' failure to approve these common 
sense provisions, a potential bright spot in our economy, our renewable 
energy industry, is faced with uncertainty: Will Congress act or not? 
This point was reiterated before the Finance Committee last February, 
when Dr. Dan Arvizu, of the National Renewable Energy Laboratory 
stated, in reference to the PTC, that, ``While I can only imagine the 
challenges that confront those who deliberate and adopt a federal 
budget, anything we can do to move beyond a year-to-year approach, and 
chart a long term course for renewable energy policy, will provide us 
with lasting benefits.'' I believe we should have at least a ten year 
extension of this critical tax extender. If we want to set our country 
on an irreversible track to self-sufficiency and demonstrate to the 
world that we are committed to clean energy, we should make this vital 
production tax credit permanent. An assurance of this magnitude 
provides a strong signal to investors that they can count on these 
credits as they decide whether to develop renewable energy and thereby 
maximize our ability to accelerate a clean, self-sufficient energy 
policy. Similarly, a long range commitment to renewable energy makes 
clear to oil producing nations--and to Americans burdened with enormous 
energy costs--that the United States is on a steady course to energy 
independence, not one interrupted by politically driven decisions every 
year or two.
    We know what America can achieve when our innovative spirit is 
unleashed. We must seize on the entrepreneurial spirit that has spurred 
our economy in the past. Just consider what we have accomplished--the 
microchip, the Internet, and the microwave are all American innovations 
that altered our lifestyle--this type of vision will bring about the 
energy revolution that the American people are seeking from Washington.
    At a recent speech in Atlanta, author Tom Friedman urged America to 
retake the lead in the world through innovation in ``ET''--Energy 
Technology. Friedman said the United States needs to ``invent a source 
of abundant, cheap, clean, reliable electrons.'' He compared the ``ET'' 
movement to the ``IT'' (Information Technology) movement of the last 
decade.
    To that end, I strongly believe that we should develop innovation 
grants for the thousands of entrepreneurs who are developing the next 
energy concept that will revolutionize our energy policies. The 
Advanced Research Projects Agency--Energy, which was authorized in the 
2005 Energy Policy Act, has not been funded by Congress--and it should 
be. This is a basic step forward in expanding federal research, but we 
also should use this model to allow private industry and private 
citizens the incentives and opportunities to also develop America's 
next innovative idea.
    Finally, there are additional steps that I believe our country must 
take in the short-term. As we approach a winter under an unprecedented 
pricing structure for home heating oil, it is unacceptable that the 
federal government would store refined heating oil in tanks in the 
North East Home Heating Oil Reserve Program. I have introduced 
legislation with Senator Dodd and Chairman Kerry that would release 
this heating oil if prices remain over $4 per gallon. The releases 
would occur in a staggered process throughout the winter and invest the 
monies from the sale of this heating oil in weatherization. At a time 
when we know that the prices will force individuals to use cooking 
stoves, space heaters, and kerosene cans that can lead to fires as well 
as produce toxic fumes, we must take every step to reduce prices by 
releasing these supplies to the open market and use the revenue to 
invest in weatherization.
    In addition, I am appalled that the National Highway Traffic Safety 
Administration's (NHTSA) draft Environmental Impact Statement (EIS) 
used an assumption of $2.26 per gallon of gasoline in 2016 to justify 
their proposed reduced fuel economy standards. This is the type of 
nonsensical response that regrettably demonstrates the appallingly low 
level of seriousness with which this issue is approached in too many 
circles in our government. We must accept the reality of the energy 
crisis and plan accordingly. Every American would tell NHTSA that a 
$2.26 per gallon estimate is, at best, exceedingly optimistic, if not, 
more accurately, absurd.
    Our country has lost years by not forging a comprehensive energy 
policy, so we must redouble our efforts to make up for lost time. We 
have foolishly forfeited years of American innovation because Congress 
has failed to craft the policies that inspire and encourage a nation of 
entrepreneurs. It is my sincere hope that we can build on today's 
energy summit to bring about the change in energy policy that the 
American people demand.
    I thank you all for being here today and I look forward to 
reviewing the testimony of the witnesses.

 STATEMENT OF HON. MITCH MCCONNELL, U.S. SENATOR FROM KENTUCKY

    Senator McConnell. Thank you, Senator Reid. It's great to 
be here. I want to also thank Senator Bingaman and Senator 
Domenici for their leadership and all of those, of our 
colleagues who are around the table, who expressed 
extraordinary interest in this.
    I do want to say, with regard to Senator Domenici. As we 
all know he is wrapping up 36 years of extraordinary service in 
the Senate. He has been our energy expert on our side for a 
long time.
    I know it must be gratifying to him, even though he will 
not be here next year, that the subject that he has devoted 
such an extraordinary percentage of his public service to is 
the No. 1 issue in America. We hate it that you won't be here 
next year, Senator Domenici because you have been a wonderful 
leader on the subject of energy over the years. So much of what 
you've suggested we ought to do. We should have done a lot 
earlier.
    Over the past several months Congress has been engaged in 
this important debate. Americans are rightly frustrated over 
the high cost of gas at the pump and the high cost of energy in 
general. The $4 a gallon gasoline was the tipping point of 
galvanizing consumers across the country and sparking Congress 
to refocus its energy on a problem that has been with us for 
decades.
    The seriousness of the problem and the need to do something 
about it soon was brought home to me in an especially vivid way 
during my time at home in Kentucky over the August break. In 
dozens of public events I spoke to commuters, farmers and 
owners of small and large businesses whose lives have been 
disrupted, in some cases tragically so, by the high cost of 
gas. Kentucky is home to about 80,000 farms. I heard about the 
soaring cost of fertilizer which is made with natural gas, the 
cost of fueling farm equipment with diesel and even the rising 
cost of seeds, which are often trucked into farms from long 
distance.
    I heard about the soaring cost from UPS which is Kentucky's 
largest employer and the owner of one of the Nation's largest 
air fleets. A recent article in one of the national papers 
noted that UPS drivers have been told by management not to take 
left hand turns. It saves gas by cutting down on idling time. 
The article was meant to be funny. But I assure you the 
employees in Louisville are not laughing.
    Nor are the residents in rural Kentucky who are among the 
hardest hit consumers in the Nation as a result of high gas 
prices. With lower than average incomes and few mass transit 
options, most of these folks are now spending a giant chunk of 
their paychecks each week on fuel. The average resident of 
Owsley County in Eastern Kentucky, for example is now spending 
more than 15 percent of his or her income on fuel, the fourth 
highest average of any county in the Nation.
    But perhaps the most distressing story I've heard about is 
the consequences of high fuel prices from the operators of the 
dialysis center in Elizabethtown who told me some of their 
patients are cutting down on life sustaining treatments. 
Because it's just too expensive for them to drive back and 
forth from their homes four times a week. These people are 
desperate for help.
    Republicans, I assure you, are open to any reasonable 
suggestion that will lead to a concrete, meaningful result. It 
is with this in mind that Republicans have already coalesced 
around a simple and straight forward principle that we believe 
could and should form the basis for bipartisan legislation on 
this issue. We need to both find more American energy and use 
less.
    We know that we can find more domestic energy by means of 
deep sea exploration off our coasts and by developing western 
oil shale deposits, which according to conservative estimates 
represent at least 800 billion barrels of recoverable oil. At 
the moment the vast majority of these enormous domestic 
resources are off limits to consumers as a result of Federal 
regulation. Republicans have repeatedly demonstrated our strong 
support for energy conservation measures. Most recently we 
demonstrated that commitment by supporting the first increase 
in Federal fuel economy standards for cars and trucks in 
decades.
    But it must be said at the outset that conservation alone 
is clearly insufficient. While all of us may envision a future 
in which America does not run on fossil fuels, this is not 
today's reality. Nor will it be for many years to come. We need 
to be realistic and recognize that in the near term we will 
still need more oil and gas.
    I believe that this oil and gas should come from America's 
own ample, domestic reserves, not from the Middle East. We 
cannot and should not ask people like rural Kentuckians to 
assume the burden of this transition when we have enormous 
energy reserves under our own feet. Reserves that the 
government has made increasingly difficult to tap.
    Indeed few people seem to realize that as America's energy 
consumption has increased over the last three decades, we've 
actually been producing less and less of it at home. As a 
result of government regulation at every level, America's 
domestic oil production has dropped to roughly half of the ten 
million barrels per day that we produce right here at home 
three decades ago. This trend toward less domestic energy 
production may have made sense to some people at the time of 
cheap oil. It makes no sense at a time of $4 a gallon gasoline. 
Most people realize that.
    The American people are demanding that Congress do 
something to alleviate high gas prices and to do something 
significant. Some of the proposals we have heard certainly try 
to make that effort. But by and large, they fall seriously 
short. They either ignore the need for increased domestic 
supply or they're disproportionately meager in light of the 
severity of the crisis.
    The primary drivers of the current oil shock, economic 
growth in China and India, are not going away. The American 
people realize this. That's why they're not likely to be 
satisfied with half measures from Congress.
    In this case I'm convinced finding more means finding a lot 
more. We have the resources. Americans want us to use them. 
They are exactly right.
    I look forward to hearing the proposals of today's 
witnesses. It is my hope that today's summit energizes the 
Senate and brings us even closer to delivering a concrete, 
meaningful solution to the people of Kentucky and to the rest 
of the American people as quickly as possible. Thank you.

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

    The Chairman [presiding]. Alright, why don't we go ahead. 
Let me make a short statement and then call on Senator Domenici 
to make any statement he would like. Then we'll go ahead with 
witnesses and follow that with questions.
    Let me start by thanking Senator Reid and Senator McConnell 
for asking our Energy and Natural Resources Committee to 
organize this event. Senator Domenici and his staff have worked 
with me and my staff to gather energy policy experts and high 
level executives of energy related industries to talk about all 
facets of the energy challenges that confront the Nation. I 
know Senator Reid referred to the National Clean Energy Summit 
that he hosted in August. A great many excellent policy 
recommendations came out of that summit.
    The purpose of today's energy summit is to foster 
additional bipartisan dialog here in the Senate on how we can 
achieve a more secure, reliable, sustainable and affordable 
energy future for the country. Obviously this is a very 
challenging goal. To put this in some context, in June, the 
Energy Committee had hearings on a comprehensive and 
provocative report that was put out by the International Energy 
Agency. It detailed a mix of technologies ranging from carbon 
capture and storage to concentrating solar power that need to 
be developed and deployed in order to meet our energy needs and 
reduce greenhouse gases.
    Transforming our economy from one based on fossil fuels to 
one based on clean energy will not happen overnight. It will 
require enormous investments; the range of $40 to $50 trillion 
was the estimate we heard.
    Our goal is attainable if we encourage private sector 
investment in clean energy today, if we prioritize and sustain 
the support for energy technologies over the long term and if 
we ensure that those technologies that we do develop are in 
fact, manufactured and deployed here in this country. So we 
have a great many challenges to talk about today. I appreciate 
all the witnesses being here to help us understand these 
challenges.
    Let me call on Senator Domenici for any statement he would 
like to make.

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

    Senator Domenici. Mr. Chairman, I want to join you in 
thanking everybody that has come here this morning obviously 
willing to participate in this discussion and our two leaders 
for their direction. Obviously they've stated it for 
themselves. We can all heed it.
    I, myself, would just like to put into perspective for a 
moment why we're here, why I think we're here. On May the first 
of this year I introduced a bill with 18 co-sponsors that 
essentially did a number of things, the biggest of which was to 
open the Continental Shelf of the United States to drilling and 
that is take off the statutorily imposed moratorium that has 
been existent for many years. So the first premise of that bill 
was to do that.
    The second was to proceed with ANWR knowing full well that 
that was extremely controversial. Nonetheless, it was on the 
bill.
    The bill also contained the proposition for converting coal 
to liquid.
    It also contained a provision for removing a moratorium on 
regulations on the promulgation of regulations with reference 
to the oil shale in the State of Colorado and Utah.
    About a month later the Minority Leader asked me if I would 
change that bill to a shrunken bill. I shrunk it down by taking 
out some of the controversial bills. Low and behold on our side 
of the aisle, we had a bill with 44 co-sponsors. But the 
primary focus of it was that we would try to use more American 
oil.
    We're here today because that little stream turned into a 
bipartisan effort to open more of the off shore resources of 
America. We were astounded. I think, almost to a man or to 
woman, as Senators to find that within three or 4 months of the 
debate here in the U.S. Senate about opening the off shore that 
we owned, that the American people began to say, ``Drill''
    We were so frightened of the idea of drilling that we were 
using fancy words like exploration. We would say to ourselves, 
don't use drill. That's bad. Just make sure you use this fancy 
word, exploration.
    It turned out the American people didn't care. They decided 
we should drill. Up came from the hinterlands of America, 
``Drill.'' Up came at the Republican Convention, ``Drill, 
drill, drill.'' Now that's all we hear from our American people 
is that they want us to drill and to produce more of our own 
energy.
    Now I'm not here telling you that that will solve America's 
problems at all. I'm merely telling you that's what brought us 
to this point. We are grateful that a bipartisan group of 
Senators, we know who the leaders were. They got together as a 
group of 10, I think, and took this cudgel and said we will try 
to put together a different bipartisan approach.
    But it will have the opening of some of the Outer 
Continental Shelf, not all of it, some of it. We have proceeded 
from that point to today. You can apply your own logic as to 
what this group can do or will do or will not do with reference 
to that status that I have just described.
    That's about where we are. The group of 10 is out trying to 
put together Senators and have changed the format of the 
original bills which I did which were partisan and I think, 
admittedly so. We wrote them for Republicans. We even put ANWR 
in the original ones. We didn't go across the aisle.
    But you all did. The gang of ten did. Now we are here, 
Senator Bingaman, not limited at all by the little historical 
sketch that I have given, but to hear what the experts tell us 
we ought to be doing to get ourselves out of one of the most 
significant crisis we have ever had.
    I could have used my time otherwise. I could have tried to 
tell you what we have already accomplished. Because it does not 
do my heart any good to continue to hear, either direct or by 
implication, that we have done nothing because we have done 
much.
    Under the leadership of Senator Bingaman for half the time, 
myself for half the time, the Energy Committee has produced an 
array of initiatives that are having and will have a dramatic, 
positive effect on the energy crisis of the United States. 
They're in a statement I have, but I will put the statement in.
    [The prepared statement of Senator Domenici follows:]
    Prepared Statement of Hon. Pete V. Domenici, U.S. Senator From 
                               New Mexico
    Senator Bingaman, as we discussed at yesterday's markup, this is my 
36th and final year as a Senator. It has been my pleasure to serve a 
great deal of that time with you.
    Over the years I have witnessed--and had the good fortune to play a 
role in--many accomplishments here in the Senate. I have had an 
opportunity to work with colleagues of all ideological stripes. I have 
now served six full terms during seven presidential administrations. I 
have worked with, and on behalf of, the great people of New Mexico. And 
it has truly been a privilege.
    My years as Chairman and Ranking Member of the Budget Committee 
were particularly rewarding. After decades of deficits, with a Congress 
held by one party and a President from the other, we came together to 
do something big for the American people by passing the Balanced Budget 
Act.
    We have made bipartisanship something of a habit on the Energy and 
Natural Resources Committee, as well. As a result, three major energy 
bills have been signed into law in the past three years. The full 
impact of these measures is far more significant than many people 
understand, or can feel, at this point.
    We took important steps to modernize the electric sector. We opened 
areas to domestic production of oil and gas. We advanced clean energy 
technologies and jump-started alternative fuels. We raised vehicle 
mileage standards, and--something I take great pride in--we ushered in 
a brighter tomorrow by starting a nuclear renaissance in this country.
    While bipartisanship played an essential role in all of these 
accomplishments, it is not the only factor that goes into making good 
policy. We also worked through a Committee process, with Members who 
know--from experience and expertise--what makes policies and programs 
effective.
    I was here during the last energy crisis that our nation faced, in 
the 1970s, and too often I saw good intentions translate into bad 
policy. This happens when the desire to simply get something done 
prevails over the more advisable but more difficult path forward.
    Today we face a new energy challenge, unparalleled in our nation's 
history and extending well beyond our borders. The fundamental question 
that must be answered is how we will meet our growing energy needs in a 
clean, affordable, and reliable way.
    It is with deep regret that I declare that over the past year, 
Congress has failed to address this challenge. We have spent too much 
time debating policies that will do nothing to resolve the imbalance 
between the supply of oil and the demand for it. As prices soared past 
$100 a barrel, to $120, and then to nearly $150--many in Congress 
refused to rethink positions that were formulated years before under 
much different circumstances. As American consumers suffered at the 
pump, this Congress ground down into gridlock.
    We have created vote structures that favor political cover and 
enable us to delay tough decisions. Popular policies have been muddied 
with poison pills like tax increases. And we have seen amendments on a 
single topic pitted against one another, knowing full well that if both 
were offered, both would fail and not done the work necessary to 
reconcile the differences between them.
    For these reasons, I encourage my colleagues to not only listen to 
the witnesses before us today, but to start listening to each other as 
well. We will continue to discuss the dangers of importing our energy 
from overseas and the threats that greenhouse gases pose to the global 
climate. But if we continue to talk past each other, this situation 
will not go away--it will grow worse.
    The following we know as fact: over the next 20 to 30 years, our 
country will require more oil. If we don't set out to improve 
conservation and increase energy production here at home, we will 
continue to rely on dangerous regions and pay even higher prices. We 
will weaken our economy and our national security.
    The difficulties we face in our energy sector have indeed risen to 
the level of a crisis. And yet, the Senate will likely adjourn for four 
of the last five months of this year, having only managed to suspend 
the delivery of oil to the Strategic Petroleum Reserve.
    As disappointed as I am in the current state of affairs, and as 
pessimistic as my remarks may seem, I believe that we have a great 
opportunity going forward. In the face of crisis, we have always found 
a will, and a way, to act. I believe we can still come together and 
develop a response on a scale that matches our problems.
    It is with great sadness that I tell you, however, that I think it 
is too late to do so this year. This meeting should be a conference to 
hammer out the final details of a bill, not a summit to build consensus 
for a measure that has yet to be drafted. The spirit of bipartisanship 
that helped us balance the federal budget has not guided us this year.
    The next Congress should learn from our mistake and seize this 
historic moment to come together, cast the tough votes, and make 
progress on these issues. Our conversation here today can help inform 
those efforts. I look forward to hearing from the witnesses and my 
fellow Senators.

    Mr. Chairman, I think it was more fruitful for me to state 
the history. Because I think the history that got us here was 
one of saying produce more of our own at home. That isn't 
everybody's wish around this table.
    But to put it into perspective, that is what started this 
momentum. I, for one know that the crisis is multi-faceted. The 
solutions are multi-faceted and tough to get to.
    It won't be an easy achievement. But I do believe, 
permeating throughout that is the fact that the American 
people, have quite properly, seen that if you've got some of 
your own resources, you ought to seriously think about using 
them, U.S. Congress. I think that's what they're saying to us. 
Thank you very much.
    The Chairman. Thank you very much. Let's turn to our 
witnesses now. We have a very distinguished panel of witnesses.
    Let me introduce the entire panel and then call on each of 
them to speak for about 3 to 5 minutes and give us the main 
points that they think we ought to have in mind as we continue 
with this debate. Obviously the full statements of all 
witnesses will be included in the record. So if they could 
summarize their main points that would be appreciated.
    On the panel is, let me start on the left of the panel. 
Frank Verrastro, Director of Energy and National Security 
Program at the Center for Strategic and International Studies.
    Dan Yergin, Dan has, of course, been here many times. We 
appreciate him coming back. He is the Chair of the Cambridge 
Energy Research Associates, which we very much appreciate him 
being here.
    Dan Reicher, who is also a regular witness here in the 
Congress, Director of Climate Change and Energy Initiatives at 
Google.org.
    Next is Professor John Deutch, who is well known to all of 
us and a frequent testifier as well on many issues. He's a 
professor at MIT. We appreciate him being here.
    Mr. Marvin Odum is the President of Shell Oil Company. He 
made a special effort to be here today. So we appreciate his 
presence as well.
    Why don't we start with you, Frank? We'll go down the line. 
As I said, each of you take 3 to 5 minutes and tell us the main 
points you think we need to understand.

  STATEMENT OF FRANK VERRASTRO, DIRECTOR, ENERGY AND NATIONAL 
   SECURITY PROGRAM, CENTER FOR STRATEGIC AND INTERNATIONAL 
                            STUDIES

    Mr. Verrastro. Thank you, Mr. Chairman, Senator Domenici, 
members of the committee and also members of the Senate. I very 
much appreciate the opportunity to be here this morning. I've 
worked on energy issues for about 30 years in both government 
and in the private sector.
    There are ways that we can ensure a reliable, affordable, 
safe, secure and environmentally benign energy future. I 
commend the committee and also the group of 10, now the group 
of 16, for putting this session together to discuss a 
bipartisan way of approaching this issue.
    Let me begin with an orientation on some of the basic 
facts. As the solutions and options we discuss this morning, 
they need to be put in the context of today's market reality. 
Those realities talk about higher prices, uneven and increasing 
demand, limited access capacity, heightened geo-political and 
investment risks and increased concern over climate change in 
the environment.
    I would argue that to complicate matters further, as though 
we needed that, we are simultaneously facing these challenges 
against a back drop of a changing global landscape. It's one 
characterized by emerging new players with new agendas, new 
leverage, different business practices. We're doing it against 
the outmoded institutions which may not be up to the task. So 
we need to consider that as well.
    We're looking at a series of new alignments in this new 
landscape. New alignments. New rules. So we need new policies.
    The energy system we have today is truly global. It is 
immense. It's enormous. The projections are that will only grow 
larger as a function of population, GDP growth and increased 
standards of living going forward.
    Today energy demand is projected to rise by over 50 percent 
between now and 2030. The bulk of that will be in the 
developing and emerging economies, not the OECD. The landscape 
is changing.
    Some 85 percent of our energy demand globally is met with 
fossil fuels. While oil accounts for the majority of fuel use 
in the OECD, coal is the king in the non-OECD, where fossil 
fuels make up over 90 percent of total energy consumption. So 
overlaying a carbon constraint on an 85 percent fossil fuel 
dependent world is an enormous task.
    Reducing that figure to 75 percent is a huge lift. 
Eliminating those fuels any time soon, I would argue, is 
impossible. As we currently have nothing to replace them at 
scale. At scale.
    So as previously stated, it's a huge challenge. But it's 
also a unique opportunity for the United States to lead in this 
role. Having said that, given both the forecast for new demand 
growth and the present trends for investment, access and 
climate considerations, and we refer to those as the above 
ground risks, it's not the molecules in the ground. The path 
around is clearly unsustainable. So we have to change.
    The transformation is necessary. I would argue, in many 
ways, it's already underway. But that transformation is one 
that will take decades, not months or years and requires the 
thoughtful and careful balancing of economic security and 
environmental objectives. One that in the interim will require 
the continued use of conventional fuels and infrastructure as 
well as the development of new technologies, alternative fuels 
of all form, conservation and efficiency.
    So we need to distinguish between the truly visionary and 
strategic and the tactical interim steps that will move us from 
the current system to a more sustainable future. We need to do 
this in a bipartisan fashion. So I commend the Senate for 
taking this hearing.
    Let me make a final point. This is on the issue of energy 
independence. While I understand the political attraction of 
slogans in this election year and how well this resonates with 
the American public, energy independent should not be confused 
with enhancing energy security.
    There are 190 odd nations around the world and none of them 
is energy independent. That's for good reason. One need only be 
reminded on our reliance on the global market to replace lost 
production in the aftermath of Hurricane Katrina. That was 
refined products, not crude oil.
    Further, as national policy such independence is in many 
ways incompatible with our trade agreements, our treaty 
obligations and I would argue, our foreign policy objectives. 
We will undoubtedly remain engaged in the Middle East. We 
really don't want to see lower cost Middle East energy supplies 
to competitor nations around the world.
    Having said that, U.S. energy security can and must be 
enhanced and we could do this in five steps, I would argue.
    First, by improving efficiency across the board in 
transport as well as in the industrial, commercial and 
residential sectors by diversifying our fuel choices and fuel 
suppliers and this includes the sustaining of domestic 
production as been pointed out. We are the world's third 
largest oil producer. We really can't afford to lose that 
position or to let depletion and decline rates in the United 
States put us in a position of increasing our import dependence 
which is currently at about 56 percent.
    We need to continue to drill. We need to do so selectively 
and in an environmentally sound manner. We also need to find a 
way to preserve the role of coal for it comprises 50 percent of 
our electricity. We need to look for more ways to promote 
domestic gas development even as we pursue accelerated 
development of alternative fuels, including nuclear, biofuels 
and of course, renewables.
    From a security perspective it's also worth noting that we 
have significant resources, non-conventional energy, especially 
in the Western hemisphere. This is oil sands and oil shale. But 
we need to work on minimizing their carbon footprints, if we 
actually think that this is to be realized.
    Third, we need a renewed commitment to research and 
technology, development and deployment and to expanding and 
enhancing our infrastructure. This is a capability issue. It 
includes human skills as well. So it's education components.
    Fourth, we need to find more creative and better ways to 
manage global geo-politics. I'll be happy to elaborate on that. 
If we are truly serious about pursuing climate goals, we need 
to set an economy wide price for carbon.
    I have specific suggestions with respect to many of these 
issues. But I'll hold those in the interest of time for 
specific questions. Thank you, Mr. Chairman.
    The Chairman. Thank you very much. Dr. Yergin, go right 
ahead.

STATEMENT OF DANIEL YERGIN, CHAIRMAN, CAMBRIDGE ENERGY RESEARCH 
                   ASSOCIATES, CAMBRIDGE, MA

    Mr. Yergin. Thank you. It's an honor to be at this energy 
summit. I'd like to express my appreciation to the leaders, the 
chairman and the ranking member of the Energy Committee, to the 
committee itself and to the gang of 10/16 for shaping this 
summit and bringing us all together. With the summit it's 
certainly expressing the great concern about the need for a 
comprehensive approach. I'm pleased to be able to contribute to 
that discussion.
    In order to prepare for this, yesterday I read a major 
article from Time magazine entitled, ``The Energy Crisis: Time 
for Action.'' It detailed the many risks and threats from the 
current energy course and laid out ideas for the future and it 
even used the phrase, ``impending disaster.'' Of course the 
article was from May 7, 1973, 5 months before the famous 
October 1973 embargo more than 35 years ago.
    In other words as many of you know, as a Nation we have 
been at work at this for a long time. As Senator Domenici 
emphasized, and as this committee knows from its own hard work, 
actually much has been accomplished as a Nation. We're more 
than twice as energy efficient as we were when that article 
came out in 1973. Yet, also, as this dialog makes clear, there 
is much to be done to meet the needs of the American people in 
terms of energy.
    So let me address two pieces. One is just to pick up from, 
really, where we were last July, just 2 months ago when it 
turns out we were at the break point. When we met oil prices 
were just about at their peak of $147.27. Now it's just a 
little over $100. What's happened?
    I think we have to go to the credit crisis to understand 
that. That ever since the credit crisis began last, a year ago, 
July, there's been a big debate as to whether the rest of the 
world is de-coupled from the U.S. economy or not. That debate 
has gone back and forth. It's been related to what's happened 
to the dollar. It's going down and it's now going up.
    I think with the sharp price decline that we've seen over 
the last 2 months, prices are still high, but a decline. The 
oil market is really conveying the notion that in voting 
against the idea that Europe and Japan are de-coupled from the 
U.S. economic downturn. So instead what's happening in the 
market now is reflecting a weaker global economy and thus a 
weaker global oil demand. I think that's the heart of the 
change that we've seen.
    We have entered, I think, that break point scenario. Prices 
at the level what they were in July and where they are now and 
the apprehensions and insecurities that go with them have set 
in a series of motion a process that's changing the scene. We 
see in terms of consumers are voting for more efficient cars. 
They're managing their transportation differently. Businesses 
are making different decisions and government policies are 
changing, notably reflected in the fuel efficiency standards, 
the first ones in 32 years.
    We see break point in another way. Last year was probably 
the year of peak demand in terms of U.S. gasoline. That's going 
down. Overall oil demand in the United States is down 4 
percent, over 4 percent this year compared to last year. So I 
think that's the market.
    This focus of the summit is on energy policy. Let me try 
and just distill maybe, seems to me, lessons from 35 years of 
national experience going back to 1973. It leads me to talk 
about the need, which is reflected here in the word, bipartisan 
and the work of the committee and the gang of 10 and it's now 
16, an ecumenical approach, a balanced integrated approach.
    I think the first point and I think we're hearing it now, 
is avoiding either/or as you look at the energy debates in the 
United States of the last 35 years there's been an awful lot of 
either/or. But the truth is that we have a $14 trillion economy 
that runs on 100 quadrillion BTUs of energy every year. That's 
a lot of energy. As we've heard there's not a single solution 
to it. There's no magic wand.
    Renewables are crossing the divide, to use a term we use. 
They're becoming part of the energy mix. They're going to grow. 
They're going to become more extensive. But at the same time, 
as Frank has emphasized, oil and natural gas today are a little 
over 60 percent of our total energy consumption. That's not 
going to go away soon.
    The second point is one that goes back to something that 
Senator Bingaman said, the importance of encouraging timely 
investment because that's really what gives us our energy 
future. We need timely investment across the entire energy 
spectrum. We're playing a game of catch up in the world economy 
in terms of investment. This requires efficient and timely 
decisionmaking whether we're talking the United States or in 
resource holding countries.
    It also requires something else. It requires consistency. 
An on again/off again production tax credit is not a way to 
promote stable development of renewable energy. The PTC needs a 
longer term horizon.
    Certainly in terms of investment there is also a greater 
recognition of the role of investment in developing off shore 
oil resources. A quarter of our oil now comes from the off 
shore. A third of the entire world oil supply comes from off 
shore. It's part of the portfolio. Uncertainty is the enemy of 
investment and predictability is a vital ingredient.
    A third point and it follows from what Frank said, is 
understanding the relationship of the United States in global 
energy markets. We have become more integrated. As Frank 
pointed out, we import about 56 percent of our oil. That's a 
lot of oil. We keep hearing 70 percent, but when we do our 
numbers we keep coming up with 56 percent, still a very big 
number.
    But we are less influential in the global energy markets 
because our share has gone down because of growth elsewhere. 
This emphasizes the need for a cooperative multi-faceted 
approach to relations both with other consumers and producers 
in the interest of our energy security.
    The final point I want to go to is expectations. 
Expectations is really, of course, what drives action. It 
drives policy. It's what brings us all together. It drives 
investment. It drives technological innovation.
    The role of expectations hinges on what we think the future 
is going to be and what we need and what the urgency of it will 
be. I think a major contribution to a sounder energy future 
would be to create an environment that, based upon realistic 
assessments, that ensures a timely investment is really and 
convincingly and steadily on the way. The answer to today's 
energy problems and more importantly, the answer to tomorrow's 
energy problems is not either/or.
    We need an ecumenical approach, a comprehensive, an 
integrated approach, a combination of new oil and gas supplies, 
renewables, alternatives, efficiency, much more emphasis on 
innovation, all developed with the appropriate environmental 
and climate considerations in mind. Such an approach would be a 
great contribution, not only to relieving what's obviously 
already been discussed this morning, relieving the pain and 
pressures that the American people are feeling at the pump and 
the difficulties that are faced by American businesses today 
whether large or small. It would also be a fundamental 
contribution to the future prosperity and security of our 
Nation and to the global economy of which we are so essentially 
part.
    Thank you.
    [The prepared statement of Mr. Yergin follows:]
    Prepared Statement of Daniel Yergin, Chairman, Cambridge Energy 
                   Research Associates, Cambridge, MA
    It is an honor to appear at this Energy Summit. I would like to 
express my appreciation to the Chairman and Ranking Member and to the 
Committee for the opportunity to appear this morning. In convening this 
timely Summit, the Committee is expressing its great concern about the 
need for a comprehensive approach, and I am very pleased to be able to 
contribute to the discussion.
    I prepared for this hearing by reading a major article from Time 
Magazine entitled ``The Energy Crisis: Time for Action''. It detailed 
the many threats and risks from the current energy course and laid out 
ideas for the future. It even used the strong words ``impending 
disaster''.
    Of course, the article was from May 7, 1973--five months before the 
famous October 1973 embargo--and more than 35 years ago. In other 
words, as this Committee knows, as a nation we have been at this for a 
long time. And, as this Committee also knows from its own hard work, 
much has been accomplished. After all, as a nation we are more than 
twice as energy efficient as we were when that article appeared. Yet 
there is much to do to meet the needs of the American public and energy 
security and ensure that our nation can, as this Summit lays out, 
``achieve a more secure, reliable, sustainable and affordable energy 
future.''
    Let me address two dimensions to help start the discussion--the oil 
market today, and an ``ecumenical'' broad-based approach to energy 
policy. First, let me start with the oil market.
                    i. the oil market: a new phase?
    Like any major movement in a major market, the decline in oil 
prices since July is the result of multiple factors. But two stand out:
Prices and Weakening Demand
    The first is the increasingly evident weakness in the global 
economy. Ever since the credit crisis hit in the summer of 2007, there 
has been a debate as to whether the rest of the world economy is 
``decoupled'' from the United States. Some thought that Europe and Asia 
would not be affected because of their own dynamism. Others thought 
that the impact would show up, but with delay.
    The weakness of the dollar was predicated on the view that the U.S. 
would weaken and that Europe and other regions would not. The Federal 
Reserve has identified a relationship between a weaker dollar and 
higher oil prices going back to 2003.\1\ That dollar weakness in turn 
fueled commodity prices, including that of oil, both as a repository of 
value against the dollar--and on the notion that global demand for 
these commodities would remain strong.
---------------------------------------------------------------------------
    \1\ Stephen P.A. Brown, Raghav Virmani, and Richard Alm, Economic 
Letter--Insights from the Federal Reserve Bank of Dallas, May 2008, p. 
6.
---------------------------------------------------------------------------
    Over the last few months, it has become evident that the economic 
weakness is spreading. And that in turn means weaker oil demand. With 
the sharp price decline, the oil market is voting against the idea that 
Europe and Japan are decoupled from the U.S. economic downturn, and 
instead the market is now focusing on a weaker global economy and thus 
a weaker global oil demand.
Breakpoint
    As oil prices moved up over $100 and then over $120 a barrel, they 
entered into what we call the ``Breakpoint Scenario''.\2\ Prices at 
that level--and the apprehensions and insecurities that go with them--
set in motion a set of reactions that would start to undercut those 
prices.
---------------------------------------------------------------------------
    \2\ Breakpoint Revisited: CERA's $120-$150 Oil Scenario, CERA: 
2008.
---------------------------------------------------------------------------
    We see that happening: Consumers are in the market for more 
efficient cars. They are also managing their transportation 
differently. Businesses are making decisions predicated upon higher 
prices. Government policies are changing, notably reflected in the 
first new fuel efficiency standards in 32 years.
    The reality of Breakpoint was already becoming evident in the 
spring when our analysis indicated a point of ``peak demand'' for U.S. 
gasoline had been reached in 2007, and that a continuing decline was 
likely.\3\ At this point, gasoline demand in the United States is down 
2 percent compared to last year--the result of greater efficiency, 
behavioral changes, and economic circumstances. Overall oil demand is 
down more than 4 percent.
---------------------------------------------------------------------------
    \3\ Drivers Turn the Corner in the United States: Gasoline ``Peak 
Demand'' Sooner than Expected, CERA: 2008.
---------------------------------------------------------------------------
          ii. an ecumenical approach--balanced and integrated
    In response to the Summit's focus on energy policy, let me offer 
some thoughts based on 35 years of national experience--going back to 
1973.
Avoiding ``Either Or''
    So often, it has seemed over the decades, US energy policy debates 
turns into an ``either/or'' debate, which sets conventional supply 
against renewables and conservation--as though one partial approach or 
another is sufficient. We need an ecumenical approach and indeed a 
portfolio strategy. Our $14 trillion economy runs on 100 quadrillion 
Btu (British thermal units) of energy per year-50 million barrels of 
oil equivalent per day (of which actual oil is currently somewhat over 
20 million barrels per day).
    Alternatives and renewables have and should have an important role 
to play in our energy economy, and their role will and should grow. The 
CERA study on these options, Crossing the Divide: The Future of Clean 
Energy, outlines how that could happen.\4\ At the same time we also 
have to keep in mind the overall scale of our energy needs, costs, and 
time. A great deal of effort is going into innovation, and the impact 
will be significant. But the timing and scale remain uncertain. And, as 
renewables grow in scale, the question of how they are integrated into 
the existing energy infrastructure becomes more important.
---------------------------------------------------------------------------
    \4\ Crossing the Divide: The Future of Clean Energy, CERA 
Multiclient Study.
---------------------------------------------------------------------------
    Today, oil and natural gas together represent a little over 60 
percent of our total energy consumption. Most of the rest is coal and 
nuclear. Renewables are about 6 percent; most of that is biofuels and 
hydropower. Given these proportions, and in light of today's high 
prices, it is urgent to ask how to ensure the adequate supplies of oil 
and natural gas that are needed on an environmentally sound basis and 
at a price that does not damage the overall economy.
Encouraging Timely Investment
    The current oil shock underscores the need to encourage timely 
investment across the energy spectrum. Investment has to be stepped up 
in order to play a vigorous game of catch-up with a growing world 
economy. That, in turn, requires efficient and timely decision making, 
whether in the United States or in resource-holding countries, as well 
as the facilitation of large, complex projects that bring on 
significant new supplies.
    It also requires consistency. An on-again, off-again Production Tax 
Credit is not a way to promote stable development of renewable energy. 
A PTC needs a longer-term time horizon. At the same time, there is also 
greater recognition of the role of investment in developing offshore 
resources.
    Uncertainty is the enemy of investment, whether for renewables and 
alternatives or for conventional energy. Predictability, by contrast, 
is a vital ingredient.
The Role of Markets
    Markets themselves, with their decentralized decision making, 
generally provide faster and more effective mechanisms for responding 
to high prices and shortages than systems of price control, which can 
have unintended and very painful consequences.
The United States and Global Markets
    The United States is more integrated into the global marketplace 
than in years past, and yet it has less leverage over the market. Our 
oil imports today are twice what they were in the 1970s. Yet our share 
of world markets is less, and the role of other nations greater. In the 
1970s the United States represented 30 percent of world oil 
consumption. With economic growth elsewhere, the US share is down to 24 
percent. The balance is changing in other ways. National oil 
companies--which vary greatly in their character and capabilities--
control over 80 percent of world oil reserves. The five ``supermajor'' 
oil companies account for less than 15 percent of the world's total oil 
production or a net basis. China and India are now significant players 
in the market. The list of shifts goes on.
    The realities of the global markets and America's integration into 
them emphasize the need for a cooperative, multifaceted approach to 
relations with both producers and other consumers and put a premium on 
how we manage, think through, and structure our relations with other 
countries.
Price and Expectations
    The final point to consider is the role of expectations. Part of 
the pressure driving up oil prices into July was due not only to the 
short-term situation--the latest disruption in Nigeria, the ratcheting 
up of tension over Iran's nuclear program--but also to expectations 
about very tight supplies three or five years down the road, 
particularly because of the anticipated high growth in countries such 
as China and India. These longer-term expectations fed back into 
current prices.\5
\\---------------------------------------------------------------------------
    \5\ The importance of longer-term expectations is also emphasized 
in the Dallas Federal Reserve's Economic Letter.
---------------------------------------------------------------------------
    Prices are now lower due to a refocusing back to shorter-term 
demand.
    The focus may change again. More general expectation of very tight 
supplies in the future is based upon the assumption that the global 
market cannot generate the responses that are warranted--in terms of 
demand and efficiency; in terms of new supplies and timely investment; 
and in terms of renewables, new technologies, and alternatives.
    A major contribution to a sounder energy future would be to create 
an environment, based upon realistic assessments, that ensures that 
timely investment is really and convincingly on the way.
    The answer to today's energy problem is not ``either or'' We need 
an ecumenical approach--a combination of new oil and gas supplies, 
renewables, and greater efficiency--all developed with appropriate 
environmental and climate change considerations in mind.
    Such an approach would be a great contribution not only to 
relieving the pain and pressures that the American people are feeling 
at the pump and the difficulties that are faced today by American 
businesses, small and large alike. It would also be a fundamental 
contribution to the future prosperity of our nation and to the global 
economy of which we are so centrally a part.

    The Chairman. Thank you very much.
    Dan Reicher, go right ahead, please.

 STATEMENT OF DAN REICHER, DIRECTOR, CLIMATE CHANGE AND ENERGY 
           INITIATIVES, GOOGLE.ORG, SAN FRANCISCO, CA

    Mr. Reicher. Senator Bingaman, Senator Domenici, other 
Senators here today, thank you for organizing this summit and 
for inviting me to participate. I serve as Director of Climate 
Change and Energy Initiatives for Google.org, a unit of Google 
which makes investments and advances policy in several areas 
including climate change and energy. I previously served as 
Assistant Secretary of Energy for Energy Efficiency and 
Renewable Energy and DOE Chief of Staff in the Clinton 
Administration. I was also Co-founder and President of New 
Energy Capital, a private equity firm focused on investments in 
clean energy projects.
    To meet the critical challenges of the 21st century, 
climate change energy security and economic development, we 
indeed need a bold, new vision for how America generates and 
uses electricity. We must become smarter and more efficient in 
the way we use electricity, green our electricity supply 
through a massive scale up of renewable energy and electrify 
our transportation fleet with plug in vehicles to reduce our 
dangerous oil dependence. Our vision is a 21st century U.S. 
electricity system featuring hundreds of thousands of mega 
watts of renewable power, millions of plug in vehicles and tens 
of millions of energy efficient homes and businesses.
    The biggest impediment to achieving this vision is not 
technology or even finance, it is policy, particularly at the 
national level. The current regulatory model for electricity is 
broken. It does not encourage utilities to help people save 
energy.
    It retards renewable energy development. It discourages 
modernization of the grid. It fails to cut greenhouse gas 
emissions. We need to fundamentally rethink this model.
    Most importantly, we need to put a price on carbon in order 
to significantly reduce global warming pollution. Putting a 
price on carbon, however, will not be enough to drive the 
urgent changes we need in our energy system. In addition to 
national climate legislation, we also need aggressive and 
targeted Federal energy legislation. There are four critical 
elements.
    First, we need large scale public and private investment in 
electricity infrastructure and modernization of the power grid. 
Spurring this investment will require overcoming the current 
barriers to siting and construction of new electricity 
infrastructure, especially large scale transmission. This may 
require greater Federal authority balanced by strong 
environmental standards to overcome resistance to long 
distance, interstate transmission lines that are essential to 
the development of large scale renewables.
    Second, we need strong standards and incentives for clean 
energy. These include a national renewable energy standard, a 
national energy efficiency resource standard and aggressive new 
appliance efficiency standards. As Dan Yergin just explained, 
we also need stable, long term tax credits and other financial 
incentives for energy efficiency, renewable energy and plug in 
vehicles.
    Third, we need the Federal Government to take a leadership 
role in an exciting recent development, the increasing 
interplay between energy hardware and information software and 
the corresponding rise of the internet and connectivity it 
brings. From smart meters and smart appliances to smart homes 
and a smart grid, we're poised to significantly advance our 
ability to make, monitor and use energy more productively. With 
smart policy, like revenue de-coupling, we can align interests 
putting utilities in the position to make money helping 
consumers use less energy.
    Fourth, we need major increases in government R and D. We 
must dramatically scale up investment in research and 
development for clean energy technologies. Total Federal energy 
R and D is less than half what it was at its peak in the late 
1970s. Federal investment in this area will more than pay for 
itself just as it has in computer science, aerospace and 
biomedical research.
    If enacted, these measures should stimulate literally 
trillions of dollars of investment, largely from the private 
sector over the next three decades to make the transition to a 
more efficient, low carbon, electricity system. It will also 
create millions of new jobs. This is an enormous opportunity.
    One quick example, American consumers get a paper utility 
once a month that is complicated and encourages little except 
prompt payment.
    What if utility customers had online, real time information 
about their home energy use?
    What if their air conditioner, electronic equipment, 
appliances and lights, were programmed to automatically cut 
their bills?
    What if their car ran on electricity instead of gasoline 
and automatically charged at night when electricity was cheaper 
or during the day from the solar panels on the roof?
    These are exciting opportunities, but we are unfortunately 
a long way politically from making them happen. Sadly, the 
Congress has been unable to pass even a 1-year extension to 
renewable energy tax credits that will expire at the end of the 
year to say nothing of more fundamental changes outlined above. 
But I am hopeful with the progress of the last few weeks that 
we might actually break the current impasse.
    Going forward we have a big opportunity with a new 
President and a new Congress and unprecedented concerns about 
high energy prices, our oil dependence and climate change. 
There's never been a better moment. Let's seize the 
opportunity. Thank you.
    The Chairman. Thank you very much. Professor Deutch, go 
right ahead.

STATEMENT OF JOHN DEUTCH, PROFESSOR OF CHEMISTRY, MASSACHUSETTS 
             INSTITUTE OF TECHNOLOGY, CAMBRIDGE, MA

    Mr. Deutch. Mr. Chairman, Senator Domenici, I first 
appeared in front of this committee somewhat over 30 years ago 
when I was being considered for confirmation as the first 
Director of Energy Research at the Department of Energy. Scoop 
Jackson was in the chair and I say that the Senator Domenici 
was a member of that committee. It has been my privilege and my 
pleasure to work with Senator Domenici both inside and outside 
of government when I've been at the Department of Energy, when 
I've been in the intelligence community and when I've been in 
the Department of Defense.
    I want to begin by taking this opportunity to tell him my 
tremendous respect and my gratitude for what he's done for the 
country and my affection for Senator Domenici.
    [Applause.]
    Mr. Deutch. Now Senator Domenici will remember some of 
those events of the 1970s. President Nixon's project 
Independence which called on the United States to become 
independent of imported oil at a time when we were taking less 
than 20 percent of our oil from abroad. Senator Domenici will 
remember Vice President Rockefeller's 1975 proposal for $100 
billion energy independence authority. He will also recall 
President Carter's 1978 National Energy Plan.
    Oil and gas was de-regulated in 1977. An action 
acknowledging that market forces are more efficient than 
government regulation to allocate energy to users. In 1978, I 
stood by President Carter in the Rose Garden when he announced 
that the United States would have 20 percent solar energy by 
the year 2000. There was a creation of the Synthetic Fuels 
Corporation, an effort to set backstop technologies to imported 
oil in synthetic oil and gas. Congress has appropriated tens of 
billions of dollars for research and development and 
demonstration.
    I do not believe that the sum of all these efforts allows 
the country to meet its energy challenges for the future. We 
are not sufficiently, rapidly making a transition from 
conventional oil and gas to other sources of energy. We have 
not reduced emissions of carbon dioxide and other greenhouse 
gases and avoided the adverse consequences of climate change. 
We are not managing the foreign policy consequences of energy 
import dependence from politically unstable or unfriendly parts 
of the world, Iran, Venezuela and Russia.
    I offer seven priority suggestions for what we should do to 
put ourselves on a path for taking care of our energy security. 
This is not a list which says pick some. It says you must do 
them all. There are other things as well.
    First, I believe we need to establish a charge for 
greenhouse gas emissions. This charge ought to be large enough 
so that it increases the opportunity for better energy 
efficiency, the use of renewable energy sources such as wind, 
geothermal. It will help make nuclear a reality and it will 
lead to carbon free use of coal.
    The revenue from this charge should be used for impact 
assistance for groups such as the needy and the elderly that 
cannot be expected to carry the burden of higher energy prices 
and should be used for energy research, development and 
demonstration. It should be used to offset other taxes so as to 
make the macro economic consequences of an energy charge like 
this, less burdensome.
    Second, it is absolutely crucial that this country learns 
how to use its coal in a clean, carbon free way. That means 
that the government must establish a much more aggressive 
program to demonstrate the regulatory framework, the technical 
performance and the cost of carbon sequestration. I keep on 
pointing out that while there are many interesting efforts 
underway today in carbon capture and sequestration, there is 
yet, no concrete plan for a large scale project at scale, a 
million tons a year or greater, that demonstrates the proper 
sequestration of carbon.
    Third, we must improve the efficiency of our energy use.
    Fourth, it is critical that we accelerate the pace of 
energy innovation. The record does not point to the fact that 
the expenditures that have been made on energy research, 
development and demonstration have been adequate for the needs 
of the country. There are several changes which could take 
place which would make energy innovation more successful in 
this country.
    The first is a creation of an energy innovation council 
that would have a national energy research, development and 
demonstration plan involving all government agencies, not just 
the Department of Energy. Department of Energy expenditures 
certainly have to be increased, but that's not a complete 
solution. We have to launch a large, integrated energy research 
and development program in critical areas such as batteries, 
cellulosic biomass, photovoltaics, gas separations and the 
like.
    We need to establish a career path for people who have 
energy technology credentials within the civil service. I 
believe we need to consider establishment of an energy 
technology corporation to manage the demonstration projects 
that are so urgently needed. Examples include carbon 
sequestration, gas to liquids, smart electricity distribution 
grids, large scale cellulosic biomass production, carbon 
capture and sequestration, first mover, once through, nuclear 
power plants.
    Several people have mentioned a need to increase domestic 
oil and gas production. It is not only going to make some 
contribution to our energy needs, but it is also an important 
signal to other countries that we need their production as 
well. If we do not do something at home it is hard to convince 
other countries to increase their production.
    Sixth, we need to expand the use of commercial nuclear 
power. It is an essential, carbon free source of electricity. I 
know Congress has done a great deal to put in measures to 
increase the incentives for new, first of a kind, nuclear power 
plants. The process is moving too slowly. The process is moving 
much too slowly.
    Seventh, we need to improve the coordination of energy 
policy. Let me just say that there is a fantastically close 
relationship between energy policy in the domestic area and our 
foreign policy. James Schlesinger and I have recently co-
chaired a study for the task force for the Council on Foreign 
Relations on the national security linkage between oil and gas 
import dependence and foreign policy. It's incredibly important 
that we take into account in all of our foreign policy 
deliberations, energy aspects and in our domestic concerns, 
foreign policy implications of what we do.
    Let me just point out Iran. We have in Iran, three 
conflicting problems.
    One is they produce about three million barrels of oil per 
day for the international market.
    Second they're interested in acquiring a nuclear weapon.
    Third, they are not a constructive force in our efforts in 
bringing a secure country in Iraq.
    All of this indicates the interaction between energy, oil 
and gas especially, and our foreign policy efforts.
    Let me conclude, Mr. Chairman by noting that there's also a 
strong relationship between U.S. nuclear non-proliferation 
policy, our nuclear force structure and our nuclear power and 
nuclear energy commercial developments. The Department of 
Energy is involved in all three aspects, non-proliferation, 
commercial power development and of course, being responsible 
for our nuclear weapons program. My experience as Under 
Secretary of Energy and as Chairman of the Department of 
Defense's nuclear weapons council for 2 years, leads me to 
believe that the transfer of those responsibilities from 
nuclear weapons from the Department of Energy elsewhere in the 
government to the Department of Defense, or to some independent 
agency would be a mistake.
    You will hear proposals put before you of that kind. I do 
not believe that it would strengthen our role with respect to 
nuclear fore structure. I do not believe that it would 
strengthen our efforts with respect to energy research and 
development.
    Over the years the national laboratories which were 
involved in weapons, Livermore, Los Alamos and Sandia, have 
made a tremendous contribution to our energy R and D. That 
should be re-invigorated. It would strengthen both our energy 
efforts and it would strengthen our efforts at nuclear weapons 
security.
    Thank you very much, Mr. Chairman. Thank you very much.
    [The prepared statement of Mr. Deutch follows:]
      Prepared Statement of John Deutch, Professor of Chemistry, 
          Massachusetts Institute of Technology, Cambridge, MA
    Chairman Bingaman, Senator Domenici, Members of the Committee, my 
name is John Deutch, and I am Institute Professor of Chemistry at the 
Massachusetts Institute of Technology. During the Carter administration 
I was Director of Energy Research, Acting Assistant Secretary for 
Energy Technology, and Undersecretary of the Department of Energy 
(DOE). During the first Clinton administration I was Undersecretary for 
Acquisition and Technology and Deputy Secretary of Defense, as well as 
Director of Central Intelligence. During President Reagan's 
administration I served as a member of the White House Science Council 
and during the second Clinton administration I served as a member of 
the President's Council on Science and Technology. Over the years I 
have served as a board member and/or a consultant for many energy 
companies, and as an advisor to government agencies and not-for-profit. 
I continue to do so. I teach a subject in physical chemistry and in 
energy technology at MIT and serve on MIT's energy council.
    I first appeared before this committee over thirty years ago for my 
confirmation hearing to be Director of Energy Research. Senator 
Domenici was a member of the committee at that time, and it has been a 
privilege and a pleasure to work with him over the years. He has made 
tremendous contributions to this country and I hold him in the greatest 
respect and indeed with considerable affection.
    Senator Domenici will remember, and perhaps some others here today, 
energy issues that were debated by Congress during the 1970s:

   Many different national energy plans:

    --President Nixon's 1973 Project Independence intended to make the 
            United States independent from imported oil by 1985;
    --Vice President Rockefeller's 1975 proposal to create a $100 
            billion (real money at that time) Energy Independence 
            Authority to provide over a ten year period loans and 
            guarantees to private companies to develop new domestic 
            energy sources;
    --President Carter's 1978 National Energy Plan.

   Oil and natural gas price deregulation in 1977. An action 
        acknowledging that market forces are more efficient than 
        government regulation to allocate energy to users.
   President Carter's goal of 20% of all energy use from solar 
        by the year 2000, announced in 1978.
   Creation of the Synthetic Fuels Corporation in 1979 for the 
        purpose of demonstrating production of synthetic gas and 
        liquids from coal and shale.
   Annual Congressional appropriations for research, 
        development, and demonstration (RD&D), for a range of energy 
        supply and conservation technologies, at expenditure levels 
        significantly greater than today, in real terms.

    Despite these and many other well-intentioned energy policy 
initiatives, the fact is that the United States has not been, and is 
not now, on a path to a secure and sustainable energy future. Although 
energy consumption per unit of gross domestic product is projected to 
continue to decline, due in large part to high projected prices, 
aggregate consumption of oil, natural gas, and coal is projected to 
increase. The DOE's Energy Information Administration estimates that 
oil imports, crude and products, will remain at high levels--about 60% 
of U.S. oil consumption--for the next two decades. In addition, North 
America is expected to become a net importer of natural gas in the form 
of LNG. EIA projects, in its 2008 Annual Energy Outlook, that renewable 
sources of electricity capacity will grow from 10% in 2005 to 12% in 
2030, while coal generating capacity will grow from 34% to 36%, during 
this same period. Total U.S. carbon dioxide emissions, mostly from 
coal-fired electricity generating plants, are expected to grow at an 
annual rate of 0.6%.
    In sum, the U.S. economy is not meeting the three great energy 
challenges the country faces: (1) beginning the long and demanding 
transition away from a petroleum based economy; (2) reducing emissions 
of carbon dioxide and other greenhouse gases, in order to avoid the 
adverse consequences of global climate change, and (3) managing the 
foreign policy consequences of energy import dependence from 
politically unstable or unfriendly parts of the world, e.g., Iran, 
Venezuela, and Russia.
    There are several reasons why it has proven so difficult for the 
United States to adopt and sustain a national energy policy: 
unrealistic goals, shifts in direction with each change in 
administration, difference among regional interests, strongly held 
views by different interest groups about technology winners, and 
vacillation in public attention as energy prices go up and down. But, 
in my judgment, the root cause is that our political leaders find it 
difficult to speak the truth about energy matters.
    The public understandably wants affordable energy, free from 
foreign dependence and adverse environmental effects, but these 
objectives cannot be easily or quickly met. The reality is that 
progress will be slow because of the scale and magnitude of investment 
required, because of the need to invent and demonstrate new technology, 
and because of the need to adapt market structure and consumer 
preferences to new patterns of energy use. Moreover, the likelihood is 
that real energy prices--for electricity, home heating, motor and 
aviation gasoline--will continue, on average, to increase in real terms 
in the coming decades.
    The sharp rise in oil prices has once again focused the public's 
attention on the urgency of providing for our energy future. If 
significant action is not taken today and sustained for several 
decades, we will, once again, run the risk that future generations of 
Americans will experience greater economic costs and dislocations, 
including conflict, than needs to be the case.
    I offer seven priority actions that the country must take in order 
to be on a path to a sustainable future. The list is not a menu that 
offers choice; all these action and perhaps others, are required.

          1. Establish a charge for greenhouse gas emissions. The 
        Administration should propose and Congress should enact a 
        charge for greenhouse gas emissions. The charge could be in the 
        form of an emission tax or a cap-and-trade system with sale of 
        emission permits. The charge should be set at a sufficiently 
        high level, for example $30 per tonne of CO2, 
        equivalent, so carbon free electricity generation, such as 
        wind, geothermal, nuclear and coal with carbon capture and 
        sequestration, is economic. Revenue from the charge should be 
        allocated to (1) impact assistance for groups such as the needy 
        and elderly that cannot afford higher electricity prices, (2) 
        energy research, development, and demonstration, and (2) off-
        setting other existing taxes in order to reduce the macro-
        economic impact of the charge. With a comprehensive national 
        program in place, industry will have a clear signal for their 
        future energy infrastructure investments. Many existing 
        burdensome regulatory mandates, such as state renewable 
        portfolio standards, could be rolled-back, as part of a process 
        to harmonize federal and state controls on greenhouse gas 
        emissions.
          2. Establish an aggressive program to demonstrate carbon 
        sequestration. The new administration should propose. and 
        Congress should enact, an a ten-year program for 3 to 5 
        sequestration demonstrationprojects sequestering about 1 
        million tones of CO2 per year, at a cost of about 
        $100 million per year per project (including the cost of 
        CO2). The success of any effort to control 
        greenhouse gas emissions in the United States depends on large 
        scale deployment of coal electricity generation with carbon 
        capture and storage. The present pace of demonstrating the 
        technical, economic, and environmental characteristics of this 
        key technology and the construction of a regulatory framework 
        that has public acceptance, is much too slow. These projects 
        should proceed in coordination with a new national regulatory 
        framework that establishes rules for site selection, 
        monitoring, modeling, and verification of the sequestered 
        CO2, and site liability after some period of 
        operation. Consideration should be given to establishing a 
        special purpose public-private corporation to execute the 
        sequestration demonstration program in order to streamline the 
        process of design, engineering, and project management.
          3. Improve the efficiency of energy use. All experts agree 
        that improving efficiency of energy use is a priority 
        objective. Improvement in the U.S. economy's energy 
        productivity as measured by gross domestic product per unit 
        energy should be expected to continue, as consumers and 
        industry adjust to higher real energy prices. A notable current 
        example is the accelerating adoption of compact fluorescent to 
        replace less efficient incandescent light bulbs.
          However, the historical record of effectiveness of government 
        efforts, at both the state and federal level, to improve energy 
        efficiency is mixed. Energy efficiency standards for buildings, 
        appliances, automobiles, (CAFE), and federal demonstration 
        programs in the DOE, DOD, GSA, and other agencies have their 
        role. But, the U.S. consumer and smaller private companies seem 
        reluctant to make investments or change behavior and avoid 
        choosing options that provide energy services at lower life-
        cycle cost. National and local regulation involving demand side 
        management or other mandates have had limited effectiveness. We 
        need to find a better way to spread best practice through the 
        economy. I do not have an answer about how best to achieve this 
        but we need to reproduce the success of the agricultural 
        extension service in improving the productivity of U.S. farms 
        in the first half of the 20th century.
          4. Accelerate energy innovation. The current pattern of DOE 
        research, development, and demonstration (RD&D) management is 
        inadequate for the future energy innovation the country 
        requires.
          The past record of federal sponsorship--principally the DOE 
        and its predecessor agencies--is not adequate to meet today's 
        challenges. Consider these shortcomings:

   A linear ``technology driven'' rather than ``market'' or 
        application driven approach research development of 
        demonstration of new technology;
   Little coordination between the R&D programs in various 
        agencies: DOE, EPA, DOA, NSF, DOC, and others. For example, no 
        five-year program budget exists for energy R&D across all 
        involved government agencies;
   Reliance on traditional direct funding (and control) of R&D 
        projects and episodic use of indirect incentives, such as 
        guaranteed purchase, tax credits, loans;
   A mixed record on integrating private industry and 
        government RD&D.
   Congressional influence out weighing technical merit in the 
        selection of technologies and projects.

    Consider the following suggestions for accelerating the federal 
effort in energy innovation:

                  (1.) Create an inter-agency Energy Innovation Council 
                to develop a multi-year National Energy RD&D strategy. 
                The Council would have the authority and responsibility 
                to plan, program, and budget energy and environment 
                RD&D for all agencies.
                  (2.) Increase the energy RD&D program budget to more 
                than twice its current level.
                  (3.) Launch a sustained and integrated energy R&D 
                program in key areas, examples include: batteries and 
                energy storage, cellulosic biomass, photovoltaics, gas 
                separations. This effort should include basic research, 
                as well as exploratory development, and involve 
                universities, industry, and the DOE national 
                laboratories.
                  (4.) Create an energy technology career path within 
                the civil service.
                  (5.) Establish an Energy Technology Corporation (ETC) 
                to manage demonstration projects. The purpose of the 
                ETC is to establish the feasibility of new energy 
                technology by demonstrating technical, economic, and 
                environmental performance. Examples include: (a) Carbon 
                capture and sequestration, (b) Gas To Liquids, (c) a 
                smart electric distribution grid, (d) large scale 
                cellulosic biomass production, (e) first-mover once-
                through nuclear power plants.
                  The record shows that DOE does not have the 
                authorities or expertise to carry out successfully such 
                demonstration projects. New technology deployment, 
                which after all is the purpose of innovation, requires 
                demonstration that is convincing to the private sector 
                and to investors.
                  The purpose of the proposed ETC is different from the 
                1979 Synthetic Fuels Corporation. The Synthetic Fuels 
                Corporation focused on production of synfuels, not 
                technology demonstration, and thus was vulnerable to 
                the bittersweet collapse in oil prices.
                  The technical demonstration projects proposed for the 
                ETC are not based on price expectation but serious 
                externalities like climate change and the long-term 
                need to make the transition away from petroleum 
                dependence.

          5. Expand domestic oil and gas production. The United States 
        should expand access to areas for oil and gas exploration--in 
        Alaska, the Gulf Coast, and the east and west coasts. While the 
        amount of environmentally responsible incremental production 
        will be modest compared to total oil and gas consumption, the 
        increased production will slow the anticipated decline in 
        domestic production. Importantly, any measures to expand 
        domestic production will add credibility to United States 
        efforts to encourage countries that possess resources to expand 
        their production.
          6. Expand the use of commercial nuclear power. Because 
        nuclear power is essentially a carbon free source of 
        electricity, it is highly desirable to expand its use. However, 
        nuclear power faces three significant challenges. First, the 
        cost of nuclear power generation is too high compared to coal 
        in absence of a carbon charge. The impact of the recent 
        increase in the cost of all large capital projects has been 
        greater on nuclear power than other forms of generation. The 
        assistance provided for a few new nuclear power plants in the 
        2005 Energy Policy Act is justifiable, provided that nuclear 
        plants subsequently constructed are economic under commercial 
        terms.
          Greater progress is needed on radioactive waste management. 
        The new administration and Congress would be wise to hedge 
        successful licensing and completion of the Yucca Mountain 
        underground spent fuel disposal facility by authorizing a new 
        long-term program for away-from-reactor storage, with DOE 
        taking custody of the spent fuel at federal facilities.
          It is important that any expansion of nuclear power in the 
        United States and other countries occurs without increasing the 
        risk of nuclear weapons proliferation. President Bush and the 
        G-8 have taken an important initiative that deserves bipartisan 
        support: nuclear supplier states will offer front-end 
        enrichment and back-end waste management services under 
        attractive terms to countries who are new users of nuclear 
        power, in order to prevent the spread of enrichment and 
        reprocessing.
          However, domestically, the Bush administration advocates a 
        return to a ``closed'' fuel cycle, where spent reactor fuel 
        from commercial reactors is reprocessed to produce mixed oxide 
        fuel. This advanced fuel cycle initiative has no justification 
        at present. Developing the closed fuel cycle will require vast 
        federal R&D expenses with dubious advantages for waste 
        management compared to the ``once-through'' fuel cycle, when 
        both short term and long term risk are considered. To be sure, 
        at some time in the future, if nuclear power expands 
        significantly, the cost of natural uranium ore will increase to 
        the point that reprocessing is economically justified. However, 
        there is no indication that this point will be reached for at 
        least the next 50 years.
          In the meantime, a decision by the United States to return to 
        a policy of reprocessing commercial spent fuel, abandoned in 
        the Ford and Carter administrations, sends a message to other 
        countries, especially in the Middle East and Asia, that 
        reprocessing is acceptable and has advantages compared to the 
        once-through-fuel cycle. And these countries will not use fancy 
        ``proliferation-resistant'' fuel cycles invented by DOE labs, 
        but rather the widely known and simple PUREX method used by 
        most states that have separated plutonium for a weapon.
          The United States, for the foreseeable future, should limit 
        fuel cycle R&D to laboratory research on new separation 
        methods, engineering analysis comparing different fuel cycles, 
        and perhaps some process development unit (PDU) scale 
        engineering studies.7. Improve the coordination of energy 
        policy. The new administration should establish a new inter-
        agency Energy Coordinating Council, co-chaired by the Secretary 
        of Energy and Director of the National Economic Council to 
        interagency harmonization of energy policy including such 
        matters as

    I conclude by underscoring the strong linkage between energy policy 
and national security. James R. Schlesinger and I co-chaired a study 
for the Council on Foreign Relations that describes how dependence on 
imported oil and gas is increasingly constraining the ability of the 
United States and its allies to accomplish important foreign policy 
objectives. Iran is a good example--its 3 million barrels per day of 
oil exports is important to international oil markets.
    Iran's ability to stop these exports and thus disrupt the 
international oil market, is a factor that the United States and its 
allies must consider as they weigh possible actions to slow Iran's 
effort to acquire nuclear weapons, or to interdict Iranian support to 
Iraqi insurgents.
    This linkage between energy and security exists in other areas as 
well. For example, how China meets its growing energy demand will 
increasingly impact world energy markets and hence influence the global 
climate, as well as how much U.S. consumers will pay for motor 
gasoline.
    The point is that United States must consider the domestic 
consequences of foreign policy energy decisions and vice versa; the 
country has not done this well in the past. The interagency Energy 
Coordinating Council proposed above could be useful in providing the 
president with a coordinated view of the domestic and international 
aspects of contemplated energy policy. In addition, the Secretary of 
Energy should be a participant in any National Security Council 
meetings that involve energy issues.
    There is also strongrelationship between U.S. nuclear non-
proliferation policy, nuclear force structure, and nuclear power 
development. The DOE is involved in all three aspects and should remain 
so in the future because of the breadth of its technical capability. 
You will hear proposals to transfer responsibility for management of 
the U.S. nuclear weapons program and the weapons complex from the DOE 
to the Department of Defense or a newly created independent agency. My 
experience as Undersecretary of Energy and Chairman of the DOD's 
Nuclear Weapons Council leads me to believe that this transfer has no 
bearing on nuclear force policy issues and the transfer would neither 
improve the management of the weapons program, or save money. 
Separation of the national laboratories involved in nuclear weapons--
Livermore, Los Alamos, and Sandia--would greatly reduce DOE's capacity 
to carryout its energy mission.
    The enterprise of generating, distributing, and using energy in the 
United States is enormous, complicated, and inter-connected. Casual 
attention will not constructively shape energy development, or fairly 
balance the many competing regional and private interests. Moreover, 
there are no quick fixes or technical break throughs that can sidestep 
the lengthy and demanding process of adapting the economy and the life 
style of our citizens to a sustainable, post-petroleum world. The 
United States has the resources, the technology and talented people, 
and the industrial base necessary to provide for a secure energy 
future. However, the country has not yet reached consensus or adopted a 
national energy policy scaffold that encourages the needed changes in 
production and consumption, but also has the flexibility to adapt to 
market reality and accommodate unexpected ingenuity that will emerge 
from working on this great challenge. It is high time for the country 
to embark on the exciting and important tasks that I have outlined.

    The Chairman. Thank you very much.
    Mr. Odum, why don't you go right ahead?

          STATEMENT OF MARVIN ODUM, PRESIDENT, SHELL 
                          OIL COMPANY

    Mr. Odum. Good morning and thank you. First of all I'd like 
to thank the Senators for allowing me to move to the morning 
meeting. As I'm sure you know we have a rather large hurricane 
bearing down on the Texas coast. I'm anxious to get back and 
deal with some of the business issues there.
    The--I can assure you though that the infrastructure is as 
prepared as it can be. We have the thousands of people that 
work in that industry in safe locations. It will be returned to 
production as absolutely quickly as possible.
    I'd like to commend Senator Bingaman and Domenici for 
holding this summit and all of the Senators, of course, that 
are here today. I think it is precisely the kind of dialog that 
our Nation needs to have on energy policy. If we're going to 
successfully meet the energy challenge we will need this type 
of cooperative spirit.
    It is an undeniable truth that when we will need more of 
all kinds of energy including that saved through efficiency and 
conservation. By all kinds of energy, of course, I mean oil and 
gas, coal, biofuels, wind, solar, nuclear, hydrogen and 
potentially others. Along with this there are two other points 
that you've heard from me before.
    First, that oil and gas will remain critical fuels for our 
economy for decades to come.
    Second, we must develop all energies with particular 
attention to addressing CO2 emissions.
    As one of the largest oil and gas producers, I'm going to 
focus my comments on the oil and gas side of this equation. 
Then I'll conclude with just a few comments on the broader 
energy policy.
    The fact is that the U.S. imports much more petroleum than 
it should. I'm not going to repeat all the numbers that we've 
heard before, but 12 million barrels a day, $600 billion a year 
to pay for that. The U.S. is in somewhat of a unique position 
among the world's nations in not producing more of our own 
resources instead expecting others to produce it for us.
    I think the choice is fairly clear. We can continue to 
import evermore oil and gas as we transition to a new energy 
mix that's at an unknown point and time in the future or we can 
develop more of our own resources. We have, potentially, 
abundant resources.
    The U.S. has a well designed system in place for managing 
oil and gas exploration and development. We also have a very 
strong system in place for ensuring the environmental impacts 
are avoided or mitigated. If more areas are open to oil and gas 
exploration, I think it is crucial that adequate funding be 
provided to Federal agencies that manage those activities.
    When adequate funding is not in place, the system breaks 
down, permits are not issued on time, environmental studies are 
questioned and the system is vulnerable to litigation. Just 
because lands are leased, doesn't mean drilling will commence. 
I'll use Alaska as a case in point.
    Alaska's Chukchi and Beaufort Seas are some of most 
promising, undeveloped, hydrocarbon basins in the U.S. In the 
last couple of years, Shell has invested more than $2 billion 
in leases and hundreds of millions more in equipment, studies, 
permits, training and other preparation trying to bring more 
production to the U.S. market. We've assembled what is arguably 
the most environmentally sensitive and thoroughly responsible 
exploration program in history.
    But with permit slippage and litigation delay, we're nearly 
3 years on and have yet to drill a single exploration well. Let 
alone produce much needed oil and gas. Remember this is an area 
that's open to leasing.
    Our drilling program in the Beaufort has been delayed now 
for a second year as the nine circuit, Court of Appeals has 
deliberated over a lawsuit against the MMS. We still do not 
have a decision.
    I'd also like to comment on the topic of revenue sharing. 
It is important to recognize that states and communities 
adjacent to off shore development will have infrastructure 
needs such as roads, schools and demands for basic public 
services. Revenue sharing is available for four Gulf of Mexico 
states and it will help address some of those needs. Congress 
should routinely extend revenue sharing to other areas, 
starting with Alaska.
    So to close, the challenges we face today result, I think, 
from not having a comprehensive energy policy like we're 
talking about today. These challenges cannot be resolved with 
one simple solution. We need to face some hard truths and 
produce more energy, all forms of energy.
    You're going to find a lot of commonality with the other 
panel members in these next couple of statements. Because I 
believe a comprehensive energy policy should include providing 
more access to domestic oil and gas resources, encouraging more 
investment in alternatives and renewables, and there are some 
exciting things happening there. Encourage and reward more 
conservation and efficiency, reduce CO2 emissions 
using market mechanisms, such as cap and trade, that enables 
such reductions and also, very much need to account for carbon 
capture and storage which we heard from Mr. Deutch.
    We are committed to meeting the energy challenge and to 
working with Congress and the American people to find real 
solutions. In 2008 we will invest somewhere around $35 to $36 
billion, which is more than our profits in 2007, to bring more 
energy to the world. So I'll stop there and look forward to the 
questions and our conversation.
    The Chairman. Thank all of you for excellent testimony. Let 
me start the questions, then we will have questions from 
Senator Domenici and then we'll go back and forth between 
Democrats and Republicans in the order that people arrived. We 
have a long list. So I'll try to be brief in my questions.
    One of the issues that I think we're going to have to 
better understand is in order to reduce the use of petroleum in 
the transportation sector, there's sort of three options, 
obviously increased efficiency, everyone agrees is important. 
But when you start looking at other ways to substitute for 
imported oil being used to be refined into gasoline for the 
transportation sector, there's sort of three options out there.
    One is the one Dan Reicher was referring to, which is 
electrify the transportation sector. Get more and more of our 
vehicles operating off electrical power.
    Second, of course, is biofuels as a way to substitute for 
petroleum use directly.
    Third is the proposal that T. Boone Pickens is advertising 
and advocating these days which is the thought that we can meet 
many of our transportation needs through more use of natural 
gas rather than through use of gasoline refined from oil.
    I'd be interested in any of you who have an idea as to 
which of those courses is most promising to tell us what you 
think. I mean, obviously we're doing some of each that's 
appropriate. But is there one of the three that holds the 
greatest promise or one of the three that holds the least 
promise? Any of you have thoughts?
    Professor Deutch.
    Mr. Deutch. Mr. Chairman, I'm all in favor of all three, 
but I want to just suggest to you in each case there is a 
significant barrier. In the case of substitute electricity for 
hybrid vehicles or all electric vehicles, we have to have the 
electricity. That means that it has to come either from clean 
coal or it has to come from nuclear.
    In the case of biofuels, we've looked at this in some 
detail. We don't want to compete with food. We want to have 
cellulosic biomass. There really is a limit of what you can 
expect from this. I would say that an aggressive limit for the 
United States would be like, two billion barrels of oil 
equivalent a day. That's still a small fraction of what we need 
to do.
    With respect to natural gas let me point out North America 
has become an importer of natural gas. Natural gas is likely to 
become more and more, for us, like petroleum. So substituting 
natural gas and petroleum, yes, that's maybe a good thing to do 
in the short run. In the long run they're both very important.
    Final point is the rest of the world is important here too. 
The rest of the world is rushing to use more oil, like China in 
their transportation system. So this is also has an 
international aspect that the rest of the world is going to be 
consuming oil for automobile transportation at to a higher 
rate.
    The Chairman. Mr. Odum, did you have a thought about this?
    Mr. Odum. If I could just add, I think it's a very 
important question. Because I think it points to an important 
topic that covers more than just this single question. Which is 
going back to what Dan Yergin said, there is no single answer 
here.
    So I listen to that question, I hear those three options. I 
think they're all important. They will all be part of the 
solution that we need for the energy challenge in the U.S. 
Neither one on its own will solve the problem.
    The Chairman. Dan, did you want to comment?
    Mr. Yergin. Just briefly, Mr. Chairman. I think, again, all 
three need to be part of the solution. I would put 
electrification of vehicles at the top of the list though. 
What's interesting, I think, is that this move that we're 
seeing in the marketplace today to hybrids, actually allow us 
to take the first option which is electrification and combine 
it with a second option which is biofuels.
    You can electrify a vehicle as General Motors and Toyota 
are doing. Those vehicles will be out next year or the year 
after. Meanwhile there's a 12 or 14 gallon tank into which 
biofuels could go. So we could hybridize in yet another way, 
those two technologies.
    Over time we do have to make the transition away from corn 
based ethanol to cellulosic ethanol for all the reasons that I 
think you know well. I do think natural gas has a role. I would 
put it further down the list.
    Fleets, for example, buses, trucks, vehicles that come back 
to the same place at night, but I would say that should be a 
much smaller part of this mix going forward compared to 
electricity at the top of the list, biofuels in the middle and 
natural gas at the bottom.
    The Chairman. Frank.
    Mr. Verrastro. Yes, I concur with Dan's points and also 
with Marvin. If you had to do priority ranking, it strikes me 
that in the short term, hybrid technology is just terrific. If 
you can increase the vehicle standards and current technology 
you could increase it by, you can double.
    So what the Congress did in the Energy Efficiency Act was 
terrific, maybe not aggressive enough. If you double the 
mileage, $4 gasoline becomes $2 gasoline. If you supplement 
that with plug in hybrids, you have the opportunity to have 
both liquid fuels and electricity.
    Going to fully electric it just strikes me there's three 
questions. One is on efficiency, at least now until we upgrade 
the grid. It takes three units of primary energy at the front 
end to give you one unit of electricity at the back end.
    So which leads to the second point of what's your fuel 
source and base load. As John said, it's either nuclear or 
coal. Could be natural gas is not the scale up for renewables 
yet at this point.
    Third point is reliability. At this situation ice storms, 
wind, squirrels can take down the system. We need to make sure 
the system is reliable.
    On compressed natural gas, I would agree with Dan. I think 
it's lower on the list for fleets, especially for buses, it's 
terrific. You can secure the size of the gas tank because as 
you compress the natural gas, your mileage efficiency goes 
down. Your miles able to be driven on a tank of CNG is lower. 
So for cabs, city cabs, something that's used on campuses, 
maybe local police forces and for buses, great idea, for the 
general public, probably not there yet.
    The Chairman. Senator Domenici.
    Senator Domenici. Thank you, Mr. Chairman. I'm very pleased 
to see so many Senators here that want to ask questions that I 
just want to ask three.
    First, Professor Deutch, I think you know. Speaking nuclear 
power for a moment, we're making some fantastic strides as a 
Nation now with reference to applications for nuclear power 
plants. As you know we have gone from zero applications, 
license applications for design and construction before the 
passage of the Energy Policy Act to what's contemplated now is 
a total of 23 applications, 34 units.
    I would say that's a rather significant step forward, leap 
forward by the United States in a commitment to going nuclear 
as rapidly as we can, consistent with the delicate nature of 
the licensing process. But you stated we should--we're going 
too slow on licensing. I really want you to believe me that I 
think that's the case. But I cannot find any way to use less 
time in the process.
    If you and your people at MIT can look at the licensing 
process and tell us how we can save time, you would do us a 
great favor. The only thing we have done, and I'll just give it 
to you outright, we put 1 year after the licensing process is 
finished for citizen involvement. Because there are so many 
institutional approaches, institutional negatives they file 
against this that you've got to give them some time or you'll 
end up with never ending litigation.
    So we're using 1 year in this 42 months that we claim is 
necessary. If you can find how we would do it with less, I 
believe everybody would be interested in hearing. Now if you 
already know, you can tell us now. If not, I will go to the 
next question.
    [Laughter.]
    Senator Domenici. That's what I thought would happen. Now 
let me say to Dr. Yergin. This is the second time you've 
appeared to help us. I want to tell you personally, as I leave, 
what great admiration I have for you.
    I just whispered to my friend, the chairman, that if I were 
putting together any group of, as small as five, advisors on 
energy policy to help us, I would put you on that five. I might 
even put you on the three if we went that far. So I want to ask 
you a question. How did we move so quickly from an American 
energy scene which was short of natural gas? We were even 
beating ourselves up for using natural gas to make electricity 
because we claimed we didn't have enough.
    All of sudden we're talking like we have so much. I seem to 
believe we have much more than we thought. But where are you in 
terms of proving that up? Where did we get the information that 
we have so much more natural gas than we thought we had?
    Mr. Yergin. First, thank you for your more than gracious 
words. I appreciate it.
    Senator Domenici. You're welcome.
    Mr. Yergin. As with Professor Deutch, I have great 
admiration for the role you've played in energy over these many 
years and the consistency you've brought to it. I think the big 
change on natural gas has been it's, you know, what you see in 
the energy industry constantly, is this process of innovation 
that looks like you're in a dead end and then something changes 
it. What's changed it is in terms of the development of 
unconventional gas.
    I think it's--and probably Mr. Odum can add to that, but 
over the last 2 years or 3 years what seemed to be very much of 
a fringe activity has now put us in a more abundant position. 
Last year our gas production went up 9 percent after many years 
of thinking that we were going to be tied into a global LNG 
market which as Professor Deutch said, we are, but not to the 
extent. So I think it's still unfolding and one big question 
about it is this kind of a short term rush or does this really 
open up a whole new horizon for natural gas in our economy.
    So I think that's been, to me, the biggest reason for the 
change of perspective over the last 2 years.
    Senator Domenici. The last question is the price of oil has 
dropped nearly $50 in the past 2 to 3 months. Dr. Yergin says 
that the softened demand has caused that. Do you agree? We'll 
start over there at your end.
    Do you agree?
    Mr. Verrastro. I think there's three or four pieces that go 
into this. Clearly reduction in demand and then part of that is 
a result of higher prices.
    The second is, I think, the prospects for additional 
production coming on line. Projects that were delayed last year 
because of cost and technical difficulties, we're going to 
start seeing them third and fourth quarter of this year, first 
quarter of next year. So we're going to have a supply.
    We also have alternative fuels that have made a huge 
contribution. We're seeing demand reduction. Technology has 
played a big role. I actually, a personal view is that there 
has been price speculation in the market. I think the drop from 
$147 to $100 over the last several weeks should indicate this 
is more than just fundamentals.
    Senator Domenici. Did you want to add anything Dr. Yergin 
to my statement of your position?
    Mr. Yergin. I think those other factors are certainly part 
of it as well. In other words, it isn't just one thing. But I 
think this demand, this shift in demand and the focus on demand 
is a very important part of it.
    Certainly, as Frank said, the financial markets have been 
playing a much more important role in the oil market than they 
had in previous years. Oh, yes, and Frank whispered to me, very 
important, is the strength of the dollar. I mean we've seen an 
inverse move between the dollar and commodities and the change 
of the dollar. We've seen all the commodity prices come down.
    Senator Domenici. Thank you.
    The Chairman. Senator Dorgan.
    Senator Dorgan. Mr. Yergin, you describe the financial 
markets playing a much more important role. That's part of what 
Mr. Verrastro talked about with speculation as a portion of 
that. Is that correct? Is that what you mean?
    Mr. Yergin. Speculation is part of it. But it's more 
generally that the financial markets are engaged. It's also 
pension funds concerned about the equity markets, in turn 
concerned about delivering returns, looking at commodities as 
an asset allocation class.
    Senator Dorgan. Mr. Chairman, let me say that I hope that 
this, which I think is a wonderful opportunity today, is 
perhaps the first in a series of urgent hearings that we would 
hold to put together the comprehensive plan that could come 
from a series of different centers of thought and interest here 
on comprehensive energy policy. It appears to me that $4 for a 
gallon of gasoline became the tipping point. That filled the 
political system with enough helium to make things interesting 
and to have crowds gather chanting, ``Drill, baby, drill'' and 
it filled the policy discussion with enough urgency so that 
everybody's now talking about comprehensive energy 
legislations. So, I mean, this is certainly on the right 
subject at the right time.
    My own view is we should do everything, drill. By the way 
the one thing that nobody's talking about is, it's a small 
piece. But there's estimated a half a million barrels of oil a 
day that the Cubans are making available and the Canadians and 
the Spanish and the Chinese and others are able to lease and 
we're not. That ought to be part of the drilling that American 
firms ought to be able to access.
    But drilling, conservation, efficiency, renewables, all of 
it has to be part of what we're about with respect to 
comprehensive energy legislation. Also addressing what I think 
is excess speculation in the markets. But what I'd like to ask, 
you know, if we don't do something.
    We should do all of these things. But the question is what 
is game changing? What is it that can bring us back 15 years 
from now or 15 years of that, after that to not be talking 
about the same set of problems? Mr. Yergin talked about 30 
years ago, you know, every 15 or so years, we hang around 
thumbing suspenders talking about the same old issues which I 
called yesterday, forever.
    What is game changing? What truly is game changing here? Of 
the things that have been discussed by the witnesses, what do 
you say to us that you think in policy represents something 
that really is game changing for America's future energy use in 
terms of how you would prioritize it?
    Mr. Verrastro. Senator, when you roll back to the 1970s, 
we're in a totally different place. I would argue that we had 
excess capacity in the 1970s. We actually were playing with 
that through the last 25 years. So we had excess refining 
capacity, excess crude oil capacity, excess transmission 
capacity.
    The growth of China, but also of the non-OECD countries 
have tightened up the demand/supply balance. People didn't make 
the investments because there had been an overhang. The year 
2004 to us was kind of the watershed year where everyone took 
notice that things were in tight supply.
    Players behave differently in a tight market. We 
consistently want to go back and say, well what are the tools 
that we used in the 1980s and 1990s. They're the wrong tools 
because that was in a surplus market.
    So, in terms of priorities, it just strikes me that the 
first thing you do when you look at this increasing projection 
of global demand, is unless you change the curve, you're 
constantly chasing this elusive target where you increasingly 
have to plug in various forms of supply. The above ground 
issues that I alluded to and they're everything from access to 
commerciality to sabotage and terrorism, distribution, 
infrastructure, investment. It's not the molecules in the 
ground that seem to be the problem at this point. Because I 
think the endowment, the resource endowment in the world is 
enormous. But accessing them, converting them, then delivering 
to places where they're needed is the issue.
    So the first and foremost thing is to change demand. I 
think on the transportation side for oil, going to hybrids 
tomorrow in a broader scale is a no-brainer. We have the 
technology. If you can reduce demand by 50 percent by 
definition you reduce oil imports.
    Maintaining U.S. production is the second piece of that, 
especially on the liquid fuel side because if you let the U.S. 
go into decline, even if you take the demand curve down, the 
gap is still filled by imports. At some point we have to make 
room for China and India. Otherwise we're competing for all 
these fuels in the market.
    Like oil, natural gas will soon become like a bidding war 
on eBay. This is the second piece on natural gas. On the gas 
piece I think technology has really helped.
    These unconventional plays, sub soil plays on the oil side, 
things we couldn't see 15 years ago with horizontal drilling, 
looking at permeability and porosity of the zones you can 
actually move the gas through with fracturing. You can do the 
same with shale oil, like we're doing in the Bakken. It's a 
different type of play.
    But these are supplements. They're not replacements. This 
transition that I think we're all looking for where you have 
fuels that are available, affordable, reliable and 
environmentally benign, all require tradeoffs.
    So Dan, I and Marvin, we're all part of this National 
Petroleum Council study that we produced last year. We 
constructed this triangle. Triangle said you have to look at 
economics. You have to look at environmental performance and 
then you have to balance that against security.
    Ideally you like to be in the center of the triangle where 
all three issues are balanced. Efficiency and low emission 
fuels are the only thing that fit in the center of the 
triangle. Everything else that you play with, whether it's 
nuclear or coal or natural gas, they all have tradeoffs.
    So they may benefit you on the economic side, cost you on 
the foreign policy side. Benefits you on the environmental 
side, but costs more somewhere else. I think that's the 
juncture we're at.
    I think we need to manage the transition is the point I'm 
getting to. We want to get to a different future. But there's 
smart things you need to put in place now.
    We're resetting the system. The next President is the 
transition President.
    Senator Dorgan. Mr. Chairman, might I just make a 30-second 
observation? I understand you want to move to others. It seems 
to me that in the infancy of various approaches to deal with 
this renewables and conservation approach and so on, we move 
toward what we incent.
    We incented people to go look for oil and gas. I got from 
the Congressional Research Service the other day, on two of the 
tax incentives for people to go look for oil and gas, we have 
provided $177 billion of tax incentives in the last 40 years. 
That's a pretty robust, aggressive incentive.
    Compare that with what we've done with other things that 
might be game changing, renewables and so on, which is pathetic 
and anemic. So, I mean, I think we really have to evaluate what 
is game changing. Then how do we pursue it with the right kind 
of robust incentives that you can count on?
    The Chairman. Senator Thune.
    Senator Thune. Thank you, Mr. Chairman. I want to thank the 
panel for their insights today and observations about what we 
all perceive to be a major issue affecting the economy in this 
country. I would argue is a national security issue as well.
    I think that the triangle that you described is a good one. 
Because I believe that there are lots of implications that go 
beyond just the clear economic impact this has on people across 
this country. In my view, in a State like South Dakota, some of 
the members here who represent rural States, the impacts are 
even more profound because you've got largely agricultural 
economies that are very energy dependent, diesel, fertilizer, 
all the input costs that go into agricultural production 
continue to go up as a result of what we're facing across the 
world today in terms of the increasing global demand for all 
forms of energy, but particularly for fuels.
    We've got a number of things that we've been looking at. I 
appreciate the observations with respect to efficiencies and 
conservation and everything else, trying to address this in a 
balanced way. I guess my question would be of all those 
different types of technologies, what do you perceive to be the 
one that we can realize the most quickly?
    A lot of the things that we're talking about are 5-year, 
10-year issues. We're all looking at how do we bridge to that 
technology. Right now I think we are in a transitional time. I 
think we're, you know, the oil and gas production, things that 
we're doing today or the energy sources we rely upon today, I 
think are designed as a bridge to get us to those new 
technologies and that future energy source.
    But we obviously want to get there as quickly as possible. 
In my part of the world we're working to develop as fast as we 
can, cellulosic ethanol. We've had great success with corn 
based ethanol with 1.7 billion gallons in 2001. This year it's 
over 9 billion gallons.
    So much so that many of our producers are saying we're 
going to run into what they call the blend wall. That is that 
we've got a lot of production. We don't have enough demand out 
there right now because we have limitations on how much can be 
blended.
    As a result from that the price of ethanol has gone down 
dramatically relative to gasoline to the point where it's 
becoming very difficult for producers to find any kind of a 
margin right now in corn based ethanol. We're trying to push 
toward cellulosic ethanol. We're very close.
    I mean, I've been out at NREL and they've done some 
wonderful things in terms of testing there. The key is to make 
it commercially viable. That's kind of the world I live in. 
We're very much into biofuels where I come from.
    But I guess my question for all of you is, which of these 
various technologies that have been talked about are the most, 
I guess, that we would have an opportunity to realize some 
benefit from in the shortest amount of time?
    Mr. Yergin. Let me just jump in with part of the answer 
because I think your question very much ties into Senator 
Dorgan's question and where Senator Bingaman was. To me it 
seems when you look at it all, the agenda is pretty clear that 
there are a list of things. I think Frank has done a very good 
point of pointing out we want to skip over hybrids. But hybrids 
themselves are pretty darn important.
    But I think and, you know, are we going to see 5 years from 
now is the big surprise. When I look at the energy history you 
always see that there are these big surprises that come. Is the 
big surprise going to be in biofuels that we don't see it or is 
it going to be electricity and transportation or maybe 
something that we don't even quite see?
    In the near, medium term it does seem to me that the, you 
know, the big source that we have if we can figure out how to 
handle it because it's not one thing, is efficiency. That's 
what gives us time to address these other things. Then it's 
have a consistent process that John Deutch described so we 
don't have the stop and go on the technologies. That we have 
young people who are making careers in science in it, so that 
35 years from now we're not reading another Time magazine 
article that's now 70 years old that still sounds like where we 
were.
    I'll just tell you when I looked at that Time magazine 
article, a lot has changed since we didn't have Google. We 
didn't have cell phones. We didn't have PCs. But you look at 
the agenda 35 years ago and it sounds, to some degree, like the 
agenda we're talking about today.
    So there is that sense that we need that I don't think we 
know the answer on what the game changers, what the big 
innovation and that's why we've got to go down several paths at 
the same time.
    Mr. Reicher. Could I just echo that, Senator? It's not 
sexy, but energy efficiency I do think is the fastest, 
cheapest, near term resource that we've got. You know you look 
at, just simply look at the cost of electricity from, you know, 
high cost photovoltaics at one end, even coal. Lower down the 
scale, nuclear, natural gas vastly cheaper as energy efficiency 
at a couple of cents a kilowatt/hour.
    I just would urge you to take a look at what California has 
been able to do over the last 30 years keeping its per capita 
electricity use flat over 30 years. While in the rest of the 
country it's risen 40 to 50 percent. There's three things that 
the State did, very wisely.
    One, it actually gave utilities the incentive. They can 
make money in California encouraging efficiency, encouraging 
people to use less electricity. Most of the rest of the country 
you can't do that. So the incentive is to sell more.
    The second thing the State did very early on was to adopt 
aggressive building codes. Again, very boring stuff, I have to 
admit it. But very aggressive building codes and so it gets 
built there. It's vastly more efficient than in most of the 
rest of the country.
    The third thing was to launch a real serious effort in 
appliance standards, electronic equipment standards. Again, 
terribly boring, but it has really driven a lot of change, in 
fact cause what we've been able to do at the Federal level to 
finally get off the ground.
    So California is a great example. I think if we had done 
that in the rest of the country our total energy use would be 
dramatically lower today. I don't have the numbers at my 
fingertips, but it's significant.
    Second game changer, completely other end of the spectrum. 
Several weeks ago we and several venture capital firms made an 
announcement about an advance geothermal technology. John 
Deutch may remember the days of what we used to call hot, dry 
rock back in the Carter Administration.
    But essentially instead of traditional geothermal where you 
drill down to a pocket of steam or hot water, this modern 
geothermal technique, you can literally drill anywhere in the 
United States or all over the globe and at some point you get 
to hot, dry rock. There may not be water there. But if you can 
put a fluid down there and bring it back up, you can make steam 
and turn a turbine and make electricity.
    The oil companies are very interested in this. The 
Australians lead the world. The EU has made significant 
investments. This technology is being proven out.
    A major MIT study in 2007 told us that 2 percent of the 
heat energy between three and ten kilometers below the United 
States, 2 percent of that, if we could capture it, represents 
2,500 times U.S. energy use. The oil companies know how to 
drill to those depths. They know how to fracture rock. They 
know how to move fluids around.
    If we could take that kind of drilling, apply it to this 
enhanced geothermal system, as we call it, EGS approach. I 
think we may be there with a new technology that's base load as 
opposed to solar and wind which are intermittent, which is 
ubiquitous literally from border to border and coast to coast. 
The joke I tell is that if the big dig in Boston had been 
vertical instead of horizontal, at $12 billion we might be 
making electricity in New England right now from deeper 
geothermal.
    So this is a very interesting breakthrough technology. 
Major venture capital firms in the United States are beginning 
to take a step. We at Google have put money into a couple of 
companies. We're supporting the development of a new heat map 
for the United States. I would strongly encourage you take a 
look at that.
    The Chairman. We're going to run out of the opportunity for 
members to ask questions here before we run out of members. I 
think we'll try to stick with a 5-minute rule at this point. 
Senator Cantwell, you're next.
    Senator Cantwell. Thank you, Mr. Chairman. It's been good 
this last conversation because it goes to questions that I 
have. First I want to say that Senator Dorgan and myself and 
other members of the Energy Subcommittee are having a hearing 
next week on the continuation of speculation. So thank you.
    One, I wanted to comment about your points about 
speculation because I do think it's an important issue. We have 
seen a $6.7 billion savings to businesses and consumers since 
the price has gone down. While part of it might be reduction in 
demand, we're seeing an export out of the market of large 
volumes of capital that just happen to coincide with the same 
time that we have decided to be more aggressive from a 
regulatory perspective.
    So, $6.7 billion in savings to consumers and businesses is 
a big deal to our U.S. economy. Hopefully we might even see the 
price go down below $100 a barrel which would be pretty 
remarkable that we've seen this run up in such a short period 
of time. But my question is really about avoiding this for the 
future and you were just talking about this as it relates to 
energy efficiency.
    I love, Professor Deutch, that you mentioned Scoop Jackson 
because I think if he was here he would have said, listen we 
went through this in the 1970s and we didn't act. So what is it 
going to take for us to act today? My point is we're having 
this discussion about drilling verses energy efficiency, 
renewables and the investment. I think EIA basically says that, 
you know, if you open up all the Outer Continental Shelf, you 
did all the drilling that you possibly could do.
    You're only talking in the next, you know, by 2030 in the 
hundreds of thousands barrels of oil. But juxtaposed to that 
their own calculations is you can have enough from wind power 
to build the equivalent of 50 new coal plants. So you all have 
talked about energy efficiency and renewables and technology.
    So I'm just asking you as you look at the next 20 to 30 
years, so that we can calibrate this for the American public. 
I'm interested in knowing are you saying that the majority of 
the opportunity we have before us in driving down that price or 
let's just say, because there's many factors there. I'm sure 
Mr. Yergin would say there's many factors here. But the 
majority of the opportunity that exists before us in having new 
supply and getting a reduction in foreign oil has to do with 
renewables and efficiency and new technology platforms.
    Professor Deutch.
    Mr. Deutch. I don't know really how to begin with this. Let 
me just say the single most important issue with wind at large 
scale and with other renewable sources such as photovoltaics or 
central thermal power is the intermittency of the supply. It is 
not base load.
    So somehow you have to find a way to manage that 
intermittency. That means energy storage. So if you said to me 
what would be the one single thing which would really make a 
difference would be----
    Senator Cantwell. My question if you could, if you could 
comment on this is. Is the majority of the opportunity before 
us on renewables and efficiency and new technology verses 
drilling? I think we're having this debate around here as if 
everybody thinks that drilling is going to be the majority of 
solution impact for us.
    I hear you all talking about the big opportunities in these 
new areas. That's why I wanted to know where you thought the 
majority of the opportunity existed?
    Mr. Deutch. It is certainly not in drilling, but drilling 
is an important component of doing this because it tells other 
producers in the world that we're doing our share in trying to 
keep supply up.
    Senator Cantwell. Thank you.
    Mr. Reicher.
    Mr. Reicher. As I said I think the biggest opportunity is 
in fact to do more with less. Efficiency is the near term 
opportunity, I think. Added to that we're seeing a very 
heartening decline in the price of producing renewable 
electricity and renewable fuels and I think adding that to the 
mix.
    So I think the big component is going forward that we can 
seize are in fact inefficiency and renewables. Obviously the 
traditional fuels are going to be with us for a long, long 
time. We need to ensure those supplies. But if we can lower 
demand and if we could start to aggressively move alternatives 
in, I think that we'll both be better off from an economic 
standpoint as well as an environmental stand point.
    The Chairman. Senator Corker.
    Senator Corker. Yes, sir, Mr. Chairman. Thank all of you 
for your testimony. I think most of us have heard or been with 
all of you.
    The Chairman. Did I cut you off, Dr. Yergin? Did you want 
to make a comment before?
    Mr. Yergin. Just very quickly. I think there's a little bit 
of apple and oranges. I mean wind is growing fast. It's 30 
percent of our new electricity added last year.
    But wind, unless all of our cars are plug in hybrids 
doesn't do much at all for oil because there's only about 2 
percent of our electricity is generated with oil. I think in 
terms of the off shore, the EIA. It's very interesting what 
they have calculated.
    But there's the evidence for it, is based upon 30-year-old, 
35-year-old technology because there's no expiration. The 
example is Brazil started its ethanol program because they 
didn't have any oil. In their deep off shore they have just now 
discovered something that people are now saying may be as large 
as the North Sea. They didn't know it was there.
    Senator Cantwell. Not to have a debate, Mr. Chairman, but 
we, yes. We've had Brazil. Guess what? Did we see the price go 
down? No, we didn't.
    Since Brazil's discovery we've had the ride of our lives. 
America cannot continue to have this kind of roller coaster.
    The Chairman. Senator Corker.
    Senator Corker. Thank you, Mr. Chairman. I thank all of you 
for your testimony. The thing that I'm struck most by in your 
testimony is the commonality ana that is that each of you seem 
to believe that we need to do all of the above.
    I've just gone through and experienced with others to help 
craft a bill. We had a rule that said that unless everyone 
agreed, even though some of it may be hard to digest, it would 
not occur. As I listen to you and here we have a representative 
from big oil, ok. We have a representative, if you will, from 
the geeky side of energy, Mr. Reicher. We're glad you're here.
    [Laughter.]
    Senator Corker. We are glad all of you are here. You have 
various, certainly varying backgrounds. I would like to ask the 
question. You've listened to each other's testimony. Do you 
disagree with anything that and I know you might weight them 
slightly different and that's what compromise is all about.
    But is there anything that you disagree with that one of 
the other witnesses might have said? Yes, sir? Big oil.
    [Laughter.]
    Mr. Odum. So maybe consistent with the way you ask the 
question, largely the answer is no. I don't think there's an 
inconsistency. I think this response that I hope is coming 
through, it's not this verses that. It's we need to do all of 
these, is important.
    I think, if I could go back to the game changer comment. I 
hope that the game changer here is that we set a policy in 
place that's looking 20, 30, 40 and 50 years out and saying 
where does the U.S. want to be at that point in time and that 
we stick to that policy. Because we'll have lots of variation 
in between, but we have to stay focused on that long term 
picture.
    Senator Corker. Are there any disagreements? The geeky side 
is coming up.
    Mr. Reicher. Again, the way you phrased the question, we do 
need to do everything. It is, though, the relative waiting when 
it comes to Federal policy, when it comes to appropriations, 
when it comes to tax incentives, when it comes to how we 
support R and D. We have limited time. We have limited capital, 
both public and private, so that--the devil is unfortunately in 
the details.
    But indeed, we do need a broad portfolio going forward. If 
I had to weight this, I would say the big opportunity to first 
cut demand, lower what we need. So whether it's traditional or 
alternative supplies that we then meet remaining demand with, 
we lower those needs as well.
    So cutting demand whether it's respect to transportation 
fuels or electricity, we've got to do that first. It's the low 
hanging fruit. Low hanging fruit grows back. There are always 
continuing opportunities that come up as a result of 
technological progress.
    So that to me ought to be the going in for all of us across 
the board from the traditional to the alternative side.
    Senator Corker. Mr. Chairman, I know I have a little time 
left. I'd just like to say that these are really diverse 
witnesses and they each have said that we need to all of the 
above. I am absolutely convinced that if the Senate decided, 
that if leadership decided, that we really wanted to pass an 
energy bill, that we could pass an energy bill with 70 votes. I 
believe that with all of my heart.
    I just hope that this summit leads to us, whenever 
leadership decides it's in the best interest of the Senate, 
that I hope that we will actually pass a bill. I thank you for 
having this. I think this testimony has shown from 5 very 
diverse people that in the energy community, that people that 
actually focus 100 percent of their time on energy, there's 
lots of commonality. I think that commonality is represented in 
the Senate too. I thank you for this hearing.
    The Chairman. Senator Pryor.
    Senator Pryor. Thank you, Mr. Chairman. Thanks again for 
holding this hearing.
    Mr. Odum, let me start with you, if I may? In the Congress 
right now, there's several proposals floating around about 
drilling. I think the House has a proposal, maybe a Republican 
proposal. I think that Senator Bingaman's working on a 
proposal. There's been several Senators grouped together in a 
bipartisan group.
    By the way, Saxby, what's our number now? We started at G-
10. Are we at 20?
    Senator Chambliss. We're at 20 today and growing.
    Senator Pryor. Twenty today and growing. So we have 20 plus 
Senators who are working together on a bipartisan solution. But 
let me ask you, if you could help us, all of us in the Senate 
understand about drilling. This is something that our group has 
talked about.
    How much new drilling can the industry handle let's say 
over the next 7 years? I'll just pick that number. I mean some 
proposals are let's just open up all the Outer Continental 
Shelf, some are let's take the East Gulf Coast and maybe some 
other areas.
    I think the group of 20 Senators, we've really talked about 
we want to go where we know where oil is and you have some 
infrastructure and some ability to get to that oil relatively 
quickly. So help us work through that if you can. How much 
should we open? How quickly should we open it?
    Mr. Odum. A couple of views on that. Where I would start is 
that I think what we shouldn't underestimate is the industry as 
a market, the industry's response to the higher prices and the 
higher demand for energy. I don't know that a lot of that 
response is very visible yet. But we can already see it on the 
demand side, for example. You know, demand for oil being down 
over 900,000 barrels a day in 2008.
    The industry is responding in a similar way. The piece I 
have pointed to is an example lately is the, and these are 
rough numbers, but deep water rigs, there's a lot of 
production. We talked about off shore and how important it is. 
Deep water rigs, there's 30 of those in the world right now and 
they're all 30 working, every one of them.
    Senator Pryor. Right.
    Mr. Odum. But in the next 5 years they're going to be 
somewhere between 80 and 90 deep water rigs because those are 
being built all over the world. So is the industry stressed in 
terms of infrastructure? Yes.
    Is it stressed in terms of having enough people to do all 
of this work? Yes.
    But there is a response to that and that is what's 
happening and during the process of opening up areas for 
leases, doing the proper environmental studies that you do 
before you open those areas, is the time that will be used to 
build up that infrastructure.
    Senator Pryor. Does it make sense to you though that we go 
first to where we're fairly confident that there is oil and 
infrastructure? Is that a good place to start?
    Mr. Odum. I do think it's, in terms of the quickest 
production that could come on. The closer you are to 
infrastructure, the better off we're going to be. I think 
that's true.
    I think, you know, I'll go back to something I said in my 
statement. I just can't help it, which is we have areas that 
are open now, but we're being blocked from actually pursuing. I 
don't think we should lose sight of that either and that was my 
off shore Alaska example.
    Senator Pryor. We're aware of that. We've been talking 
about that in our group. Let me ask the group, all the 
panelists if I may a question.
    That is in our group of 20 Senator's bill that we're 
proposing. These ideas we put out. I don't know if all of you 
all have seen sort of the concepts that we're all talking 
about?
    They sound very consistent with what all the panelists said 
today. But one of the things we call for is an Apollo style 
project to try to get our vehicles off of oil. I think the goal 
we set is over the next 20 years we want to see at least 85 
percent of all new vehicles sold in the U.S. use non-petroleum 
fuel sources.
    First I'd just to hear from the panel if you think that is 
a good goal? Is it something we should as a matter of public 
policy pursue? Then second, I just like to hear from the panel 
if there's any concerns that you all have with the G-20 
proposal as far as you know.
    Mr. Deutch.
    Mr. Deutch. Senator, I, first of all want to say how 
unfortunate I think it is to use analogies like Apollo Project 
and Manhattan Project for these kinds of issues. Those 
technology driven projects which were so successful in our 
country's history occurred in a completely government sector 
creation, application and execution. Here we're talking about 
having a technology deployed into a real economy where people 
are, you know, making consumer decisions.
    So I just want to say that the issue here is much more 
demanding. That's the first point. The second point, I would 
also want to caution against specific targets, percentage 
targets. As again, as I mentioned in my comments I've been 
embarrassed about overly optimistic targets in the past.
    The third point has to do with actually how are you going 
to displace the use of petroleum or natural gas in vehicles? I 
would say here the group should have a responsibility of 
tracking that they actually have the electricity, production, 
storage and distribution to carry it out as it grows. I think 
you are going to have some real strains if you really have the 
kinds of numbers you were referring to at producing in the 
United States the electricity generation capacity that you have 
in mind because I don't think we have an environment for new 
coal plants or for new nuclear plants.
    As we know the renewable, geothermal and other electricity 
generating technologies are coming along slower. So I ask you 
to pay attention. When I looked at the plan, I haven't looked 
at it in great detail, I was worried about the accompanying 
management of the electricity supply.
    The Chairman. Senator Chambliss.
    Senator Chambliss. Thank you, Mr. Chairman. Professor 
Deutch, I think what you just said just highlights the 
complexity of this issue. I'm more, frankly I'm disappointed 
that this room is not packed with all 100 Senators because as 
we think through this a lot of times things seem simple. You 
just produce more oil. You manufacture more gasoline. All of a 
sudden the price comes down.
    But you just hit on something that is so critically 
important that I do wish that all Senators were here to hear 
that. Because it highlights, to me, and as we've been through 
this dialog over the last 3 months in our group, how truly 
complex this issue is.
    Mr. Odum, I want to get back to you on a two part question. 
One thing that I hear about as I'm back home, well obviously, 
the No. 1 issue, the No. 2 issue and the No. 3 issue is gas 
prices. But one thing I consistently hear from folks is that we 
haven't had a refinery built in this country in 25 years. We 
need more refineries built. I'd like for you to address that as 
to whether or not you do have the capacity to manufacture 
additional supply.
    Second, well, let me let you address that first. I don't 
want to complicate my second question.
    Mr. Odum. I'll try to keep the answer just as straight 
forward. As a company, I'll start by saying that we, along with 
our partners, are investing $7 billion in a refinery in Texas 
on the Texas Coast, unfortunately in the path of the hurricane 
as we speak. But that will effectively increase the size on the 
order of a new refinery. It's an enormous project.
    I think what should be done is an assessment of all the 
expansions that are taking place across the U.S. I think what 
you'll find is there is quite a bit of investment in refining 
capacity.
    The second thing is to look and just to make sure we all 
understand how difficult it is then--that's a brown field 
expansion, of course, how difficult it is to build a refinery 
in a green field area to get a permit. Then be allowed to make 
that investment to build a refinery is very challenging, which 
is why we're focused on existing facilities and expanding 
those.
    Senator Chambliss. Second question, from an oil company 
perspective. Obviously you're in business to make money. But I 
think you're also clearly in the business to try to provide an 
energy source to your customers.
    What, from an oil company perspective, can be done 
immediately to help lower gas prices? I don't mean over the 
next 30 days. I mean, I'm talking about realistically whether 
it's 12 months or 36 months, but short term, from an oil 
company perspective. What do you think could be done?
    Mr. Odum. I really wish I had something on the order of a 
magic answer to that, which I don't. So I think it's the things 
that we've already mentioned on this panel. It's efficiency and 
conservation are going to be the most near term, significant 
impacts that we can have on prices. I think beyond that it goes 
very quickly to the all of the above answer in terms of we need 
to bring the accessible oil and gas resources online as quickly 
as we can, but be working on these alternatives at the same 
time.
    Senator Chambliss. Right. There again that goes back to 
Professor Deutch's answer there that this thing is so complex 
and we've tried to address all of the above. I think it's the 
only legislation that's out there right now that seeks to do 
that. Obviously you're going to get a lot of criticism when you 
seek to address all of the above.
    Dr. Yergin, I was recently made aware of a MIT study which 
concluded that speculative activity in the futures market was 
the driving force behind the increase crude oil prices. The 
study largely dismissed any relevance associated with the weak 
dollar, the political instability in some producing nations and 
the basic supply and demand situation. I'm curious to know 
whether you agree with this particular study's conclusion that 
a speculative bubble is the leading cause of the price increase 
and that these other factors, such as the dollar, such as 
production and instability in those countries and supply and 
demand for sweet, crude oil had little, if any impact on both 
the rise and fall of crude oil prices over the summer.
    Mr. Yergin. I haven't seen that study. I've just heard 
about it. I think that's probably not one of Professor Deutch's 
studies but from somebody else.
    I think it's kind of absurd to say that. Look, in my 
testimony I cite the Federal Reserve that says between 2003-
2007 a significant part of the increase in the price of oil 
before the final run up was because of the weakening dollar. So 
to dismiss the dollar seems to me to not make any sense. To 
dismiss demand is truly absurd because what we've had since 
2004 is a demand shock.
    In 2004 Chinese oil demand went up 16 percent. We went into 
5 years of the best economic growth that we've had in a 
generation and low and behold the best economic growth in a 
generation with China and India coming into the picture was 
going to drive oil demand. I think, so demand, I think has 
actually been the starting point.
    There are a lot of other things on top of it. I don't know 
if the study also dismisses disruptions in Nigeria losing 40 
percent of their oil. Venezuelan capacity being down a million 
barrels a day. Mexican capacity going down. Russian production 
flattening out. I mean, so these are all part of this mix and 
those have been very significant. So in short hand I would say 
I look forward to reading that study.
    The Chairman. Senator Ben Nelson.
    Senator Ben Nelson. Thank you, Mr. Chairman. Hopefully as a 
result of this effort and the gang's efforts we'll move from 
trying to score political points to finding solutions to the 
challenges that we all face and the questions that are raised 
when we go home about the energy issues. What we're going to do 
to find solutions. Hopefully this will help us along in the 
course, I think, that's been charted.
    As we look at the efforts to find new sources and we look 
for new solutions and new technologies it's reasonably clear 
that we do face certain inhibiters and prohibiters to moving as 
quickly as we would like to. I'd like to ask a question, for 
example, on nuclear. Even if we were able to move the number of 
permits consistent with the applications as quickly as 
possible, is there U.S. construction capacity to build 23 
nuclear plants in the United States in a reasonably short 
period of time?
    I want to get to the nuts and bolts of what we're talking 
about so that we realize that no matter what policy we set 
forth, we have to deal with the reality. I'm not negative about 
it. I just want to be realistic about it. Would anybody like to 
respond to that?
    Professor Deutch.
    Mr. Deutch. We have looked at this in our MIT study on 
nuclear energy 2003. We're redoing that study right at the 
present time. It's no question about the fact that there is 
ability to build nuclear plants in this country.
    I would say to you that 20 plants would take a good deal of 
time. I would also point out that----
    Senator Ben Nelson. Can you be even more specific than a 
good deal of time or?
    Mr. Deutch. It would certainly take and I might want to 
give you a more precise answer. It would certainly take 15 
years, something in that order.
    But what I would like to say is we've really reduced the 
amount of domestic U.S. industry expertise in nuclear energy. 
That would have to be built back over time if it's going to be 
a major contributor. That is if it's going to maintain its 20 
percent contribution for electricity into the future.
    So we have some questions about how to rebuild our domestic 
nuclear industry and not just rely----
    Senator Ben Nelson. We could accelerate it, but there would 
be certain limits on how fast we could accelerate it.
    Mr. Deutch. That's correct.
    Senator Ben Nelson. Would it help if we took the approach 
that I understand the French are taking more of a standardized 
plant or a cookie cutter approach so that every new application 
doesn't have to involve the technical review that it gets 
today?
    Mr. Deutch. Yes, but I think that is happening, sir. I 
think the industry and the NRC are and the Department of Energy 
are going for a standardized plant designs by two or three 
manufacturers. The real fact is we can do better. One plant per 
year would be nice. We don't have one plant under construction 
right now, but we have some capacity. A lot has to be done.
    Senator Ben Nelson. How fast will standardization 
accelerate the permitting process? Because the rumors and some 
facts would indicate that it may take twice as long to get a 
permit as it does to build a plant.
    Mr. Deutch. Senator, I want to say something. This goes 
back to a remark made by Senator Domenici. When I talk about 
the barriers to expanding the deployment of nuclear it is not 
principally because of licensing.
    It has to do with the cost of these plants. It has to do 
with issues of giving confidence on waste management. There are 
several other elements that are required before nuclear really 
takes off. I did not ever imply nor do I believe that the most 
urgent matter is to get licenses out of the NRC quicker. It's 
these other issues that I think are important.
    Senator Ben Nelson. But some of the staffing problems that 
were mentioned and making certain that we have them in the 
budgets of the agencies are adequate to take care of the 
technological work would apply to the electricity grid as well, 
would it not?
    Mr. Deutch. Yes.
    Senator Ben Nelson. Do you have any thoughts about whether 
there ought to be a single agency in charge of citing, 
permitting, so that it doesn't get caught in the bureaucracy 
between DOE and FERC?
    Mr. Deutch. I'm going to get myself into trouble here.
    Senator Ben Nelson. I'll try to help you out.
    Mr. Deutch. I would say I'm a great believer that FERC 
should have an authority on nuclear, on all electricity, 
licensing----
    Senator Ben Nelson. Citing.
    Mr. Deutch. Locations, grid, you know, like we have for 
natural gas, ability to set high grid power lines. I think the 
authority for FERC should be greatly expanded in this regard 
relative to the states.
    Senator Ben Nelson. If you don't do that, won't you be in a 
constant position of ambidextrous, ambiguity between the 
various agencies? The left hand doesn't know what the right 
hand is doing or they're at odds?
    Mr. Deutch. That's my opinion, yes, sir.
    Senator Ben Nelson. Is there any other opinion?
    The Chairman. Please make the opinion brief.
    Mr. Reicher. We're talking about two different things. One 
is nuclear licensing which I'm assuming we're continuing at the 
NRC. Then in terms of transmission citing we're talking about 
FERC.
    I would agree that greater authority on the part of the 
FERC to build transmission capacity is important, but 
environmental standards, we're going to have to deal with State 
interest. But we need to build up transmission capacity in this 
country if we're going to have any hope of taking advantage of 
renewable capacity.
    Senator Ben Nelson. Thank you for dealing with the nitty 
gritty. Thank you, Mr. Chairman.
    The Chairman. Senator Voinovich.
    Senator Voinovich. You talked about the fact that the world 
has changed. I look at the geo-political situation that we're 
confronted with. A couple of years ago I attended a session of 
the National Defense University. I walked out of there quite 
frightened about the security implications of our being relying 
on foreign sources of oil in terms of interruption in the flow 
of oil to our country.
    What I wonder about is if you look at the fact that someone 
else controls the price and the supply and then take into 
consideration that we're sending $600 billion, that's what 
they're saying, overseas. About 60 percent of that is being 
picked up by OPEC nations. If you look at our national debt 
that's growing, it'll be over $10 trillion. Since 2001 it's 
gone up 40 percent or more and 70 percent of its being 
purchased by the Japanese to Chinese and OPEC nations.
    One of the things that's of concern to me is that this all 
has some national security implications. If somebody controls 
the cost of something that's very valuable or can control the 
supply of it, and they're also at the same time buying your 
debt and if you were in the business world you're probably 
going to put that company out of business. I know it's a little 
more complicated than that.
    But I don't think the national security part of this has 
been given enough priority in terms of our considerations. I've 
talked about, you know, for years in the Department of Public 
Works Committee and I keep talking about harmonizing our 
energy, our environment, our economy and our national security. 
For some reason we aren't able to do that. That's part of the 
problem why we can't get legislation passed.
    So I'd be interested in. Is this dimension something that's 
of concern to any of you or am I just exaggerating it? I'm 
talking about more/less energy, you know, conservation, all the 
things you're talking about. But I think there seems to be more 
of an urgency here than we're giving.
    Mr. Deutch. Mr. Chairman, may I? First of all let me say 
that the first time I appeared here Scoop Jackson, this was his 
major point about the connection between energy and national 
security. I couldn't agree with you more about the severity of 
it. It's increasingly strong connection.
    Again, my colleague, Jim Schlesinger and I have been 
talking about this. It is influencing our foreign policy and 
our freedom of action to pursue our other foreign policy 
objectives around the world. It is of major concern.
    The issue is we can't do away with it because we are 
dependent and our allies are dependent. It is something that 
has to be managed and it has to be managed more carefully and 
more consistently.
    Mr. Yergin. I would add to that. We talk about the economic 
cost of high oil prices. There certainly is as your suggesting, 
a geo-political cost. That cost is also quite high.
    Look at what's happening in Latin America in terms of the 
shift. Look at the shift. It's about $500 billion a year that 
we're spending on oil imports, some of that going to Canada and 
so forth.
    But we're seeing all together a shift of income on 
something like $2 trillion this year from the oil importers to 
the oil exporters. With that goes a lot of power. I know Frank 
Verrastro mentioned the National Petroleum Council's study.
    Two trillion is a big number. It's worth keeping in mind. 
Frank headed the geo-political part of the National Petroleum 
Council study and I know that that was a very big part of it 
that you wrestled with.
    Mr. Verrastro. Yes. If I just might add one thing. In the 
concept that the world is changing, the G8, the developed 
world, in 1997 controlled 65 percent of global GDP. By 2007 it 
was 58 percent and the projections are by 2015, it will be 45 
percent.
    So there's this emerging group of countries that will have 
more political weight, more leverage. Some are producing 
nations. Some are consuming nations. The landscape is changing. 
In that context I think the rule is changing.
    I was also on Dr. Deutch's study at the Council of Foreign 
Relations. This idea of integrating energy policy into foreign 
policy, trade policy, economic policy, environmental policy, we 
like to have these silos. But as a practical matter, energy is 
a strategic commodity. It's being played around the world that 
has a lot more component pieces.
    The Chairman. Next is Senator Conrad.
    Senator Conrad. Thank you, Mr. Chairman. Thank you so much 
for organizing this. Thanks to the witnesses.
    We've been engaged in this effort that started as a gang of 
10, 5 Democrats, five Republicans that then grew to 16 and now 
20. We have other Senators ready to sign up in the coming days. 
We came together with the belief that it was urgently required 
that we act and that we act in a comprehensive way, that we 
don't do just one thing, that we don't bet the farm on one 
technology or one approach. But that we'd be broad based and 
that we'd look comprehensively.
    So our proposal focuses on renewables and conservation and 
efficiency, electric plug in and geothermal and hydrogen and 
drilling off shore and nuclear and clean coal. Some of a lot of 
different things with none of us knowing precisely what has the 
greatest ``bang for the buck'' over time. But a belief if we 
plant a lot of seeds some of them will grow. That we absolutely 
have to have an ability to transition to whatever future 
technologies might be available.
    Now, whether we have precisely the right goals or precisely 
the right numbers attached to them. I don't think any of us 
know. I think what we are confident of is that we have the only 
bipartisan, comprehensive approach. That other plans that are 
now coming along in many cases closely track what we have 
proposed. But none of them have the comprehensive approach that 
we have suggested.
    In listening to each of you it sounds to me like all of you 
are endorsing a comprehensive approach. Can I just ask each of 
the witnesses if that's the case, if that's what you are 
recommending to us?
    Mr. Verrastro. Senator, I think it is. The question is the 
amount of balance so those relative pieces here and the 
sequencing, I think, is important too. Conservation and 
efficiency, easiest to do, need to get started now. Technology, 
broad array and then keep in mind the timeframes that it takes 
to get things. You're preserving options for something else to 
come along.
    Senator Conrad. I think, Dr. Yergin.
    Mr. Yergin. Yes, I think the simple answer is yes. I think 
that's right. I think you said it, is that we don't know what's 
going to actually have the biggest ``bang for the buck.'' We'll 
know a lot more in 5 years. But to get to 5 years you've got to 
get going and we've got to be consistent.
    Senator Conrad. If I could just interrupt before we go to 
the next. On the question of efficiency, I just had a meeting 
in Dickinson, North Dakota which is in the middle of the oil 
patch. I had a man come representing a Fisher Industries.
    They just had done an external review of all their 
operations to improve efficiency. They had somebody come in and 
evaluate all of their engines, were able to save 34 percent. 
Evaluate all of their lighting, were able to save 50 percent. 
Some of that lighting was only 1 year old. But they chose to 
replace it because they could get such greater efficiency.
    So clearly that has got to be part of what we do. One of 
the things our group is now looking at is building codes 
because we've seen the very successful California effort and 
how dramatically their success was in savings there.
    Mr. Yergin. Senator, if I could say that one thing too. In 
terms of the balance that can have an impact. What you've just 
addressed is getting efficiency so it's not at the tail end, 
but that it is not something you can look at and say, this is 
efficiency. But when you add it up, it is a thing and to get it 
into that big piece at the top.
    Mr. Reicher. Yes, and I would echo that. It's more than 
language. I think the better term is efficiency than 
conservation. Conservation is doing less with less. It's 
turning down the lights, putting on a sweater, sitting in the 
dark, whatever.
    Efficiency is doing more with less. It's greater 
productivity that we can get out of our economy. The company 
you're referring to, they're going to do well. They're even 
going to do better. They've cut their costs. They're going to 
produce more. So language really matters in this regard. I 
would urge you to think in those terms.
    The other thing is please don't forget the low income 
community, the people who really take in on the chin are people 
who are facing high oil and gas prices, who have to heat homes, 
buy electricity. You and I spend one or two or 3 percent of our 
take home income on energy. They can spend 15, 20, 30 percent.
    We have unfortunately neglected the Home Weatherization 
Program. We've done 5 or 6 million homes. In 30 years, there 
are 28 million eligible homes.
    We have put money into LIHEAP. But LIHEAP is a 1 shot buy 
down of energy bills. Where as weatherization goes in, 5 
people's homes, and the returns are over 10, 20, 30 years.
    We shouldn't be doing 100,000 homes a year. We should be 
doing a million homes a year for the next 10 years. At least 
get to a half or a third of the eligible families.
    Senator Conrad. You'll be pleased to know we have $2 
billion in this plan for weatherization.
    The Chairman. Could you shorten your responses so we can 
get to a few more people here before we have the noon recess? 
Go ahead.
    Mr. Deutch. The Energy Policy doesn't only have to be 
comprehensive. It has to be sustained. We've had problems both 
keeping it sustained and with your Fisher example, of 
efficiency in North Dakota points out the importance of best 
practice.
    The government has not been good at having programs which 
it has deployed best practiced through the economy, especially 
to smaller companies and smaller businesses, which are usually 
less energy efficient. So getting best practice is very 
important.
    Mr. Odum. So yes to the comprehensive question. On the 
efficiency side, I mean, it is such an opportunity that when 
you talk about things and new energy sources that will create 
jobs. We have a new business around providing people with those 
efficiency ideas to large industrials and others. So it is a 
big opportunity.
    The shift in technology in the future is to move that to 
the front end of the equation and think about how to build 
something, not just how to make it more efficient after it's 
built.
    Senator Conrad. If I could just make a concluding 
statement. We've also dedicated $5 billion for battery 
technology because almost every expert that has come before our 
group said that is a huge opportunity for the country.
    The Chairman. Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. Gentlemen, 
thank you for your comments, your insights this morning. Hard 
to believe that it was just a couple months ago that we had a 
similar panel and it was sitting at $145 a barrel and today 
it's $100. Some would suggest, oh, the pressure is off.
    I can tell you at home in Alaska the pressure is not off. 
We just had an energy hearing in the regional community of 
Bethel. The discussion about what folks are paying whether it's 
at the pump, it's six bucks a gallon at the pump.
    Home heating fuel is anywhere between $7 and $10 a gallon. 
Food prices are absolutely astronomical, $10 for a gallon of 
milk if you can get it. It doesn't make a difference the fact 
that we've gone down $47 in the past couple months per barrel. 
The pain to the American public is there.
    I want to ask a question about just the consistency and the 
predictability in our policies. I would suggest from the get go 
that there is not a lot of consistency, unfortunately or 
predictability for the industry. There in lies a part of the 
problem.
    We do have to have solutions that are not either/or. We do 
have to have a comprehensive approach if we're going to advance 
a reasonable energy policy. We're struggling now as we wrap up 
this session with how we extend the tax credits for whether 
it's wind or some of the other renewables that are out there.
    But in the meantime you've got an industry that says, are 
we on or are we off? What do we do? How do we invest?
    There are some who are suggesting that if we should open up 
ANWR for drilling. If we do open up more areas off shore that 
in fact what will happen is the message then is that we're not 
really serious about the renewables and the alternatives 
because we can't get these tax credit extensions for more than 
a couple years. Then we send a signal that well, it's more of a 
focus on drilling.
    How do we get out of this kind of fickle policy as it 
relates to the signals that are sent? You're saying, you're all 
saying that we need all of the above. We need to do more 
domestic production. We need to encourage that and enhance it. 
We need to go down the track of the next generation of energy 
which is alternatives and renewables.
    But our policies are not helping the picture right now. 
What suggestions do you have? Professor, you're smiling like, 
well that's an obvious. Go ahead.
    Mr. Deutch. It sounds to me like all 20 Senators who are 
here have exactly the same view of this that you just 
expressed, that you've got to do all of the above. So I'm 
saying if you all say we've got to do all of the above and it's 
all connected, there's not one piece of it that can go without 
the other. It doesn't make any sense. It should happen.
    I mean, why isn't it happening? Because I couldn't agree 
with you more. You can't do this by selecting one thing. I'm 
impressed that everybody here sees that it's all of these 
things have to happen together.
    Senator Murkowski. Are any of you concerned that by doing 
more domestically when it comes to increased production that 
some how or another we're taking the ball off of advancing 
renewables and alternatives?
    Mr. Odum. I do think it's important to send the right 
signals. So I don't think they need to be incompatible by any 
respect. I do think it's exactly the way the message needs to 
be communicated is that we need both.
    On the renewable and alternative side I think a more 
comprehensive program that allows for the kind of support those 
programs need early on in life, but have an understanding as to 
how then that would go way over time as you expect those 
technologies to develop. But a longer term picture would be 
part of that answer.
    Senator Murkowski. Mr. Yergin.
    Mr. Yergin. I've been writing a new book looking at the 
last 20, 30 years of energy policy. When you stand back and 
look at it you really do see. It's quite surprising how much it 
will change over a 3- or 4-year period in terms of commitment, 
non-commitment, stop and go.
    But it sure seems to me that renewables need to address the 
production tax credit but have an awful lot of momentum, public 
support, venture capital money. It's a different environment 
for renewables than it was even 3, or 4, or 5 years ago. So I 
don't think there's a sense that they're going to be lost in 
the mix. The question is how to get them from being very small 
to start to being a significant part of the mix.
    Mr. Reicher. I do think the on again/off again approach we 
have taken to incentives for renewables has been a big, big 
problem. Major investors come to the table, but pull back 
because you get a 1 or 2 year extension we've got to address 
it. It may not be that the tax code is the right place to be 
doing this.
    Other countries do it in different ways. Feed in tariffs 
are used across Europe. If we have revenues from selling carbon 
credits, that may be another way to do it. The tax code that's 
so dependent on appropriations to find an offset, you know, 
that's a problematic way to be helping an industry get going.
    But I do disagree some with Dan, the renewable energy 
industry is in a very immature state. It does need the support. 
Traditional industry does enjoy much more permanent subsidies.
    If you look at nuclear liability insurance, it's a 20- or 
30-year authorization. If you look at the oil and gas industry 
many of the subsidies there are in fact long term or permanent. 
This one or 2 year, on again/off again support we give to these 
emerging technologies just won't work.
    The Chairman. Ok. We've got, let's see here.
    Senator Landrieu. Mr. Chairman, could I ask if we could 
extend this ten after the hour?
    The Chairman. I'm glad to extend it to 10 minutes after the 
hour. I may not be able to stay for the full time. We do have 
another panel starting at one.
    So we will just proceed. If people could keep their 
questions short and their answers short, that will help. The 
line up I've got still here is in the order that people 
arrived: Klobuchar, Whitehouse, Salazar, Akaka, Landrieu, 
Lincoln.
    Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Mr. Chairman. Thank 
you for your leadership. I'm one of the gang of 20. As a former 
prosecutor it was hard to join, but I did.
    I had our sign that Senator Conrad rejected of the E, you 
know, energy. But I had a question. The reason that it 
interested me, this proposal and the work that's being done, is 
I thought there was a reasonable approach to look at high 
potential for domestic production in certain areas. But also 
the thing that really interested me, that it was a bipartisan 
effort to try to extend the production tax credits.
    I would agree with you, Dr. Yergin. It's been this game of 
red light, green light, on again/off again. There's actual 
studies showing how 8 months before it goes off the investment 
lags.
    But the other thing that interested me was just the focus 
on the technology and trying to push that with cars and trucks. 
I thought you put it best, Mr. Verrastro, when you talked 
about, simply that I'm going to use that a 50 percent increase 
in efficiency turns $4 a gallon gas into $2 a gallon gas. My 
question is of maybe Mr. Reicher, Dr. Yergin, would be about 
where that technology really is. Because, you know, I've heard 
that maybe we have the technology, but it's a few years out or 
we're going to have to buy it from other countries or it's too 
expensive.
    Mr. Reicher. So let me quickly say we built a fleet of plug 
in hybrid vehicles at Google. We converted Toyota Priuses and 
Ford Escapes. Our employees are driving them. We hired 
professional drivers to go and test them.
    The Ford Escapes are getting 50 miles per gallon. The 
Toyota Priuses, plug in Toyota Priuses are getting 90 miles per 
gallon. We know how to build these cars. I do admit battery 
technology has some distance to go.
    The good news is you have big automobile manufacturers from 
General Motors to Toyota stepping up and planning to build 
these. So this is near term technology. No doubt we've got to 
continue to improve some things inside.
    But unlike, for example, a major move to hydrogen, for 
example, this is here today. So it does though require some 
government support. I do think incentives, like we provided for 
non-plug in hybrids, provided for plug ins would be very 
useful, continued R and D funding, Federal procurement for the 
U.S. fleet, all those things would help. But it's near.
    Senator Klobuchar. The idea here is to shift some of the 
resources and the incentives we've been giving to oil and to 
put some of those incentives into R and D.
    Mr. Reicher. R and D and commercialization incentives. 
Agreed.
    Senator Klobuchar. One question on cellulosic ethanol. 
Minnesota is obviously like South Dakota as Senator Thune was 
explaining, has been one of the major areas for ethanol. We 
have, I think, 400 of the 1,200 pumps or 1,600 pumps that there 
are. We know how difficult it is, this chicken/egg possibility 
that we produce, but then there may not be enough vehicles that 
are flex fuel. Then there may not be enough places to get it.
    So that's why this idea of developing these cars and trucks 
that are not only hybrids, but also are flex fuel, have the 
ability to go to flex fuel interest me. Also obviously going to 
the cellulosic ethanol, the next step with switch grass and 
prairie grass and LG and whatever we can do. My question is we 
have right now we're on E85, but there's some talk of looking 
at more blends going up from E10 to E20. That would be a way of 
doing this that would be more mainstream. Does anyone want to 
address that?
    Professor Deutch.
    Mr. Deutch. I think these are very, very important steps 
for the country to take. You can go to E80 without, E20, I'm 
sorry I'm going the wrong way, E20 without any problem. 
Cellulosic ethanol has a tremendous possibility in this country 
and it should be pursued as rapidly as possible.
    Senator Klobuchar. Alright. Thank you very much.
    The Chairman. Senator Whitehouse is next and Senator 
Salazar you're after that. Maybe if you could preside for the 
balance of the panel? That would be helpful.
    Then after you, Senator Akaka, Senator Landrieu and Senator 
Lincoln as long as the witnesses are able to stay and people 
still have questions.
    Senator Whitehouse.
    Senator Whitehouse. Thank you, Mr. Chairman.
    Senator Domenici. Senator Whitehouse, would you yield for 
just a moment?
    Senator Whitehouse. Of course I would.
    Senator Domenici. I wonder on our way out, are we going to 
startup again at one? Is that the plan?
    The Chairman. That's the plan.
    Senator Domenici. Then I will try to be here so we can 
start it together. If you would permit me as we plan to leave 
here to make one observation for the record. I really am 
pleased to hear that the panel, which is very divergent in many 
respects as to where they come from and where their interests 
have evolved to lay it almost to rest the idea that America--
let me put a premise before us.
    However we are going to go about diminishing our use of 
automobiles that use derivatives from crude oil as their source 
of energy, however we're going to do that. It seems to be the 
testimony that we're going to have to use crude oil for a long 
time, almost indefinitely and a lot of it and that we shouldn't 
let our supply fall from where it is now. We ought to try to 
keep it up.
    I have been amazed, Mr. Chairman, at how many people have 
confused using American crude oil for this long term bridge, 
confused that with, you shouldn't be using crude oil because 
you're trying to solve the problem of greenhouse gases. I mean, 
there is no question we're going to use automobiles. In doing 
that we're going to use our own crude oil or we going to use 
somebody else's. I think we finally got that that most people 
understand it.
    But there seem to be some policymakers who just seem to say 
we shouldn't bring any more oil on board because we don't want 
to be using it. While you all seem to be telling us we're going 
to use it. I think that's a very important thing we finally 
have arrived at, Mr. Chairman.
    Maybe there are some still out there that don't want to 
produce American oil, but I think we're getting there little by 
little and we've almost arrived at the time when most 
policymakers would concur. I think you've been part of leading 
us. I have. I'm glad we're there. I think it's desperately 
important we understand that issue.
    The Chairman. Senator Whitehouse.
    Senator Whitehouse. Thank you, Chairman Bingaman. 
Gentlemen, we're in the middle of a near total mortgage system 
meltdown in this country. We have a health care system that 
burns 16 percent of our GDP in which the Medicare liability 
alone has been estimated at $34 trillion. We're burning $10 
billion a month in Iraq.
    This Administration has run up $7.7 trillion in national 
debt by our calculation. There is worsening evidence everyday 
of global warming with worsening environmental, national 
security and economic ramifications.
    In the light of those conditions do any of you seriously 
contend that drilling for more oil is the No. 1 issue facing 
the American people today?
    [No response.]
    Senator Whitehouse. Now it doesn't seem so. If we're going 
to deal with conservation which strikes me as where most of the 
lowest hanging fruit and the highest return investment exists 
at this point, particularly immediately. We're looking for as 
practical suggestions as we can get into this legislation as it 
moves forward.
    I've heard you talk about weatherization. I could not agree 
more. I think electric vehicles presents another huge 
opportunity. Are there other, even potentially smaller and more 
technical areas where you think there's room for what I might 
call a quick fix or something that isn't to heavy a lift that 
will make things right?
    One example that comes to mind is in the commercial real 
estate industry very often the lease makes the operator 
entirely immune from energy cost in big malls and things like 
that. There may be a way to solve a specific technical problem 
like that. Could you give us a list of what you think are the 
best, quick, even if they're not big things, little things add 
up.
    What are the best, smart, quick fixes that you can think 
of, even if they're not very big ones?
    Mr. Reicher. Very quickly. More aggressive approach to 
applying standards, again, very boring, but if we could make 
our refrigerator----
    Senator Whitehouse. Boring can work.
    Mr. Reicher. Boring can work. Boring has worked 
significantly. That's No. 1. I do think building codes. 
Building codes. Building codes, there's just extraordinary 
things you can do with that.
    A third thing I would say is using information technology 
to better monitor and manage our energy use. You're seeing the 
emergence of that from all sorts of companies. I think that's 
going to be very interesting. If the Federal Government did its 
own procurement and its own building, its own operations, took 
much more of a lead than it is today, 500,000 buildings, 
500,000 Federal vehicles. That could be 2 percent of all U.S. 
energy use could be a great laboratory.
    Senator Whitehouse. Professor Deutch had his hand up also. 
If you could touch briefly before you go on whether the 
metering in homes is something we should look at to a two way 
time of use and so forth. The meter in my house is a pretty 
antiquated piece of technology compared to almost any other 
piece of technology. It seems to be holding back the IT 
development.
    But Professor Deutch, let me ask you first.
    Mr. Deutch. The word quick sort of startled me because I 
think one important area is batteries for storage. I mean that 
really is an important point, but it may not be quick. I do 
recall that at one time the United States had a 50 mile per 
hour speed limit. That would give you immediate, enormous 
gains. I don't know how that would go down with the American 
people, but I will tell you that it would----
    Senator Whitehouse. Have you been on an American highway 
recently?
    Mr. Deutch. But I will tell you that that would have an 
enormous payoff. With respect to smart metering in homes, I 
think that that's coming. It will have tremendous effects. It's 
certainly one of the things that Mr. Reicher has proposed. 
Again, will not come quickly, but it is extremely important and 
will have effects.
    Mr. Yergin. One quick thing that might make a difference. I 
don't know what the state is on for finding support for it, but 
within the Department of Energy is the demonstration, the group 
that can work with small and medium sized businesses to simply 
teach and communicate with them. I suspect that those are one 
of the things that funding goes up and down for and mostly 
down.
    Senator Whitehouse. My time has expired. I thank the Acting 
Chair.
    Senator Salazar [presiding]. Thank you very much, Senator 
Whitehouse. Let me ask a couple of questions and then I think 
there's four or five other people that still want to ask 
questions so with the patience of the panel, Senator Akaka will 
chair the hearing after I leave because I have to leave in just 
a second.
    Let me say first I think that what we have seen from all of 
you as a panel and I thank you for your testimony here today, 
is that there is an agreement on a lot of what we have to do. 
The question is whether or not there is a willingness and the 
political courage to do what it is that you as experts would 
ask us to all do. I think that's part of what we're trying to 
do with our gang of 20, or 24 now, that is trying to pull 
together a comprehensive energy package that is not a stop and 
go, but it is comprehensive and sustainable over a long period 
of time.
    I have a couple of questions to ask of you. Let me just ask 
this one of Dr. Yergin and Professor Deutch and that is with 
respect to coal. We talked about hybrid. We talked 
conservation, briefly on that. We talked about some of the new 
technologies like hybrids and hybrid plug ins and things that 
are no-brainers that we ought to move forward with.
    The question is, I think, Mr. Reicher raised has to do with 
whether electricity going to come from for these new national 
vehicle fleets. We're going to create nuclear coal. Those are 
possibilities.
    My question is about coal because I think we have the types 
of coal resources. Coal is to us and oil is to Saudi Arabia. 
Our problem is that when you put the triangle together that I 
think you were describing, Mr. Verrastro, we have the carbon 
problems that comes with the burning of coal.
    You said in the 2004 that we were going to move forward 
with carbon capture and sequestration and develop clean coal. I 
don't see frankly much of that happening, not a single 
demonstration project of any significance going on around the 
country. So is there a role for us to try an include a carbon 
capture or sequestration clean coal technology in a very major 
way as we move forward with energy policy.
    Mr. Yergin. Professor Deutch just finished his big study at 
MIT and has thought a lot about it.
    Mr. Deutch. Bluntly put, there is no solution to our energy 
future without using coal. If you're going to use coal in a 
responsible way, we have to do carbon capture and 
sequestration. We're woefully behind.
    Senator Salazar. Let's agree on that point then, Professor 
Deutch and let's say what is it then that we as the U.S. Senate 
should do?
    Mr. Deutch. I believe that the program which is in place 
now for sequestration demonstrations in the Department of 
Energy is too small. Too small in both in terms size of 
projects, the scope of each project is woefully inadequate in 
terms of monitoring and verification and site selection. The 
process for setting a regulatory framework where you as a 
citizen and I as a citizen will be happy to have the 
CO2 sequestered in saline aquifer has not begun to 
take place. So we're way behind.
    Senator Salazar. The essence, Dr. Deutch, is that I share 
this with Senator Bingaman and Senator Domenici. Is that we're 
disappointed that we're not moving forward with the Department 
of Energy in that way in a more robust way to try to deal with 
clean coal technologies and carbon sequestration.
    Let me ask you another question because of the shortness of 
time here and that is with respect to oil shale. I heard you, 
Mr. Verrastro, talk about oil shale and tar sands being very 
much a part of our comprehensive energy program. In the 2005 
Act we did adopt an oil shale research and development program 
which is underway in my State where 80 percent of the oil shale 
is located in oil shale reserves.
    We have six pilot projects that are underway and a lot of 
research and development in situ processes that are moving 
forward, but so many unanswered questions. How much energy is 
it going to take to heat up the shale to take the kerogen out 
of the shale? How much water is it going to take to do all of 
that, just from your point of view?
    I would imagine you're familiar with the regulatory program 
we had in place with the research and development and leasing 
program. Is that an adequate program for us to move forward 
with the development of oil shale? Why don't I start, Mr. 
Verrastro, with you?
    Mr. Verrastro. Senator, I think you fit two of the pieces 
together. The climate change piece to me is the game changer.
    I'm going to get to oil shale in a second, but one of the 
things that happening now that you're going to see next spring. 
We've stopped the development of at least 30 coal-fired power 
plants that I'm aware of because of either uncertainty or 
increased cost or regulatory burdens. We can't scale up nuclear 
in time.
    Renewables have a great piece, but we have to solve the 
intermittency problem, the near term fix if demand stays high, 
is the compressors. We're going to go to gas. So while we have 
increased domestic production of gas we're going to use a lot 
more of it than we think we are and if the price goes up people 
are going to see in their electricity bill the increased price 
of gas just like we saw with oil.
    On the issue of shale, after I left the government I worked 
with Tosco before I went to Pennzoil. So I'm familiar with 
shale in Colorado. There's a couple of different kinds of 
shale. Technology has certainly moved.
    The big difference between the Green River Basin and the 
Bakken, for example, is that with horizontal technology now you 
can actually go in, if the rock is permeable and porous and 
push the oil through and produce it as liquid conventional 
fuel. In Colorado if you have to mine it and re-tort it. There 
are other problems but technology is moving and actually Shell 
has a project where they actually heat the subsurface for 
several years. They heat it up so that you can move it in a 
liquid state.
    I think the technology funding has to go forward, but it is 
a question of priorities and timing. So as we go forward this 
whole climate change debate has to be rolled into the security 
debate.
    Senator Salazar. Any other comments? Let me just thank all 
of you. Senator Akaka, it's your turn for questions, also your 
turn for chairing the Senate.
    Senator Akaka [presiding]. Thank you very much, Senator 
Salazar. Let me say thank you to the panel, an elite group of 
experts in energy. Many of my questions have been answered.
    Just one that has been on my mind, I'm looking for the best 
way, and this has to do with policy. The best way to 
incorporate carbon reduction policies into a national energy 
policy to ensure consistency and we haven't been consistent. 
There's no question about that. You reveal that. But my 
question, what is the best way to do that, to incorporate 
carbon reduction policies with our energy independence and cost 
and reliability objectives?
    Mr. Deutch. I think the single most important thing we 
could do is to set a significant charge for carbon emission 
from all fossil fuel uses, in transportation, electricity and 
elsewhere. There are two ways of doing that, the cap and trade 
system or a carbon charge directly. I would be happy with 
either one.
    I think that's a question about which goes down better. I 
think there are reasons to prefer a direct carbon charge with 
recycling of that money to the economy. But that is the single 
most important thing we could do. Incidentally, it would permit 
you to get rid of a lot of other regulations because once you 
have a carbon charge, you add some of these offer incentives 
we've reached, more would be redundant.
    Mr. Reicher. Senator, I would add just from a 
jurisdictional standpoint one of the challenges you face is the 
Department of Public Works has authority over that kind of 
regulation. Senate energy deals on the energy side of this 
equation. I think we've really got to take a more integrated 
approach to how we're going to deal with these, this mix of 
energy, environmental and economic and security problems that 
you've heard from the panel. Setting the price on carbon is not 
going to be adequate.
    These energy fixes we're talking about are not going to be 
adequate in and among themselves. We need to do both. From a 
political standpoint these need to be integrated analytically 
and beyond.
    Senator Akaka. Thank you.
    Senator Landrieu.
    Senator Landrieu. Thank you all very much. I want to really 
again just say how pleased I am with the outcome of the summit. 
I was one of the ones that encouraged the summit to take place.
    As a member of a group that has been working for the last 
several months. Our group has grown from an initial 10 to now 
20 with Senator Conrad and Senator Chambliss who have given 
extraordinary leadership to this group. We have many more 
Senators very interested in our comprehensive approach.
    Let me ask the question. Senator Whitehouse was a very 
experienced prosecutor, deftly crafted his question to get a 
non-answer from you all. But let me try to ask it this way.
    Again, you stated this, I believe several times, but I did 
hear you say that more domestic production is essential to this 
challenge before us. Is that correct or not correct?
    Mr. Yergin. Senator, let me first say that down here at 
this corner of the table we have the strong sense that we 
haven't quite come to grips with that question. Now you 
explained why we couldn't do it.
    Senator Landrieu. He is very crafty.
    [Laughter.]
    Mr. Yergin. We're sort of saying what happened here. How 
could we miss that?
    I don't want to speak for everybody, but my sense is that 
we're all saying that it goes back to either/or that domestic 
production is certainly part of the picture. If we look at the 
U.S. energy balance, I mean where else? I mean we're going to 
have alternatives, renewables. They're small, but growing, 
great potential for technological change, big conservation has 
a lot to offer.
    Then there's conventional energy which is where most of our 
energy comes from.
    Senator Landrieu. Mr. Reicher, let me ask you. A group of 
Democrats, and I am one of them, but there's a group to the 
left, way to the left that really appreciates your focus on 
this. So I want to ask you this question. Do you believe that 
more domestic production is a part of this equation?
    Mr. Reicher. We clearly are getting most our energy today 
from traditional sources. I expect we will be, that will be the 
case for some number of years into the future. So do we need to 
be producing more natural gas in a responsible way, 
domestically? Yes, I think that is something we need to be 
doing.
    Senator Landrieu. Do you think we have to produce more oil 
domestically at least for the next 5 or 10 years?
    Mr. Reicher. I think you know we have a limited domestic 
supply of reasonably attainable, economically obtainable oil. 
So I just think the risk we run here is that if we overstate 
what we can do domestically in terms of our oil supply. What 
results from that is we take our attention away from real 
options that I think we've all stressed which is what can you 
do with efficiency on the front end to lower demand.
    What can you do in terms of vehicle technologies?
    Senator Landrieu. Professor Deutch. Go ahead.
    Mr. Reicher. Let me just add one more thing.
    I do think that there are base load renewable resources. I 
mentioned geothermal being one of the major ones. I think 
biofuels offer a significant opportunity. So I just want to be 
sure that as we push for more domestic oil production let's be 
realistic about what we really can increase. Let's make sure 
that we don't in the process take our eyes off some of these, 
probably more significant, opportunities we have.
    Senator Landrieu. I think you heard from the group of us 
that that is what we're trying to accomplish, is a balance 
between pushing for more domestic reserves of oil and gas as we 
push for these other efficiencies that you have so eloquently 
spoken about.
    But Professor Deutch, would you please comment on this 
limited domestic endowment issue. Because I really take issue 
with the charge that we hear around here that there's just not 
enough oil and gas anywhere to do any good. I point to the Gulf 
of Mexico, which I'm familiar as you might imagine representing 
the State of Louisiana, that in 1982 the estimates from MMS 
were that there were like 3 billion barrels of recoverable oil 
in the Gulf. We've been drilling for 20 years since and today 
that estimate has now gone up to 30 billion barrels of 
recoverable oil.
    So would one of you or any of you comment on is it true or 
have I been mislead that technology is enabling us to find more 
domestic sources than we thought we had before of both oil and 
gas?
    Mr. Deutch. Senator, I think it's clear that over time 
we've been using up our conventional oil and gas in the lower 
48 and the Gulf and even in Alaska. As we use up the 
conventional oil and gas low cost production, we have to go to 
higher cost methods to either find new oil or get more oil in 
place out. So the trend, there's obviously more oil and more 
gas reserves in the United States and off its coasts, so you 
have plenty of oil there to pay the cost of getting it done.
    But I want to underline that doing something to increase 
U.S. production of natural gas and oil is an integral part of a 
comprehensive approach to our energy future. You cannot do it 
by growing it or walking around it. Especially it is impossible 
to go to countries in the Persian Gulf and say you must 
increase your production if they don't see the United States 
making some effort to keep up its production.
    So I want to be clear that something has to be done to 
improve our production of oil and gas in the United States.
    Senator Landrieu. Dr. Yergin.
    Mr. Yergin. Yes. I think the point that we're asking other 
people to increase their production. Frank mentioned the 
numbers in the growth in world demand. But we don't necessarily 
want to be part of it.
    I think when you look at the history of it, you see there's 
always this pessimism and technology changes. It changes on the 
alternatives and renewables, but also changes in terms of the 
production of oil and gas. Discoveries are made and then it 
turns out the ultimate recoverable reserves are much greater 
because you learn more about the field.
    So that the kind of estimates that are there now for other 
off shore areas are very preliminary. I think the other thing 
that gets lost in the discussion goes back to something very 
important Frank has said. If coal becomes more limited, nuclear 
doesn't happen with the speed that people might anticipate, 
that means we're basically going to burn more natural gas and 
electric generation. That's the course we're on.
    When you explore off shore, you're not only exploring, as 
you know, for oil, you're also exploring for natural gas. So 
you're also exploring for keeping the lights on. So, you know, 
it's not only what we're going to put in our cars, but it's 
also the electricity side of it. I think that often gets lost 
in the discussion. That's going to be very important issue.
    Frank mentioned what we might be looking at in terms of 
electricity.
    Senator Landrieu. Thank you. As a pro-drilling Democrat I 
couldn't think of a more positive note to end on. Thank you 
very much.
    Senator Akaka. Let me thank the panel very much for your 
valuable responses and your contribution today. Thank you. This 
panel is concluded.
    [RECESS].
    The Chairman [presiding]. Ok, thank you all for coming back 
together here. This is the second panel on our energy summit. 
We'll try to have the same format here and ask our speakers to 
summarize the main points they think we need to try and 
understand in 3 to 5 minutes each. Then that will give us a 
chance for questions by Senators.
    I hope we have a group of Senators who are still planning 
to arrive here. As I think we're all aware, as the Friday 
afternoon progresses it gets a little harder. We have a very 
distinguished group of folks to testify on this second panel.
    Mr. John Krenicki, who is the Vice Chairman, President and 
CEO of General Electric Energy Infrastructure.
    John Rowe is the Chairman and CEO of Exelon Corporation.
    James Roberts is the CEO of Foundation Coal Corporation.
    Douglas Steenland is the President and CEO of Northwest 
Airlines.
    Mr. Gary Cohn is the Vice President, Managing Director and 
Chief Operating Officer of Goldman Sachs. Thank you very much 
for being here.
    Rick Wagoner is the chairman and the CEO of General Motors 
Corporation. We very much appreciate you being here.
    Let me just, before calling on the witnesses to make their 
statements, let me see if Senator Domenici had a statement he 
wanted to make.
    Senator Domenici. Mr. Chairman, I do not other than to say 
thanks to the witnesses. We've been asked to hold this event, 
you and I, by our leadership. What a response we've received 
when people like these take of their time.
    I hope some Senators come to share with us the opportunity 
we have to talk to those who are in the trenches in a real 
sense and a big part of the energy policy and energy problems 
that confront our country. I thank you for presiding. I'll be 
here for as long as I possibly can.
    Hope that the witnesses know that we will consider what 
they say and what they share with us that's particular to their 
businesses. We clearly understand that that's appropriate and 
that's why you're here, to share what you think that you know 
about this energy crisis based on your reputations and your 
work. We thank you for that.
    Thank you, Senator Bingaman.
    The Chairman. Thank you very much. Let me just say at the 
outset that all of the written statements that have been 
developed here will be included in the record in their 
entirety. So Mr. Krenicki, why don't you go ahead and start. 
We'll just go across the panel.

 STATEMENT OF JOHN KRENICKI, VICE CHAIRMAN, PRESIDENT AND CEO, 
      GENERAL ELECTRIC ENERGY INFRASTRUCTURE, ATLANTA, GA

    Mr. Krenicki. Ok. Thank you, Mr. Chairman. I'm John 
Krenicki. I run the energy businesses for General Electric. I 
appreciate the opportunity to participate in today's energy 
summit and would like to commend you and Senator Domenici for 
your leadership in attempting to forge a bipartisan response to 
our current energy challenges.
    GE's energy businesses offer a diverse portfolio of 
products and services in the area of fossil power generation, 
gasification, nuclear, oil and gas, water, transmission 
distribution, smart metering and renewable energy technologies 
such as wind, solar and biomass. I know policies for all of 
these technologies are of interest to you and your committee. 
But today I would like to focus on just one in my opening 
comments, the production tax credit for renewable energy.
    By the time the gavel falls on the 110th Congress the world 
will know the answer to a very important question, will 
Congress and the U.S. Government be a reliable partner in the 
quest for a cleaner, more secure, energy future or not? Since 
entering the wind industry in 2002, GE has invested over $700 
million in technology, increased wind turbine production six 
fold and tripled our U.S. wind turbine assembly sites. We've 
expanded capacity from 10 wind turbines per week to over 13 per 
day. We have grown renewable energy jobs at GE to more than 
2,500.
    GE has also tripled the number of its suppliers in the wind 
industry. Who now cover 15 States and account for an additional 
2,500 jobs. Last year we announced that two blade manufacturing 
companies will build brand new facilities in Aberdeen, South 
Dakota and Newton, Iowa to supply GE wind turbines, adding an 
additional 1,250 jobs.
    The renewable energy tax credit is the foundation of this 
growth. In 2002 when we entered the U.S. market when energy 
added only about 1 percent of the new electric generating 
capacity installed that year. Last year, 34 percent of the new 
electrical generating capacity was wind.
    We're proud to have played an important role in one of the 
world's most successful renewable energy policies. Mr. 
Chairman, you and your colleagues should be very proud of that 
success. However, complacency and inaction bear consequences.
    According to a study last year, Navigant Consulting 
concluded that PTC expiration would place 76,000 jobs and more 
than $11 billion in clean energy investment at risk. There is a 
global dimension as well. The connection between a stable 
domestic policy and a vibrant export sector for renewables is 
exemplified by Germany, whose incentive system has earned it a 
reputation as the world's leading green power country.
    Wind power technology is the country's second leading 
export for Germany after automobiles. Yet this year the United 
States, thanks to the PTC, will surpass Germany in electricity 
generated from wind energy.
    How does the United States win by stumbling into an outcome 
that disrupts the sufficient deployment of clean energy? By 
extending the PTC you will reaffirm United States global 
leadership in the deployment of clean, carbon free, renewable 
energy and send a signal that Congress stands ready to join 
others in addressing the more complicated problem of climate 
change. We are ready to help.
    Thank you again for the opportunity to participate in 
today's summit. I look forward to your questions.
    The Chairman. Thank you very much.
    Mr. Rowe, please go right ahead. Thank you for being here.

 STATEMENT OF JOHN ROWE, CHAIRMAN AND CEO, EXELON CORPORATION, 
                          CHICAGO, IL

    Mr. Rowe. Thank you, Mr. Chairman and members of the 
Senate. I'm the Chairman of Exelon in Chicago. Through our 
retail utilities, ComEd and PECO, we serve over 12 million 
people which is the largest number of any electric company in 
the Nation.
    Our generation company has fossil, hydro, nuclear and 
renewable generation facilities. Indeed our nuclear fleet is 
the largest in the Nation and the third in the world. I have 
had the privilege of chairing or chairing in the past, the 
Nuclear Energy Institute, that is an electric institute in the 
bipartisan National Commission on Energy Policy. I commend to 
the members of this committee NSEP's reports on climate change 
in increasing our energy security.
    Our three priorities at Exelon are quite simple.
    First, we believe Congress must pass legislation that 
limits greenhouse gas emissions. We know that is what brings 
you all here.
    Second, and I apologize for a somewhat hackneyed phrase. We 
believe we need something akin to a Marshall Plan to jump start 
the whole array of low carbon energy resources.
    Third, we believe we need continued support of wholesale, 
competitive markets.
    I want to applaud you, Chairman Bingaman for your early 
leadership on carbon cap and trade systems and also for 
including cost containment provisions. I believe these 
components are necessary as Congress seeks to pass a bill that 
slows, stops and reduces greenhouse gas emissions while 
protecting the American economy. We need an economy wide bill 
with realistic targets and timetables and effective cost 
containment mechanism and rate protection for our customers by 
allocating allowances to regulated electricity delivery 
companies. Our industry needs prompt action or it will be ham 
strung in making the right investments.
    The reason I made the metaphor to the Marshall Plan is that 
nothing else will suffice. Changing from a carbon based economy 
to a low carbon economy is a very, very big deal. We obviously 
need every form of national commitment to energy efficiency 
possible.
    Our research confirms that in some ultimately unknown 
quantity but it's very substantial. Energy efficiency is our 
most cost effective approach to lowering our carbon intensity. 
We need a firm commitment to low and zero carbon and greenhouse 
gas emitting generation resources.
    That commitment should include an expanded loan guarantee 
program for nuclear and I thank Senator Domenici, especially 
for his work on this for a number of years. It also should 
include further support for carbon capture and sequestration. 
Here I would commend Chairman Boucher for his work in the 
House.
    I agree entirely with my colleagues from General Electric. 
We need a commitment to a production tax credit for renewables. 
One that lasts. The on again/off again PTC is untenable. 
Indeed, energy policy must be sustainable in this country if 
energy is to be sustainable.
    Finally, we need Congress' continued support of 
competitive, wholesale markets. The FERC has just completed a 
comprehensive re-examination of wholesale markets and has taken 
further steps to encourage energy efficiency and demand 
management.
    Those seeking to undo competitive markets would undo work 
that the Congress and this committee has done for 30 years. To 
change course at this time in the face of massive investment 
requirements would be a grave error. Recent work by the Brattle 
Group predicts that the electricity industry will need $1.5 
trillion in investment over the next two decades, plus the 
investment to address climate change.
    You simply can't do that efficiently without competition. 
Recent studies show that competitive markets have been the most 
friendly for wind generation development and also for inducing 
customers to respond to rising prices by adjusting their 
electricity demand.
    Mr. Chairman, members of the Commission, we thank you for 
your attention. We urge early action on all three of these 
fronts. Meanwhile, we at Exelon have put together a plan to 
reduce, offset or displace our carbon footprint by 2020. We are 
hard at work on it and we'll try to do our part.
    Thank you very much.
    The Chairman. Thank you very much.
    Mr. Roberts.

STATEMENT OF JAMES ROBERTS, CHIEF EXECUTIVE OFFICER, FOUNDATION 
            COAL CORPORATION, LINTHICUM HEIGHTS, MD

    Mr. Roberts. Good afternoon. My name is Jim Roberts. I am 
the Chairman and CEO of Foundation Coal Corporation, one of our 
Nation's leading coal producers.
    I am also the Chair of the National Mining Association, the 
National Trade Association and voice of the U.S. Mining 
Industry. I thank you for the opportunity to appear today and 
participate in the summit on behalf of both Foundation Coal and 
the NMA.
    There are three main messages or points I would like to 
leave you with today.
    The first is quite simple. Coal is not merely important to 
the United States and the world, it is indispensable. Coal is a 
prime source of energy throughout the world including here in 
the United States where it generates more than 50 percent of 
our Nation's electricity. We cannot maintain U.S. electric 
reliability and energy security without coal nor can we 
realistically expect the increased use of coal elsewhere in the 
world to stop or reverse course.
    My second point is in the response to those who would argue 
that increasing the use of coal in addressing climate change 
concerns are irreconcilable objectives. What is irreconcilable 
is trying to address climate change without supporting, full 
boar, the development and deployment of advanced clean coal 
technologies including, most importantly, carbon capture and 
storage, otherwise known as CCS. Between 1990 and 2030 global 
CO2 emission are projected to increase by 
approximately 99 percent.
    If the United States and every OECD nation stopped using 
coal altogether the projected increase in CO2 
emissions would still be 75 percent. In other words we could 
tear down every coal plant in the United States, in the entire 
industrialized world tomorrow without seriously addressing 
climate change concerns. To be clear, Foundation Coal and the 
National Mining Association support the timely adoption of 
comprehensive Federal climate legislation.
    The current state of indecision on climate change is 
holding us back as a Nation from doing the things we need to do 
today to meet our current and future energy needs. But taking 
coal from our energy mix is not an answer. Today's energy 
crisis is about cost or price, principally the price of 
gasoline. If we don't begin to act soon, tomorrow's energy 
prices, as it relates to electricity will not just be about 
price, but about supply as well.
    It's one thing to pay a high price for energy. It's another 
not to have it there at any price. All one need do is read the 
2007 long term reliability assessment from NERC to see the 
handwriting on the wall as to the coming crisis in electricity. 
The question or challenge before us is how do we keep using 
coal to meet our energy needs but reduce CO2 
emissions? The answer is carbon capture and storage.
    This leads me to my third point that the United States, 
namely the Federal Government must do much more to support and 
accelerate development and deployment of CCS. Over the past 10 
years the Federal Government has spent approximately $3.5 
billion on clean coal R and D and demonstration projects. In 
the context of the challenge we face this is wholly inadequate. 
There's no greater example of Federal efforts falling short in 
this arena than the Department of Energy's incomprehensible 
decision to withdraw support from the FutureGen Project in 
Mattoon, Illinois.
    We walk a fine line in attempting to deal with the energy 
climate equation. We need to push technology as hard and as 
fast as we can. Yet we cannot afford to get ahead of 
technology. Carbon mandates are restrictions that are not in 
sync with technology development, threatens great harm to our 
economy and the well being of our citizens and in turn public 
support of our efforts to address climate change concerns.
    Let me speak to those who express support for carbon 
capture and storage and other advanced clean coal technologies 
but who suggest that we should not build any new coal fired 
generating capacity in this country until CCS is fully 
deployable. There are two very serious problems with this 
thinking.
    One, by depriving us of much needed electricity generating 
capacity in the near term that threatens to drive us closer to 
the crisis in electricity supply of which NERC has warned.
    Two, the moratorium on new coal fire capacity that does not 
include full scale CCS deployment will stop CCS development 
dead in its tracks.
    It is important to understand no one will ever build an 
IGCC plant with CCS if we don't first build several IGCC plants 
without it. Likewise, we can't expect anyone to build a plant 
with a 65 percent carbon capture if we don't first build plants 
with 20 percent capture. As with any kind of technological 
advance we have to walk before we can run.
    Michael Phelps would not have won eight gold medals in 
Beijing, if years ago he would not have been allowed in the 
pool until he was able to set a new world record. We have to 
start somewhere. We need to push advanced clean coal 
technologies including CCS as rapidly and as hard as we can. 
But we cannot afford to ban all new coal plants prior to those 
technologies being commercially ready.
    To do so would threaten our economy and our energy security 
and would have the devastating impact from a climate 
perspective of squashing the very technology, CCS, that is 
absolutely central and an essential element of any realistic 
climate plan. We need to put the pedal to the metal on clean 
coal and CCS, not slam on the breaks on anything short of 
perfect. Otherwise we will solve neither the energy nor the 
climate challenges ahead of us.
    I thank you for the opportunity to appear today. I look 
forward to your questions.
    The Chairman. Thank you very much.
    Mr. Steenland, go right ahead.

 STATEMENT OF DOUGLAS STEENLAND, PRESIDENT AND CEO, NORTHWEST 
                   AIRLINES, MINNEAPOLIS, MN

    Mr. Steenland. Thank you, Mr. Chairman. Thank you, Senators 
for the opportunity to appear today. I appear today in my 
capacity as Chairman of the Board of Directors of the Air 
Transport Association and as the CEO of Northwest Airlines.
    I'd like to make the following points.
    First, a strong U.S. airline industry is essential to the 
strength and growth of the U.S. economy. High oil prices are 
challenging our ability to meet the needs of our passengers and 
the communities we serve across the country. In today's 
environment, airlines are pure price takers. We have no choice 
but to purchase fuel irrespective of the price.
    In addition to the historically high prices we face, we 
also have been faced recently with very significant price 
volatility which is making business planning extremely 
difficult. Fuel is now 40 to 50 percent of total operating 
costs of U.S. airlines. From June 2007 to July 2008, oil went 
from $67 a barrel to $147 a barrel, a 119 percent increase.
    That $80 increase has added over $34 billion to the U.S. 
airlines 2008 fuel bill. Unstable, unpredictable, high oil 
prices have led to airline fare increases and significant 
service reductions. To help address that we advocate for a 
multi-faceted energy policy which includes the following.
    First, expand domestic supplies by environmentally 
responsible drilling. Today we import nearly 5.5 billion 
barrels of oil a year at more than a $600 billion cost to the 
U.S. Looking to increase supplies, including lifting the ban on 
OCS drilling will help reduce oil prices and boost U.S. and 
local economies.
    We believe this can be accomplished safely from an 
environmental standpoint. As our own actions demonstrate we are 
also very strong advocates of conservation and technology. 
Unfortunately today, we cannot partake, as I said before, of 
alternative fuels.
    In addition to addressing critical supply issues, we also 
want to address what we believe is excessive speculation in 
energy markets. In the opinions of many the high volume of 
paper future investments in contracts have helped accelerate 
the run up in oil prices. From 2003 to July 2008, commodity 
index investments grew from 13 billion to over 300 billion and 
commodity prices tripled in that time.
    Changes in supply and demand fundamentals and the strength 
of the devaluation of the dollar while contributors cannot 
alone account for the massive oil spike we have witnessed. We 
believe that the amount of financial trading that has come in 
has clearly facilitated those price increases. We're not alone 
in that view.
    Experts around the world have also acknowledged this 
linkage. Whether it's the United States Conference on Trade and 
Development, reports that have come out of MIT, Lehman Brothers 
and Citibank, a report earlier this week introduced by any 
number of Senators and where actions by the government of 
Japan, the European Central Bank and OPEC leaders have also 
acknowledged this linkage. We suggest that the mere threat of 
legislation to curb excessive speculation has contributed to 
the bursting of the oil bubble that we have seen recently where 
over the last several weeks oil has gone from $147 a barrel to 
$100 a barrel yesterday. While this relief is important, we 
hope that permanent legislation will be enacted to help 
facilitate this.
    Most of all we need transparent, well regulated markets to 
prevent excessive speculation from returning. To ensure that 
regulators can----
    Senator Domenici. Could you hold a minute, sir?
    Mr. Steenland. Sure.
    Senator Domenici. Senator Bingaman, could we have him go 
back about two sentences or three in his testimony? I missed 
something in there.
    The Chairman. Yes. Is it possible to just repeat the last 
few sentences of your testimony there so Senator Domenici 
could?
    Mr. Steenland. Sure. I would be glad to.
    The Chairman. Thank you.
    Mr. Steenland. Recently the oil market's prices have gone 
from $147 a barrel to $100 a barrel over the course of the last 
several weeks. We believe a contributor to that reduction has 
been the introduction and the prospect of legislation to 
address financial speculation in the commodity markets. We need 
transparent, well regulated markets to prevent excessive 
speculation to ensure that regulators can detect and address 
concerns that could lead to a big run up in prices and to 
reduce volatility caused by big swings and speculative 
activity.
    We urge the Congress to reach a comprehensive, bipartisan 
approach to energy legislation before this session ends this 
September. Thank you very much.
    The Chairman. Yes, Mr. Cohn, go right ahead.

  STATEMENT OF GARY COHN, CO-PRESIDENT, MANAGING DIRECTOR AND 
                COO, GOLDMAN SACHS, NEW YORK, NY

    Mr. Cohn. Mr. Chairman, Senators, thank you. Good 
afternoon. I'm Gary Cohn, President and Co-Chief Operating 
Officer of Goldman Sachs.
    Thank you, Senators Bingaman and Domenici for allowing me 
to participate and share Goldman Sachs' perspective. There are 
few topics more important than the subject of this hearing. 
Finding a solution to achieve a more secure, reliable, 
sustainable, affordable energy future for American people is 
very important. Goldman Sachs is a global investment bank and 
securities firm with more than 30,000 people worldwide. Our 
people are involved in numerous aspects of the energy markets.
    As an active participant in the energy sector, our strategy 
is to act as an advisor, a financier, a principal and a manager 
of risk on behalf of our clients while operating at the center 
of global, financial markets. We work as an advisor to numerous 
leading energy companies worldwide.
    As a financier for global energy projects and companies we 
have helped to raise over $400 billion in the last 5 years.
    As a co-investor in a diversified portfolio of energy 
companies, we have invested more than $8 billion in companies 
globally that employ more than 100,000 people worldwide.
    As a manager of risk, on behalf of our clients, we have 
facilitated approximately $220 billion in hedges across a 
variety of industries and products from companies in the 
transportation, oil and gas, power, metals and agricultural 
industries.
    Neither private capital alone, nor government policy is 
enough to incentivize the development of the advanced energy 
technologies our country needs. We must work together to bring 
balanced solutions. Otherwise high energy prices will be the 
only catalyst the market will respond to in order to invest in 
the modern energy economy.
    Such solutions should also address the importance and the 
pressing challenges of protecting our environment and 
addressing climate change. Over the past decade, Goldman Sachs 
has invested heavily in the development of clean energy 
technologies including wind, solar, geothermal, biofuels and 
clean coal. We also have an environmental policy framework in 
place that requires our firm to take into consideration the 
impact of all our investment decisions may have on the 
environment.
    Again, I commend you for convening this forum. Thank you 
for allowing me to share Goldman Sachs' perspective.
    The Chairman. Thank you very much.
    Mr. Wagoner, we're glad to have you here. Please go right 
ahead.

STATEMENT OF RICHARD WAGONER, CHAIRMAN AND CEO, GENERAL MOTORS, 
                          DETROIT, MI

    Mr. Wagoner. Thank you very much, Mr. Chairman. Pleasure to 
be with you today. I really appreciate the opportunity to speak 
on such an important topic.
    Last year Congress passed an energy bill that focused 
primarily on promoting energy conservation. Among the 
provisions in that bill was a dramatic 40 percent increase in 
fuel economy requirements for cars and light trucks. General 
Motors and our competitors are hard at work making sure that we 
can achieve this objective which requires a huge commitment of 
research and development, engineering and capital spending and 
access to capital to fund those investments.
    We believe last year's energy bill has laid the ground work 
for a comprehensive and forward looking U.S. energy policy, one 
that addresses both energy demand and energy supply. Speaking 
for GM, we think it's time for the U.S. to take control of our 
energy future. As a Nation we have the capability to do this 
and faster than most people think.
    It will require a massive investment in new technologies. 
It will require a commitment from all sectors of the U.S. 
economy, a partnership among government, industry, academia and 
the American public. It will require a constancy of purpose, a 
long term national commitment to improving our energy security 
despite the inevitable short term swings in the price of oil.
    Most importantly it will require leadership, direction and 
vision from our government. In this regard I want to commend 
the work that the bipartisan gang of 10 is doing. This 
comprehensive approach of this group to promote new energy 
supplies and encourage the development of and purchase of 
advanced technology vehicles is laudable. Many of the 
provisions being developed by this group should be included in 
the next energy bill.
    Looking specifically at the automotive sector, our industry 
has a real opportunity to move away from our traditional, 
almost complete reliance on oil as the source of energy that 
powers our vehicles. In particular we see tremendous 
opportunities to develop and promote the use of biofuels, 
batteries and hydrogen fuel cells. To achieve the improvements 
that are possible in the transportation sector, it's important 
that we have a clear consensus on what's required to bring 
these new technologies to market in volume.
    We as automakers need to take the lead by developing the 
technologies and then driving their cost down so consumers can 
afford them. But there are other important roles that need to 
be played as well. In short, we need a clear, long term policy, 
consistency of direction, alignment of regulation and a strong 
commitment from all sectors of American society to develop and 
implement the technologies that will allow us to achieve our 
mutual goals.
    Thank you and I look forward to your questions.
    The Chairman. Thank you all for your excellent testimony. 
Let me start and ask a question or two and then call on Senator 
Domenici.
    Let me ask you, Mr. Wagoner. One of the issues that 
obviously we're struggling with here this week and the next 
couple weeks in Congress is the issue of additional government 
loan guarantees or loans for the auto industry. Could you 
describe your thoughts? We passed a bill that was signed into 
law by the President that made provision for loans to retool 
the auto industry.
    What more do you think is appropriate or essential and what 
would be the benefit of Congress doing more in this area as you 
see it?
    Mr. Wagoner. Yes, sir, Mr. Chairman. I think what we need 
to do next is enable those loans which were authorized under 
the Energy Security Act last year, 25 billion direct loans for 
suppliers and auto makers of all varieties. We need to provide 
the appropriation to enable those authorized loans to be 
extended. We need to very quickly draft the regulations to 
allow the loans to be extended. We need to make sure that the 
regulations under which they're extended are reasonable and 
consistent with the objective of the Energy Act.
    If that is done, then I think the $25 billion included in 
the Energy bill last year would be a very helpful in enabling 
the industry to move more rapidly. Particularly in the context 
that since the bill was passed last year, the capital market 
conditions have worsened significantly. So the availability of 
credit is much tighter for companies of all shapes and sizes 
whether they be the smallest supplier or the largest OEM.
    Obviously the conditions in the U.S. economy and the U.S. 
market have weakened dramatically. So the ability to fund these 
investments from our normal cash-flow from our business is 
significantly retarded. So I think, particularly right now, if 
Congress could move rapidly to enable the loans that were 
approved to be funded and dispersed.
    Again only against projects which bring significant 
improvements in fuel economy. That would be a tremendous help 
to the auto sector.
    The Chairman. Let me just be sure I understand. Your 
thought is that the authorizing language that we included in 
last year's bill was the appropriate language to put in. You're 
saying we now need to fund the provisions that were previously 
enacted. Is that right?
    Mr. Wagoner. What I'm saying is we think the amount 25 
billion is a very good amount to ensure that we can stay on the 
path that we've been on. Regulations do need to be written. 
Funding needs to be authorized.
    I would say the specific terms that were included last year 
are not comprehensive enough from our perspective. So we would 
like to suggest some amplification of those terms. I think very 
much in the spirit of the initial terms that were suggested. 
But I would say somewhat amplified.
    The Chairman. Could you be a little more specific as to 
what you mean there by amplifying the terms?
    Mr. Wagoner. Right.
    The Chairman. What are the problems that you see with the 
language that we enacted last year?
    Mr. Wagoner. The language enacted last year basically 
allows investments for products that improve fuel economy in a 
single step by 25 percent. The language we would like to see 
expanded would be to provide funding for projects which are 
consistent with the commitments in fuel economy. Actually 25 
and then at 40 percent which we've agreed to, but don't require 
every single project to cover a full 25 percent.
    Let me give you a specific example. It will be very 
expensive for us to apply our hybrid system, our General Motors 
hybrid system across a broad range of vehicles. Generally this 
hybrid system that we think has the broadest consumer appeal 
because it's lower cost will not by itself, in one step, get a 
25 percent fuel economy.
    So basically dramatically expanding this kind of hybrid 
system would not be eligible for funding under the rule as it's 
initially written. I understand from our competitors, many of 
the projects they would undertake, which would enact 
significant improvements in fuel economy, 10, 15, 20 percent, 
would not be eligible for this funding support.
    The Chairman. So you----
    Mr. Wagoner. So what we're talking about is trying to offer 
language which would, I think, be consistent with the spirit of 
the law, but enable projects that don't each individually get 
25 percent or more improvement recovered.
    The Chairman. Thank you very much.
    Senator Domenici.
    Senator Domenici. Mr. Chairman, let me say I don't think 
that I have enough time to ask each of you the questions that I 
would like to ask. You have raised some very interesting 
points, each one of you. You could be of more help than I'm 
going to be able to solicit in my questions. But I'm going to 
try a couple.
    Let me just start with you, Mr. Rowe. First I want to 
complement you and your company for your far sightedness. 
You're a big holder of nuclear power plants as part of your 
delivery system. That has proved to be very wise looking at the 
market.
    You also are confident about the future in that you have 
put your company in a position where you would like to get 
licenses from the Nuclear Regulatory Commission to add to your 
fleet by building new power plants that are nuclear. Is that 
not correct?
    Mr. Rowe. That is, sir.
    Senator Domenici. I don't intend to treat you as if you're 
the one down there doing the applying. I know you're the head 
man at the top. But I think you know that the answer to these 
questions.
    Today we have a much more modern way to file the 
applications than we did the last time they were filed. We used 
a disc, a little computer disc, that is the entire application. 
As before, we used to have a pick up truck full of those things 
that we were sending over to the Nuclear Regulatory Commission.
    I guess that kind of surprised you when this process was 
taking place and you were spending your few millions of dollars 
to get the license work ready. Is that not true?
    Mr. Rowe. The new processes at the Commission are in fact, 
very helpful. What is most helpful of all that they do is the 
approval of construction and operation being one basic 
proceeding. So you don't run the risk of re-litigating the same 
issues when you start and when you end.
    Senator Domenici. I want to ask you, it's a matter of 
record that I don't expect you to know the answer. But we have 
been told unequivocally over and over by the Regulatory 
Commission, whom I personally have great confidence in. I think 
it's a fabulous commission for a difficult time in our history.
    But we've been told that the first applications, there's no 
way to get around it, are going to take 42 months from the day 
they file it to completion. I would ask if you and your 
experts, without offending the Nuclear Regulatory Commission, 
don't worry about that. If you would tell us where there are 
places that we might save time, even if they are not general.
    Maybe you save time only if certain conditions are met. 
There are a lot of power plants now that are applied that don't 
seem to have the opposition that we had 25 years ago. It might 
be that we could do some of this quicker. I would like to just 
pose that to you, not for now, but would you tell our committee 
that you will do that for us in due course?
    Mr. Rowe. I would be happy to get you and the chairman and 
the members of the committee the best letter I can on that.
    Personally I believe that the best thing the industry can 
do to help the Commission in this is to submit the most 
standardized designs possible. The best thing the Congress can 
do to help the Commission is remind them how badly we need 
nuclear energy in a low carbon economy.
    Senator Domenici. Now let me move over to GE. I'm fully 
aware of what you do. I've had an opportunity to meet you 
before. You have a very wide portfolio under your particular 
hierarchy of your company.
    But I might just ask you're also in the nuclear power 
business. Everybody should know that it isn't a non-competitive 
business even though we have not been in it for a while there's 
some powerful competitors from Arriva out of France to English 
companies to a lot of them, Japan with Toshiba. Let me ask, how 
are you, how is GE doing? Are you up front big competitors? How 
many plants do you--have you applied for that have GE power 
plants in them?
    Mr. Krenicki. We are very committed to nuclear power. My 
opening comments were centered around wind. But we're equally 
committed to nuclear power.
    We've been in this business for over 50 years. We're 
working with the NRC and many of our customers on licensing the 
next generation of design. Roughly one-third of the world's 
nuclear plants are operated on GE technology.
    So we are very committed. But we're going to need to see 
more demand in the United States. Today roughly there's about 
104 reactors in the United States.
    The United States is a leader in nuclear energy. We've done 
it before we can do it again. But I agree. As you look at a low 
carbon future, nuclear has to be part of the solution. It's a 
part of the GE strategy to aggressively invest in nuclear 
energy.
    Senator Domenici. Mr. Chairman, I have only one last 
question. I would like to ask Mr. Roberts this question with 
reference to the military. The U.S. military is working with 
various developers of liquids from coal to use as 
transportation fuel for the military.
    I would just like to ask you how important that activity is 
to the future of coal and how can it serve the country in your 
opinion?
    Mr. Roberts. I think the first thing I'd like to point out 
about coal to liquids, Senator, is that it's not a research and 
development process. It's been around at least since the 1930s.
    Senator Domenici. Correct.
    Mr. Roberts. If anybody has ever flown from South Africa, 
Johannesburg, the plane that you have taken off in was probably 
fueled by a combination of aviation fuel from traditional 
sources as well as aviation fuel produced from coal to liquids. 
So it's already here. It's a process that we have.
    We look at coal to liquids in the coal industry as an 
additional source of a domestic supply of energy that we have 
here at home. Coal makes up 90 percent of all the energy, 
fossil fuel energies that the United States has. It makes up 
for 64 percent of all the world's energy.
    The coal to liquids, the fuel that's made from coal to 
liquids is cleaner than aviation fuel or diesel fuel that's 
made from petroleum products. It's made from a source that's 
domestic. It improves our energy security. It has the potential 
of creating thousands and thousands of jobs here at home.
    So it's very important not only to the coal industry. We 
believe it's important to the national energy.
    Senator Domenici. Let me just be very specific. I should 
have been. Section 526 is kind of commonly known now in your 
industry as the section of law that has passed that makes it 
very difficult to import Canadian fuel because of the 
requirement that it match up against a certain criteria that is 
hard to achieve. Are you aware of that problem are you not?
    Mr. Roberts. I'm not specifically aware of the exact 
restrictions there, Senator.
    Senator Domenici. Alright. I guess I'll ask somebody else 
about section 526. I think it's very important to the coal 
business. We're trying to solve problem that exists.
    Mr. Chairman, I'm going to yield back now. I thank you for 
the time.
    The Chairman. Alright. Thank you very much. Senator Nelson?
    Senator Bill Nelson. Thank you, Mr. Chairman. Gentlemen, 
thank you for what you do and how you contribute to our 
country.
    Mr. Steenland, I wanted to underscore on behalf of Senator 
Levin and me, a very important part of your testimony. You're 
the CEO of Northwest Airlines. You said when a bunch of us had 
filed speculation, anti-oil, future contract, speculation 
bills. And you said that in your testimony was a major 
contributing factor to the drop of oil from $147 to $100.
    Is that a correct characterization of your testimony? If 
so, how much as a result of filing those bills did Northwest 
save?
    Mr. Steenland. Senator, that was our testimony. I think 
it's very difficult to portion how much is due to the potential 
of additional regulation and lawmaking on the financial side of 
speculation verses strengthening of the dollar, weaknesses in 
global economies. But when you look at over the span of 
literally, 8 weeks, when oil goes from $147 to $100 and there's 
no other demonstrable, external change that can explain it.
    Clearly a contributing factor, in our judgment, had to 
believe the leadership that you, Senator Levin and others 
provided on this issue. To just give you a sense of the 
magnitude, for us, every dollar of change in crude oil is $42 
million of annual costs. So that $40 reduction was $1.6 billion 
in savings that we would have realized on an annual basis.
    So that is meaningful, significant and it's clearly going 
to help us avoid further reductions, look to minimize further 
increases in fares. We would encourage that the threat of 
legislation become the reality of law to try to provide 
additional reporting, additional transparency, the opportunity 
for the CFTC to impose position limits when appropriate and to 
be in a position to do that across the board.
    Senator Bill Nelson. I hope so. Senator Levin, indeed, has 
been a leader in this for a number of years.
    Mr. Wagoner, I wanted to ask you, first of all I want you 
to know that I learned to drive a pick up truck. I started 
driving, you could drive in Florida then at age 14. It was a 
General Motors product and ever since I've had either General 
Motors or Ford products.
    I preface that by asking you, I believe that you really 
need financial incentives to retool the industry. But what's 
going to happen is because of your financial condition, that's 
not going to be enough. You all are going to come to us with 
some kind of rescue package and ask us to rescue you.
    You're looking at somebody, when I was a young Congressman, 
I voted for the Chrysler bay lot. But I must admit it is hard 
for me to do that when each year that I've been in the Senate, 
you all, collectively Detroit, have posed us and beat us every 
year when we have tried to increase miles per gallon standards. 
So could you respond, please, as to why we should now come to 
the financial rescue?
    Mr. Wagoner. Thank you, Senator. Yes, to be clear what 
we're asking for is basically the fulfillment of what was 
included in the Energy Act that was passed last year.
    That Energy Act, as you know, included a significant 
increase, 40 percent.
    Senator Bill Nelson. That was the first time in the 8 years 
that I've been in the Senate that we were able to get that 
through. But every year Detroit opposed us. We couldn't get any 
miles per gallon entries.
    Mr. Wagoner. Senator, what I can tell you is that the 
increase that was approved last year as you recall was 
supported, I think, unanimously by the auto industry. As part 
of that significant re-tooling that would be required, the bill 
included direct loan provision of $25 billion. So what we're 
asking for is that that provisions for the loans now be funded 
and be enabled to support the manufacturers to invest in these 
new technologies.
    I'm not here today and I don't know of my colleagues from 
other auto companies either, asking for any bail outs. What 
we've said, very specifically, is the bill that we supported 
and you all approved, required a significant improvement of 
fuel economy which we agreed to. As part of that the loan 
program was included.
    Particularly given the fact that industry conditions have 
gotten, not auto, but general industry conditions and credit 
conditions have gotten so difficult, it would be very helpful 
if that funding could be approved.
    The Chairman. Senator Bond.
    Senator Bond. Thank you very much, Mr. Chairman. I 
apologize for having missed this morning's session. I had a 
number of meetings set up.
    I don't serve on Energy. I serve on Environment and Public 
Works and we have probably had a little too much activity in 
the energy field. I would join with Mr. Roberts in saying that 
the cancellation of FutureGen was incomprehensible. I said the 
same in much longer and more explicit letters to the Department 
of Energy and other relative bodies.
    But I also serve on the Intelligence Committee where I have 
to go right now to talk about the national security 
implications of energy. We are seeing, I think, a real threat 
that energy has become, possibly, a next weapon in competition, 
not always friendly competition, with other nations. But we are 
here today to talk about doing something, as Mr. Wagoner said, 
to take control of our energy future.
    Setting aside the national security implications, it is 
probably the most important thing I hear when I go back to 
people in Missouri. It doesn't matter whether you're a family, 
whether you're worrying about going to a job or taking your 
kids to work. Whether you're a farmer who's getting killed by 
high energy prices, workers who are seeing their jobs 
disappear. Airline travelers who find their services cutoff. 
I'm delighted we have representatives of airline and automotive 
industries today because you all are classic examples of why 
this is such a problem.
    I think all of us recognize that a little price decrease is 
not good enough. We need to lower gas prices. That's why, I 
personally, don't think a little off shore drilling is enough. 
We need to open up as much as we can. We don't need a little 
bit more, I think we need a lot more.
    I have some questions that primarily are for the first 
panel. But I would like a comment from anyone who will offer 
it. The Gang of 10 proposal, which is a good step forward, 
which still leaves 70 percent of the offshore areas on our 
Outer Continental Shelf closed to production will opening up, I 
think it's about 14 percent more of the Outer Continental Shelf 
make a difference in oil prices in the view of any of you?
    Mr. Cohn, maybe? You're in the financial area, maybe you 
could comment on that?
    Mr. Cohn. I would comment that any increase in supply will 
help the price of oil. Our fundamental belief is that we're in 
a supply/demand market and supply and demand basically set the 
price. Any time you can affect one of those two legs of the 
equation, you're going to help the equation out.
    So either increasing supply or conserving on demand is 
going to be a help.
    Senator Bond. We need to do all of them. But for example 
the House has come up with a plan that would only open up about 
3 percent of the 10 billion barrels of oil off our Pacific 
coast. I imagine for that small an increment, you're not going 
to get much ``bang for the buck.'' Is that fair?
    Mr. Steenland.
    Mr. Steenland. I think just echoing what Mr. Cohn said, the 
more the market perceives that additional supply is going to 
come online, I think the more favorably the market will 
respond. That will impact positively with respect to lower 
prices.
    Senator Bond. That's an economic question. I want to bounce 
back to Mr. Cohn. We're talking about speculation. Obviously 
speculators provide a useful role.
    From what I've seen the money in the market on long term 
energy futures are people investing for the long run, 
retirement funds, say predicting oil is going to go to $200 or 
$250. My question is how much did talking about dealing with 
speculation have an impact on the price or what kind of impact 
did lifting the executive moratorium on off shore drilling 
have?
    Mr. Cohn. Look, I think we're all happy that the price of 
oil has come down in recent days and recent months. That's a 
good thing for the economy. It's a good thing for the world 
economy. It's a good thing for everyone involved.
    The reality of the price coming down, I think, may be just 
a mere coincidence that the price of oil came down while there 
was discussion going on on curbing speculation in the United 
States. Remember the oil market is a global market. A barrel of 
oil is fungible anywhere in the world. It can be delivered 
anywhere in the world. People can trade oil anywhere in the 
world.
    I don't really ever believe in coincidences, but there 
seems to be a coincidence here between the talk and the 
economic picture that changed quite dramatically in the world. 
I think most of us are aware that we have gone through a fairly 
dramatic change in economic views and economic outlooks, not 
just here in the United States and Europe, but in Asia and the 
rest of the world. That has coincided with the decline in 
price.
    You know, an interesting fact that I would just throw out 
here. I know that you're all aware that the CFTC just finished 
a very rigorous study of the oil market. I think for the first 
time ever, we've all been able to see all of the data 
accumulated in one place, where we've literally seen 100 
percent of the index speculators disclosed, who they are, what 
they are.
    The CFTC has done an interesting job in gathering the data 
and being able to tell you if we had exchange limits or if we 
had position limits in place, who would have been in excess of 
those position limits and who would have been in excess of 
those exchange limits.
    I think there's been a rampant view that there have been 
hundreds of investors who have taken positions well in excess 
of the current existing exchange limits. What the data actually 
found out, in the non-commercial category, in WTI, which is the 
U.S. oil grade that delivered in this country, there were six 
clients that had a position in excess of current exchange 
speculative position limits. One of them was the United States 
Hedge Fund.
    Ironically, it had the largest position. It was on the 
short side. They were short 14,700 lots of WTI. Two of them 
were European pension funds, long term investors, as you've 
talked about on the long side. One of them was an Asian 
sovereign wealth fund on the long side. One of them was a 
United States long only asset manager. The last one was a 
Canadian pension fund on the short side.
    So when you've got all the data in one place trying to 
understand this dramatic effect of speculators. You found that 
there were six clients on a global basis that had positions in 
excess of speculative limits. So again, I get back to my 
original response. If we can increase supply in any way, shape 
or form and diminish demand any way, shape or form. We will 
have a better oil price and that will be better for all of us.
    Senator Bond. Thank you, Mr. Cohn.
    May I ask very quickly, Mr. Steenland and Mr. Wagoner?
    The Chairman. If you could do so quickly.
    Senator Bond. Just how much impact oil prices have had on 
your employment and your future prospect?
    Mr. Steenland. Senator, Northwest Airlines along with most 
of the rest of the airline industry, we will be about 10 
percent smaller in the fourth quarter of this year than we were 
in the fourth quarter of last year. That's almost entirely oil 
related and will be approximately 2,500 to 3,000 full-time 
equivalent employees fewer this year than last year.
    Mr. Wagoner. It's hard to speculate just on one factor, but 
I would say the overall economic decline, partly driven by 
higher oil prices, financial market weakness, obviously has the 
U.S. auto market now running the weakest it's run probably 
since 1993. You know, the ramifications have been huge. We 
announced plans to eventually cease production at four truck 
plants which, you know, in and of itself, would be 10 to 15,000 
people.
    Frankly, the ramifications for us in our industry have been 
significantly greater. So obviously the latest economic 
downslide has been very difficult for the auto industry.
    Senator Bond. Thank you very much.
    The Chairman. Thank you.
    Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Chairman. Thank you 
to all of you. Welcome to Mr. Steenland. Northwest Airlines is, 
we hope for as long as we can in the near future, our hometown 
airline.
    I was curious. I know Mr. Steenland, when this speculation 
issue came up you got many of your customers to write in. We 
were deluged with emails. Could you talk about what you heard 
from customers during that time?
    Mr. Steenland. I think what we heard is not too dissimilar 
to what you and everyone here hears when you go home for your 
work periods. That energy is of an extraordinary high priority 
and concern. I think it's a reminder of how critically 
important air service is to economies, to the way people lead 
their lives these days.
    We are entirely dependent on energy as it's now become 40 
to 50 percent of our cost structure. The extraordinary run up 
in prices which we think is where speculation has been a 
contributor has clearly had an impact. Not just on us, but on 
the communities we serve and the customers that we have 
responsibilities for.
    Senator Klobuchar. I was listening to Mr. Cohn and I know 
there are other studies, recent studies showing different 
things about speculation. We have the mere fact that the prices 
went up. But 25 percent in a few month period and we didn't see 
that kind of increase in demand, certainly not in the United 
States, not worldwide.
    Do you just want to talk a little bit about your 
interpretation on the front line of the speculation issue, Mr. 
Steenland?
    Mr. Steenland. I think, you know, we, as to the CFTC study, 
we're glad they did it. I think there are some questions as to 
the accuracy and the dependability of it. We think there ought 
to be an institutionalized reporting obligation, so we're not 
simply dependent on, you know, an ad hoc study that the CFTC 
does. But where there's ongoing reporting obligations.
    So they have a full, constant, regular view of the entirety 
of the trading market. There's transparency and that they are 
in a position to impose position limits, not just on the 
regulated exchanges, but on the over the counter markets as 
well.
    We think that's very hard to argue with and we think that's 
a good bit of regulatory policy for this important agency to 
have on such a critically important commodity.
    Senator Klobuchar. Because I was frustrated, we had the 
Chair of the CFTC. I was saying to him when as a prosecutor I 
always liked all the tools I could have, even if I didn't use 
them. He didn't seem interested in having more tools to 
regulate those markets.
    But, Mr. Wagoner, turning to the rest of the topic at hand 
that we focused on this morning, I'm in the group of 20 and one 
of the things that really interested me was the incentives to 
develop this next generation of hybrid and electric cars and 
trucks. I'll ask you what I asked this morning. One of the 
things I keep hearing is just the battery technology is just 
not where we want it to be, at least not produced in this 
country. I know the Chevy Volt is coming out in 2 years and 
those kinds of things.
    But could you tell me where we are with the battery 
technology and how we could best tailor our incentives so it's 
produced in this country?
    Mr. Wagoner. Yes, the premise of your question is, Senator, 
exactly in line with our findings as we sort of scour the world 
for capability to get the Chevy Volt to market on the timeframe 
that we've committed to. It is fair to say that much of the 
technology in battery today is outside the United States. I 
would say generally concentrated in Japan, where accessing the 
technology is difficult and Korea.
    One Senator asked me earlier today why is that true? I 
think it's pretty clear because those countries have, for 20 
years or so, made it a national policy to encourage the 
development of battery technology. We, in the U.S. have not 
done that. As a result are way behind. That's the bad news.
    I think the good news is that as we look to a future where 
we shift automotive propulsion from mechanical to electrical, 
over time that would mean, if we were successful, demand for 
millions of batteries which provides a great business 
opportunity. So I don't think this is a battle that the U.S. 
has lost. But I do think heavy support and investment by the 
U.S. Government in battery research, productionizing batteries 
and certainly what would be very helpful to us and consumers, 
the early adopters of these technologies.
    I can assure you the first few Chevy Volts we build are 
going to be very, very expensive vehicles. We will eat a lot of 
the cost.
    Senator Klobuchar. So I should wait for a while?
    Mr. Wagoner. No. The good news is we will subsidize your 
purchase. But what would I think help and what is generally 
comprehended in much of the legislation in discussion of this 
topic are consumer incentives.
    I think we have to recognize that as we bring these new 
technologies on we're running against a tough target, that the 
internal combustion engine fueled by petroleum is very low cost 
and very high quality. So as we bring in new technologies 
consumer tax credits, incentives are going to be very helpful 
as well.
    Senator Klobuchar. Then one last question. Mr. Krenicki, I 
liked what you said about how important the production tax 
credit is. Obviously that's in our legislation as well for a 3-
year extension or something like that to make sure this thing 
has been going off 1 year, then it's off for 6 months. It's led 
to problems in investment.
    I just got a report today from the Center for American 
Progress that showed that the U.S. can create 2 million jobs 
over 2 years by investing in rapid, green, economic jobs. It 
actually shows that with $100 billion in investment you could 
create four times more jobs than spending the same of money 
within the oil industry. Could you talk a little bit about why 
you think that we could more quickly get more jobs in knowing 
that I also, you know, many of us support a combination of 
things?
    But why these green jobs? Something new to so many people 
in this country, green technology, could support more jobs?
    Mr. Krenicki. You know if I look at the business I run we 
have over 10,000 engineers. Many of those engineers are working 
in renewable technology. Those jobs didn't exist at GE 6 years 
ago.
    So as we build leadership in the United States, it's a 
source of tremendous exports in manufacturing, high-paying, 
engineering jobs. I think the same can be done in nuclear 
energy, cleaner coal. So as we build leadership in this country 
it will create exports and lots of high-paying jobs here at 
home.
    Senator Klobuchar. Thank you.
    The Chairman. Senator Conrad is next. He's agreed to defer 
to Senator Levin for some questions. Go ahead.
    Senator Levin. First, just to thank Senator Conrad for 
deferring just for a minute. That's all I will take. This is 
just for Mr. Wagoner.
    You gave us some very good example of where minor 
modification in section 136 would make it more practical in 
terms of achieving its goals. If you could submit for the 
record, for the committee, the other needed modifications in 
order to achieve that part of the law which we passed last 
year. I think it would be very helpful. If you could do that 
for the record, if you would?
    Mr. Wagoner. I'd be pleased to do that, Senator.
    Senator Levin. I think the full committee needs to be 
familiar with that.
    Mr. Wagoner. Be pleased to do that.
    Senator Levin. Thank you. Also one other question, Mr. 
Wagoner, did you speak for the industry in your testimony?
    Mr. Wagoner. Yes, I did. We have, even as recently as the 
last couple of days have had extensive conversations with my 
colleagues at Ford and Chrysler and Mr. Gettlefinger from the 
UAW and his staff, so within that group, yes.
    Senator Levin. Thank you. Thank you, Senator Conrad.
    The Chairman. Senator Conrad, go ahead.
    Senator Conrad. Thank you, Senator Levin. Thanks again to 
the chairman of the committee for organizing this summit. 
Thanks to the ranking member for his participation and thank 
you for really producing an outstanding day.
    I think the witnesses have been just exceptional, Mr. 
Chairman and Senator Domenici. I think you can feel very good 
about what you've done to help the Senate grapple with this 
issue.
    I'd say first to Mr. Wagoner, the gang of 10 as the press 
dubbed us, now a group of 20 and with more Senators ready to 
come on board over the weekend. In our proposals we have $7.5 
billion to help the domestic industry retool. That's not loans. 
That's direct money because we think it's critically important 
to reducing our dependence on foreign oil to move to the 
vehicles of the future.
    No. 2, we have $5 billion over 10 years in battery 
technology research because our group became convinced during 
the deliberations that that is absolutely essential to 
America's competitive position.
    Could you help us understand if those investments are in 
line with what you're thinking is? Are they the right 
priorities?
    Mr. Wagoner. Thank you, Senator. To be honest I wasn't 
familiar with all of the specifics of the items you're working 
on. So can't comment exactly on the numbers.
    But I think the strategic direction you're citing is very 
much consistent with the conversation we just had on battery 
technology where we think that is a fundamental building block 
for the future of the auto industry. While the U.S. is behind, 
it would be a shame not to get back into that tremendous 
opportunity. As a general rule, our thought is that actually 
the U.S. and the world is run with automotive technology driven 
by petroleum for 100 years.
    We are now at an inflection point. Whether it's over the 
next 5, 10 years, or 20 years, the industry is going to 
fundamentally evolve in its sources of power. So it is, I 
think, a very appropriate time for obviously the manufacturers 
have a tremendous interest in it.
    But I think from the perspective of the U.S. Government, if 
we wish to continue to have a robust and strong manufacturing, 
engineering sector in the automotive side, which is the largest 
manufacturing sector in the country. It's a very good time to 
get direction from the Congress and support for the key 
technologies. So we very much would like to participate and 
comment and contribute to your deliberations.
    Senator Conrad. Let me just say that I would say to all of 
you the group of 20, the basic concept is we got to increase 
production. We've got to reduce demand. We have adopted a 
strategy, not of just one thing or two things. We've adopted a 
strategy that involves support for renewables, conservation, 
improved efficiency, electric plug in, geothermal, hydrogen, 
drilling off shore.
    The Senator from Missouri questioned how much we've 
expanded drilling off shore. We have a phased approach to 
opening up off shore. We open the Eastern Gulf. We open up off 
of Virginia, North Carolina, South Carolina, Virginia. We open 
up off of Alaska.
    We do it on a phased basis. We then have time to go out and 
do the seismic work to see what additional areas have real 
opportunity. Because just opening up, frankly, you can open up 
everywhere, the problem is the testimony we heard this morning 
from the representative of the major oil companies was we've 
got only 30 offshore rigs in the world, every one of them 
spoken for.
    So you can just say you're open up everything, but it 
doesn't have meaning. It doesn't have meaning unless you've got 
the rigs to do it, unless you've got the trained personnel to 
do it. The fact is we can only do it on a phase basis.
    So, you know this notion that we're just going to open up 
everything. All of a sudden everything's going to happen, is 
not reality. Our group has tried to deal with reality.
    In addition, we've got provisions for nuclear power because 
we think we're going to have to expand nuclear power. We have 
clean coal, significant investment there.
    Let me just ask if I could, Mr. Krenicki. Do you think 
we're going in the right direction? This is 20 Senators, 10 
Democrats, 10 Republicans.
    Mr. Krenicki. Absolutely. I think the answer is all. So we 
have to do a lot of many things. If I look at just what's 
happened in renewable energy in a relatively short period of 
time with good policy, the U.S. is leading the world. It's the 
most dynamic market.
    The U.S. is the Saudi Arabia of wind. We're taking 
advantage of that. I think we've got to keep building it out. 
It'll have significant benefits. It'll be totally consistent 
with any climate policy that is tackled in the next 
Administration.
    So I think the group of 20 is terrific. I applaud your 
efforts.
    Senator Conrad. Mr. Rowe, do you think we're headed in the 
right direction?
    Mr. Rowe. Yes, sir, indeed I do. I'm very grateful for the 
effort. I think particularly your focus on the climate change 
legislation and coming up with a practical bill that includes 
the economy is very important.
    Let me just say though that while I agree with Mr. Krenicki 
that the answer is all. They come at dreadfully different 
prices. We think that at least in the early stages, energy 
efficiency measures are the places where you get the most bang 
for the least dollars. We just don't know how long that lasts.
    On the other hand, we look at wind and we may be the Saudi 
Arabia of wind, but sometimes it costs almost as much. We think 
the cost in terms of dollars per barrel--dollars per ton of 
carbon dioxide of relying on wind is in the $80 to $100 a ton, 
pre-subsidy. Whereas gas, you may be talking $20 to $40 and 
nuclear more like $40 even at the high prices we're looking at 
today.
    Senator Conrad. Right.
    Mr. Rowe. So the point I'm getting to is you need all. The 
group is entirely right to push all. But when we put our 
consumer hats on, the cost to the consumer is very different 
from one of these technologies to the other.
    Senator Conrad. Mr. Roberts.
    Mr. Roberts. I certainly agree with the others here. To Mr. 
Rowe's point about cost and representing the coal industry. I 
want to make it clear on one point that we believe that the 
full panoply of resources is the way we should go, 
conservation, energy efficiency, oil, natural gas.
    But what we have to realize is that we cannot do it without 
our most abundant and affordable source of energy here at home. 
That's coal.
    Senator Conrad. We have a substantial in our group of 20, a 
substantial investment in clean coal because we agree with you. 
It's got to be part of an overall comprehensive package.
    Mr. Roberts. Yes it does, thank you.
    Senator Conrad. Mr. Steenland, what would be your reaction?
    Mr. Steenland. Senator, we clearly support a broad based, 
multi-faceted approach. Unfortunately on our side, you know, 
airplanes don't work very well on wind and the nuclear powered 
airplane hasn't manifested itself yet. So we're still heavily, 
heavily dependent on crude oil and the refining of that crude 
oil into jet fuel.
    We have taken and invested billions of dollars in terms of 
conservation efforts through purchasing new, more fuel 
efficient aircraft and the like to recognize the significant 
expense that we bear here. When we look at it, why we support a 
broad based bill, we tend to focus on what's in it to help 
control the supply or to expand the supply on the crude oil 
side and to the extent that there is expansion of areas 
available for drilling. We think that's a constructive 
approach.
    Senator Conrad. Mr. Cohn.
    Mr. Cohn. Senator, I agree with your premise. I agree with 
my distinguished colleagues on the panel. Look, I think the tax 
incentives that you have for wind and solar are very important.
    I think the loan guarantee program, very important. I think 
nuclear power, very important. Conservation, very important. 
Smart growth technology expanding and upgrading the 
transportation network, all very important.
    All this takes an enormous amount of capital. No one talks 
about the trillions of dollars we're talking about right now to 
rebuild the energy infrastructure of the United States. To 
attract that capital you're going to have to compete with other 
markets and other alternatives for the capital. The capital is 
going to tend to gravitate where it can get the highest rate of 
return with the most surety involved.
    As long as we can create some rate of return with some 
predictability, we will be able to attract the capital into the 
system.
    Senator Conrad. Mr. Wagoner.
    Mr. Wagoner. Just, I agree as well. I appreciate the 
leadership of your group. Because I think it very much is 
exactly the direction that we need to go to.
    I would just go back to a point I made in my testimony that 
as we have historically looked at alternatives in our sector 
and others, we've seen that when oil prices are high, everybody 
wants to do something new. We're excited about it. We get the 
investment cranked up and oil prices go back down.
    Consumers tell us what they're going to buy. They tell us 
everyday. So I would simply say as you and your colleagues look 
at this, the broad expanse is terrific but we have to recognize 
there will be market factors that will move up and down in 
those countries today that I mentioned earlier who are leading 
in battery technology had a persistent commitment to that 
technology even when oil prices went down to whatever it was, 
$10 or $20 a barrel not that long ago.
    So I do think and would ask that your work comprehend a 
long vision and a commitment among all of us in a consistency 
of direction so we don't find ourselves in situations such as 
we're encountering today.
    Senator Conrad. That's what our bill contemplates, on the 
battery side, a 10-year commitment.
    Mr. Wagoner. Terrific.
    The Chairman. Let me see if Senator Domenici, do you have 
some additional questions or comments that you wanted to make?
    Senator Domenici. Mr. Chairman, I'll follow, you go ahead.
    The Chairman. Are there other members?
    Senator Nelson, go ahead.
    Senator Bill Nelson. Just one comment, Mr. Chairman. I just 
want to clarify to Senator Conrad's question to Mr. Steenland 
about the gang of 20 proposal. They omit in their proposal 
addressing speculation.
    They say in their proposal they want to wait until the CFTC 
reports. So I want you to have that information as to how you 
would like to react to that because we're talking about action 
on this next week, Mr. Steenland. So tell me what you think.
    Mr. Steenland. We've previously met with Senator Conrad and 
Senator Graham and we conveyed our views as to the 
appropriateness of what we thought in the urgency of including 
provisions in their package that addresses the speculation 
issue. We would encourage them and hope that they would get to 
that point before all is said and done.
    Senator Conrad. The report that is being referenced I think 
is coming September 15, but our group, the gang of 20. I've 
supported the speculation piece. Within our group there are 
differences on speculation. We tried in our proposal to 
influence the supply/demand relationship. But I strongly 
support the speculative legislation that Senator Nelson and 
others, Senator Dorgan and others have offered because I think 
that is a key component as well.
    The Chairman. Senator Klobuchar, did you have another 
question?
    Senator Klobuchar. No, I'm just fine. I would like to----
    The Chairman. Oh, sorry. I didn't realize Senator Nelson 
was still asking questions. Go ahead.
    Senator Bill Nelson. I just want to conclude that thought 
about speculation. There was a report that was released 
Wednesday by Masters Capital Management Hedge Fund that said 
that ``financial speculators drove up oil prices and then after 
the prices peaked on July the 11th began a mass stampede for 
the exits.'' That's a quote.
    They pulled $39 billion out of the crude oil market, 
Masters said leading to a sell off of 127 million barrels of 
oil futures. Mr. Cohn, that seems to contradict or be at 
variance with what you had said. What do you think about that?
    Mr. Cohn. I am quite aware of Mr. Master's piece. Just for 
those of you who don't know, Mr. Master's is a hedge fund 
manager, off shore in St. Croix who runs an equity fund that 
has very long transportation stocks and airline industries. I 
hope he does very well, by the way in his position.
    Mr. Master's is not really an economist with formal 
training. There was a piece put out later in the week. You may 
be well aware of, Philip Verlinger put out a piece who is a 
quite recognized economist, has served here in the Capitol as 
an economist on energy policies. I'll take one moment to read 
his concluding paragraph for you. This is a piece after the 
Master's piece, he sort of responds to the Master's piece.
    ``Let me conclude with a simple comment. The accidental 
hunt brothers, act two by Michael W. Masters and M.K. White is 
the worst example of junk economic analysis published in a very 
long time. The author demonstrates nothing in the article that 
is devoid of any intellectual content. One can make a stronger 
case for a rooster's crow causing the sun to rise. Their report 
is utter and complete perversion of what we teach in 
economics.''
    Senator Bill Nelson. Let me ask you about the New York 
Mercantile Exchange Report. They concluded, this is about a 
week ago, that 81 percent of all of the oil futures contracts 
on the New York Mercantile Exchange were exchanges by 
speculators, not by commercial users of oil. Give us your 
opinion about that.
    Mr. Cohn. I think that the New York Mercantile, although I 
have enormous respect for them. I have served on their board 
and I've served on their Executive Committee in prior years. I 
think that unfortunately they lack the transparency of 
information. that was why the CFTC, by your body was asked to 
get involved and really create full disclosure and full 
transparency in what's going on in the market.
    I would put a lot more confidence in the CFTC data where 
they have captured 90 percent of all market participants 
including the over the counter market which the NYMEX doesn't 
see. The NYMEX only sees those transactions which take place on 
their exchange, an equal and opposite transaction to that can 
take place in the over the counter market. Therefore even 
though I know what they see and I served on their control 
committee which controls the liquidity of the contracts, I know 
they don't have very good information.
    That's why I was so interested in seeing the CFTC 
information that we were able to see yesterday which really 
did, for the first time in the history of the commodity markets 
in the United States, really paint a relatively clear picture 
of what's going on.
    Senator Bill Nelson. Does Goldman Sachs----
    Mr. Cohn. Could I add one more thing to that? They tell you 
81 percent of its speculative. Now that's also an interesting 
number because there are long speculators and there are short 
speculators. You could have longs and shorts net each other 
out.
    So you could basically have 40 percent long, 40 percent 
short. They cancel each other out. The other 20 percent on the 
market be real end users but you could publish that you had 80 
percent, 80 percent speculators in that market.
    Senator Bill Nelson. Does Goldman Sachs engage in the 
speculative market on the oil futures contracts?
    Mr. Cohn. We engage in the oil market on behalf of our 
clients day in and day out. As I said in my opening comments 
we've been the facilitator of over $220 billion of commodity 
hedges where we act as an intermediary between our clients and 
the exchange. We provide our clients like Northwest Airlines, 
jet fuel hedges, there's no jet fuel contract in the world. We 
take the risk of selling the jet fuel hedges. We then hedge 
that into other similar products where we inherit the risk. So 
we are engaged in the markets on a global basis, day in and day 
out.
    Senator Bill Nelson. Your client, Northwest Airlines uses 
that oil from those futures contracts. Do you engage in the 
buying and selling of future oil contracts for clients that do 
not use that oil?
    Mr. Cohn. The way the futures contract actually works, they 
engage in a financially settled hedge with us. They use that as 
an insurance policy against price protection. They actually 
source their jet fuel from a third party, physical provider.
    We do engage in transactions with people who are not 
ultimate producers or consumers of the commodity.
    Senator Bill Nelson. Ok. So the answer to my question is 
yes. Now the simple follow up question is----
    The Chairman. Let's do this one follow up and then Senator 
Klobuchar's going to be anxious to get in her questions.
    Senator Bill Nelson. Then are you of the opinion that buy 
and sell in this marketplace and obviously one of the premier 
firms in Wall Street, is it your opinion that speculation has 
no effect on the price of oil that we've seen in the run up and 
the reduction?
    Mr. Cohn. It's not a simple yes/no answer. The speculators 
are in every market in the world. We need speculators to be in 
the markets. So in any given moment of time can a speculator 
have an influence on the market? Absolutely. Anyone who would 
say that would be naive.
    So markets are meeting places for buyers and sellers. 
Buyers need to enter the market, drive the market price to a 
place where it attracts sellers. That is the natural balancing 
act that goes on day in and day out.
    Why you need the speculator in the market and why the 
commodity index was created many years ago is our industry, 20 
years ago was a very difficult industry. We had only clients 
that wanted to sell future production forward. So we had many 
clients that wanted to go drill oil wells, but they needed some 
predictability of the price of oil they were going to receive 
out of the well to go borrow money.
    They tried to enter the market and sell the oil. There was 
no natural long in the market. The consumers are so fragmented 
that they don't amalgamate to a big enough position.
    So we actually, as a firm, came up with the idea in the 
early 1990s to create a long only, static investor in the 
commodity markets. We created the commodity index where we 
could allow people that were willing to commit large pools of 
capital into the market for a very long period of time to 
facilitate the actual producers and allow them to be able to 
hedge their production forward to increase their production.
    So without speculators in the market, the market doesn't 
exist. The speculator is sort of the rubber band or the spring 
in the middle that allows buyers and sellers to transact. It 
just doesn't work that well that a buyer wakes up in the 
morning and says, I want to buy at this price and the seller 
wakes up simultaneously and says, I want to sell at that price.
    If the world worked like that, it would be a great world. 
But there's not a market in the world that works like that. So 
you need people to absorb all those price movements and those 
people are the speculators.
    Senator Bill Nelson. So you don't want us to do anything 
against speculators. Ok. Mr. Chairman, thank you.
    Mr. Cohn. By the way, I'm in total agreement with what Mr. 
Steenland has said on transparency and creating more 
disclosure.
    The Chairman. Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Mr. Chair. Mr. 
Cohn, I just want to talk about how it looks from our vantage 
point here. It's not just about CFTC.
    It's about a government that's been broken in terms of 
watching some of these financial transactions. Whether it's on 
Wall Street where there's been admissions on all sides where 
these things have broken down. Whether it's Fannie Mae or 
Freddie Mac, whether it is toxic toys coming in, that a lot of 
these agencies are shadows of their former selves.
    When you see things happen like that Enron loophole, you 
know in the middle of the night it just gets changed. Change is 
the way that these markets can be regulated. I understand that 
you're going to have speculators and people in these markets. 
But you have to understand from our vantage point that the 
people that are the victims of this.
    You can survive it if your things go up and down. These are 
people who can't. In Minnesota who are filling up their trucks 
half with gas and they can't go up to their cabins in the 
summer. So the problem with this is that the people who have 
most been affected by it, have the least disposable income.
    So what we're trying to do and I would agree with Senator 
Nelson, that we need to give them more tools. We don't want to 
mess up the market. We're happy to listen to you. But we need 
to give them more tools.
    I guess just to make this real and why I'm supporting the 
gang of 20 thing when it does have speculation. I'm going to 
try to get it on there, if we can. The reason I'm supporting it 
is that we have to move as a country forward. I understand I 
can't get everything that I want in this.
    But I just want to ask to make this real. Mr. Krenicki, did 
you say that you believe that if we don't keep these investment 
strategies in place, how many jobs will we lose from your own 
company alone?
    Mr. Krenicki. If the PTC goes away, history has shown us 
when that happens the industry declines 90 percent. Will that 
happen again? We think directionally it will decline and 
American Wind Energy Association estimates about 76,000 jobs 
would go away.
    Senator Klobuchar. Thank you. Mr. Wagoner, if we keep going 
the way we are in the auto industry and we don't think ahead to 
these green jobs and new economy, what do you think will 
happen?
    Mr. Wagoner. You would have to tell me what's going to 
happen to the price of oil, right? Because basically that's 
what is driving the, you know, the demand for our products and 
frankly extends across the entire economy.
    So when oil prices are low everything goes great. When they 
go high then we, you know, we get into situations like we are 
today. From a business perspective we much prefer to have a 
diversity of sources. We think that would provide a longer term 
stability and conditions for the U.S. economy to continue to 
grow which I think is at the root cause of addressing some of 
the issues of your concern.
    Senator Klobuchar. Thank you. Then Mr. Steenland, our 
hometown airline, if we just keep going the way we're going and 
we don't do more with our own domestic supply and we don't do 
more with wind and solar and all these things that can feed 
into new energies. What do you think will happen to the airline 
industry and all the employees we have in Minnesota?
    Mr. Steenland. I certainly think if you dial back, you 
know, to the middle of July and you look at the world where oil 
is at $147 a barrel. I think the U.S. airline industry and the 
economy as a whole would be looking radically different in that 
airfares would be materially higher, service would be 
materially reduced. All that means for hubs that for which 
corporate headquarters have expanded service to small 
communities and the like would be, clearly would have been 
adversely affected.
    Hopefully we can stabilize with the type of legislation 
that's being proposed, you know, a lot of the experts for, take 
it for what's its worth, say that the sort of the long term, 
natural supply and demand price of oil ought to be in the $70 
to $90 a barrel range. If that's true, I think we can, you 
know, manage through this in a relatively decent way. But if we 
see the return of oil with that's in the $140 range. I think 
the world is going to look much different.
    Senator Klobuchar. Very good. I have to go be on a Moorhead 
radio station. So I'll tell them all that you're supportive of 
us moving ahead.
    I am serious about that we need support from the corporate 
community as we try to move these things going forward in 
Congress. We need, if you're truly supportive of these things 
what I've seen so many times when we try to move climate change 
legislation, Mr. Rowe or other things is people kind of say 
they're for it and then people are making calls against it.
    We just can't afford to have that happen. We're going to 
need your help. Thank you.
    The Chairman. Senator Domenici, go right ahead.
    Senator Domenici. Yes, thank you, Mr. Chairman. I want to 
say again to all of you how much we are indebted to you for 
taking time off to come to talk with us. I believe, Mr. Cohn, 
your explanation from the marketplace standpoint of supply and 
demand and how it has an impact on the price of oil whether we 
like it or not, whether we like the result or not, is very 
necessary.
    You see an environment here where we can't help it. We are 
very much affected by emotions and most of the time it's 
emotions of our constituents. Frequently the emotion button is 
pushed by the wrong set of facts or the wrong interpretation.
    We have a difficult job, as you can tell, trying to put 
together an energy bill. In fact the Chairman and I, who put 
three of them together in the past 7 years, one being the very 
large package that most of you are aware of and two others. 
Among the other two we had, we finally passed CAFE changes.
    I say to you, Mr. Wagoner, I'm not sure that you smiled as 
I said that. But a few years ago, you would not have. But 
Congress finally came around and said it's obvious. We've got 
to have smaller cars, lighter cars. We've got to take the 
chance of increased injuries that might occur if that's one of 
the facts.
    But we did that and we also did whatever was necessary to 
bring nuclear power on. It's coming pretty strong. Now we have 
an issue that is, boy, right up to the top. It has to do with a 
very collateral issue to what you have been speaking of as 
witnesses today. That's if we have additional reserves that are 
American should we open them up for development?
    That's what brought us to where we are. We started that 
moving along. From that came a well of support from the 
American people to drill for what was ours. That now we have an 
argument going. How much of that which is ours should we open 
up?
    It's strange that we would go from not wanting to do any to 
those of us who started this debate wanted to open all of it 
and let that be decided in the future as we needed. I was very 
pleased to hear the oil companies that are out there using 
these platforms, that you all know about even though you're not 
in the business, the giant platforms that the oil developers 
put out in the water. It turned out to be technologically 
speaking very, very exciting products. There's no leakage. 
There's no spillage.
    When they get down they can have 10 or 12 wells off of one 
footprint. They can have directional drilling. It's just rather 
incredible feat of ingenuity with reference to off shore 
drilling.
    If you were here this morning you would have heard the 
witness whose company does most of that, tell us that there are 
30. All 30 are busy and they plan to double or triple that 
amount, especially since they think they are going to have the 
American off shore market be put up for acquisition so they can 
plan on using what they build, what they add to this fleet of 
30. That's rather exciting. It ought to be exciting to you as 
businessmen to think that finally the American oil industry is 
going to be turned loose.
    We have a lot of complaints about the oil industry, but 
what it all comes down to the bottom line, we're the only 
country that has any oil companies of real significance left in 
the world. I guess you know that. All the oil businesses are 
owned by states. They're government owned with just our 
American big five. They're the only companies that are 
privately owned.
    I think in the final analysis we probably have to be proud 
of them, whether we want to be or not. We're lucky we've got 
them. Some people think they make too much money. But when it 
comes to developing our resources, they're pretty darn good. 
When it comes to developing resources around the world, they're 
very good. I think they're pleased if we open up more of our 
own property so they can do it here rather than run around the 
world fighting with the kind of dictators and other people, 
personages, that they've been confronted with as you've watched 
them over the years.
    So if we open up the Outer Continental Shelf and it gets 
let out for bid, in time we will have perhaps as many as 80 or 
90 offshore rigs of significance. They will be producing oil 
for us for a long time. The previous witnesses have told us, 
yes, indeed we will be using oil for a long time, even as we 
move through all these new things we're going to do. It's not 
that we want to. It's just that we have to. We can't avoid 
using it for quite some time.
    I used to say one generation. I'm wrong. They're saying 
it's much more than one generation. It's perhaps as many as 30 
or 40 years that we will continue to use it.
    The issue that brought this to boil was should it be ours 
or should it be somebody else's as we continue to have to use 
oil. That's the issue. It should be ours if it can be and 
rather than somebody else's. The only place we know that it's 
ours is the off shore of the United States. That's where it is 
in abundance.
    My last observation is we speak much of producing green 
jobs. General Electric has told us precisely what it means. I 
would say we have to be careful.
    We didn't have time to inquire. But we want to make sure 
that a lot of that work is done here. I do know that some of it 
is not that we are importing a lot of it from Germany.
    I hope if we make permanent or get 5 years or 10 years to 
this credit so that it's got its strength, it's pinned down. I 
hope more of the business will come to our country and be done 
here. I would ask, my last parting shot, if General Electric 
would tell me their observations about that because it's very 
important.
    Will these jobs come here in more abundance than now in 
your opinion?
    Mr. Krenicki. Absolutely. You see many non-U.S. 
manufacturers investing significant amounts of money in the 
United States today. One of the dynamics of the wind business 
is transportation costs are astronomical. So transporting large 
parts like wind blades and towers, that work has to be done 
close to the markets. So it will bring jobs to where the market 
is.
    Senator Domenici. So that will help us.
    Mr. Krenicki. Absolutely.
    Senator Domenici. Thank you, Mr. Chairman. It's good to be 
with you. Thank you all.
    The Chairman. Thank you all again. This has been excellent 
testimony. We appreciate you taking your valuable time to talk 
to us today.
    Thank you. That will conclude our summit.
    [Whereupon, at 2:45 p.m. the summit was adjourned.]

                                    

      
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