    [Senate Hearing 110-842]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 110-842

                               ENERGY INNOVATION

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

                                    HEARING

                                   before the

                     SUBCOMMITTEE ON SCIENCE, TECHNOLOGY,
                                 AND INNOVATION

                                     OF THE

                             COMMITTEE ON COMMERCE,
                          SCIENCE, AND TRANSPORTATION
                              UNITED STATES SENATE

                           ONE HUNDRED TENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 20, 2007

                                   __________

        Printed for the use of the Committee on Commerce, Science, and
                                 Transportation

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           SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                           ONE HUNDRED TENTH CONGRESS

                                 FIRST SESSION

                       DANIEL K. INOUYE, Hawaii, Chairman
    JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska, Vice Chairman
        Virginia                         JOHN McCAIN, Arizona
    JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
    BYRON L. DORGAN, North Dakota        KAY BAILEY HUTCHISON, Texas
    BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
    BILL NELSON, Florida                 GORDON H. SMITH, Oregon
    MARIA CANTWELL, Washington           JOHN ENSIGN, Nevada
    FRANK R. LAUTENBERG, New Jersey      JOHN E. SUNUNU, New Hampshire
    MARK PRYOR, Arkansas                 JIM DeMINT, South Carolina
    THOMAS R. CARPER, Delaware           DAVID VITTER, Louisiana
    CLAIRE McCASKILL, Missouri           JOHN THUNE, South Dakota
    AMY KLOBUCHAR, Minnesota
       Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
    Lila Harper Helms, Democratic Deputy Staff Director and Policy Director
                  Margaret Spring, Democratic General Counsel
                 Lisa J. Sutherland, Republican Staff Director
              Christine D. Kurth, Republican Deputy Staff Director
                 Kenneth R. Nahigian, Republican Chief Counsel

              SUBCOMMITTEE ON SCIENCE, TECHNOLOGY, AND INNOVATION

    JOHN F. KERRY, Massachusetts,        JOHN ENSIGN, Nevada, Ranking
        Chairman                         JOHN McCAIN, Arizona
    JOHN D. ROCKEFELLER IV, West         KAY BAILEY HUTCHISON, Texas
        Virginia                         GORDON H. SMITH, Oregon
    BYRON L. DORGAN, North Dakota        JOHN E. SUNUNU, New Hampshire
    BARBARA BOXER, California            JIM DeMINT, South Carolina
    MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
    MARK PRYOR, Arkansas
    CLAIRE McCASKILL, Missouri
    AMY KLOBUCHAR, Minnesota
                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on March 20, 2007...................................     1
    Statement of Senator Ensign......................................     3
    Statement of Senator Kerry.......................................     1
    Statement of Senator Klobuchar...................................     5
    Statement of Senator Stevens.....................................     4
        Prepared statement...........................................     4

                                   Witnesses

    Eckhart, Michael T., President, American Council On Renewable
      Energy (ACORE).................................................    21
        Prepared statement...........................................    23
    Katzer, Dr. James R., The Laboratory for Energy and the
      Environment, Massachusetts Institute of Technology (MIT).......    38
        Prepared statement...........................................    40
    Preli, Dr. Frank, Vice President of Engineering, UTC Power.......    16
        Prepared statement...........................................    18
    Prindle, William, Acting Executive Director, American Council for
      an Energy-Efficient Economy (ACEEE)............................     6
        Prepared statement...........................................     8
    Sridhar, K.R., Principal Co-Founder/CEO, Bloom Energy............    34
        Prepared statement...........................................    36

                               ENERGY INNOVATION

                                  ----------

                            TUESDAY, MARCH 20, 2007

                                   U.S. Senate,
           Subcommittee on Science, Technology, and Innovation,
            Committee on Commerce, Science, and Transportation,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 2:38 p.m. in
    room SR-253, Russell Senate Office Building, Hon. John F.
    Kerry, Chairman of the Subcommittee, presiding.

               OPENING STATEMENT OF HON. JOHN F. KERRY,
                    U.S. SENATOR FROM MASSACHUSETTS

        Senator Kerry. This hearing will come to order. I apologize
    to all for being a moment late. We had a caucus meeting that
    went a little bit long, and I apologize.
        Thank you all, witnesses, for being here. I'll introduce
    you in a few minutes.
        This is an ongoing part of a series of hearings that both
    this Committee, as well as a number of other committees, are
    focusing on to try to really pinpoint what we can and can't do
    with respect to the increasingly pressing issue of global
    climate change.
        I just had an opportunity to share some thoughts in our
    caucus, where had a brief discussion about it. But I've been
    involved in this for a long time now. When I was Lieutenant
    Governor, we dealt with the acid rain issue, with then Governor
    John Sununu, of New Hampshire, and Dick Celeste, of Ohio. And
    we actually put together the first cap-and-trade, that's where
    we developed it, and subsequently put it into the Clean Air Act
    in 1990. We found that were able to reduce emissions at a
    faster rate and less cost than anybody had predicted. The
    industry came in and said, ``Oh, God, don't do this to us. It's
    going to cost $8 billion and take X number of years.'' And we
    said to the environmental community, ``No, it won't. It's going
    to cost $4 billion, and we can do it in half that time.'' Well,
    guess what? It cost less than that, and we did it in less time.
    Why? Because no one ever factors in, or has an ability
    completely to factor in, what happens when you start down the
    technology road. And once we start down that road, one thing
    leads to the next, and cost goes down and a whole bunch of
    market forces set into play which aren't there originally,
    because you, in effect, create these markets.
        This issue is long overdue for this Congress to respond to
    it. There are over 450 mayors in our Nation who are taking
    steps today, Mayor Rocky Anderson, Salt Lake City, the mayors
    out in Portland and in other parts of our country. The evidence
    is overwhelming, the science.
        I met with a number of scientists, a few nights ago, who
    were gathered in Washington as board members of the Heinz
    Center, and to listen to these people--Ed Miles, Bob Corell,
    others known publicly--talk about their increased sense of
    urgency--the evidence is overwhelming of what is happening, not
    just in the temperature increases themselves, but in the
    impacts: Alaska, Senator Stevens' state, where the permafrost
    is melting, where fishermen are having greater trouble going
    out and doing their fishing, where the white spruce are
    infected by beetles, 4 million acres worth of it, because they
    used to die in the cold and it's not that cold. And you can go
    anywhere and see these impacts. The glaciers in the mountains
    and the ocean edges disappearing, increased impact on rainfall,
    evaporation, the species movement, mitigation, and so forth.
    I'm not going to run through all of that right now, except to
    say that, when I hear Jim Hansen, a renowned climatologist,
    say, ``You've got a 10-year window to respond,'' and when I
    hear a group of these scientists say that the evidence is more
    rapidly showing things they predicted at a greater rate, and at
    a greater quantity, you'd better stop and listen. And that's
    what this Congress needs to do.
        Now, one of the interesting things that's happening is, a
    lot of companies are responding themselves. You have USCAP, you
    have a bunch of the top corporations who have come together,
    saying, ``We need a carbonwide cap in our economy.'' You have
    major corporations, like IBM and GE and Alcoa and others, who
    have reduced their emissions, some as much as 65 percent, and
    saved hundreds of millions of dollars, $621 million in one
    case, almost a billion dollars in another case. So, there's
    money to be made here.
        There are three very significant--and only three--major
    ways to deal with global climate change. One is through energy
    efficiencies. And that's what you're here to help us understand
    today. Two is through alternative and renewable fuels. And,
    again, we're going to discuss that today. The third is through
    clean coal technology. I talked, just the other day, with the
    president of AEP, who tells me the next two plants they're
    building, one in Ohio and one in West Virginia, will be built
    with IGCC technology, integrated gasification combined cycle
    technology, which General Electric, incidentally, has just
    recently said they will stand behind, in terms of the liability
    on the technology itself. So, having backed up the technology,
    they've freed a company to feel comfortable to move forward to
    implement it. This means this is within grasp. We don't have to
    sit here and panic about loss of jobs; in fact, we will create
    more jobs.
        And, in the end, I believe--you know, we've all heard of a
    twofer, where you do one thing, and you get something for it--
    this is a fivefer, because if you do it, you not only live up
    to your global climate-change responsibilities, you get better
    health for your citizens, cleaner air, cleaner water, you
    restore fisheries, you revitalize our economy with a whole
    group of new jobs and new technologies, which grow our economy.
    And, guess what? You provide America with greater energy
    security and greater security overall. Those are big wins.
        And so, my hope is that this committee can contribute
    significantly to this dialogue, and that we can make some
    significant progress in this field.
        Senator Ensign?

                    STATEMENT OF HON. JOHN ENSIGN,
                        U.S. SENATOR FROM NEVADA

        Senator Ensign. Thank you, Mr. Chairman. Thank you for
    holding this hearing.
        I was proud to chair this Subcommittee's first hearing on
    alternative energy technologies. At that hearing we heard some
    great testimony about some of the new, exciting technologies
    that have the potential to help the United States satisfy its
    energy demand while facilitating reduced greenhouse gas
    emissions.
        Dr. Sridhar, I want to welcome you back to our
    subcommittee. I have visited your company and have seen some of
    the exciting things that you are doing out in California. I
    would also like to welcome the other entrepreneurs at the
    witness table. I think that there are some incredibly exciting
    developments out there in the private sector, including some
    that are in the early stages of development.
        I agree with the Chairman that this is an important part of
    our developing economy. We often hear about the high-tech world
    and this is certainly a big part of the high-tech world. The
    high-tech world is demanding more energy these days, and more
    reliable energy. At the same time, we are so dependent these
    days on foreign oil and fossil fuels. I believe there exists a
    great opportunity at this moment in history. People are
    concerned about climate change, increasing greenhouse gas
    emissions and clean air. At the same time, these concerns are
    combining with the concern about the United States' strategic
    position in the world and our dependence on some of the world's
    ``bad actors'' to fulfill our need for energy.
        When we use some of the foreign sources of oil in the
    world, we make people who are not exactly our friends
    wealthier. Innovative energy solutions are what we need to make
    us less dependent on foreign sources of energy and, at the same
    time, address environmental concerns.
        My own State is in a unique position. Between geothermal,
    solar, and wind, we have some great opportunities for renewable
    energy that I think could be developed. I'm very much a free-
    market thinker. I do not believe that the government should be
    in the business of picking winners and losers, but I also
    believe that we have subsidized many of our oil concerns with
    our military. I think that the government can play a role in
    encouraging some of these fledgling technologies, and then
    stepping back to allow the market to determine their viability.
    By doing so, I believe that the outcome can be very valuable to
    our country in the long term.
        Next month, Nevada Solar One, the world's third-largest
    solar plant, is scheduled to start generating power. This plant
    will develop enough energy to power approximately 48,000 homes
    in Nevada. It's not enough to supply Las Vegas or Reno, but it
    is certainly very encouraging to see that solar power is
    becoming an important part of Nevada's energy portfolio. We
    also have huge amounts of geothermal energy in Nevada, I
    believe we are second in the country, as a State, for
    geothermal energy for power production. Nevada also has great
    potential for wind energy, specifically in eastern Nevada.
    However, the transmission lines needed to use that power do not
    exist. There are many issues that need to be addressed in order
    to achieve energy innovation and independence. The bottom line,
    however, is that I'm glad that this subcommittee has been
    taking the lead on addressing this issue, and I'm glad that the
    witnesses present today are helping to move the country
    forward. I agree with you, Mr. Chairman, that this is, overall,
    going to have a very positive effect on the economy and the
    types of jobs and the types of technology that will move this
    country forward.
        I appreciate you holding this hearing today, and I'm really
    looking forward to hearing from the witnesses.
        Senator Kerry. Thank you, Senator.
        Senator Stevens?

                    STATEMENT OF HON. TED STEVENS,
                        U.S. SENATOR FROM ALASKA

        Senator Stevens. Well, Mr. Chairman, I'd like to ask you to
    put my statement in the record.
        I would like to point out, though, that we have some very
    interesting things going on in our state. And I'd like for you
    to come up sometime and see the development at Chena Hot
    Springs. I think one of the witnesses will be talking about
    that today. That's a very interesting way to harness geothermal
    resources.
        We also have a plant that's being run now on fish oil, the
    waste from--really, from a processing operation. There are many
    things we can do to meet some of these challenges, and I look
    forward to working with you on it.
        [The prepared statement of Senator Stevens follows:]

        Prepared Statement of Hon. Ted Stevens, U.S. Senator from Alaska
        Mr. Chairman, thank you for holding this hearing on energy
    innovation. This country's growing demand for energy is an issue that
    is important for us all.
        Our country needs a new energy paradigm. The 21st Century will be
    the proving ground for our commitment to achieve both energy
    independence and new, clean fuels. Our current energy challenges will
    be solved by a combination of energy initiatives, increased domestic
    production of petroleum, and the development of alternative sources of
    energy. These are all part of the broader solution and we must find the
    appropriate balance between them.
        The future holds a staggering list of possibilities for new energy
    technologies. In my state alone, we are looking at harnessing ocean and
    tidal energy and utilizing wood waste to produce ethanol. Some of our
    fishermen are currently using fish oil to power their operations and
    Chena Hot Springs, outside Fairbanks, has harnessed energy from
    geothermal resources to power their resort.
        However, renewable and alternative sources of energy are expensive
    and it will take time for them to become realistic and affordable
    options.
        I look forward to hearing from the witnesses today as they discuss
    a wide spectrum of emerging ideas and technologies.

        Senator Kerry. Thank you very much, Senator. Well, we
    really look forward to your input, which will be very critical
    to moving the Senate. So, we're delighted to have you involved
    in it.
        Senator Klobuchar?

                   STATEMENT OF HON. AMY KLOBUCHAR,
                      U.S. SENATOR FROM MINNESOTA

        Senator Klobuchar. Thank you, Senator Kerry. And thank you
    for doing this hearing.
        I was listening to Senator Stevens talking about fish oil.
    I decided that sounded more glamorous than our work we're doing
    with poultry litter. But there is clearly----
        [Laughter.]
        Senator Klobuchar.--a lot of exciting things going on.
        Senator Stevens. That's a new name for it, I'm sure.
        [Laughter.]
        Senator Klobuchar. Very nice.
        There are a lot of exciting things going on across the
    country. I'm proud to be on the Agriculture Committee, the
    environmental committee, and this committee. So, on all three
    of those Committees, we're focused on climate change. And I
    will say that, in addition this being such an important issue
    for jobs, I think that if we don't move ahead with this
    technology, we're going to lose out on this economic
    opportunity to other countries that are going to move more
    quickly than we do, if we don't move ahead.
        Earlier this year, our State passed a new law that's
    considered the Nation's most aggressive standard for promoting
    renewable energy in electricity production with a portfolio
    standard. It's a ``25 x '25'' standard, by the year 2025, the
    State's energy companies are required to generate 25 percent of
    their electricity from renewable sources. For Xcel Energy,
    which is our largest provider, they must reach 30 percent by
    2030, and they were part of this agreement, as well, as well as
    our Republican Governor and the Democratic-controlled two
    bodies of the State legislature. It was a complete bipartisan
    effort. And I hope we will see similar bipartisan work going on
    in the U.S. Senate.
        The reason that it's so important in our State is, as
    Senator Ensign talked about, we're seeing just great economic
    opportunity here in our State. We're seeing it with wind. We
    have so many wind turbines right now in southeastern Minnesota
    that they've opened up a bed and breakfast. So, if you're
    looking for a romantic weekend, Mr. Eckhart, you can come
    down--the whole deal--the package deal is, you spend the night
    in the bed and breakfast, and you wake up in the morning and
    look at a wind turbine. That's it.
        [Laughter.]
        Senator Klobuchar. So, anyway, we're doing a lot with wind.
    We're obviously doing a lot----
        Senator Kerry. And then you go out and clean up the kitty
    litter.
        [Laughter.]
        Senator Klobuchar. We're doing a lot in the area of
    agriculture, and I want to move ahead to the next frontier,
    which is cellulosic ethanol, and we're trying to develop
    something as part of our agriculture bill, which focuses funds
    on the development of the next stage of ethanol, which will be
    better with carbon, obviously, and be--contribute to--help with
    the climate-change issue.
        We've always considered environmental stewardship a way of
    life in our State, and we want to do something to make a
    difference and take action. So, I thank you for being here. As
    I mentioned, to you when I came up ahead of time, I am going to
    preside over the Senate, which we do often as freshman
    Senators, but I will submit my questions in writing. They deal,
    as we discussed, a lot with the wind, the transmission issues,
    and perhaps you'll touch on that in your testimony and I can
    hear about it later.
        So, thank you so much, all of you, for being here.
        Senator Kerry. Senator, thank you. Thanks very much for
    your interest in these issues, and we're delighted to have
    Minnesota represented in this effort. And we know you've been a
    leader. I remember seeing some of the wind operations out
    there, and you've been great leaders on this.
        Well, we look forward to your testimony. If we could try to
    hold the testimonies to a summary of about 5 minutes, it'll
    give us more time to interact. Your full statements will be put
    in the record as if read in full.
        Mr. Bill Prindle, the Acting Executive Director, American
    Council for an Energy-Efficient Economy--thank you, Bill, for
    being here. Michael Eckhart, President of the American Council
    on Renewable Energy; Dr. Francis Preli, Jr., Vice President of
    Engineering, UTC Power, from Connecticut; K. R. Sridhar, Chief
    Executive Officer of Bloom Energy, Sunnyvale; and Dr. James
    Katzer, MIT Laboratory for Energy and the Environment, who's
    doing some really terrific breakthrough stuff on this, from
    Cambridge. We're delighted to have you all here. Thank you.
        You want to lead off, Bill? We'll just run right down the--
    --

            STATEMENT OF WILLIAM PRINDLE, ACTING EXECUTIVE
               DIRECTOR, AMERICAN COUNCIL FOR AN ENERGY-
                       EFFICIENT ECONOMY (ACEEE)

        Mr. Prindle. Yes, thank you, Mr. Chairman, Members of the
    Committee. It's a pleasure to be here today.
        ACEEE is a nonprofit research and advocacy organization
    formed in 1980 by leading researchers who decided that there
    was really no way for people to understand what energy
    efficiency is, in toto, because it's composed of so many small
    scattered devices throughout the economy. So, our job for the
    last 25 years has been to try to articulate, What is this thing
    we call energy efficiency, and how does it contribute to our
    economy, and what kind of policies do we need to move it
    forward?
        And as we've come to term ``efficiency'' lately, we call it
    the ``first fuel'' in the race for clean and secure energy,
    because, when you think about it, we have to slow down energy-
    demand growth; otherwise, none of the clean sources that we
    want to develop, be they clean coal or renewables, will be able
    to keep up with rising energy demand.
        We also have begun to demonstrate how much of a force
    energy efficiency is in the economy today. Over the last 30
    years, we've cut our energy use per dollar of gross domestic
    product in half, and what that means is that most of the growth
    in energy services--the lighting and the heating and the other
    things we want to do with energy--has actually been served by
    energy efficiency, not by electricity or gas or oil. And so,
    that's been a key point.
        But a lot of people still misunderstand efficiency. A lot
    of people think of energy efficiency as turning off the lights
    or not driving to the drugstore or just doing with less, when,
    in fact, the record in the last 30 years shows that efficiency
    is about investing in advanced and accelerated technology, and
    doing the same or more than you used to do, with less energy
    input.
        And what we've also begun to find out is that the energy-
    using infrastructure in our economy is actually larger, when
    you add it up, than the energy supply infrastructure. So, if we
    look at the economy in a recent year, we'll find maybe $100
    billion worth of investment in powerplants, pipelines, LNG
    terminals, you name it. It's about $100 billion. When we look
    at the Energy Star products program that the Federal Government
    sponsors, products sold under that logo total over $100 billion
    in sales in a single year. And that's only about a third of
    those markets--so, those energy equipment markets are actually
    over $300 billion. And so, our economy actually spends more
    money on the use of energy than it does on energy supply; and
    yet, we don't see that because energy efficiency is hidden
    under the hood of the car or in the back of the refrigerator or
    up above the ceiling, where the light fixture is, and we just
    don't see that. And yet, it's contributing this huge value to
    the economy.
        The potential remains very large. We've just done a number
    of major studies ourselves. States like Florida and Texas,
    where the potential for major growth and efficiency in
    renewables could meet just about all of the new energy service
    needs over the next 15 years. But to do that, we have to
    accelerate the pace of innovation, we have to accelerate the
    rate of efficiency and of progress on the renewable side. And
    so, that means both technology, and it means policy support.
        And so, I want to highlight just three areas where we see
    innovation happening today, to give you a flavor for what's
    going on.
        Last Wednesday, we attended a National Press Club press
    conference with Philips Lighting Company to announce a 10-year
    initiative to shift the lighting market in the United States so
    that residential light bulbs will use 90 percent less energy in
    10 years. And, given Dr. Hansen's admonitions that we need to
    make some shifts in the next 10 years, I thought that was a
    meaningful commitment on the part of companies like Philips.
    And so, we expect the other lighting companies to join in this
    and for the lighting market to start to shift much more
    rapidly.
        One of our closest allies is Dow Chemical Company, which,
    over the last 10 years, has cut its energy use per pound of
    product by 20 percent through technology innovation. They have
    just announced a new commitment to cut their energy use per
    pound by another 25 percent by 2015 by accelerating their
    innovation. It's not just their internal operations. They make
    building insulation, they make advanced materials for lighter
    weight and stronger vehicles, so they're actually contributing
    to the efficiency solution on the demand side, as well.
        And--you know, and yet we still need policy action, because
    the markets--while the markets are working, they're not
    accelerating innovation fast enough across all the broad areas
    we need to attack.
        So, one of the things that the Commerce Committee could do
    is to get some of the infrastructure restored, and that
    includes things like restoring some of the Census surveys. The
    M-series, for example, that collects information on how much
    equipment is sold, was discontinued as of 2003. That's an
    infrastructure loss that we can't afford. On the R&D side, we
    need to start restoring funding. We need new policies to save
    oil. We support the ``Ten-in-Ten'' fuel economy bill that
    several of the Committee members have been behind. We need to
    set energy efficiency targets for utilities, the way Governor
    Pawlenty did. And, in fact, in Nevada, the State has a combined
    renewable and energy efficiency target for utilities. So, more
    and more States are going that way.
        And, of course, appliance efficiency standards are quietly
    saving more and more energy. We have three products in
    consensus agreements now that could go into legislation today.
    And on the lighting side, we may have another one in 3 weeks,
    tax incentives and so on.
        I'll stop now, because I know my time is quickly running
    out, but I just wanted to hit a few of the high points and I'll
    stop and turn the mike over to the next witness.
        Thank you.
        [The prepared statement of Mr. Prindle follows:]

       Prepared Statement of William Prindle, Acting Executive Director,
            American Council for an Energy-Efficient Economy (ACEEE)
    Introduction
        ACEEE is a nonprofit organization dedicated to increasing energy
    efficiency as a means of promoting both economic prosperity and
    environmental protection. We were founded in 1980 and have contributed
    in key ways to energy legislation adopted during the past 25 years,
    including the Energy Policy Acts of 2005 and 1992 and the National
    Appliance Energy Conservation Act of 1987. I have testified before the
    Senate several times and appreciate the opportunity to do so before the
    Subcommittee.
    Energy Efficiency as the Engine of Economic Prosperity
        Energy efficiency improvements have contributed a great deal to our
    Nation's economic growth and increased standard of living over the past
    30 years. Energy efficiency improvements since 1973 accounted for
    approximately 50 quadrillion BTUs in 2003, which is more than half of
    U.S. energy use and nearly as much energy as we now get annually from
    domestic coal, natural gas, and oil sources combined. \1\ Thus, energy
    efficiency can rightfully be called our country's largest energy
    source. If the United States had not dramatically reduced its energy
    intensity over the past 30 years, consumers and businesses would have
    spent about $650 billion more on energy purchases in 2006.
        Energy efficiency is measured not just in abstract terms like
    declining energy intensity, but also in concrete terms like product
    sales, job creation, and capital investment. ACEEE estimates that in
    2006, total investment in energy supply systems, from pipelines to
    powerplants, totaled about $100 billion. But Americans also invest in
    energy-using technologies: energy-efficient products bearing the
    Federal Energy Star label accounted for some $101 billion in sales last
    year, in a range of home and business products like home appliance,
    home electronics, heating and cooling systems, office equipment,
    lighting, and windows. These are large markets: our data show that, for
    example, that Americans buy some 11 million refrigerators, 64 million
    residential windows, 150 million pieces of office equipment, and about
    1.5 billion light bulbs. We estimate that Energy Star products account
    for only about \1/3\ of these markets in the aggregate, totaling some
    330 million products, so one could project that total sales in these
    markets may be in the range of $300 billion annually. This suggests
    that, in rough terms, the U.S. economy spends perhaps three times as
    much per year on energy end-use technology as it does on energy supply
    technologies.
        Moreover, the Energy Star data does not include investments in the
    160,000 Energy Star new homes sold in 2005, or the high-efficiency
    commercial and industrial technologies, vehicles, combined heat and
    power systems, and others that would increase the size of the
    ``efficiency economy'' still further. While our analysis in this area
    continues, and we have not come to detailed conclusions on this topic,
    the data we have developed so far indicates that the demand side of the
    economy is very large in comparison with the supply side, and that
    efficiency investments in the aggregate account conservatively for over
    $100 billion.
        These data help to erase a persistent misconception, which often
    occurs as an unstated assumption in many analyses, that energy
    efficiency is an economic ``brake'', that it involved reducing economic
    output or slowing economic growth. This misconception tends to stem
    from confusing energy efficiency with energy conservation. Conservation
    means reducing our consumption of energy services, whereas efficiency
    means consuming the same level of energy services with reduced
    consumption of energy commodities. This distinction between energy
    services and energy commodities is important. It is energy services we
    want--cold beverages, hot showers, well-lit rooms, comfortable living
    spaces, information services--and we are typically indifferent as to
    how much of which kinds of energy commodities supply those services.
        Energy conservation, cutting back on the level of energy service,
    can in theory have an economic ``brake'' effect, if there is no shift
    of technology or spending of energy savings on other goods. But
    conservation usually occurs during times of rising energy prices, so
    the total economic output of the energy sector may continue to rise,
    and consumers may spend energy savings on other goods. Efficiency, on
    the other hand, involves technology investment to replace less-
    efficient products and systems. These investments create an economic
    stimulus with ripple effects through the economy, and our macroeconomic
    analyses show that efficiency investments tend to produce greater net
    economic benefits, in the form of increased output, income, and
    employment, than do investments in supply-side technologies.
        We estimate that energy efficiency has provided some 75 percent of
    the growth in energy services from the 1970s to the present. While
    efficiency is often invisible--today's refrigerators look and perform
    the same or better than 30 years, ago, but use \1/3\ the energy--it is
    nonetheless measurable. And even though it is distributed in millions
    of individual buildings, vehicles, and devices, it has been and
    continues to be an effective engine of economic growth for the United
    States.
    How Big is the Efficiency Resource?
        Even though we spend large amounts on efficient technology today,
    and the United States is thus much more energy-efficient than it was 30
    years ago, there is still enormous potential for additional cost-
    effective energy savings. Some newer energy efficiency technologies
    have barely begun to be adopted. Other efficiency measures could be
    developed and commercialized rapidly in coming years, with policy and
    program support. For example, in a study from 2000, the Department of
    Energy's national laboratories estimate that increasing energy
    efficiency throughout the economy could cut national energy use by 10
    percent or more in 2010 and about 20 percent in 2020, with net economic
    benefits for consumers and businesses.\2\ Studies for many regions of
    the country have found similar if not even greater opportunities for
    cost-effective energy savings.\3\
        ACEEE recently completed major studies of the energy efficiency and
    renewable energy resource potential in the states of Texas and Florida.
    These studies showed and efficiency and renewables can meet all of the
    growth in energy service needs, even in such fast-growing states, over
    the next 15 years or more. The figures below summarize these results.
    While public and private investment are needed to develop them, these
    resources provide better returns to the economy than conventional
    energy supply investments.

        It should be noted that the efficiency potential analyses discussed
    here are inherently quite conservative. They are based on technologies
    that are established in the market today, and on today's energy prices
    and technology costs. They are thus very conservative in the sense that
    new technologies, higher energy prices, and lower technology costs may
    well justify much greater estimates of efficiency potential. In the
    1970s, for example, electricity growth rates were in the range of 3.5
    percent per year. In that era, there was little of the high-efficiency
    technology we have today: examples include refrigerators that use \1/3\
    the energy of similar 1970s models; air conditioners that are twice as
    efficient; light bulbs that save \3/4\ the energy used by incandescent
    bulbs; LCD computer monitors that use \1/4\ the energy of CRT monitors;
    and the list goes on. Because of such technology advances, the Energy
    Information's 2007 Annual Energy Outlook projects that electricity
    demand will grow by only 1.5 percent annually through 2030, less than
    half of 1970s projections.
        McKinsey Global Institute recently completed an analysis of global
    energy demand, and the potential for energy efficiency and related
    energy productivity gains to reduce current reference forecasts for
    energy demand growth. The study found that energy demand growth can be
    reduced by more than half by economically-viable technologies driven by
    public policies. It also found that in the U.S., energy consumption
    need not grow at all through 2030 if the cost-effective productivity
    improvements were realized in all sectors.\4\
    The Case for Accelerated Policy Action on Efficiency
    Policies are Needed to Overcome Market Barriers
        Regardless of the size of energy efficiency's aggregate potential,
    or of the cost-effectiveness of such investments, a variety of market
    barriers keep these technologies from being implemented. These barriers
    fall in two main categories: (1) principal-agent or ``split incentive''
    barriers, in which, for example, home builders must invest added
    capital in efficient homes, but receive none of the energy savings
    benefits; and (2) transaction costs, which stem from inability of
    average consumers or businesses to make ``economically optimum''
    decisions in time-and-information-limited real world conditions. A
    study ACEEE conducted for the International Energy Agency covering five
    countries found that half or more of the energy used in major home and
    business energy end-use markets are affected by the principal-agent
    barrier alone.\5\
        In addition, basic forces in the economy work against the tendency
    of higher energy prices to moderate energy demand. This principle of
    ``price elasticity of demand'', while economically correct, is
    countered by ``income elasticity of demand'', under which rising
    incomes cause consumers to be less affected by rising prices. A large
    segment of our population continues to buy low-mileage, high prices
    vehicles, with little concern for fuel costs. For less-affluent
    consumers, ``cross-elasticities'' come into play, which cause them to
    keep using energy as an essential service, but to cut back on other
    goods to balance their budgets. Economists have documented the slowing
    of retail sales in response to rising energy prices. Both the income
    elasticity and cross-elasticity effects suggest that energy prices
    alone won't balance our energy markets, and we need stronger energy
    policies if we want to stabilize energy markets without damaging our
    economy.
    Reasons to Accelerate the Energy Efficiency Engine
        Recent developments in our energy markets indicate that the U.S.
    needs to accelerate efforts to implement energy efficiency
    improvements:

       Oil, gasoline, natural gas and coal prices have risen
            substantially in recent years. For example, residential natural
            gas prices have more than doubled since 2000, and retail
            gasoline prices are up by similar proportions. Even America's
            cheapest fuel, coal, has seen price inflation: Powder River
            Basin coal has more than doubled in price since 2003. Energy
            efficiency can reduce demand for these fuels, reducing upward
            price pressure and also reducing fuel-price volatility, making
            it easier for businesses to plan their investments.

       A recent ACEEE analysis found that natural gas markets are
            so tight that if we could reduce gas demand by as little as 4
            percent over the next 5 years, we could reduce wholesale
            natural gas prices by more than 20 percent.\6\ This analysis
            was conducted by Energy and Environmental Analysis, Inc. using
            their North American Gas Market Model, the same analysis firm
            and computer model that was employed by DOE and the National
            Petroleum Council for their 2003 study on U.S. natural gas
            markets.\7\ These savings would put over $100 billion back into
            the U.S. economy. Moreover, this investment would help bring
            back U.S. manufacturing jobs that have been lost to high gas
            prices and also help relieve the crushing burden of natural gas
            costs experienced by many households, including low-income
            households. Importantly, much of the gas savings in this
            analysis comes from electricity efficiency measures, because
            much of the marginal electric load is met by natural-gas fired
            power plants.

       The U.S. is growing increasingly dependent on imported oil,
            with imports accounting for more than 60 percent of U.S. oil
            consumption in 2006, of which more than 40 percent came from
            OPEC countries.\8\ The U.S. Energy Information Administration
            estimates that imports will account for 68 percent of U.S. oil
            use in 2020.\9\ While moderate amounts of new oil are available
            in hard-to-reach areas of the U.S., much greater amounts of oil
            are available by increasing the efficiency with which we use
            oil. A January 2006 report by ACEEE found that the U.S. can
            reduce oil use by as much as 5.3 million barrels per day in
            2020 through improved efficiency, including more than 2 million
            barrels per day in industry, buildings, heavy duty vehicles and
            airplanes.\10\ In other words, there are substantial energy
            savings outside of the highly contentious area of light-duty
            vehicle fuel economy. These 5.3 million barrels per day of oil
            savings are nearly as much as we presently import from OPEC
            (OPEC imports were 5.5 million barrels per day in 2005).\11\
            Energy efficiency can slow the growth in oil use, allowing a
            larger portion of our needs to be met from sources in the U.S.
            and friendly countries.

       Economists have increasingly raised concerns that the U.S.
            economy is slowing and that robust growth rates we have had in
            recent years will not be sustained. Energy efficiency
            investments can spur economic growth; they often have financial
            returns of 30 percent or more, helping to reduce operating
            costs and improve profitability. In addition, by reducing
            operating costs, efficiency investments free up funds to spend
            on other goods and services, creating what economists call the
            ``multiplier effect'', and helping the economy broadly. This
            stimulates new economic activity and job growth in the U.S.,
            whereas most of every dollar we spend on oil flows overseas. A
            1997 study found that due to this effect, an aggressive set of
            efficiency policies could add about 770,000 jobs to the U.S.
            economy by 2010.\12\

       Overall, the U.S. has ample supplies of electricity at
            present, but demand is growing and several regions are
            projecting a need for new capacity in the next few years in
            order to keep reserve margins adequate.\13\ Energy efficiency
            resource policies can slow growth rates, postponing the date
            additional capacity will be needed.

       Greenhouse gas emissions continue to increase. Early signs
            of the impact of these changes are becoming apparent in Alaska
            and other Arctic regions.\14\ And several recent papers have
            identified a link between warmer ocean temperatures and
            increased hurricane intensity.\15\, \16\ The
            Intergovernmental Panel on Climate Change's 2007 report \17\
            documents more conclusively than ever that human activity is
            affecting the global climate, and that the environmental and
            economic consequences of inaction may be severe. Energy
            efficiency is the most cost-effective way to reduce these
            emissions, as efficiency investments generally pay for
            themselves with energy savings, providing negative-cost
            emissions reductions. The term ``negative-cost'' means that,
            because such efficiency investments produce net economic
            benefits, they achieve emission reductions at a net savings for
            the economy. This important point has been missed in much of
            the climate policy analysis modeling performed to date. Too
            many economic models are incapable of characterizing the real
            economic effects of efficiency investments, and so forecast
            inaccurate economic costs from climate policies. Fortunately,
            this kind of flawed policy analysis is beginning to be
            corrected. For example, a May 2006 study just released by ACEEE
            found that the Regional Greenhouse Gas Initiative (RGGI--the
            planned cap and trade system for greenhouse gases in the
            northeastern U.S.) can have a small but positive impact on the
            regional economy provided increased energy-efficiency programs
            are a key part of implementation efforts.\18\

        Energy efficiency also draws broad popular support. For example, in
    a March 2005 Gallup Poll, 61 percent of respondents said the U.S.
    should emphasize ``more conservation'' versus only 28 percent who said
    we should emphasize production (an additional 6.5 percent volunteered
    ``both'').\19\ In an earlier May 2001 Gallup poll, when read a list of
    11 actions to deal with the energy situation, the top four actions
    (supported by 85-91 percent of respondents) were ``invest in new
    sources of energy,'' `'mandate more energy-efficient appliances,''
    ``mandate more energy-efficient new buildings,'' and ``mandate more
    energy-efficient cars.'' Options for increasing energy supply and
    delivery generally received significantly less support.\20\
    The Role of Innovation in Advancing Energy Efficiency
        Technological innovation in energy efficiency, as is true of many
    facets of the U.S. economy, relies on a stream of innovations. ACEEE
    reviews emerging technologies in the buildings, industry, and
    transportation sectors, and periodically publishes reports on leading
    technologies. A summary of, and hyperlinks to, ACEEE reports on these
    technologies in the buildings sector can be found at the following
    World Wide Web address: http://www.aceee.org/emertech/
    buildings.htm#reports.
        Our most recent buildings-sector technology assessment examines 72
    emerging technologies in detail. While this testimony is too short for
    a full discussion of all of these innovations, I would like to use one
    technology--the residential incandescent light bulb--as an emblematic
    example. In our 2004 emerging technologies report, we examined several
    lighting technologies, including compact fluorescent fixtures, halogen
    lighting, and light-emitting diode (LED) lighting. All of these show
    promise as alternatives to the incandescent light bulb that has been
    the most common form of residential electric lighting for more than a
    century. It still accounts for more than 90 percent of total
    residential lighting sales in the U.S.
        On March 14, 2007, ACEEE and other organizations announced a new
    coalition effort, initiated by Philips Lighting Company, that will
    fundamentally change the U.S. home lighting market in 10 years. By
    setting new high-performance targets for typical lighting applications,
    we expect to reduce residential lighting consumption by as much as 90
    percent. While such standards are technology-neutral, based on our
    emerging technologies analysis we expect that compact fluorescents,
    halogens, and LEDs will all play a role in this transformation.
        The residential light bulb was the first universal electricity end-
    use application when the electricity industry first developed in the
    19th Century. Its main role in those early years was to create a
    universal, electric lighting energy service technology. Until the
    advent of the electric light bulb, lighting energy services were met by
    kerosene, whale oil, and of course paraffin (which we use as candles).
    Electric lights were the first in a long line of electricity-powered
    end use technologies that enabled the development of our modern power
    grid, and that drove much of our economic growth in the 20th Century.
        In the 21st Century, however, we have a different imperative. Our
    electricity grid is built; to sustain economic growth while protecting
    our environment, we must cut waste from the energy-services side of the
    grid while cutting pollution from the generation side. Last week's
    lighting coalition announcement is one significant shift among many
    that must be achieved on the energy services side. Our technology
    studies and potential analyses show that such shifts toward energy-
    efficient technology can occur in many other end-uses.
        Philips' new lighting initiative is representative of the kinds of
    innovation we are seeing in the buildings sector. In the industrial
    sector, companies like Dow Chemical are achieving dramatic gains in
    energy efficiency and carbon emission reductions. From 1995 to 2005,
    Dow reduced the energy consumed per pound of product by 20 percent. In
    2006, the company announced a new commitment to reduce its energy used
    per pound of product by another 25 percent by 2015. This requires
    continuous innovation, in end-use technology, in the application of
    combined heat and power systems, in process improvement, and in
    operation and maintenance practices.
    Program and Policy Initiatives Needed to Realize Efficiency Potential
        The Energy Policy Act of 2005 (EPAct 2005) made some useful
    progress on energy efficiency. Particularly notable were sections that
    established new consensus Federal efficiency standards on 16 products
    and that created energy efficiency tax incentives. ACEEE estimates that
    the energy efficiency sections of EPAct 2005 will reduce U.S. energy
    use by about 1.8 quadrillion BTU (``quads'') in 2020, reducing
    projected U.S. energy use in 2020 by 1.5 percent. Of these savings,
    more than 75 percent will come from equipment efficiency standards and
    energy-efficiency tax incentives.\21\
        EPAct 2005, however, did not address several key energy efficiency
    issues. And since 2005, America's energy challenges have increased. We
    therefore recommend that Congress take further action to stimulate
    energy efficiency innovation.
    Energy Market and Technology Data Collection
        One of the core functions and responsibilities of the Federal
    Government is to collect information on market activity, so that
    businesses, researchers, and policymakers have the fundamental
    information they need to understand markets and plan for future
    initiatives. The Commerce Department through its Census and other
    activities, and the Department of Energy through its Energy Information
    Administration surveys, are two of the key sources of information
    needed to keep up with developments in energy markets. We have seen
    disturbing trends in both agencies, with key surveys being cut back in
    comprehensive and in frequency, and in some cases dropped altogether.
        We urge the Committee to investigate this issue and seek to restore
    this key information infrastructure. Cutting back on energy market
    surveys is like cutting back on the U.S. Geological Survey, on whose
    information the energy supply industries depend for energy resource
    information; we need to continue and expand, not curtail, government
    efforts in this area.
        For specific examples, we are concerned about the loss of the M-
    series surveys in the Census Bureau. These surveys collect essential
    information on product shipments, without which it is not possible to
    track the trends that indicate which technologies are penetrating the
    market. In addition, last year's discontinuation of the Vehicle
    Inventory and Use Survey was a tremendous disservice to the cause of
    heavy-duty truck efficiency, and indeed to the understanding of and
    planning for the trucking industry generally. The VIUS, conducted every
    5 years, is the only source of national data on the number, size, fuel
    economy and driving patterns of the U.S. truck stock. It should be
    reinstated as soon as possible, before the Commerce Department's
    institutional capability disappears. The next VIUS was to have occurred
    in 2007.
    Research, Development, Demonstration, and Deployment (RDD&D)
        Many of the energy efficiency technologies we see emerging today
    were created with Federal RDD&D support--these include Energy Star
    windows, compact fluorescent and LED light bulbs, and high-efficiency
    refrigerator technology. EPAct authorized significant increases in
    efficiency RDD&D; however, budget requests for efficiency RDD&D have
    declined by about one-third since FY 2002. These cuts are beginning to
    cripple our research infrastructure, by laying off senior personnel
    with irreplaceable technology expertise and research experience, and in
    some cases discontinuing entire research programs. If the U.S. wants to
    continue its record of innovation in the energy area, and wants to be
    an effective competitor in global markets.
        We were encouraged to see the Senate Budget Committee allocate $1.6
    billion for energy efficiency and renewable energy programs at the
    Department of Energy. This represents more than a $300 million, 25
    percent increase over the administration's FY 2008 budget request. In
    our House Energy and Water Development Appropriations Subcommittee
    testimony, we recommended increases in 16 priority efficiency programs
    for a total increase of $217 million above the request. We hope the
    Senate appropriations process will follow these recommendations, and
    thus begin to rebuild the RDD&D infrastructure the U.S. needs to get
    ahead of the curve on the next generation of energy efficiency
    innovations.
    Policies to Save Oil
        Most notably missing from EPAct were significant provisions to
    reduce oil use or to accelerate energy efficiency investment in the
    electricity and natural gas industries. We recommend that Congress make
    these high priorities in its upcoming deliberations on energy policy.
    Fuel economy in the vehicle fleet must be improved, either through
    Federal fuel economy standards, tax incentives, or RD&D policies. Our
    analysis projects that more than 5 million barrels of oil per day, some
    25 percent of current U.S. consumption, could be saved cost-effectively
    by 2025.
        ACEEE supports the ``Ten-in-Ten'' fuel economy bill sponsored by
    several Commerce Committee members that would raise the average fuel
    economy of light-duty vehicles to 35 mpg by 2018. This target is
    achievable and necessary to allow the transportation sector to meet its
    responsibility to address climate and energy security goals.
        There are companion policies that should be explored as well. On
    the consumer side, a feebate policy would ensure, in the face of
    volatile fuel prices, consistent consumer interest in the fuel economy
    of the vehicles that they buy and help to align consumer demands with
    requirements of manufacturers as fuel economy increases are phased in
    over the next decade.
    Energy Efficiency Resource Standards for Utilities
        We also recommend that Congress enact Energy Efficiency Resource
    Standards (EERS) for electric and gas utilities. EERS is a simple
    policy approach that sets overall performance targets for utility
    efficiency efforts and provides flexibility in compliance. Several
    states have implemented EERS, beginning with Texas in its 1999
    electricity restructuring legislation.\22\ It is somewhat analogous to
    the Renewable Portfolio Standards (RPS) the Senate has passed twice in
    this decade. In fact, EERS and RPS are quite complementary. Our
    preliminary analysis shows that the most recent Senate RPS bill,
    combined with the EERS in a current discussion draft, could begin to
    reduce carbon emissions in the U.S. electric power sector by 2020.
        EERS laws and regulations are now in operation in several states
    and countries. Texas's law requires electric utilities to offset 10
    percent of their demand growth through end-use energy efficiency.
    Utilities in Texas have already exceeded their targets, and there is
    legislation to raise them. Hawaii and Nevada recently expanded their
    renewable portfolio standards to include energy efficiency. Connecticut
    and California have both established energy savings targets for utility
    energy efficiency programs (Connecticut by law and California by
    regulation) while Vermont has specific savings goals for the nonprofit
    organization that runs statewide programs. Pennsylvania's new Advanced
    Energy Portfolio Standard includes end-use efficiency among other clean
    energy resources. Colorado's largest utility has energy savings goals
    as part of a settlement agreement approved by the Public Service
    Commission. And Illinois and New Jersey are planning to begin programs
    soon. EERS-like programs have been working well in Italy, the United
    Kingdom, France, and the Flemish region of Belgium.
    Appliance and Equipment Efficiency Standards
        Appliance and equipment efficiency standards are another proven
    policy for accelerating innovation in energy efficiency. Standards
    already in place will save Americans over $200 billion in net economic
    benefits through 2030. There are several consensus agreements for new
    standards that could be included in legislation in this session of
    Congress. We will work with the energy committees on these issues.
        ACEEE, affected industries, and other stakeholders have a long
    history of negotiating consensus agreements on new efficiency
    standards. Many of these agreements were incorporated into the Energy
    Policy Acts of 1992 and 2005. ACEEE is now talking with stakeholders
    about standards on additional products and has agreements on several
    new standards. We are working with energy committee staff to include
    these new consensus standards in legislation this year.
        Products which may lend themselves to consensus standards include
    the following:

       Reflector lamps

       Pool heaters

       Metal halide luminaires

       Bottle-type drinking water dispensers

       Portable electric spas (hot tubs)

       Single-voltage external AC to DC and AC to AC power supplies

       Commercial hot-food holding cabinets

       Walk-in refrigerators and freezers
    Energy Efficiency Tax Incentives
        We also recommend that the EPAct tax incentives for energy
    efficiency technologies be extended beyond their current expiration
    dates, which were truncated by the EPAct conferees at the last minute.
    The EXTEND Act (S. 822) was recently introduced in the Senate to
    achieve this end, while also refining some specific provisions. We
    support the EXTEND Act as part of a consensus among a wide range of
    stakeholders
        While they are not included in the EXTEND Act, Hybrid tax credits
    in EPAct 2005 should be extended and expanded to ensure the continued
    growth of the hybrid market. Incentives for heavy-duty hybrids should
    be revisited and extended as well. Interest in heavy-duty hybrids is
    high among users, and as is the potential for fuel savings.
    Conclusion
        Energy efficiency is the ``first fuel'' for America's energy
    policy. Energy efficiency has saved consumers and businesses trillions
    of dollars in the past two decades, but these efforts should be
    accelerated in order to:

       Wean America from its addiction to oil and so enhance our
            national security;

       Help American consumers and businesses cope with high energy
            bills;

       Bring balance to America's energy markets by softening
            energy prices;

       Strengthen our economy by generating American jobs and
            capital investment; and

       Start to meet the global warming challenge by moderating
            carbon dioxide emissions.

        This concludes my testimony. Thank you for the opportunity to
    present these views.
    ENDNOTES
        \1\ Specifically, national energy intensity (energy use per unit of
    GDP) fell 46 percent between 1973 and 2003. About 60 percent of this
    decline is attributable to real energy efficiency improvements and
    about 40 percent is due to structural changes in the economy and fuel
    switching.
        \2\ Interlaboratory Working Group, 2000, Scenarios for a Clean
    Energy Future. Washington, D.C.: Interlaboratory Working Group on
    Energy-Efficient and Clean-Energy Technologies, U.S. Department of
    Energy, Office of Energy Efficiency and Renewable Energy.
        \3\ For a summary of many of these studies, see Nadel, Shipley and
    Elliott, 2004, The Technical, Economic and Achievable Potential for
    Energy-Efficiency in the U.S.--A Meta-Analysis of Recent Studies.
    Washington, D.C.: American Council for an Energy-Efficient Economy.
        \4\ http://www.mckinsey.com/mgi/publications/Global_Energy_Demand/
    index.asp. We note that this is a proprietary, copyrighted analysis.
    The limited review in this testimony comes from information shared with
    the National Petroleum Council.
        \5\ Prindle et al. 2007. Quantifying the Effects of Market Failures
    in the End-Use of Energy. American Council for an Energy-Efficient
    Economy (forthcoming International Energy Agency publication)
        \6\ Elliott and Shipley, 2005, Impacts of Energy Efficiency and
    Renewable Energy on Natural Gas Markets: Updated and Expanded Analysis.
    http://www.aceee.org/pubs/e052full.pdf. Washington, D.C.: American
    Council for an Energy-Efficient Economy.
        \7\ National Petroleum Commission. 2003, Balancing Natural Gas
    Policy--Fueling the Demands of a Growing Economy: Volume I Summary of
    Findings and Recommendations. Washington, D.C.: U.S. Department of
    Energy.
        \8\ Energy Information Administration, 2006, Monthly Energy Review
    May 2006. Washington, DC: U.S. Dept. of Energy.
        \9\ Energy Information Administration, 2006, Annual Energy Outlook.
    Washington, D.C.: U.S. Department of Energy.
        \10\ Elliott, Langer and Nadel, 2006, Reducing Oil Use Through
    Energy Efficiency: Opportunities Beyond Cars and Light Trucks.
    Washington, DC:. American Council for an Energy-Efficient Economy.
        \11\ See note #9.
        \12\ Alliance to Save Energy et al., 1997, Energy Innovations: A
    Prosperous Path to a Clean Environment. Washington, DC: American
    Council for an Energy-Efficient Economy.
        \13\ North American Electric Reliability Council, 2006, 2006 Long-
    Term Reliability Assessment: The Reliability of Bulk Electric Systems
    in North America. Princeton, N.J.: North American Electric Reliability
    Council.
        \14\ Hassol, 2004, Impacts of a Warming Arctic: Arctic Climate
    Impact Assessment. http://www.acia.uaf.edu. Cambridge University Press.
        \15\ Webster, Holland, Curry and Chang, 2005, ``Changes in Tropical
    Cyclone Number, Duration, and Intensity in a Warming Environment.''
    Science, 309, 16 September, 1844-1846.
        \16\ Emanuel, 2005, ``Increasing Destructiveness of Tropical
    Cyclones over the Past 30 Years.'' Nature, 436, 4 August, 686-688.
        \17\ Intergovernmental Panel on Climate Change. Climate Change
    2007: The Fourth Assessment Report (AR4). United Nations Environment
    Program, 2007.
        \18\ Prindle, Shipley and Elliott, 2006, Energy Efficiency's Role
    in a Carbon Cap-and-Trade System: Modeling Results from the Regional
    Greenhouse Gas Initiative. Washington, DC: American Council for an
    Energy-Efficient Economy.
        \19\ Gallop, 2005, ``Gallop Poll Social Series--The Environment.''
    Princeton, N.J.: The Gallop Organization.
        \20\ Moore, David, 2001, ``Energy Crisis: Americans Lean toward
    Conservation over Production.'' Princeton, N.J.: The Gallup
    Organization.
        \21\ Nadel, Prindle and Brooks, 2006, ``The Energy Policy Act of
    2005: Energy Efficiency Provisions and Implications for Future Policy
    Efforts'' in Proceedings of the 2006 ACEEE Summer Study on Energy-
    Efficiency in Buildings. Washington, DC: American Council for an
    Energy-Efficient Economy.
        \22\ Nadel, Steven. 2006. Energy Efficiency and Resource Standards:
    Experience and Recommendations. American Council for an Energy-
    Efficient Economy, Report No. E063.

        Senator Kerry. Thank you very much.
        Dr. Preli?

                     STATEMENT OF DR. FRANK PRELI,
                VICE PRESIDENT OF ENGINEERING, UTC POWER

        Dr. Preli. Thank you very much. I'm Frank Preli, Vice
    President of Engineering for UTC Power.
        UTC Power is a business unit of United Technologies
    Corporation. It's a world leader in commercial stationary fuel-
    cell development and deployment, but we also develop other
    innovative products. And, at the Committee's request today, I
    will focus my remarks on our PureCycle' geothermal
    system.
        This is an innovative, low-temperature geothermal energy
    system being used for the first time for power production in
    the State of Alaska. It operates at 165+ F, which is the
    lowest-temperature geothermal resource ever used for commercial
    power production.
        Our Nation's faced with air-quality and global climate-
    change challenges, ever increasing fuel costs, and a desire to
    be less dependent on unstable and foreign energy sources.
    Geothermal energy offers a renewable, continuously available,
    largely untapped domestic resource. Although the U.S. leads the
    world with 2800 megawatts of geothermal energy production, this
    represents only .5 percent of the current U.S. demand for
    electricity. It's estimated that, with effective Federal and
    State support, as much as 20 percent of the U.S. power needs
    could be met by geothermal energy by 2030.
        The PureCycle' system is based on a closed-loop
    process that uses geothermal water to generate 225 kilowatts of
    electrical power. Think of an air conditioner that uses
    electricity to generate cooling. The PureCycle'
    geothermal system reverses this process and uses heat to
    produce electricity. The system is simply driven by an
    evaporation process. It's entirely enclosed, so there are no
    emissions produced. The only byproduct is the electricity. And
    the fuel, hot water, is a renewable resource.
        Thanks to a partnership between UTC Power, Chena Hot
    Springs Resort, the U.S. Department of Energy, and various
    Alaska authorities, Alaska was added, last year, to the list of
    States generating electricity from geothermal energy. The power
    system uses geothermal water at 165+ F. And this is actually a
    very exciting breakthrough, because previously it was assumed
    that the geothermal fluids needed to be at least 225+ F for
    economic power production, and this has a big impact on how
    much of the United States is now available, or will be
    available, for geothermal power production.
        The Chena Hot Springs Resort is owned by Bernie and Connie
    Karl, a visionary couple who are committed to a sustainable
    community that is entirely self-sufficient for energy, for
    food, and for fuel. The resort operates independent of the grid
    and pays 30 cents per kilowatt hour for electricity, and, with
    the new geothermal system, they're saving $1,000 per day and
    eliminating the need for diesel fuel for their power source.
    This eliminates harmful emissions and also eliminates the need
    for the logistical transport of fuels over the rough terrain.
    They have two PureCycle' systems operating today,
    and they've logged 5,400 hours, and the availability is over 92
    percent.
        This project won two awards last year, a U.S. Environmental
    Protection Agency and a Department of Energy 2006 National
    Green Power Award for Onsite Generation, and also Power
    Engineering magazine named it ``The Renewable Sustainable
    Energy Project of the Year.''
        So, simply put, the PureCycle' technology could
    result in significant new domestic and continuously available
    renewable energy resources, not in just Alaska, but across the
    country. For example, there are more than 500,000 oil and gas
    wells in the U.S., many of which are unprofitable. Geothermal
    hot water is abundant at many oil and gas well sites, and could
    be used to produce a renewable source of electrical power and
    extend the life of many of these assets.
        But it's unfortunate that the Federal Government is
    proposing to eliminate all R&D funding for geothermal at a time
    when there are exciting innovative developments emerging. The
    rationale given is that the technology is mature and represents
    a resource with limited value, since it's confined only to the
    Western States. But, as our Chena project demonstrates, low-
    temperature geothermal energy production is a developing
    technology that enables a much broader geographic reach. This
    can eventually satisfy a significant portion of our growing
    energy needs, but appropriate government policies must be
    adopted and implemented.
        Attached to my testimony is a position paper that outlines
    key industry recommendations, including extension of the
    geothermal production incentive, robust funding for DOE's
    geothermal research program, incentives for geothermal
    exploration, and a comprehensive nationwide geothermal resource
    assessment. With your help, we can translate the potential of
    geothermal energy into a reality.
        So, thank you for this opportunity to testify, and I'd be
    pleased to answer any questions.
        Thank you.
        [The prepared statement of Dr. Preli follows:]

                    Prepared Statement of Dr. Frank Preli,
                    Vice President of Engineering, UTC Power
        Good afternoon. I am Frank Preli, Vice President of Engineering for
    UTC Power. I joined United Technologies Corporation in 1978 and have
    been with UTC Power since 1998. I am responsible for leading a group of
    approximately 250 engineers and scientists engaged in research and
    product development for UTC Power. Our work includes development of
    Proton Exchange Membrane (PEM), Phosphoric Acid (PAFC) and Solid Oxide
    (SOFC) fuel cell technology to serve commercial and transportation
    markets. We also develop integrated combined cooling, heating and power
    systems and organic Rankine cycle-based heat recovery systems for
    geothermal and waste heat applications.
    Company Background
        UTC Power, a business unit of United Technologies Corporation, is a
    world leader in commercial stationary fuel cell development and
    deployment. UTC Power also develops other innovative power systems for
    the distributed energy market. At the Committee's request, I will focus
    my remarks today on the latest addition to our portfolio of clean,
    efficient, reliable technology solutions--namely, the
    PureCycle' power system. This is an innovative low-
    temperature geothermal energy system that represents the first use of
    geothermal energy for power production in the state of Alaska and the
    lowest temperature geothermal resource ever used for commercial power
    production in the world. The technology currently is being demonstrated
    at the Chena Hot Springs resort 60 miles from Fairbanks, Alaska and 35
    miles off the power grid.
    Summary
        Geothermal energy addresses many of our national concerns, but its
    potential is largely untapped. UTC Power's PureCycle' system
    represents an innovative advancement in geothermal energy production
    and is operating successfully today in Alaska as part of a
    demonstration effort. This geothermal energy breakthrough offers the
    possibility of tapping into significant U.S. geothermal reserves for a
    domestic, renewable, continuously available source of power to meet our
    growing energy demands. Congressional action is needed, however, if the
    U.S. is to translate this potential into reality.
    Geothermal Energy Addresses Many National Concerns, But Huge
            Potential is Largely Untapped
        Our Nation is faced with air quality and global climate change
    challenges, ever-increasing fuel costs and a desire to be less
    dependent on energy sources from politically unstable areas of the
    world. The United States is blessed with an abundance of geothermal
    energy resources that offer a renewable, continuously available,
    largely untapped domestic resource. The country generates 2,800 MWe of
    geothermal energy for power production in California, Nevada, Utah and
    Hawaii and another 2,400 MWe is under development. While estimates
    vary, the Geothermal Energy Association indicates that with effective
    Federal and state support, as much as 20 percent of U.S. power needs
    could be met by geothermal energy sources by 2030. The National
    Renewable Energy Laboratory's report ``Geothermal: The Energy Under Our
    Feet'' concludes: ``Domestic resources are equivalent to a 30,000-year
    energy supply at our current rate for the United States.'' The study
    also notes: ``New low-temperature electric generation technology may
    greatly expand the geothermal resources that can be developed
    economically today.''
    Chena Hot Springs Resort Puts Geothermal on the Map in Alaska
        Thanks to a partnership between UTC Power, Chena Hot Springs
    Resort, the U.S. Department of Energy, Alaska Energy Authority, Alaska
    Industrial Development and Export Authority and the Denali Commission,
    Alaska was added last year to the list of states using geothermal
    resources for power production. The system operates on 165+ F (74+ C)
    geothermal water and by varying the refrigerant can use hydro thermal
    resources up to 300+ F (149+ C). This is an exciting breakthrough since
    previously experts had assumed that geothermal fluids needed to be at
    least 225+ F (107+ C) for economic power generation. It is also
    significant since a large portion of the estimated known U.S.
    geothermal resources are expected to be in the low to moderate
    temperature range, including a large number of deposits associated with
    oil and gas wells that are currently not economically viable and
    therefore non-productive.
        Alaska has some of the highest energy costs in the country for
    electric grid connected power and even higher costs for those off the
    grid. The Chena Hot Springs Resort, which operates independent of the
    grid, pays 30 cents per kilowatt hour (kWh) for electricity. When fully
    optimized and fully implemented, we expect the UTC Power
    PureCycle' system can reduce this cost to 5-7 cents per kWh,
    thus saving the owners $1,000 per day in fuel costs and eliminating the
    need for diesel fuel-burning generators and their harmful emissions.
        The system was commissioned in August 2006 and provides power for
    the resort's on-site electrical needs. Two PureCycle' 225 kW
    units are operational at Chena today and together have logged 5,400
    hours of experience with 100 percent reliability after the initial 500-
    hour commissioning shakedown and greater than 99.2 percent reliability
    overall.
        The visionary owners of the resort, Bernie and Connie Karl, are
    committed to a sustainable community that is entirely self-sufficient
    in terms of energy, food and fuel. Their dedication is evidenced by on-
    site renewable power sources that secure their energy independence
    while benefiting the environment.
        We are working closely with Alaskan authorities regarding further
    development of and enhancements to this technology. There is
    significant potential to deploy PureCycle' systems at
    Alaska's more than 200 rural villages that currently depend on diesel
    generators with fuel being shipped by air or water. This results in
    high costs, logistics issues and dirty, loud power generation that is
    inconsistent with native cultural values.
    Description of PureCycle technology
        The PureCycle' system is the product of a UTC
    brainstorming session in 2000 focused on opportunities for organic
    growth. It is based on organic Rankine cycle (ORC) technology--a closed
    loop process that in this case uses geothermal water to generate 225 kW
    of electrical power. Think of an air conditioner that uses electricity
    to generate cooling. The PureCycle' system reverses this
    process and uses heat to produce electricity. The system is driven by a
    simple evaporation process and is entirely enclosed, which means it
    produces no emissions. The only byproduct is electricity, and the
    fuel--hot water--is a free renewable resource. In fact, after the heat
    is extracted for power, the water is returned to the earth for
    reheating, resulting in the ultimate recycling loop.
    Innovative Features and Awards
        The PureCycle' system reflects a number of key
    innovations and breakthroughs. As mentioned previously, the Chena
    project is the world's lowest temperature geothermal resource being
    used for commercial power production and represents the first time
    geothermal energy has been used to produce electricity in Alaska.
        On the technical side, the PureCycle' system capitalizes
    on an advanced aero dynamic design that results in 85 percent
    efficiency from a radial inflow turbine derived from a Carrier Corp.
    compressor. Carrier Corp. is a sister UTC company and a world leader in
    air conditioning and refrigeration technology. The geothermal system is
    also unique in its ability to match the turbine design to working fluid
    properties, thus allowing the equipment to operate on a range of low to
    moderate temperature energy resources and enhancing its flexibility to
    meet customer requirements.
        While the PureCycle' system and its application to the
    geothermal energy market are new, the product draws upon decades of UTC
    innovation, operating experience and real-world expertise. Key
    components of the system are derived from Carrier Corp. and 90 percent
    of the PureCycle system is based on UTC high-volume, off-the-shelf
    components that enhance the value proposition to our customers.
        The Chena project has attracted world-wide attention and won two
    awards last year--a U.S. Environmental Protection Agency and Department
    of Energy 2006 National Green Power Award for on-site generation and
    Power Engineering magazine named it Renewable/Sustainable Energy
    Project of the Year.
    What Is the Significance of Low Temperature Geothermal Energy?
        Previously, geothermal energy for power production has been
    concentrated in only four Western U.S. states. The ability to use small
    power units at lower temperature geothermal resources will make
    distributed generation much more viable in many different regions of
    the country. Simply put, PureCycle' technology could result
    in significant new domestic, continuously available renewable energy
    resources--not just in Alaska, but across the country. The capability
    to operate with a low temperature resource allows the UTC
    PureCycle' System to utilize existing lower temperature
    wells and to bottom higher temperature geothermal flash plants and many
    existing ORC binary power plants.
        In addition, there are more than 500,000 oil and gas wells in the
    US, many of which are unprofitable. The use of geothermal hot water,
    which is abundant at many oil and gas well sites, to produce a
    renewable source of electrical power could extend the life of many of
    these assets. This would result in significant environmental, energy
    efficiency, climate change, economic and other benefits associated with
    the development of geothermal oil and gas electrical power.
    Recommended Actions
        It is unfortunate that at this moment in time when there are
    exciting innovative developments in the world of geothermal technology,
    the Federal Government is cutting off research and development funding.
    The rationale given is that the technology is mature and represents a
    resource with limited value since it is confined to only a few Western
    states.
        My message to you today is that we have only scratched the surface
    regarding our Nation's geothermal energy potential. We have not
    exhausted the R&D possibilities and this is not a resource that is
    limited to only a few Western states. As I've indicated in my
    testimony, there are advances in low-temperature geothermal energy
    alone that prove otherwise.
        The National Research Council report ``Renewable Power Pathways''
    recognized the importance of geothermal energy and stated: ``In light
    of the significant advantages of geothermal energy as a resource for
    power generation, it may be undervalued in DOE's renewable energy
    portfolio.''
        My testimony has focused on only one element of the geothermal
    opportunity--low-temperature resources. There are a variety of other
    research needs, including cost-shared partnerships to enhance the
    performance of existing successful systems, increase the size of the
    units and demonstrate benefits for the oil and gas market. We also need
    continued Federal funding for public/private partnerships for
    exploration, resource identification and drilling. We need more up-to-
    date survey information. The most recent U.S. Geological Survey for
    geothermal energy was conducted in 1979. This survey used techniques
    that are outdated today and was based on technology available 30 years
    ago. It did not consider low to moderate temperature resources since
    there was no technology available at the time that could utilize these
    resources in a cost-effective manner.
        As our Chena project demonstrates, far from being a mature
    technology with limited geographic reach, geothermal energy has the
    potential to satisfy a significant portion of our growing energy needs
    with a renewable, continuously available domestic resource. But
    appropriate government policies must be adopted and implemented to make
    this a reality. Congress can help to ensure we realize the full
    potential of geothermal energy. Attached to my testimony is a position
    paper by the Geothermal Energy Association * that outlines
    key industry recommendations and action items including:
    ---------------------------------------------------------------------------
        \*\ The information referred to has been retained in Committee
    files.

       Extension of the geothermal production tax credit and
    ---------------------------------------------------------------------------
            revised ``placed in service'' rules.

       Robust funding for DOE's Geothermal Research Program.

       Incentives for geothermal exploration.

       Comprehensive nationwide geothermal resources assessment.

        Thank you for the opportunity to testify and I would be pleased to
    answer your questions.
          Attachment--Achieving a 20 percent National Geothermal Goal
        The United States, as the world's largest producer of geothermal
    electricity, generates an average of 16 billion kilowatt hours of
    energy per year. While substantial, U.S. geothermal power is still only
    a fraction of the known potential. Today, roughly sixty new geothermal
    energy projects are under development in over a dozen states that will
    double current geothermal power production. With effective Federal and
    state support, recent reports indicate that as much as 20 percent of
    U.S. power needs could be met by geothermal energy sources by 2030.
        To achieve this, the Administration and Congress should adopt the
    following National Geothermal Goals for Federal agencies: Characterize
    the entire hydrothermal resource base by 2010; sustain double digit
    annual growth in geothermal power, direct use and heat pump
    applications; demonstrate state-of-the-art energy production from the
    full range of geothermal resources; achieve new power or commercial
    heat production in at least 25 states; and, develop the tools and
    techniques to build an engineered geothermal system (EGS) power plant
    by 2015.
        To support these goals and accelerate the production and
    development of energy from our geothermal resources, the following
    priority actions are needed:

        Revise the Section 45 Production Tax Credit (PTC) to support
    sustained geothermal power development. The PTC timeframe is too short
    for most geothermal projects to be completed by the current placed in
    service deadline. To achieve sustained geothermal development, Congress
    should immediately amend the law to allow facilities under construction
    by the placed in service date of the law to qualify, and extend the
    placed in service deadline by at least 5 years, to January 1, 2014,
    before its expiration.
        Fund a strong and effective DOE Geothermal Research Program that
    prioritizes the discovery and definition of geothermal resources;
    expands GRED funding; develops new exploration technologies; supports
    state-based programs to expand knowledge of the resource base and its
    potential applications; improves drilling technology; demonstrates
    geothermal applications in presently non-commercial settings; and
    develops and demonstrates of Enhanced Geothermal Systems techniques.
    DOE's geothermal program should be expanded to meet today's challenges
    and funded at $75 million annually.
        Provide incentives for geothermal exploration through renewed DOE
    cost-shared funding and other measures. Ninety percent of geothermal
    resources are hidden, having no surface manifestations. Exploration is
    therefore essential to expand production, but exploration is expensive
    and risky. Cost-shared support for exploration drilling has been
    provided through DOE's Geothermal Resource Exploration and Definition
    (GRED) program. GRED should be continued and expanded, with at least
    one-half of DOE's effort supporting exploration, and an exploration tax
    credit should be established.
        Expand and accelerate geothermal initiatives on the public lands.
    USGS should conduct a comprehensive nationwide geothermal resource
    assessment that examines the full range of geothermal resources and
    technologies; USGS should collect and make available to the public
    geologic and geophysical data to support exploration activities; BLM's
    Programmatic Environmental Impact Statement (PEIS) should be completed
    as a top priority; planning, leasing and permitting activities on BLM
    and National Forest lands should be adequately funded and conducted
    promptly. Appropriations (and dedicated funding) of $25 million
    annually should be provided for these agency efforts.

        Senator Kerry. Thank you very much, Dr. Preli, very
    interesting.
        Mr. Eckhart?

    STATEMENT OF MICHAEL T. ECKHART, PRESIDENT, AMERICAN COUNCIL ON
                        RENEWABLE ENERGY (ACORE)

        Mr. Eckhart. Good afternoon, Chairman Kerry and Ranking
    Member Ensign. It's an honor to be here.
        My name is Mike Eckhart, I'm President of the American
    Council on Renewable Energy, ACORE. We're a 501(c)(3) nonprofit
    based here in Washington, founded just 5 years ago to bring all
    the renewable energy industries together in one tent. We have
    400 members now, gaining about one per day, growing rapidly,
    including companies, utilities, banks, law firms, financiers;
    even government agencies--DOE, EPA--are dues-paying members of
    our group.
        Our mission is to bring all these organizations together on
    behalf of renewable energy, as a whole. Our focus is to bring
    renewable energy into the mainstream, which is the reverse of
    trying to bring the mainstream to renewable energy. As the
    founding philosophy, we're for renewable energy and against
    nothing. We're just for renewable energy.
        We were honored, at our most recent national policy
    conference, held in the Cannon Caucus Room, to have 18 of the
    agencies, nonprofits, and trade associations all give their
    outlook on renewable energy. And I have that for you in this
    book, which was just published, and you can review each of the
    positions briefly in 2-page summaries.
        I'll summarize the entire thing, including a consensus
    outlook we've gone on to do.
        In wind power, the American Wind Energy Association
    concludes that it's feasible and affordable to run wind power
    up to 20 percent of our national electricity supply. But we
    need, and deserve to have, more stable--and I know you already
    know this--long-term commitment of public policy to build
    toward that potential and to create a successful wind power
    industry. And this is the point I wish to make today. The fact
    is that nine out of ten of the world's largest wind turbine
    manufacturers are non-U.S. companies. Non-U.S. companies. And
    all of them are building wind turbine manufacturing plants in
    China this year, not in the U.S. This is a direct result of the
    instability and uncertainty in the U.S. wind power market that
    is due to the 2-year sunset provision in the production tax
    credit, turning the market on and off. The PTC should have a 5-
    year rolling commitment, looking forward, so industry knows
    that--what the public policies are for its long-term
    investments.
        In solar energy, it's somewhat similar. We see booming
    markets in Japan, Germany, Spain, and other countries. We need
    a booming market here. It can happen, and we can stabilize--if
    we can stabilize the investment tax credit to a longer-standing
    commitment. The solar energy industry's association believes
    there are over 100 gigawatts of solar power capacity that can
    be online by 2016, and as much as 150 gigawatts by 2025, with
    the stabilization of policy. And, here again, we have to look
    at jobs. Public policy must be stable to create an industry. We
    need to think about these jobs. In the ten of the ten largest
    solar cell manufacturers in the world, all ten are non-U.S.
    companies, and we need to recognize the state of the industry
    and bring it back to the U.S. We've lost our lead. We invented
    this technology, but we don't lead this as a manufacturing
    industry, and we need to bring it back here through stable,
    firm policies.
        In geothermal--and I'm sure Mr. Preli will enjoy my
    comments here--it is my opinion that geothermal energy is the
    huge missed opportunity in renewable energy. I believe it is
    perhaps the greatest engineering challenge ever faced by
    mankind, greater than going to the Moon, to reach down into the
    center of the Earth and bring up that heat so that we can
    replace all the coal-fired powerplants that simply boil water,
    which we can do with geothermal heat. We can replace this, and
    we can run the world economy on geothermal energy plus solar
    energy.
        In biofuels, we have the immediate opportunity, and we are
    acting well. We look at this and see the feasibility of getting
    to 30 percent of our motor fuel supply by biofuels. The
    combination of corn-based ethanol, cellulosic ethanol, and
    biodiesel offers us a path to reducing these oil imports and
    creating an industry here in rural America.
        Looking ahead, we see that renewable energy can be 20
    percent of our energy supply in 2020, 25 percent in 2025, and
    30 percent in 2030. This can be--we can supply the incremental
    gain in energy requirements of the U.S. through renewable
    energy and begin to address climate change in a meaningful way.
        What we offer is a recommendation on the kinds of public
    policy we need to make this happen.
        We need resolve. We should act with decisiveness in favor
    of renewable energy, and not try to just produce more of any
    form of energy. We must make a choice.
        We must be comprehensive, in that the national strategy
    must accommodate the differences, not the similarities--the
    regional differences in renewable energy resources, economics,
    and culture.
        We must address the competitiveness of this situation, as I
    mentioned, with the companies and the jobs. We must get the
    jobs that go along with renewable energy.
        We have to base it on technology. Our recommendation is to
    increase the RD&D budget tenfold--not 10 percent, but tenfold--
    including geothermal, at $100 million a year--$100 billion a
    year or more, in geothermal alone, to achieve its potential.
        And, last, we need stability. And we've said this, and I
    know it's been repeated here on the Hill many times in the past
    month. But it is true. Stability of policy is what Wall Street
    needs to make the long-term commitments to build this market
    and this industry.
        These guiding principles will lead us, and the country, to
    success. I thank the Senate for the honor and privilege of
    testifying here today.
        Thank you very much.
        [The prepared statement of Mr. Eckhart follows:]

             Prepared Statement of Michael T. Eckhart, President,
                  American Council On Renewable Energy (ACORE)
        This is the testimony of Michael Thomas Eckhart, President of the
    American Council On Renewable Energy (ACORE), a 501(c)(3) nonprofit
    organization founded in 2001 and based in Washington, D.C.
    Introduction to ACORE
        ACORE has grown rapidly and presently has over 400 organizational
    members including technology suppliers; energy marketing companies;
    utility companies; end users, colleges and universities; law firms,
    consulting firms and other professional services firms; financial firms
    such as investors, lenders, and insurance; nonprofit groups and
    environmental organizations; trade associations (including all of the
    national trade associations in renewable energy); and government
    agencies at the Federal, state and local levels.
        ACORE's mission is to bring together all of the organizations
    necessary to make renewable energy successful in our country. Our focus
    is to bring renewable energy into the mainstream of our American
    economy and lifestyle. As a founding philosophy that distinguishes
    ACORE, we are ``for renewable energy'' without being against anything.
        ACORE convenes the renewable energy community in three major
    conferences each year--a trade show in Las Vegas, a high-level finance
    conference in New York City, and a national policy forum here in
    Washington, D.C.
        In the most recent national policy conference on November 30, 2006,
    entitled ``Phase II of Renewable Energy in America: Market Forecasts
    and Policy Requirements'' we were honored to have 18 major agencies,
    associations, and nonprofit organizations give their outlook on
    renewable energy in America, now published in a report of the same
    title, which I enter into the record. The organizations included the
    following:

        Nonprofit and Academic Institutions:

       American Council on Renewable Energy

       American Solar Energy Society

       Apollo Alliance

       Energy Future Coalition

       The Renewable and Appropriate Energy Laboratory, University
            of California at Berkeley

       Worldwatch Institute

        Trade Associations:

       American Wind Energy Association

       Biomass Coordinating Council

       Geothermal Energy Association

       National Hydropower Association

       National Biodiesel Board

       Ocean Energy Council

       Renewable Fuels Association

       Solar Energy Industries Association

       U.S. Combined Heat & Power Association

        Government Agencies and Research Institutes:

       U.S. Department of Energy

       Electric Power Research Institute

       Energy Information Administration

       National Renewable Energy Laboratory

       Western Governors' Association

        ACORE then asked the participating organizations to form a working
    group, to develop a consensus outlook. This work was conducted from
    mid-December to mid-February 2007, and is currently being published.
        ACORE is pleased to present the text of the to-be-published 2007
    Consensus Outlook on Renewable Energy in America as part of my
    testimony today, in the following sections. The non-profit
    organizations, academic organizations, and trade associations endorse
    this consensus outlook--this is the first time in the industry's 30-
    year history that a consensus has been reached. The government agencies
    and research institutes acknowledge that their outlooks were included
    but of necessity cannot and do not endorse the report.
    Meeting America's Energy Needs
        Renewable energy could contribute dramatically to meeting America's
    energy needs, providing up to 550 gigawatts (GW) of new electricity
    generating capacity by 2025. That amount is equal to roughly half of
    total U.S. generating capacity today, and--according to projections
    from the U.S. Energy Information Administration (EIA)--represents
    substantially more than the additional electric power generating
    capacity needed by 2025. Moreover, with only a 3 percent share of the
    U.S. transportation fuels market, there is room for the biofuels
    industry to grow significantly. The Department of Energy's Advanced
    Energy Initiative calls for replacing 30 percent of our current
    gasoline consumption with biofuels by 2030.
        Renewable energy can meet the immediate needs of the U.S. while
    helping us achieve our economic, security, and environmental goals.
    America needs to scale up renewable energy use now for the following
    reasons.

       America needs secure energy supplies. The U.S. imports
            almost 60 percent of its oil and is faced with an aging
            electric grid dependent on centralized power production. In
            addition, EIA predicts that imports of liquefied natural gas
            will increase seven-fold over 2005 levels by 2030. Renewable
            energy sources are domestic resources, and can include
            distributed and smaller-scale generation, providing significant
            security advantages for the entire portfolio of power and fuel
            supply.

       America needs to address climate change. Scientists have
            shown the connection between climate change and extreme weather
            patterns, species extinction, desertification, and ecological
            damage. They are warning us that the time to act is now. Along
            with energy efficiency, renewable energy can be one of the
            major solutions to climate change, and can begin to make a
            difference immediately.

       America needs a cleaner environment. Renewable energy will
            allow the U.S. economy to continue growing while meeting
            environmental caps and other standards. More renewable energy
            will mean less pollution, improved public health, protected
            natural systems, and lower consumption of scarce water
            resources than the conventional energy path.

       America needs large-scale, economic energy supplies.
            Renewable energy can make a substantial contribution, supplying
            on the order of 25 percent of our energy needs by 2025, given
            the right policies and conditions.

       America needs energy at predictable costs. Volatility in oil
            and natural gas markets creates disruptions to the economy.
            Renewable energy can offer long-term, fixed price supplies and
            the certainty of future costs.

       America needs to grow industry and create jobs. Pursuing a
            renewable energy strategy could create $700 billion of economic
            activity and 5 million jobs by 2025--good jobs in the high-
            tech, engineering, construction, installation, agricultural and
            service sectors that can boost economies in both rural and
            manufacturing areas.\1\ The world market is also hungry for
            clean energy technologies. The U.S. should take advantage of
            the opportunity to develop new export potential while building
            the 21st Century's sustainable economy.
    ---------------------------------------------------------------------------
        \1\ English et al. (2006). 25 percent Renewable Energy for the
    United States by 2025: Agricultural and Economic Impacts. University of
    Tennessee at Knoxville. Available at: http://www.agpolicy.org/ppap/
    REPORT percent2025x25.pdf

       America needs to be competitive in the global marketplace.
            The U.S. has some of the largest renewable resources of any
            country in the world. Many renewable technologies were
            developed in the U.S., but lost essential support. Now, our
            inconsistent policies threaten to sacrifice tremendous
            opportunities for economic development and export. If America
            wishes to lead in the development of today's most promising
            energy sources, our country must provide the essential policy
            environment for private sector investment and growth of
            renewable energy in our domestic market.
    How Renewable Energy Can Meet America's Needs
        To meet America's energy needs we must consider how energy is
    consumed in our economy. There are four broad energy-use sectors:
    industrial, commercial, residential, and transportation. The major
    applications are electricity production, heating, and transportation
    fuels. Here is how renewable energy serves these needs.

       An energy source for America's electric utilities--The
            estimates presented in this report suggest a potential for more
            than 550 GW of new renewable electricity generation capacity by
            the year 2025, which is substantially more than the new
            capacity needed by that date. This capacity will come from all
            of the renewable technologies: wind, geothermal, solar, water,
            and biomass power.

       Distributed applications--Increasingly, end users of all
            kinds are generating their own electricity and managing their
            thermal energy uses with an eye toward greater energy
            efficiency. Many methods--such as Industrial Efficiency, Green
            Buildings, Climate-Neutral Campuses, and Zero-Energy Homes--
            include a combination of efficiency and renewable energy.
            Examples of distributed applications of renewable energy
            include: building-mounted solar PV; solar heating and cooling;
            geothermal energy used in a home or greenhouse; biomass or wind
            energy on a ranch or farm; combined heat and power at an
            industrial facility using biomass fuels; and recycled energy at
            power generationsites.

       Transportation fuels--Analyses conducted for the Energy
            Future Coalition have supported the feasibility of having
            biofuels supply 25 percent of our transportation energy needs
            by 2025. The package of available transportation fuels includes
            ethanol, biobutanol, biodiesel, bio-based diesel fuels, and a
            variety of other bio-based transportation fuels. These fuels
            can be used to power aircraft and watercraft as well as trucks
            and automobiles.

       Production of electricity and hydrogen for transportation--
            In addition to biofuels, there is substantial potential for
            renewable energy sources to meet transportation needs through
            hydrogen production and adoption of transportation technologies
            using renewable electricity, such as plug-in hybrids, electric
            vehicles, and mass transit.
    Public Policy to Meet America's Needs
        America needs coordinated, sustained Federal and state policies
    that expand renewable energy markets, promote and deploy new
    technology, and appropriately provide opportunities to encourage
    renewable energy use in each of the market sectors and applications
    mentioned above. Other countries, such as Germany, Spain, and Japan,
    have succeeded in building successful renewable energy industries by
    directing their incentive programs to the end-use markets while
    continuing support for research and development of new and improved
    technologies. The U.S. can do the same, if we establish similar long-
    term, market-oriented policies to ``pull through'' the new
    technologies.
    Outlook on Each Renewable Energy Technology
        During the successful ``Phase I'' period of renewable energy
    development that occurred from about 1975 to 2000, the focus was solely
    on research, development and demonstration (RD&D) of the many new
    technologies. Now, as the U.S. shifts into Phase II strategies for
    putting the technologies into use at scale, we face new challenges.
    Research and demonstration should be expanded, but at the same time,
    there is an increasing need to focus on deployment and market
    incentives. Expanding renewable energy will require support for the
    full range of renewable technologies, recognizing their many
    differences as well as their common foundation as sustainable
    technologies.
        Up to 550 GW of new renewable power capacity could be available by
    2025, assuming development of biomass, geothermal, hydro, solar, and
    wind projects as envisioned by the industry groups that participated in
    ACORE's National Policy Conference ``Renewable Energy in America: Phase
    II Market Forecasts and Policy Requirements'' in November 2006. (See
    Figure 1, below.)

        The following offers a summary outlook on each key renewable energy
    technology.
    Wind Power
        Wind power is providing increasing capacity to electricity markets
    around the world. The American Wind Energy Association (AWEA) concludes
    that it is feasible and affordable to increase wind capacity to supply
    20 percent of this Nation's electricity by 2030. AWEA envisions that
    active ``community wind'' projects as well as small distributed wind
    applications will supplement large utility-scale projects. Offshore
    wind is expected to begin as early as 2010, and to increase thereafter.
        This outlook foresees 340 GW of new wind capacity by 2030. Using an
    average growth rate, this would result in 163 GW of new wind capacity
    by the year 2025.\2\
    ---------------------------------------------------------------------------
        \2\ These capacity numbers were estimated using an increasing, then
    steady installation growth rate.
    ---------------------------------------------------------------------------
        Achieving this level of wind power will require new transmission
    capacity to transmit power from areas with wind resources to regional
    power markets where the demand exists. Continued research and
    development also will be needed to achieve improved efficiencies and
    economies of scale in wind turbine technology to serve lower-wind
    regions and offshore locations.
    Solar Heat and Power
        Solar energy is an abundant renewable resource across America, and
    can become a significant source of new generating capacity in a
    relatively short timeframe. The rapid scale-up of solar energy markets
    has been demonstrated in Japan, Germany, Spain, and other countries.
        The outlook for solar energy in the U.S. envisions 110 GW of new
    solar power capacity by 2016, resulting from a 67 percent compound
    annual growth rate. After a rapid growth through 2015, the solar market
    is foreseen to stabilize with 5 GW of photovoltaic (PV) and 1 GW of
    concentrating solar power (CSP) added annually from 2016-2025,
    resulting in total solar capacity additions of 164 GW in 2025.\3\
    ---------------------------------------------------------------------------
        \3\ Solar Industry Outlook, presentation to ``Renewable Energy in
    America: Phase II Market Forecasts and Policy Requirements,'' November
    29-30, 2006. http://www.acore.org/programs/06policy_presentations.php
    ---------------------------------------------------------------------------
        The Solar Energy Industries Association (SEIA) envisions this
    scenario based on robust growth in PV installations on residential
    rooftops and other locations as well as larger, utility-scale CSP
    plants. Furthermore, solar water heating is expected to take off as it
    has in other countries that have embraced renewable energy.
        This robust scenario requires a long-term incentive plan to
    encourage manufacturing and power plant development, financing, and
    increased industry growth. Additionally, this scenario requires that
    units can be interconnected as installed without additional utility or
    permitting costs, that net metering applies nationwide at retail rates,
    and that continued cost reductions be realized through continued
    manufacturing scale-up and economies of scale.
        Continued research and development will be required to maintain the
    pace of achievements in improved conversion efficiencies, focusing both
    on current processes and manufacturing methods as well as developing
    nano-structured materials for the next generation of PV technology. For
    CSP, new transmission capacity will be required to transmit power from
    areas with rich solar resources to regional power markets where the
    demand exists. Policies that offer rewards or incentives for the
    adoption of technologies like solar water and space heating are also
    needed.
    Water Power
        The water power technologies expected to contribute to this outlook
    are conventional hydropower, hydrokinetic power, and ocean energy which
    includes wave, current, tidal, marine biomass, and Ocean Thermal Energy
    Conversion (OTEC) power.
        Conventional hydropower is already the leading source of renewable
    electric power capacity at over 75 percent of all renewable energy
    sites. Its quick, reliable load-following capability and seasonal
    capacity can enhance the performance of other renewables by balancing
    variability in resources. In addition, the potential for power
    generation from ocean currents and tidal flow is tremendous. Plus, the
    new field of hydrokinetic power offers a wide range of distributed
    power generation options. Utilizing all the water power technologies,
    there is the potential to add 23 GW of capacity by 2025.\4\
    ---------------------------------------------------------------------------
        \4\ Hydropower Industry Outlook, presentation to ``Renewable Energy
    in America: Phase II Market Forecasts and Policy Requirements,''
    November 29-30, 2006. http://www.acore.org/programs/
    06policy_presentations.php
    ---------------------------------------------------------------------------
        There are still other areas of growth that have yet to be assessed,
    such as additions of capacity on man-made waterways (e.g., conduit
    power). Advanced research, development, and demonstration are necessary
    to support this growth for both improvements of conventional systems
    and development of new technologies. Incentives for commercialization
    will be needed for early hydrokinetic and ocean power technologies.
    Geothermal Heat and Power
        Geothermal energy is poised to expand rapidly. The Geothermal
    Energy Association (GEA) cites the 62 new geothermal energy projects in
    development as evidence of the industry's most dramatic wave of
    expansion since the 1980s. Geothermal's status as a baseload energy
    source--one that is available 24 hours a day, 7 days a week--makes it a
    particularly appealing option for utilities.
        Geothermal resources could contribute 100 GW of new capacity by
    2025, tapping both identified resources and new discoveries in
    hydrothermal sites, co-production from oil and gas wells, and deep
    resources and engineered geothermal systems (EGS). Furthermore,
    geothermal energy for direct uses and heat pumps could provide
    significant additional energy not included in this total if policies
    support their growth.
        The outlook for 100 GW of new geothermal capacity by 2025 assumes
    development of 20 GW from the hydrothermal resource base, development
    of 70 GW from co-production and geo-pressured resources, and 10 GW of
    deep geothermal sources and EGS systems.\5\
    ---------------------------------------------------------------------------
        \5\ Geothermal----
        i. Geothermal Industry Outlook, presentation to ``Renewable Energy
    in America: Phase II Market Forecasts and Policy Requirements,''
    November 29-30, 2006. http://www.acore.org/programs/
    06policy_presentations.php
        ii. ``Geothermal--the Energy Under Our Feet,'' Bruce D. Green and
    R. Gerald Nix, National Renewable Energy Laboratory, November 2006,
    Technical Report NREL/TP-840-40665.
    ---------------------------------------------------------------------------
        This scenario requires: long-term extension of the production tax
    credit; continued prioritization of expedited leasing and permitting
    decisions; expanded support for exploration and characterization of the
    resource base; support for development and demonstration of geo-
    pressured resources and co-production; and, continued development of
    the full range of geothermal resource and power technologies working
    toward the development and deployment of engineered geothermal systems.
    Biomass and Bio-based Products
        According to the U.S. Combined Heat and Power Association (USCHPA),
    biomass power projects could see a ten-fold increase from the current
    installed base of 10 GW. This increase would result in 100 GW of new
    biomass capacity by 2025.\6\
    ---------------------------------------------------------------------------
        \6\ Biomass----
        i. Resource Dynamics Corporation, Opportunity Fuels and Combined
    Heat and Power: A Market Assessment, August 2006, prepared for U.S.
    Department of Energy and Oak Ridge National Laboratory.
        ii. Larson and Raymond, ``Commercializing Black Liquor and Biomass
    Gasifier/Gas Turbine Technology'', TAPPI Journal, 1997.
        iii. Biomass R&D Technical Advisory Committee, Vision For Bioenergy
    and Biobased Products in the United States, March 2006.
        iv. Western Governor's Association, Clean and Diversified Energy
    Initiative, Biomass Task Force Report, January 2006.
        v. Energy Information Administration, Form 860 ``Annual Electric
    Generator Report,'' 2005.
    ---------------------------------------------------------------------------
        Growth is expected to take place in wholesale power generation as
    well as distributed production in pulp and paper mills, commercial and
    industrial facilities, and solid waste conversion to energy. Continued
    growth in farm, landfill, and wastewater treatment power projects will
    supplement this growth. A substantial portion of this new capacity
    would come from combined heat and power applications, where thermal
    energy that would otherwise be wasted is applied for productive uses,
    resulting in very high (up to 85 percent) efficiencies.
        Due to the localized nature of fuel availability and thermal loads,
    the majority of new biomass power projects will be at distributed
    facilities near demand centers. In these applications, local energy
    resources will be used to fuel local development. Like other load-
    sited, distributed renewable projects, these biomass applications
    benefit the grid by alleviating congestion, freeing up capacity, and
    deferring expensive system upgrades.
        Just over one-third of new capacity will require access to the
    transmission system. New transmission capacity will be required to
    transmit power from wholesale power generators in areas rich with
    biomass resources to regional power markets where demand exists.
        Research and development will be required to achieve improved
    biomass conversion technology with lower capital costs, targeting both
    gasification and pyrolysis approaches.
        The demand for biomass created by new biomass power and biofuel
    production would be many times greater than current levels; it is
    assumed that sufficient resources will be available to support these
    demands at economic prices. Recent studies suggest that resources will
    be sufficient.
    Biofuels
        New biomass power and biofuel production will greatly increase
    demand for biomass resources. However, recent studies by the National
    Renewable Energy Laboratory, the University of Tennessee, and Oak Ridge
    National Laboratory indicate that the U.S. agriculture and forestry
    industries have the potential to produce enough biomass resources to
    supplant 30 percent-40 percent of current U.S. petroleum products while
    meeting food, feed, fiber and export needs.
        DOE has set a goal of ``30 percent by 2030,'' and will publish a
    study that will examine market, policy, and technology changes required
    for the U.S. biofuels market to replace 30 percent of current levels of
    gasoline consumption by the year 2030.\7\ This is an aggressive but
    achievable goal that will require policy commitment and technology
    advances. The key components of the biofuels opportunity are ethanol,
    biodiesel, and bio-based diesel fuels.
    ---------------------------------------------------------------------------
        \7\ U.S. DOE is studying the feasibility of a rapid scale-up, and
    will publish a ``30 percent by 2030'' study that will examine market,
    policy, and technology changes required for the U.S. biofuels market to
    replace 30 percent of current levels of gasoline consumption by the
    year 2030.

       Ethanol fuel--The U.S. produced 4.9 billion gallons of
            ethanol in 2006. Today, 111 ethanol plants in 19 states have
            the capacity to produce 5.4 billion gallons of ethanol. As of
            January 2007, an additional 78 plants are under construction,
            combined with seven expansions, which will increase industry
            capacity by 6.1 billion gallons. By the first quarter of 2009,
            the industry's annual production capacity is estimated to reach
    ---------------------------------------------------------------------------
            11.6 billion gallons per year.

        This rapid growth can continue if the U.S. maintains and extends
            existing tax incentives for all ethanol blends, expands tax
            incentives for ethanol refueling infrastructure, and creates
            new consumer-based tax incentives to encourage flexible fuel
            vehicles and the purchase of ethanol. Such growth will also
            require the U.S. to build upon the industry's advancements in
            technologies to reduce energy consumption, improve biorefinery
            efficiency, develop new co-products, and--of crucial
            importance--move toward commercial deployment of cellulosic
            ethanol.

       Biodiesel fuels--The National Biodiesel Board (NBB) reports
            that U.S. production is on track to increase from 25 million
            gallons in 2004 to 226 million gallons in 2006. The number of
            plants has increased from 22 in 2004 to 85 in January 2007,
            with another 65 under construction. The industry envisions that
            biodiesel blends will displace 5 percent of the diesel fuel
            market by 2015.

        Technology is rapidly emerging to produce bio-based diesel fuels
            from a variety of feedstocks, including woody biomass and
            municipal and organic wastes. By U.S. law, these fuels are
            classified separately from biodiesel. Currently, there are no
            long-range forecasts for these bio-based fuels. However,
            several might be commercial before the end of 2010.
    Bio-based Products
        In addition to fuels, bio-based products could include solvents,
    cleaners, lubricants, greases, panels for cars and trucks, agricultural
    products, pharmaceuticals, inks and paints. Essentially, almost
    anything made from petrochemicals can be produced from some form of
    biomass, displacing usage of some level of petrochemicals.
    Renewable Energy Stored in Hydrogen for Transportation
        In addition to biofuels, there is substantial potential for
    renewable energy sources to meet transportation needs. The hundreds of
    gigawatts of renewable power potentially available could supply
    electric vehicles or charge the batteries of plug-in hybrids, power
    electric mass transit systems, and support hydrogen production through
    electrolysis for use with fuel cells. Together, the potential for
    renewable power to displace liquid transportation fuels is substantial.
    Public Policy for Technology Research, Development, and
            Commercialization
        Why haven't renewable technologies achieved their potential? A
    fundamental problem with the development and deployment of renewable
    technologies has been the uncertainty of government policy. Support for
    both research-push and market-pull policies has been constrained by
    short-term commitments, which are destabilizing to industrial growth.
        If renewable energy is to be developed to its full potential,
    decades of under-investment in energy research and dissemination must
    end. Figure 2 shows the continuing reductions in funding that this
    sector has received.

        Source: Kammen, D. M. and G. F. Nemet (2005) `Reversing the
    incredible shrinking energy budget'', Issues in Science and Technology,
    Fall, 84-88.
    Renewable Energy Market Outlook and Challenges
        The assessments and analyses presented at the Phase II Conference
    offered valuable information about the outlook for renewable energy in
    the United States. Together, they form a picture of what a business-as-
    usual (base case) future might look like if no policy changes are
    implemented, and of the potential for a more aggressive renewable
    energy strategy (mid-range and higher potential cases). This section
    summarizes the range of sensitivity of the renewable energy outlook to
    public policy.
    Business-As-Usual Outlook
        The Energy Information Agency (EIA) presented the reference case
    from the Annual Energy Outlook 2007, assuming ``all current standards,
    laws, and regulations remain as currently enacted.'' Under this
    scenario, total U.S. primary energy consumption is expected to increase
    from 100 quadrillion Btu (quads) in 2005 to 131 quads in 2030.
        During this period, the share of renewable electricity generation
    is forecast to remain constant at 9 percent, while coal is expected to
    increase its share of electric power generation from 50 percent in 2005
    to 57 percent in 2030. Ethanol use is expected to increase from 4
    billion gallons in 2005 to 14.6 billion gallons in 2030, or about 8
    percent of total gasoline consumption by volume--far short of what is
    needed. Even with currently available renewable energy technologies,
    this forecast is not consistent with an energy strategy that embraces
    sustainability, climate stabilization and a healthier environment. This
    official base case clearly indicates that without substantial change in
    policy, renewable energy is not expected to significantly increase its
    share of the U.S. energy market.
    Mid-Range Outlook
        There have been several ``mid-range'' conclusions, based on modest
    changes or extensions of policy and the assumption of conditions that
    are favorable to renewables.
        The Western Governors' Association (WGA) conducted a two-year study
    of clean energy technologies in the region. WGA concluded that, in just
    the Western States, renewable energy could contribute upwards of 68,000
    MW (68 GW) by 2020. In addition, the Electric Power Research Institute
    (EPRI) ran an analysis that emphasized the value in a ``balanced
    generation portfolio'' and included a CO2 cost, beginning in
    2015. This analysis estimates that electricity from new renewable
    resources (excluding hydropower) can reach 13 percent of demand by
    2030.
        The WGA estimate and EPRI ``balanced generation portfolio''
    estimate appear to present a more aggressive strategy than the base
    case scenarios. However, compared to the assessments of the renewable
    industry and others, these would have to be considered mid-range
    potentials.
    High Potential Outlook
        Together, the renewable power estimates described in Section 3
    present a dramatic picture of what would be possible under an
    aggressive renewable energy scenario. Additional renewable capacity
    could reach 550 GW by 2025. This is potentially more than the new,
    additional electric power generating capacity needed by that date
    according to EIA. Each technology has a different operating
    characteristic and capacity factor, so GWs do not necessarily add.
        EPRI looked at a more aggressive strategy with both high natural
    gas prices and high CO2 costs. This case, dubbed the
    ``double whammy,'' shows further growth of new renewables in the
    electric supply sector. The results, excluding geothermal and
    hydropower power, show a renewable contribution to electricity of 16
    percent by 2030, and as much as 25 percent by 2050.
        The outlook for renewable fuels is equally robust. Biodiesel is
    growing fast. The National Biodiesel Board (NBB) has estimated that
    biodiesel could displace 5 percent of petroleum diesel in a near- to
    mid-term timeframe. The Renewable Fuels Association (RFA) has presented
    an overall outlook for its sector, noting the dramatic growth in the
    industry today. This growth is expected to be sustained, with ethanol
    reaching 14 to 15 billion gallons in the mid-term future. But this is
    not the full potential of the resource. RFA asserts that 30 percent of
    motor fuel could come from renewable sources by 2030, which would be 60
    billion gallons of annual production. In addition, the advent of plug-
    in hybrid vehicles and other electricity-based transportation systems
    and technologies would allow renewable power to contribute to
    displacing the need for imported oil.
    Support from Leading Organizations
        A growing trend is emerging in American leadership. Many leading
    national campaigns and organizations support an aggressive shift to
    increasing the use of renewable energy. Although the details may vary,
    the goals are the same: creating jobs and economic growth, improving
    energy security, cleaning the environment, and stemming global warming.
    Time after time, when serious, credible experts assess the potential
    for renewable energy, they reach independent conclusions that are
    consistent with the transition to greater levels of renewable energy:

       20% by 2020: The Union of Concerned Scientists (UCS)' call
            for a national renewable portfolio standard--resulting in
            180,000 MW (180 GW) of renewable power by 2020--shows that
            natural gas prices would decrease, creating a net benefit to
            the economy.\8\
    ---------------------------------------------------------------------------
        \8\ Statement of Alan Nogee, Director, Union of Concerned
    Scientists Clean Energy Program, before the U.S. House Committee on
    Energy and Commerce, Subcommittee on Energy and Air Quality, February
    16, 2005. http://www.ucsusa.org/clean--energy/renewable_energy_basics/
    renewable-energy-and-electricity-testimony-2005.html

       25% by 2025: The 25 x `25 Initiative, supported by the
            Energy Future Coalition (EFC), commissioned a report by the
            University of Tennessee which shows that 25 percent renewable
            energy by 2025 is affordable and achievable and will create 3-5
            million new jobs and spur $700 billion in economic activity.\9\
    ---------------------------------------------------------------------------
        \9\ English et al. (2006). 25 percent Renewable Energy for the
    United States by 2025: Agricultural and Economic Impacts. University of
    Tennessee at Knoxville. Available at: http://www.agpolicy.org/ppap/
    REPORT percent2025x25.pdf

       Over 30 percent by 2030: For its recently released report,
            ``Tackling Climate Change in the U.S.'',\10\ the American Solar
            Energy Society (ASES) asked experts in efficiency and each
            renewable technology ``to come up with their best estimates of
            what their technology could do [by 2030] . . . with an
            aggressive climate-driven scenario in mind'' (ASES, p.12).
            Independent assessments of the potential for CSP, PV, wind,
            biomass, and geothermal technologies came up with a combined
            contribution to the U.S. electricity grid of 2,208 Terawatt
            hours/year by 2030, about 40 percent of the EIA's projected
            demand for electricity under a ``business as usual'' scenario
            (i.e., not accounting for energy efficiency improvements). The
            potential contribution from energy efficiency is even greater.
    ---------------------------------------------------------------------------
        \10\ Tackling Climate Change in the U.S.: Potential Carbon
    Emissions Reductions from Energy Efficiency and Renewable Energy by
    2030. Charles F. Kutscher, Editor. American Solar Energy Society,
    January 2007. 180 pp. Searchable pdf at www.ases.org/climatechange.

        Many of these campaigns, as well as the Apollo Alliance's outlook
    for 3 million jobs from clean energy solutions, are also supported by
    diverse coalitions which include business, labor unions, production
    agriculture, religious groups, conservation and environmental
    organizations, public health advocates, and local, state, and
    nationally elected officials.
    Future Success in Each Technology
        Achieving the high-potential scenarios will depend on progress made
    to advance each technology's performance, lower its cost, and overcome
    challenges of market acceptance at scale. Identifying and overcoming
    the various obstacles for each technology and end use sector should be
    a priority for Federal and state policies. None of the known
    impediments to achieving our goals appear insurmountable if there is
    the political will to support renewable energy. Here are some examples.

       Wind power--The challenges include: improved access to
            transmission; long-term production tax credit (PTC) extension;
            new state or national renewables portfolio standards (RPS) and
            effective implementation of existing RPS; continued research
            support; development of an off-shore regime in supportive
            manner; continued priority on Federal lands; and recognition of
            bird/bat mitigation success.

       Solar energy--The challenges include: local covenant
            restrictions; consistent and effective net metering polices at
            the state and Federal levels; silicon availability and price;
            new state or national RPS and effective implementation of
            existing RPS; research and support for reduced balance of
            systems cost; infrastructure development; competition with
            foreign markets; inclusion in state and Federal renewable laws;
            modification of the investment tax credit to remove the cap and
            extend multiple (8-10) years; and other factors.

       Water power--The challenges include: regulatory streamlining
            and resolving licensing issues for the new technologies (ocean,
            tidal, and instream power); research and development support
            for both the next generation of conventional hydropower
            equipment and the new technologies; long term extension of the
            Section 45 PTC and inclusion of ocean, tidal and instream
            projects, equitable treatment in state RPS efforts; and
            transmission support.

       Geothermal energy--The challenges include: long-term PTC
            extension; new state or national RPS and effective
            implementation of existing RPS; restoration of DOE Research
            Program; support for exploratory drilling program and
            characterization of the U.S. hydrothermal resource base;
            demonstration of geopressured and oil field co-production;
            consistent work toward Enhanced Geothermal Systems
            demonstration; funding and prioritization of public land
            leasing and permitting; and inclusion in state renewable
            initiatives.

       Biomass power--The challenges include: extension of the
            biomass PTC, and the inclusion of a thermal credit to promote
            high efficiency combined heat and power applications; new state
            or national RPS and effective implementation of existing RPS;
            access to sustainable supply of feedstock, including from
            public lands; inclusion in state renewable efforts without
            excessive restrictions; continued research support; credits for
            other attributes (pollutant and criteria pollutant reductions,
            greenhouse gas emissions reductions, and recovered thermal
            energy) and, in the case of distributed biomass applications,
            recognition of grid benefits in tariff design and cost
            allocation; inclusion of landfill gas and appropriate municipal
            solid waste (MSW) technologies as creditable renewable energy
            systems; and reasonable interconnection standards.

       Biofuels--The challenges include: deploying first-of-a-kind
            biorefinery technology; increasing cellulosic biofuels
            research, development, deployment, and commercialization
            funding; expanding and modernizing fueling infrastructure; and
            increasing the number of flexible-fuel vehicles on the road.
    Market Drivers
        It must be recognized that achieving any scenario is subject to
    significant uncertainties in key market drivers. Important factors
    include the following.

       Volatility in oil and gas prices

       Pace and scale of action on climate change

       Extent of technology breakthroughs

       Policies/opportunities abroad

        This section has presented a sense of the range of possible future
    outcomes for renewable energy in the U.S. Within the context of
    marketplace uncertainties, the major determinant of future market share
    for renewable energy is public policy.

        EIA's low/base-case scenarios assume no change in policy, and the
    resulting renewable development is minimal.

       Mid-range scenarios assume a continuation of the positive
            policies that are in place, plus market conditions favorable to
            renewables.

       The high-potential scenarios require favorable market
            conditions and a sustained commitment of public policy to see
            renewable energy scaled up to higher levels of contribution to
            U.S. energy supplies.

        America's renewable energy industries are ready to take the U.S. in
    a new direction. Now the right public policies are needed to help chart
    this route.
    Benefits of Renewable Energy for the U.S. and the World
        When the high-potential scenarios that are described in Sections 3
    and 4 are achieved, resulting benefits to the U.S. and the world will
    include increased energy supply, improved national security, better
    health, reduced risk of climate change and environmental impacts, and
    greater economic prosperity.

       Energy supply--The consensus outlook calls for 20 percent of
            U.S. electric power supply by 2020 based on the UCS proposal
            for a national RPS, 25 percent of U.S. energy supply by 2025
            based on the EFC proposal for energy from rural America, and 30
            percent or more of U.S. energy supply by 2030 implied by the
            ASES assessment of climate change mitigation.

       National security--The reduction of imported energy provides
            a more secure future. We can reduce imported oil from 60
            percent today to a much lower level, and preclude the importing
            of natural gas via liquefied natural gas (LNG). Energy
            independence has long been a ``top priority,'' but for the past
            30 years has proved an elusive goal. If we can tap the
            potential of our domestic renewable energy resources, we can
            make real progress toward achieving true energy independence.

       Environment and health--A renewable energy future is an
            environmentally sound future with cleaner air, cleaner and more
            abundant water, lower chemical contamination, improved human
            health, and a safer environment for our children and
            grandchildren. A key benefit that is often overlooked is the
            fact that renewable energy reduces our consumption of
            increasingly scarce clean water supplies.

       Climate change--As America turns to address global climate
            change, we find ourselves facing an enormous problem of
            potentially unprecedented impact. By capturing the potential of
            renewable energy and improving energy efficiency, we can
            drastically reduce greenhouse gas emissions and make the U.S. a
            world leader in mitigating the risks of climate change.

       Economic prosperity--Renewable energy is domestic energy and
            can be deployed using U.S. technology, capital and labor. With
            biofuels, we support companies and jobs in the Midwest instead
            of the Middle East. With renewable power, we employ U.S.
            workers to install U.S. technology and deliver U.S. services.
            The Apollo Alliance and other organizations estimate that
            renewable development can result in as many as 3 million U.S.
            jobs. All renewable energy technologies are ``New Wealth
            Industries'' with major economic multipliers, as the
            technologies are manufactured domestically and their products
            move to consumers through a variety of processes.
    Guiding Principles for Public Policy
        The potential for renewable development, according to this
    consensus outlook, is much greater than previously published. The
    potential for renewable energy development is enormous, and is ready to
    be tapped. The sustainable solution is renewable energy and energy
    efficiency. But we must start now.
        What kinds of public policy are needed for renewable energy to
    thrive? In summary, as a vision of renewable energy in America, the
    following are principles on which to base public policy.

       Resolve--We should act with decisiveness in favor of
            renewable energy and other energy technologies that support our
            national goals for security, growth, environment, climate, and
            jobs.

       Comprehensiveness--We need a comprehensive national
            renewable energy strategy that addresses the full range of
            technological and market issues, reflects the regional
            diversity of renewable energy resource economics and
            opportunities, and helps and rewards state and local
            governments for bold and effective coordinated action.

       Competitiveness--We should continue to utilize the
            competitive market as the most powerful driver of change, and
            increase U.S. competitiveness on renewable energy in the global
            marketplace.

       Integration--Our energy policies should address both the
            challenges of oil dependence and of global warming in an
            integrated way.

       Results-oriented--We need to build the infrastructure of a
            more sustainable society, including but not limited to:

         Electric Power Generation: We should support long-term
                incentives and other policies to catalyze investment in new
                renewable power for all technologies and both central
                station and distributed generation.

         Electric Transmission: We should build a modernized
                transmission system, similar to our national highway
                system, which links our domestic renewable energy sources
                with the cities and other demand centers.

         Electric Distribution: We should enhance electric
                distribution systems to allow optimal utilization of on-
                site distributed renewable technologies at the point of
                energy use.

         Renewable Fuels: We should support investment both in
                next-generation biofuels technology and the infrastructure
                to bring it to market.

         Energy Efficiency: We need to recognize that energy
                efficiency and renewable energy work together and offer
                many of the same fundamental benefits--environmental
                cleanliness, domestic resources, security, and platforms
                for economic growth--justifying policies that encourage
                more efficient buildings, industrial processes, and
                vehicles, as well as power generation using combined heat
                and power.

       Technology--The U.S. needs a tenfold increase in budget for
            an accelerated national R&D program that balances near-term
            needs with investments in longer-term research and science that
            will produce the next generation of technologies, and that
            returns the U.S. to global leadership on these technologies.

       Stability--There is an overarching need for long-term and
            stable policy commitments that allow industry, the financial
            sector, and individual Americans to make long-term investments
            in factories, bio-refineries, renewable power plants, and more
            efficient buildings and homes. Stability and long-term
            commitment are the new watchwords for renewable energy policy.

        These guiding principles will allow our country to successfully
    transition toward a scale-up of the use of renewable resources to power
    and fuel America. This is a bold joint statement on the potential that
    the U.S. has before it, to seek solutions and make them a reality. It
    should be now clear that renewable energy has the potential to provide
    a substantial share of America's energy needs--beginning immediately.

        Senator Kerry. We thank you, Mr. Eckhart. Thank you very
    much.
        Dr. Sridhar?

                      STATEMENT OF K. R. SRIDHAR,
                 PRINCIPAL CO-FOUNDER/CEO, BLOOM ENERGY

        Dr. Sridhar. Thank you, Chairman Kerry, Ranking Member
    Ensign, Senator Stevens. It's an honor to have this opportunity
    to share my views on energy innovations, obviously a topic that
    I am extremely passionate about.
        My name is K. R. Sridhar, and I'm the Principal Co-Founder
    and CEO of Bloom Energy, a California-based fuel-cell company.
    As an entrepreneur, I am here to talk to you about the ability
    of technology innovations to have a disruptive impact on the
    energy crisis that we are facing. The global energy crisis that
    we are facing, is also the biggest market opportunity of the
    century, and disruptive technologies are the ones that are
    going to help us achieve energy security, reliability, and
    abundance without compromising either the environment or the
    pocketbook.
        I'm also here to tell you that it's absolutely essential,
    from a global perspective, that we generate more energy, not
    less, as we move forward. Why is that important? Because
    there's a direct correlation between energy consumption and
    economic growth. There is also a direct correlation between
    energy consumption and quality of life. This country was
    founded on the basic principle that every generation will have
    a better life, moving forward, than the previous generation. We
    also built our superpower status by exporting technologies that
    offered a better life for citizens of the world.
        Imagine if you had told the Internet pioneers that they had
    to live with the low-speed dialup modems and could not have had
    more bandwidth. Do you think we would have had the
    revolutionary changes we have witnessed over the decade? I
    think not.
        Now I think the time has come for the same thing to happen
    for energy. We must find and attack the biggest problems, and
    not shy away from them. For example, most of the media
    attention is focused on the energy crisis surrounding
    transportation, but we know that roughly two-thirds of our
    CO2 emissions as well as energy consumption--comes
    from stationary applications. Within the stationary power
    space, we have focused on conservation and consumption, but
    transmission and distribution inefficiencies, and the
    inefficiencies of large-scale powerplants, are things that we
    have not addressed. And it's also clear, from a report from the
    Edison Institute, that several hundred billion dollars need to
    be spent in order to stabilize the grid to make up for the
    expanding needs we have, as well as to bring it to the
    reliability that we would be looking for.
        So, all these point to a great market opportunity, which is
    distributed generation. Distributed generation refers to energy
    generation at the point of use, as an alternative to
    centralized power generation with transmission and distribution
    infrastructure.
        We have seen distributed technologies revolutionize other
    fields. If you take computing, mainframe computing, evolved to
    PDAs, laptops, and computers. What has that done to the whole
    industry to increase access and to make that a lot more
    efficient? Look at telecom. The land lines with the centralized
    infrastructure is giving way to the mobile market. What has
    that done to telecom? The same thing will happen globally to
    energy when we go to distributed generation.
        Senator Kerry. When go to what?
        Dr. Sridhar. When we go to distributed generation, being
    able to generate at the point of use. OK?
        And that is the single biggest opportunity, not just in
    this country for expansion, but in, also, the developing world,
    where they don't have the capital to put in the infrastructure.
    They will leapfrog, similar to them leapfrogging from not
    having phones to having mobile phones.
        That brings me to my company, Bloom Energy. Senator Ensign
    especially asked me to give an update since my last June
    appearance of what we have done so far.
        By leveraging breakthrough innovations in material
    sciences, we have some of the most efficient energy generators
    providing significantly reduced operating costs, and
    dramatically lower greenhouse emission gases. And we do it at
    the point of use. It is a distributed generation technology of
    fuel cells.
        Our company has been around for just under 5 years,
    completely venture-backed. And, in this time, we have made
    tremendous strides using Silicon Valley volume manufacturing
    knowhow, Silicon Valley's rapid business-building experience,
    as well as topnotch fuel cell expertise.
        Since I last testified, we had our first deployed systems
    celebrate their one-year anniversary in the field. Those first
    systems have demonstrated grid caliber reliability and
    availability. We have demonstrated an ability to run our
    systems on multiple fuels, including storable fuels for
    military applications and renewable fuels, like ethanol. It
    goes to the point that Mr. Eckhart made about how it needs to
    be regionalized and thought about that way.
        And we also have an ability to store large amounts of
    transmitted electricity locally, and then to be able to use it
    efficiently when we need to use it. When we go into some of the
    other technologies, like solar and wind, one of the biggest
    issues is energy storage.
        So, in terms of where we need to go, what are we looking
    for? We need to cross the proverbial chasm that startups need
    to cross, of taking a technology that's just been developed and
    getting it into commercialization.
        Here, we would ask for the Government to specifically focus
    on four things.
        The first thing is consume. The U.S. Government is the
    single largest consumer of energy. Be an early adopter and a
    leader. Set performance standards. Be technology agnostic. And
    if any technology meets those performance standards, consume.
        Number two, create long-term policy. I think people have
    talked about it. One plus one plus one in incentives is not
    equal to three. And we need long-term policy.
        Third, Level the playing field for us. I think Senator
    Ensign mentioned what has happened to the legacy industries,
    and how much money we are already spending for those legacy
    industries. We are not asking for a handout, we are asking for
    a level playing field in the market, fairness.
        And, most importantly, be technology agnostic. In your
    policies sometimes advertently winners and losers are picked. A
    very good example will be the investment tax credit. In the
    last energy bill, there was no cap on the investment tax credit
    for solar, but for fuel cells there was a $1,000 per kW
    investment cap. It must be the marketplace that picks winners
    and losers, and not policy.
        So, that's our request. Again, we think that this is the
    greatest opportunity and technology innovations will make great
    strides.
        Thank you.
        [The prepared statement of Dr. Sridhar follows:]

                     Prepared Statement of K. R. Sridhar,
                     Principal Co-Founder/CEO, Bloom Energy
        Thank you Chairman Kerry, Ranking Member Ensign, and Members of the
    Subcommittee for the honor and opportunity to speak with you today and
    share my views on energy innovations . . . a topic that I am passionate
    about.
        My name is K. R. Sridhar and I am the Principal Co-Founder and CEO
    of Bloom Energy, a California-based fuel cell company intent on making
    a revolutionary change in America's energy future.
        You have asked me to come before you today and share my thoughts on
    how technological innovations in the energy industry can help address
    our global energy crisis and also to provide you an update on the
    progress Bloom Energy has made since my last testimony before this
    Committee in June 2006.
        I am here to state my view that the global energy crisis is also
    the biggest market opportunity of this century and that disruptive
    technological innovations will allow us to achieve energy security,
    reliability, and abundance without compromising the environment or the
    pocketbook. I am also here to tell you that it is absolutely essential
    that we find ways to generate more energy not less, as we move forward.
        Why? Because there is a direct correlation between energy
    consumption, economic growth, and quality of life.
        This country was founded upon the principle that each generation
    can have a better life than the generation before it. We built this
    Nation into a superpower by exporting technologies that offered a
    better life to all citizens of the world.
        Will we now deny the next generation their energy consumption and
    all of the benefits it brings? Can we deny developing nations like
    China or India their chance for economic growth and improved quality of
    life?
        Imagine if we had told the Internet pioneers that they had to live
    with low speed dial-up modems and that they couldn't have more
    bandwidth. Do you think we would have had the revolutionary changes
    we've witnessed over the last decade?
        We must find a way to consume all of the energy we need to fuel
    economic growth without environmental, or geopolitical consequences and
    this can only be achieved with disruptive technological innovations.
        But the key is for innovation to find and attack the biggest
    problems and not to mask or shy away from them.
        For example . . . most of the media attention surrounding our
    energy crisis focuses on transportation. Much of the public is
    convinced that our gas guzzling SUVs are the biggest culprits and that
    hybrid vehicles and ethanol fuel are all that's required to solve our
    problems. In fact the reality is that almost two-thirds of our energy
    consumption and two-thirds of our harmful CO2 emissions come
    from stationary applications.
        Even within the stationary power space, the emphasis tends to be on
    conservation and consumption, while much of the risk, cost, and waste
    comes from the aging transmission and distribution infrastructure and
    the inefficiencies associated with large centralized power plants.
    According to the Edison Electric Institute, approximately $200 billion
    will need to be spent in the next 10 years to expand, upgrade, and
    modernize the antiquated grid transmission and distribution
    infrastructure just to keep up with demand and prevent significant
    outages like the northeast blackout of 2003.
        All of this makes it clear that one of the greatest areas of
    opportunity for energy innovation is in distributed generation.
        Distributed generation refers to energy generation at the point of
    consumption. As a clean alternative to central power plants and their
    transmission lines, on-site generation capabilities improve reliability
    and quality, conserve capital, and reduce operating costs by
    eliminating transmission infrastructure.
        We've seen distributed technologies revolutionize other industries.
    Computing evolved from centralized mainframe computers to distributed
    servers, laptops and PDAs. Telephony evolved from centralized wired-
    line infrastructure to wireless mobile. It is inevitable for the same
    thing to happen to energy, but before widespread adoption will occur,
    distributed generation technologies must first evolve to a point where
    they are clean, affordable, and dependable.
        Which brings me to my company, Bloom Energy.
        At Bloom Energy our mission is to make clean reliable energy
    affordable. Our on-site power generation systems utilize an innovative
    fuel cell technology with roots in NASA's Mars program. By leveraging
    breakthrough innovations in materials science, Bloom Energy systems are
    among the most efficient energy generators; providing for significantly
    reduced operating costs and dramatically lower greenhouse gas
    emissions. By generating power where it is consumed, Bloom Energy
    offers increased electrical reliability and improved energy security.
        Our company has been around for just under 5 years and in that time
    we've made tremendous strides by combining top-notch fuel cell
    expertise with Silicon Valley volume manufacturing know-how and rapid
    business-building experience.
        Since I last testified before this Subcommittee;

       We've had our first deployed systems pass their 1 year
            anniversary in the field at the University of Tennessee
            Chattanooga. Those first systems have demonstrated grid-caliber
            reliability.

       We've demonstrated an ability to run our systems on multiple
            fuels including storable fuels for military applications and
            renewable fuels like ethanol.

       We've more than doubled our staff.

       We've ramped our system production by almost 10.

       We've seen our product costs decline by almost 10.
            And, perhaps most excitingly,

       We've seen customer interest skyrocket. Not just
            environmentalists, but also mainstream corporate America,
            utilities, and independent system operators are all very
            interested in our technology.

        While these are exciting milestones for our young company and
    extremely positive for the fuel cell industry, there are still
    challenges remaining to mature our product, and to compete with legacy
    technologies.
        This is where the Federal Government can help. Specifically, let me
    focus on four key areas.
        First, consume.--As the single largest consumer of energy in the
    country, the Federal Government needs to be an early adopter and
    leading consumer for viable new energy technologies. Congress should
    establish a merit-based procurement law for Federal agencies to deploy
    new technologies that meet a minimum set of performance criteria.
        Second, create and continue long-term policy incentives.--Thanks to
    a combination of government programs, consumer interest in new energy
    technologies is growing, but stable, long term and predictable
    incentives are critical to translate this interest into action.
        Third, level the playing field with old incumbent technologies.--
    According to the Governmental Accountability Office, between 1968 and
    2000, the U.S. petroleum industry alone received between $134.9 and
    $149.6 billion in incentives. If just a fraction of that were applied
    to clean new energy technologies today, imagine what we could do.
        And finally, adopt a position of technology neutrality.--Many
    Federal incentives specify eligible technologies and exclude others.
    The rationale for these inclusions or exclusions is not always merit-
    based. For example the current Federal investment tax credit applies to
    commercial installations of both solar and fuel cells, but the fuel
    cell credit is capped while there is no cap for solar. This
    discriminatory fuel cell cap has the unintended consequence of
    hindering commercialization of promising new technologies.
        I believe that the marketplace, not Federal policy, should pick
    technology winners and losers. To the greatest extent possible, Federal
    policy should establish a level playing field that enables all
    promising energy technologies to compete on their merits.
        If we can accomplish this we will have successfully converted one
    of the greatest crisis facing our Nation and world into one of the
    greatest opportunities. One that fuels economic and job growth,
    encourages students to pursue math and sciences, fosters innovation,
    and ensures competitiveness.
        I am optimistic. Together the Federal Government and
    entrepreneurial innovators can reshape our energy landscape. We can
    make energy affordable, accessible, abundant, sustainable, and secure.
    The dream is poised to become a reality.
        Thank you!

        Senator Kerry. Thank you very much. Appreciate that.
        Dr. Katzer?

           STATEMENT OF DR. JAMES R. KATZER, THE LABORATORY
             FOR ENERGY AND THE ENVIRONMENT, MASSACHUSETTS
                     INSTITUTE OF TECHNOLOGY (MIT)

        Dr. Katzer. Thank you. Senator Kerry, Members of the
    Subcommittee, my name is Jim Katzer, and I am a visiting
    scholar at MIT. For the last 2 years, I've been working with a
    group of MIT faculty, looking into the future of coal. I will
    focus on technology and costs associated with the capture and
    geological sequestration of carbon dioxide from coal-based
    power generation today. This is referred to as CCS. Please note
    that all costs are from a point set of estimates and will vary
    with plant design and operating parameters, with location, and
    with coal, but we think that the differences are broadly
    indicative.
        Coal represents a paradox in power generation. On one hand,
    it is cheap and in countries with large populations and limited
    oil and gas supplies; on the other hand, it can cause
    significant environmental impacts and produces large quantities
    of carbon dioxide. The U.S. has 27 percent of the global
    recoverable coal reserves, and, last year, over 50 percent of
    our electricity was generated from coal. Coal is certain to
    play a major role in meeting electricity demand growth out into
    the future.
        The primary technology for electricity generation from coal
    today is pulverized coal, PC, combustion. It is a well
    established, mature technology. A new plant today can generate
    electricity for about 4.8 cents per kilowatt hour. Capturing
    CO2 from this type of plant increases the cost of
    the electricity by about 3 cents per kilowatt hour. The capture
    technology is not new, but is used today to a smaller scale.
    There is a high probability that innovation will reduce this
    cost significantly as we would move into its application on a
    larger scale.
        IGCC--as Senator Kerry has noted--is a recent competitor to
    PC. For a new IGCC plant, the projected cost of electricity is
    about 5.1 cents per kilowatt hour under our conditions. Cost
    and gasifier availability with IGCC are issues. With
    gasification, CO2 capture is easier, and, therefore,
    less expensive. The increase in the cost of electricity is
    about 1.4 cents per kilowatt hour for IGCC, versus 3 for PC.
    Thus, the COE, cost of electricity, for IGCC with capture is
    less than for PC with CO2 capture. These numbers
    will depend on coal type and on plant location. The
    technologies used in the ICC approach are all commercial, but
    there is room for innovation, and this--I am certain--will
    happen with operational experience, supported by R&D.
        A third option for CO2 capture and power
    generation is to utilize pure oxygen in coal combustion to
    reduce the cost of CO2 capture. This technology is
    in early development stages in Europe, and there are no evident
    technological problems to its progressing smoothly forward. The
    cost of electricity for this approach appears to be between the
    other two. There is lots of room for innovation here.
        All three approaches are close enough in cost that no one
    can be ruled out today, particularly when considering the
    broadly different coal types that we have in the U.S. Thus, we
    should not pick winners, because it is not possible to predict
    how technology development and commercial innovation may
    evolve.
        Once captured and compressed, the CO2 is
    transported by pipeline for deep injection for geologic
    sequestration. These are the last two steps in CCS. The good
    news is that the U.S. appears to have enough geologic storage
    capacity to deploy CCS on a large scale for a long time.
    Furthermore, CCS can typically be done on a fairly local basis.
        Although there are a large range of questions related to
    geologic CO2 sequestration, they all appear to be
    resolvable with the appropriate work. Importantly, there are no
    problems that appear irresolvable related to geologic CO2
    sequestration. In fact, it appears that CO2
    sequestration is likely to be safe, effective, and competitive
    with other options on an economic basis.
        Now let me look at the costs. If we start with IGCC for
    power generation, we said the cost was about 5.1 cents per
    kilowatt hour, without capture. Capture adds about 1.4 cents
    per kilowatt hour to that. Pipeline transport should add less
    than .2 cents per kilowatt hour to that. And the drilling and
    associated costs for injection of the CO2, the
    sequestration step, should add something of order 0.6 cents per
    kilowatt hour to the cost. The total added cost for CCS is,
    therefore, about 2.3 cents per kilowatt hour, or about a 50-
    percent increase in the cost of the electricity at the plant
    gate, the bus-bar cost. This puts the total cost of electricity
    at about 7.3 cents for IGCC from bituminous coals.
        There are no economic show stoppers here associated with
    CCS, as you can see. And the technology is all known. This
    would put coal-based power generation, with extremely low air
    emissions and 90-percent CO2 reduction, in the same
    range as wind power, which, in the U.S., averages between 6 and
    10 cents a kilowatt hour. However, these costs will most likely
    come down, due to innovation, when CCS begins to be applied
    commercially.
        How do we make CCS an acceptable reality that can be
    smoothly applied and considered to be a robust technology
    commercially? We first need to demonstrate the integrated CCS
    system for the major generation technologies, integrated with
    CO2 sequestration, in several different geologies.
    This would require three or four major CCS demonstration
    projects in the U.S., combined with appropriate R&D support.
    These need to be started quickly and moved ahead aggressively.
        Enabling CCS is critical to the use of our domestic coal
    supply in an environmentally positive manner, as we will need
    to do. Establishing a commercial, innovative CCS technology
    base in the U.S. would provide U.S. industry with technology
    marketing opportunities to the rest of the world.
        I thank you for the opportunity to present this material
    this afternoon.
        [The prepared statement of Dr. Katzer follows:]

     Prepared Statement of Dr. James R. Katzer, The Laboratory for Energy
        and the Environment, Massachusetts Institute of Technology (MIT)
        Senator Kerry and Members of the Subcommittee. Good afternoon. My
    name is James Katzer, and I am a Visiting Scholar in the Laboratory for
    Energy and the Environment of Massachusetts Institute of Technology.
    For about the last 2 years, I have been working with a group of MIT
    faculty who have been looking at the future of coal. I am pleased to
    have been invited to discuss key aspects of this work with you today. I
    will focus on coal-based power generation technology combined with the
    capture and sequestration of carbon dioxide emissions. I am submitting
    my written testimony herewith.
        Coal presents the ideal paradox in power generation. On one hand,
    it is cheap, abundant, and concentrated typically in countries with
    large human populations and limited oil and gas. On the other hand, its
    use can have significant environmental impacts, requires capital-
    intensive generating plants, and produces large quantities of carbon
    dioxide. Both U.S. and global electricity demand will continue to grow
    at a brisk rate, and coal is certain to play a major role in meeting
    this demand growth. The U.S. has 27 percent of the total global
    recoverable coal reserves, enough for about 250 years at current
    consumption. Over 50 percent of U.S. electricity was generated from
    coal last year. Figure 1 shows the projected growth in coal consumption
    for the recent EIA forecast under business as usual. It is inevitable
    that we will see increased coal consumption and CO2
    emissions there from.

        It is important to understand the magnitude of commercial CO2
    capture and sequestration associated with power generation because its
    scale offers unique challenges and opportunities in the research,
    development and demonstration arena. A single 1000 MWe coal-based power
    plant emits between 5 and 8 million tonnes of CO2 per year,
    or about 130,000 bbls per day of supercritical liquid CO2.
    This would become 200 to 300 million tonnes of CO2 over the
    40 year life of the plant and require a reservoir storage volume of
    about 1.5 billion bbls of liquid CO2.
    Generation Without and With CO2 Capture
        The primary technology used to generate electricity from coal today
    is pulverized coal (PC) combustion. It is well-established, mature
    technology. The efficiency of generation depends on a number of design
    and operating variables, on coal type and properties, and on plant
    location. New plant designs have significantly higher operating
    efficiencies than the current fleet average, but the limit for the near
    term is probably being reached.
        Integrated Gasification Combined Cycle (IGCC) is a competitor to PC
    generation. Four coal-based IGCC demonstration plants, each between 250
    and 300 MWe, have been built, each with government assistance, and are
    operating well. In addition, there are 5 refinery-based IGCC units, two
    at 500 MWe each, which are gasifying petroleum coke, or refinery
    asphalt, residua, tars, and other residues to produce electricity.
    These units often also produce steam and hydrogen for the refinery.
    IGCC is well-established commercially in the refinery setting. IGCC can
    also be considered commercial in the coal-based electricity generation
    setting, but in this setting it is neither well-established nor mature.
    As such, it is likely to undergo significant change as it matures.
    Currently, a major concern with coal-based IGCC is gasifier
    availability.
        Because a large number of variables, including coal type and
    quality, location, etc, affect generating technology choice, operation,
    and cost, the technology comparisons here center on one point-set of
    conditions. This includes one coal, Illinois #6 coal, a high-sulfur
    bituminous coal and generating units designed to achieve criteria
    emissions levels somewhat lower than the lowest recent permitted plant
    levels. For example, the designs used here achieve 99.4 percent
    SOx and 99.9+ percent particulate removal. These
    technologies are first compared without CO2 capture and then
    with 90 percent CO2 capture. Plant capital costs are based
    on detailed design studies between 2000 and 2004, and on industrial
    experience during that period. This was a period of relative cost
    stability. No attempt has been made to account for recent cost
    escalations in materials, engineering, and construction costs. These
    have been substantial. However, the important issue here is the
    relative numbers among and between the various technologies, and these
    are probably best based on the 2000 to 2004 period. Here the focus is
    on technologies that are either commercial or well on their way to
    becoming commercial.
        PC Combustion: PC generating efficiency is about 35 percent for
    subcritical generation, about 38 percent for supercritical generation,
    and about 44 percent for ultra-supercritical generation. Increased
    generating efficiency means less emissions per unit of electricity,
    including less CO2 emissions. In moving from subcritical to
    ultra-supercritical generation, the coal required per unit electricity
    is reduced by about 22 percent, which means a 22 percent reduction in
    CO2 emissions and also reduced criteria emissions. Most PC
    units in the U.S. are subcritical. We have no ultra-supercritical
    plants in operation, or under construction. On the other hand, Europe
    and Japan, which have higher coal costs and stronger culture supporting
    high efficiency, have built almost a dozen ultra-supercitical units
    over the last decade. These units are operating as well as subcritical
    units, but with much higher generating efficiency. The key enabling
    technology here is improved materials to allow operation at higher
    severity conditions. An expanded U.S. program to advance materials
    development and particularly improved fabrication and repair
    technologies for these materials would advance the potential for
    increased PC generating efficiency for our changing future.
        Application of advanced emissions control technologies to PC units
    can produce extremely low emissions, and emissions control technology
    continues to improve, including the potential for high degrees of
    mercury control. In general, the issue of PC emissions is not a
    question of technology capability but the breadth of its application.
        For Illinois #6 coal at $1.50 per million Btu and detailed design
    study capital costs using EPRI economic TAG guidelines and assumptions,
    the estimated cost of electricity (COE) for a supercritical PC is about
    4.75  cents/kWe-h. \1\, \2\ Table 2 summarizes
    the performance and cost parameters for the several generating
    technologies. For supercritical generation about 1  cents/kWe-h, or
    about 20 percent, is associated with going from no emissions control to
    the high level of emissions control used here. Reducing emissions by a
    factor of two further would add an estimated 0.2  cents/
    kWe-h increasing the COE to about 5.0  cents/
    kWe-h.

        IGCC: The promise of IGCC has been high generating efficiency and
    extremely low emissions. There are a number of critical options
    associated with gasification technology and its integration into the
    total plant that affect efficiency and operability. Of these, the
    gasifier type and configuration are the most important. Table 1
    summarizes the characteristics of gasifier types. Entrained-flow
    gasifiers, which are extremely flexible, are the basis of each of the
    IGCC demonstration units. Figure 2 shows the configuration of an IGCC
    employing full quench cooling of the gasifier exit gases. This
    configuration with high quality coals will produce about 35-36 percent
    generating efficiency. Figure 3 illustrates the addition of a radiant
    syngas cooler to raise steam for the steam turbine, which increases the
    electricity output and raises the generating efficiency to 38-39
    percent. Adding convective syngas coolers to recover additional heat as
    steam is also shown in Figure 3. It can increase the generating
    efficiency to the 39-40 percent range. Existing IGCC demonstration
    units, which employ different practical combinations of these options,
    operate at generating efficiencies from 35.5 percent (Polk) to 40
    percent (HHV) (Wabash, U.S. & Puertolanno, Spain). IGCC is not yet
    mature, and there is still potential for efficiency gain. However,
    commercial IGCC generating efficiency is unlikely to exceed that of
    ultra-supercritical PC in the intermediate timeframe. The design/
    engineering firms and the power industry need to gain experience with
    IGCC to develop better designs and achieve improved, more reliable
    operation. Furthermore, gasifier designs for lower rank coals
    (subbituminous coal and lignite) are not well established, and costs
    seem to be relatively significantly higher for these coals than for PC
    units.

        An IGCC unit with radiant and convective syngas coolers using
    Illinois #6 coal, operating at 38 percent efficiency, and achieving
    high levels of criteria emissions control produces electricity for
    about 5.1  cents/kWe-h (Table 2) or about 0.3  cents/
    kWe-h higher than a supercritical PC. \2\, \3\
    IGCC would not be the choice based on COE alone, independent of
    gasifier availability concerns. Requiring high levels of mercury
    removal, reducing criteria pollutants by one half from the very low
    levels that we are already considering and including the cost of
    emissions credits and offsets increases the COE for the PC, narrowing
    the gap, but does not suggest a shift in technology choice based on COE
    in the absence of CO2 capture. However, IGCC has the
    potential for order-of-magnitude criteria emissions reductions, 99.5+
    percent levels of mercury and other toxic metals removal, lower water
    consumption, and highly stabilized solid waste production. These may
    become a larger factor in the future. Achieving these order-of-
    magnitude criteria emissions reductions is expected to increase IGCC
    COE, but this increase is not expected to be large. Companies
    considering construction of a new coal-based generating facility need
    to bring all these considerations into their forward pricing scenarios
    to help frame the decision of which technology to build. CO2
    will probably be an added consideration shortly.
        CO2 Capture: CO2 capture will add
    significantly to the COE, independent of which approach is taken.
    Today, CO2 capture would appear to change the choice of
    technology in favor of IGCC for high rank coals. For lower rank coals
    this choice may not be so clear, particularly as the PC CO2
    capture technology improves. Thus, it is too early to declare IGCC the
    winner for all situations at this time. History teaches us that one
    single technology is almost never the winner in every situation. The
    options are:

       Capture the CO2 from PC unit flue gas. In this
            case, the CO2 is at a low concentration and low
            partial pressure because of the large amount of nitrogen from
            the combustion air. To capture and recover the CO2
            using today's amine (MEA) technology requires a lot of energy.
            Energy is also required to compress the CO2 to a
            supercritical liquid. This large energy consumption reduces
            plant electricity output by almost 25 percent and reduces
            generating efficiency by about 9 percentage points. The added
            capital and the efficiency reduction increase the COE by about
            60 percent or about 3.0  cents/kWe-h to about 7.7
            cents/kWe-h \1\ (Table 2). In this situation a
            marked reduction in the CO2 capture and recovery
            energy would have a significant impact on PC capture economics.
            Focused research on this issue is clearly warranted.

       Combust coal with oxygen (Oxy-fuel combustion) to reduce the
            amount of nitrogen in the flue gas. This allows the flue gas to
            be compressed directly liquefying the CO2 without a
            costly separation step first, reducing energy consumption.
            However, the technology requires the addition of an air
            separation unit which consumes significant energy substantially
            offsetting the energy gains achieved by eliminating the
            CO2 separation step. This technology is in early
            development stage, is advancing well, and at this point appears
            to hold significant potential for both new-build capture plants
            and for the retrofitting existing PC plants. The estimated COE
            for oxy-fuel combustion is about 7.0  cents/kWe-h,
            \1\ includes compression to supercritical liquid, but not
            transport or sequestration. This is about 0.7  cents/
            kWe-h less than for air-blown PC combustion with
            capture. The technology requires further development and
            demonstration along with detailed design studies to allow
            effective evaluation of its cost and commercial potential.

       Use IGCC, shift the syngas to hydrogen, and capture the
            CO2 before combustion in the gas turbine. IGCC
            should give the lowest COE increase for CO2 capture
            because the CO2 is at high concentration and high
            partial pressure, and this is what design studies show. The
            needed technologies are all commercial in refineries and
            natural gas processing plants, although they have never been
            fully integrated on the scale that it will need to be applied
            here. For Illinois #6 coal, the estimated COE is 6.5  cents/
            kWe-h \1\, \2\ which is a 1.4  cents/
            kWe-h increase over non-capture IGCC and is about
            1.2  cents/kWe-h less than supercritical PC with
            capture. Oxy-fuel combustion falls in between these two.
            However, an IGCC unit designed for power generation without
            CO2 capture is significantly different from one
            designed for power generation with CO2 capture.
            Retrofitting the former to a capture unit is not
            straightforwardly simple.

       Lower Rank Coals: As Figure 3 shows, moving from bituminous
            coal to sub-bituminous coal and to lignite results in an
            increase in the capital cost for a PC plant and a decrease the
            generating efficiency (increased heat rate). However, for IGCC,
            these trends are significantly larger, such that currently-
            demonstrated IGCC technologies become more substantially
            disadvantaged relative to PC for subbituminous coals and
            lignite without CO2 capture, and their advantage
            with CO2 capture is eroded somewhat. Over half of
            the U.S. recoverable coal reserve is either subbituminous coal
            or lignite. Thus, there is a substantial need for improved IGCC
            technology performance on lignite, other low rank coals, and
            biomass. Options include, but are not limited to, improved dry-
            feed injection into the gasifier, coal drying, fluid transport
            reactors and other gasifier configurations. Development should
            be at the PDU scale before moving to demonstration.

        Thus, when CO2 capture is considered, the differences
    among IGCC, oxy-fuel PC and air-blown PC become significantly less than
    discussed above for bituminous coal. In this situation all three of the
    technologies with CO2 capture must be considered to be in
    the early stages of development, and it is simply too early to select
    one of these technologies as the winner vs. the others
    CO2 Transport and Sequestration
        Capture and compression of CO2 to a supercritical
    liquid-like fluid was considered above. Next, CO2 transport
    by pipeline and injection for geologic sequestration are considered.
    For more details on the geological aspects of sequestration, refer to
    the recent testimony of Dr. Julio Friedmann before the House Energy
    Committee, Energy and Air Quality Subcommittee Hearing, March 6, 2007
    \4\ and the recent MIT Coal Report. \1\
        The good news is that the U.S. appears to have enough geological
    storage capacity to deploy CO2 Capture and Sequestration
    (CCS) at a large scale for a long time. The best projected storage
    sites are deep saline aquifers which can hold large volumes of
    CO2. Further, many of these potential geologic storage areas
    are under sites with large coal-fired coal plants and where additional
    coal plants are expected to be built. This suggests that transporting
    CO2 long distances, via pipeline will not be required, but
    that sequestration will be within a reasonable distance from a power
    plant capturing it. Further, pipeline transport of CO2 is
    well established; there are about 3,000 miles of dedicated CO2
    pipelines used for commercial CO2-EOR projects today in the
    U.S. The cost of transport is also well understood and predictable.
        Figure 4 illustrates what a potential CCS power plant project, with
    appropriate siting might look like. For a good reservoir the radius
    around the plant for sequestration may be less than 25 miles. Longer
    transport distances to use CO2 for EOR may occur in some
    cases, but because of the scale of CCS, it is expected to be a
    relatively small contribution to CO2 sequestration, although
    the oil recovered from CO2-EOR would add value to the
    project, offsetting some of the cost.

        Today, there are three commercial projects using CO2
    storage (Sleipner in Norway, In Salah in Algeria, and Weyburn in
    Canada) each injecting over a million tonnes of CO2 per
    year. Sleipner has been injecting CO2 into a deep saline
    aquifer under the North Sea for 7 years. Other projects are planned,
    including FutureGEN.
        Although there are a large range of questions related to
    sequestration, they all appear to be resolvable with the appropriate
    work. Importantly, there do not appear to be any irresolvable open
    technical issues related to geologic CO2 sequestration. In
    fact, it appears that geologic CO2 sequestration is likely
    to be safe, effective, and competitive with other options on an
    economic basis. CCS is actionable almost immediately and can be
    sustained for many years while our energy base undergoes transition to
    new carbon-free technologies. CCS is one method of reducing CO2
    emissions growth from coal-based power generation or even reducing
    total coal-based CO2 emissions over time while maintaining
    the contribution of coal, a cheap, domestic energy source, can make in
    providing a substantial portion of our base-load power.
        Table 3 summarizes estimated costs for CCS as applied to Illinois
    #6 coal-based power generation. Costs are given in $ per tonne of
    CO2 and in  cents/kWe-h. The capture and
    compression costs vary with coal type and with generating technology.
    When they are added to the COE generation without CO2
    capture, the result is the COE for generation with CO2
    capture. The higher capture cost for PC generation is evident, compared
    with IGCC.

        The cost of transport and injection will vary with site (location)
    and with reservoir properties. Transport costs for the configuration in
    Figure 5 could be from less than a $ per tonne to several $ per tonne;
    $2/tonne was chosen. Estimated sequestration costs including drilling
    the needed wells and the CO2 injection operation range from
    $5 to $8 per tonne CO2; $7/tonne was chosen. The table shows
    how these costs translate to  cents/kWe-h, assuming the same
    site (Figure 5). PC transport and sequestratrion costs are marginally
    higher because more CO2 is involved. However, in both cases
    the transport and sequestration cost is less than 0.9  cents/
    kWe-h. In overview, for PC generation with Illinois #6 coal
    the cost of CCS is about 3.8  cents/kWe-h; for IGCC the cost
    is about 2.3  cents/kWe-h. Each step in CCS adds cost, but
    there are no economic show stoppers present. For IGCC, CCS increases
    the bus bar cost of electricity by about 50 percent. These costs will
    most likely come down significantly when CCS begins to become practiced
    industrially. The innovative spirit of industrial practitioners and
    competitive pressures will bring a lot of innovation to every step in
    CCS. However, this will not happen until there is a real need to
    practice it commercially. It is important to note that to achieve
    today's best emissions performance (99.9+ percent PM reduction, 99.4+
    percent SOx reduction and 95+ percent NOx reduction) adds
    about 1  cents/kWe-h to the cost of electricity generation
    with no emissions control. This area has seen a tremendous improvement
    in performance and in cost reductions since these technologies began to
    be applied. The same can be expected for CCS. This area offers the U.S.
    a chance to develop technologies that can be marketed to the rest of
    the world.

        The remaining issue with respect to CCS is the establishment of a
    monitoring, regulatory, legal, and permitting framework under which
    this can be done in a business-like context. This can be done along
    with demonstrating the full-scale, integrated operation of CCS. This
    will require an effective Research, Development and Demonstration
    program aggressively applied to 3-4 demonstration projects. These
    projects should apply different CO2 generation and capture
    technologies and involve sequestration of CO2 in different
    geologies at the rate of 1 million tonnes CO2 per year for
    several years.
    Summary
        Considering CO2 capture and sequestration from coal-
    based power generation, there are no apparent irresolvable technical
    problems in the entire CCS chain from coal-in to power-out and CO2
    in geologic storage. There do not appear to be any economic show
    stoppers in the chain either, although at the current time it appears
    that applying CO2 capture and sequestration will increase
    the bus bar cost of electricity by about 50 percent. Today, this would
    put coal-based power generation with extremely low air emissions (99.9+
    percent reductions) and 90+ percent CO2 emissions reduction
    in the same cost range of wind power (range 6-10  cents/
    kWe-h in the U.S.). However, to make CCS an accepted reality
    that can be smoothly applied, it is necessary to demonstrate the
    integrated CCS system for the major generation technologies with
    CO2 sequestration in several different geologies. This
    requires three or four major demonstration projects in the U.S.
    combined with appropriate R&D to support them. These need to be moved
    forward aggressively.
        With respect to the generation and capture part of the CCS chain,
    the technology systems to capture CO2 from coal-based power
    production are all available, but they require further development and
    integrated demonstration. Of the three competing systems (PC with
    CO2 recovery from flue gas, Oxy-fuel combustion with flue
    gas direct compression, and IGCC with pre-combustion CO2
    capture) it is too early to choose winners because it is not possible
    to predict how technology development and commercial innovation may
    evolve. Further, one technology system may be well suited for
    bituminous coals, whereas another may apply best to low rank coals and
    lignite.
        With respect to sequestration, there is enough technical knowledge
    today to select safe and effective storage sites for large volumes of
    CO2 storage over extended time periods. However, national
    deployment of commercial CCS involves technical challenges and concerns
    due to the operational scale that is required. The aggressive research,
    development, and demonstration program recommended here could resolve
    both the technical and legal issues within 10 years and provide the
    foundation for a legal and regulatory framework to protect the public
    without undue burden to industry.
        In the program recommended above the generation and capture, and
    the sequestration demonstration components should be integrated
    together as much as possible to facilitate learning for actual CCS as
    it will need to be applied commercially. This program could be viewed
    as an insurance policy that the U.S. is investing in so that the
    technologies and legal/permitting framework are available when needed.
    Further, as this moves into commercial practice it is expected that
    innovations and cost reductions will occur. Enabling CCS is critical to
    the use our domestic coal supply in an environmentally positive manner,
    as we will need to do. Establishing a commercial, innovative CCS
    technology base in the U.S. should provide marketing opportunities to
    the rest of the world.
        Thank you again for the opportunity to present this material to you
    and your Committee. We face many energy challenges in the future, and I
    firmly believe CCS will help us meet them.
    Citations and Notes
        \1\ MIT, The Future of Coal; Options in a Carbon-Constrained World.
    2007, MIT: Cambridge.
        \2\ Dalton, S., The Future of Coal Generation, in EEI Energy Supply
    Executive Advisory Committee. 2004.
        \3\ NCC, Opportunities to Expedite the Construction of New Coal-
    Based Power Plants. 2004, National Coal Council.
        \4\ Friedmann, J., Technical Feasibility of Rapid Deployment of
    Geological Carbon Sequestration, in House Energy and Commerce
    Committee, Energy and Air Quality Sub-Committee. 2007: Washington, DC.

        Senator Kerry. Well, we thank you. And let me follow right
    up with you, Doctor Katzer.
        Why don't I take a 6-minute round, and we'll sort of go
    round and come back and--since there are only three of us, we
    can sort of open it up a bit.
        So, how do we do that? You recommend, sort of, getting--
    I've heard this discussion about quickly getting, maybe, ten
    demo projects out there, whatever number, make it happen. Is
    this something you're suggesting that we should give an
    incentive to the private sector to do? Is this something we
    should do? Should it be a joint venture? What's your sense of
    the structure?
        Dr. Katzer. Well, first, the demonstration projects
    themselves, we think, should be run by some form of pseudo
    private/public company, a new quasi-government CCS corporation,
    that would do them; they should not be handled or managed by
    DOE. There is a significant amount of R&D associated with these
    that is needed and that would need to be integrated with them.
    DOE should be primarily responsible for this, and the DOE
    budget would need to be increased significantly and focused on
    these areas.
        I think there's no problem identifying what needs to be
    done and moving it forward; I think that is fairly easy. I
    think moving forward aggressively is going to be one of the
    major challenges that the Senate must address.
        Senator Kerry. And why is that? Why is it so hard to move
    forward aggressively?
        Dr. Katzer. We have not set firm policies and time tables,
    politically.
        Senator Kerry. Do you think it's urgent that we move
    forward aggressively?
        Dr. Katzer. It is extremely urgent that we move forward
    agressively.
        Senator Kerry. Then why is it so hard?
        Dr. Katzer. By doing what we recommend the U.S. is
    essentially buying an insurance policy so that it has technical
    options it can use down the road when it decides it needs to.
    And if you don't do that, you simply push everything back. I
    will simply note that FutureGen was probably hatched in 2002.
    It was proposed formally in 2003. It's now 2007, and to the
    best of my knowledge a gasifier has not been chosen yet. Thus,
    all the details of what it's going to look like are really not
    on the table yet so that serious engineering work cannot be
    completed. It's proposed to start up, I think, in 2011. And if
    you then have 4 years of operations for learnings, you're now
    out to 2015. This is the urgency issue you need to address.
        Senator Kerry. Well, so, how does AEP decide it's going to
    go ahead and do the IGCC, which is effectively a 20- to 30-
    percent premium--I mean, it's an add-on, but they're willing to
    accept that. They're going out into the marketplace, and the
    consumers are going to just, you know, share the cost.
        Dr. Katzer. Yes, and they've gotten the utility commissions
    to agree that that's permissible.
        Senator Kerry. Correct.
        Dr. Katzer. And the driver for them was to do a very
    detailed risk analysis to say, ``Things will change, CO2
    is going to become an issue that we'll have to deal with, and
    we need to begin to move down that learning path.''
        Senator Kerry. Well, they're right about that, correct?
        Dr. Katzer. I would suggest they are, yes.
        Senator Kerry. Therefore, what's the formula for getting
    everybody else to buy in? Is it a mandate from the Federal
    Government? Is it----
        Dr. Katzer. I think it's not a mandate.
        Senator Kerry.--incentive?
        Dr. Katzer. What is needed is a clear signal of what the
    policies are going to be. And we've heard, several times here
    today already, that industry needs a clear signal of what
    policies are going to be, or what they are, and then these
    policies need to be in place for an extended period of time,
    and not change under pressure.
        Senator Kerry. Is the clearest----
        Dr. Katzer. This provides a basis so that they can plan.
        Senator Kerry. Is the clearest and most effective signal an
    economywide tradable cap?
        Dr. Katzer. That would work.
        Senator Kerry. Isn't that a pretty effective signal?
        Dr. Katzer. That is a pretty effective signal.
        Senator Kerry. Aren't a whole bunch of companies already
    spontaneously----
        Dr. Katzer. A relatively large and wide-ranging number of
    companies have made recommendations that the U.S. establish an
    effective carbon policy.
        Senator Kerry.--adopting that?
        Dr. Katzer. They are recommending a move in the direction
    of putting some kind of price on carbon, yes.
        Senator Kerry. What do they know that we don't? Or are they
    accepting something that we won't?
        Dr. Katzer. I think they're accepting something that
    ultimately Congress, Senate and the House, will have to come to
    grips with, yes.
        Senator Kerry. With respect to--Mr. Eckhart, I--or--yes--
    renewables, these ten companies. In the 1970s--1979, I
    remember, when President Carter initiated the first round of,
    sort of, response to oil crisis, Congress made a very
    significant commitment to incentives for renewables and
    alternatives. And, in fact, a lot of tenured professors left
    their positions and went out to Colorado and became, you know,
    participants at the laboratory. And then, lo and behold,
    President Reagan appeared, and they cut the guts out of those
    subsidies. At that point in time, we were the world's leader in
    photovoltaics and alternatives renewables, were we not?
        Mr. Eckhart. We were.
        Senator Kerry. And, as a consequence of that loss of
    Government commitment to the effort, that lead shifted to Japan
    and Germany, did it not?
        Mr. Eckhart. And for other reasons, yes.
        Senator Kerry. What were the other reasons?
        Mr. Eckhart. Well, in 1979--incidentally, I personally did
    a complete survey of the solar cell industry in the United
    States, personally visited every company, and I can report to
    you that last year I looked up that study, and only one company
    listed in that study--and that was the national study in 1979--
    is still in existence in its own name. One. Inspire
    Corporation, up in Boston, by the way.
        Senator Kerry. And what does that tell you?
        Mr. Eckhart. Well, what happened was, we adopted, in our
    country, a philosophy that the Government role is to fund R&D
    and put technology on the shelf, and then, somehow, someone
    else will take it from there. But other--what happened is,
    other governments around the world didn't have that philosophy.
    They adopted the philosophy that they would pick up on our
    technology investment and incentivize their markets to buy it,
    which caused companies to go into business to sell it. And so,
    when Germany put their renewable energy law with the feed-in
    tariff in place to pay for electricity from solar energy into
    the market, it allowed German companies to sprout up, and they
    created an industry on our technologies.
        Senator Kerry. And it's fair----
        Mr. Eckhart. And that's what happened.
        Senator Kerry.--it's fair to say that in the 1990s, when
    the Soviet Union disappeared and the former Eastern Bloc
    countries suddenly came into their own, as they looked at the
    devastation around them from the communist management, if you
    want to call it that, of their environment, they turned to
    Germany and Japan for the technologies to clean up the Danube
    and the various, you know, communities. So, we lost a lot of
    jobs, in the end, both ways.
        Mr. Eckhart. We did. And we----
        Senator Kerry. We lost them on the front end and the back
    end, did we not? Is there a lesson in that for where we ought
    to be now?
        Mr. Eckhart. Yes, there is.
        Senator Kerry. What's that?
        Mr. Eckhart. This is a worldwide competitive industry
    sprouting up, as we speak. And it is taking root in the
    countries where the governments are encouraging markets to take
    place; that is, to adopt the technologies. And if we sit back
    and just fund R&D, and don't work with the American people to
    adopt these technologies, we will not enjoy the companies, the
    industry, and the jobs that come along with that. It's our
    choice.
        And we have to choose right now, because we're in--for
    example, in wind power, there have been two rounds of building
    factories. The first round happened in Denmark, Germany, Spain,
    India, where the markets were. The local companies built up,
    and they went public, and they're very big right now. The
    second round is happening this year, in China, because they
    have a government rule of 70-percent local content. To sell a
    wind turbine, you must make 70 percent of it in China. Every
    Western company has to build a factory in China to play in that
    market. So, all the money available to build factories is, this
    year, going to China. We've missed round one, and we've missed
    round two. We must get round three, which is the next wave of
    factories. We must get it, or we will not have a true wind
    industry here. With all those jobs. We're talking about well
    over 100,000 jobs around the world went to other countries. The
    same thing in PV.
        And you mentioned the Soviet Union and Germany. Today in
    Germany, there's a U.S. company, venture-capital-backed, that
    just went public on the NASDAQ. They have a lot of capital.
    They're building their new factory. Where? East Germany. Why?
    Because the West German incentives to build factories in East
    Germany are so lucrative that the German Government is, in
    effect, paying the full cost of the factory just to employ
    people.
        Other governments aren't playing by our rules, and we have
    to look globally as to what the industry is into, and do the
    right thing here in this country.
        Senator Kerry. Last question before I cede to Senator
    Ensign.
        Can you tell us what the state-of-the-art is, at this
    point, with respect to deepwater turbine--deepwater wind?
        Mr. Eckhart. That's--that is the area where R&D is needed
    in wind, making those--you mean placing offshore wind in deep
    water.
        Senator Kerry. In deeper than 50 feet, yes, if you're
    looking for offshore, so you don't run into the NIMBY issues
    and so forth.
        Mr. Eckhart. That--just to go offshore approximately
    doubles the cost of the machinery and the cost of the----
        Senator Kerry. How technically developed is that ability to
    place deepwater towers? I gather they've got some kind of a
    weighted balance system or something. Are you familiar with it?
        Mr. Eckhart. I am. And it is the area that deserves a lot
    of R&D investment right now, and it should be cost-shared
    between the wind turbine companies and the Government----
        Senator Kerry. Thank you----
        Mr. Eckhart.--50/50.
        Senator Kerry.--very much.
        Senator Ensign?
        Senator Ensign. Thanks, Mr. Chairman.
        Dr. Sridhar, I want to explore with you and with some of
    the other witnesses, the part of your testimony about not
    having the Government pick the winners and losers. There is a
    delicate balance here. The innovation process begins with basic
    research. I know that all of us believe that the Federal
    Government plays a very vital role for us is in supporting
    basic research. The delicate balance is then to provide the
    proper incentives for bringing the technologies that result
    from basic research to the marketplace without government
    picking the winners and losers. The Government is not very good
    at picking the winners and losers. the market, not the
    government, should determine . . . which are the better
    technologies out there. I would like a few comments, starting
    with you, Dr. Sridhar and Dr. Katzer, and then Mr. Eckhart and
    the other witnesses on the delicate balance between the
    important role government should play in supporting basic
    research while not picking winners and losers in the technology
    field.
        Dr. Sridhar. OK. So, on fundamental R&D, I think the
    Government has a huge role to play. This is, like you said, a
    multifold win; it's not just in developing technology, it
    creates the next generation of scientists, engineers, it
    stimulates math education, science education, technology
    education. This is where the future of the country is. Funding
    that kind of R&D in national labs, in universities, it's a
    great place. Funding that kind of R&D in industries is a bad
    decision, because we're taking taxpayer money and giving it to
    corporations, and our incentive is already very large in the
    marketplace. It's a $1.6 to $2 trillion market. Companies
    already have plenty of incentives to develop energy solutions.
        Last year, close to $3 billion worth of venture capital
    money in this country went into clean tech. And that number is
    increasing. So, private equity dollars will pick the companies
    to incubate, based on those technologies. And they will bring
    it to a point--there's plenty of venture capital involved, and
    they have a much better track record--if we go back to the last
    three decades, time and again, they have a very good track
    record of figuring out how to bring the best R&D into a place
    where the technology is demonstrated.
        Senator Kerry. Can you just square that, if you don't mind,
    with what Mr. Eckhart just said, about the experience of the--
    putting it on the shelf and then we just left it, and everybody
    else took it?
        Dr. Sridhar. Yes. So, if you look a few years ago, the
    total amount of venture capital money in this business was next
    to nothing. When my company, 5 years ago, was funded on
    SandHill Road, we were probably the only energy company that
    was funded. Last year, 2006, $3 billion was invested in green
    tech. So, that train has already left the station. So, his
    comment is extremely valid for the 1970s, not so today, because
    of the market opportunity.
        Now--did I answer your question? OK. Now, if we go forward,
    what happens? The venture capitalists are in the business of
    taking a company to demonstrate that it can do something. But,
    in the early marketplace, when your volumes are low and when
    your cost is high, and you need some amount of acceptance and
    some level of risk-taking on the offtaker side, those early
    adopters. This is where the Government plays a very big role.
    This is where those other governments that Mr. Eckhart talked
    about have been in the forefront, and we have not been doing as
    good a job, if you take Japan and Germany and other countries
    as an example.
        So, what is happening is, even these venture-backed
    companies, as they try to expand manufacturing, as they try to
    go into the first markets to make themselves viable,to cross
    the chasm, they're finding it a lot easier to do that offshore
    than they are out here, which would be a terrible shame,
    because this is the greatest job-creation opportunity and
    economic opportunity of the 21st Century.
        Senator Ensign. I'm a little confused, and I think the
    Chairman might have been, as well, in reconciling--the other
    countries are giving incentives. Aren't they picking the
    winners and losers, then? We are trying to set policy to--this
    is that delicate balance that I'm talking about--incentivize
    new technologies, but not pick the winners and losers. ``What
    do we need to do differently?'' I guess is the bottom line.
        Dr. Sridhar. Absolutely. If you set a performance standard
    that basically says, if you're buying power generators for
    powering Federal buildings, you're not going to say, ``I want
    your geothermal, I want wind, I want fuel cells, I want
    solar.'' You're going to say, ``Up to a certain percentage of
    what we are going to buy, we are going to buy as long as it
    meets this efficiency metric, it meets this emission metric,
    and it is indigenous, you know, in terms of fuel for energy
    security, and we would prefer a U.S.-based company.'' Once you
    do that, whether literally it's a monkey sitting in a box
    pedaling a wheel to get you the electrons, or something else,
    you're not picking it. The market is going to pick that winner
    or loser. OK? So, that is----
        Dr. Katzer.--that is the differentiation between what those
    other countries are doing and what we are doing.
        Senator Ensign. Similar to setting----
        Dr. Sridhar.--and what we----
        Senator Ensign.--like Nevada set an RPS standard of 15
    percent.
        Dr. Sridhar. Absolutely.
        Senator Ensign. They didn't choose the winners and losers,
    they just set the standard, and then it's up to the power
    company and others to come up with the technologies in the
    marketplace to satisfy that standard.
        Dr. Sridhar. Absolutely. And I think the market is very
    efficient at doing that in this country. And the other thing
    that I would add to that would be to say that--don't even set
    it like the CAFE standards, where the number is fixed. Pick a
    number, have a certain percentage that needs to be met. If it
    is easily met by Q3 of the year, raise the bar. If it is not
    easily met, lower the bar. But keep raising the bar. This is
    how this country is going to stay competitive.
        Senator Ensign. Dr. Katzer, could you address this from an
    academic standpoint? In your testimony, you talked more about
    one particular industry, based on electricity generation from
    coal; I think it's because we have so much coal in the United
    States. But any thoughts on what Dr. Sridhar's been talking
    about?
        Dr. Katzer. Yes. But maybe from a little different
    perspective.
        What we were looking at here, and what I was speaking
    about, is an area where we have, say, three different competing
    power generation technologies with CCS. They each are composed
    of proven commercial components, most of which, but not all,
    have been integrated together and have been demonstrated.
    They've never really all been put together in the form that's
    needed and at the scale that's needed to be applied in power
    generation. And if you take one high quality coal, for
    instance, bituminous coal, for CO2 capture there's a
    clear technology leader right now. It may or may not continue
    to be the clear leader for the future with CO2
    capture. That's IGCC. But if you move to subbituminous coal,
    Powder River Basin, or lignite, or move up into Montana, the
    disadvantages which IGCC begins to suffer relative to PCC
    narrows the gap so that there is very little difference between
    the two. And, in that case, you don't want to be picking one
    technology versus another. You really would like to play them
    all off against each other. And you can be certain--for certain
    regions or for certain coals one technology may be the winner;
    for other coals and different parts of the country, another
    technology may be the winner. And then there's a third large
    factor, the innovation that will come along from getting the
    creative juices of industry and competition really flowing when
    they begin to do CCS on a commercial basis. With this you just
    cannot predict what will happen. You need some way to allow all
    of those technologies to play out in the marketplace, and that
    will be the most efficient approach.
        If I could add one other point to this. There is an
    important Government role in all this and that is to continue
    R&D in support of these technologies, as well as to fund R&D
    for new ideas, and new technologies that could, in fact, upset
    the applecart. But to wait for those new technologies that
    could upset the applecart to come along is something in this
    area we think is a bad idea. We don't think there's time to do.
        Senator Ensign. Well----
        Dr. Katzer. For instance they may not appear; and we will
    gain a lot of innovation and cost reductions by moving on the
    other technologies.
        Senator Ensign.--I'd love the rest of you to be able to
    respond.
        Senator Kerry. Go ahead.
        Senator Ensign. I think I may have gone over my time.
        Senator Kerry. Go ahead. Go ahead.
        Senator Ensign. Thank you, Mr. Chairman. Can the other
    witnesses on the panel quickly comment?
        Dr. Preli. Yes, I'd like to comment on the--on two things.
        First is the role of Government. In the basic R&D phase, I
    think the Government has a lot to say about that. But even in
    the next phase, which is the development of applications, we
    like the 50/50 kind of arrangement, where you're still
    exploring a technology, and yet you're trying to find out what
    it would be good for. At that point, companies like ours are
    willing to invest large sums of money to do product
    development. So, in the third phase, once the products are in
    development, we think the role of the Government is to help
    provide incentives to get it out into the marketplace.
        Then, when the industry can stand on its own, the role of
    the Government becomes simply codes, standards, regulations,
    and things like that. So, we believe that Government and
    industry have a cooperative arrangement throughout the
    development lifecycle, with most of the effort by Government in
    the beginning, most by industry at the end. But it's a
    continuum. One other comment I'd like to----
        Senator Ensign. Bit how do we choose which one of those
    products to fund along the way?
        Dr. Preli. Right.
        Senator Ensign.--you know, wind, solar,----
        Dr. Preli. I think what you do is----
        Senator Ensign.--clean coal, which one of those products?
        Dr. Preli.--you cast--you cast a very wide net, and you
    manage a portfolio of technologies. As those become more or
    less promising, you let some fall by the wayside and encourage
    others, the ones that are showing true benefit in the
    application phase. And I think it's--if you look at it from a
    portfolio management mindset, then you can more easily decide
    which ones to put more money in, less money. Even the ones you
    put some less money in, though, the time will come where
    perhaps a breakthrough makes them far more attractive.
        One other point I would like to make. I studied the
    Japanese a lot, in both solar and fuel cells. I think what
    you'll find is, the difference between them and us is that they
    have long-term planning and incentive situations that start
    high and go low. And so, I think you'll find that they've been
    very successful with this, with solar, and it looks like they
    may be successful with small fuel cells, where they are
    fielding, now, thousands of units per year, while in the U.S.
    we're limited to virtually none.
        Senator Ensign. Let me just point one quick thing out in
    all of this that I want to give the panel and those of us
    policymakers up here. I remember when everybody was just
    starting to use PCs frequently, and France decided that
    everybody was going to have basically the same system. They got
    way ahead of the rest of the world, and people were saying,
    ``Look what France is doing. They're going to be ahead of us.''
    And people were saying, ``We should be doing the same thing.''
    Well, within a year or two, France all of a sudden made this
    huge investment, because the government decided it picked the
    winners and losers, and France ended up way behind as a result.
        What if Japan is making the wrong choices? Isn't the market
    more efficient at picking the winners and losers? This is the
    balance that I'm talking about. At what point in that
    development, then, does the market become more efficient than
    the Government?
        Dr. Preli. Well, I think the market is very, very
    efficient, and that's why we have--all of our laptops are
    Japanese batteries, and our hybrid cars are Japanese, and now
    the Americans are starting to catch up. And our photovoltaic
    cells are Japanese and German. I think what they do is, they
    tend to stick with----
        Senator Kerry. Sounds like a recommendation----
        Dr. Preli.--it longer.
        Senator Kerry.--to listen to the Japanese.
        [Laughter.]
        Dr. Preli. And if you look at the roots of all of those
    technologies, they were born in America.
        Senator Ensign. Go ahead, Mr. Eckhart.
        Mr. Eckhart. Oh. I would add a comment. I think we're at
    the beginning of a threshold of a whole different era of public
    policy, and it would be this, that every energy-generation
    machine produces two things: energy in some useful form, and
    pollution in some form. And what we haven't done, because we've
    presumed away how we pay for energy, we're not valuing those
    two things. And I think, with our sophistication, going
    forward, if we monetize both the energy benefit and the
    environmental benefits of what we're buying, then we're neutral
    to technology. Let the technologies compete. In other words, a
    coal-fired power plant produces a very reliable output of
    electricity in very dependable, measurable quality; it also
    produces two-thirds pollution. A solar energy device produces a
    different kind of electricity, and a very different pollution
    profile. If we can learn to monetize those--all those
    variables, then--and we set public policy on the buying of
    energy as to its reliability, its quality, and so on, and as to
    its pollution, we monetize all these things and set public
    policy on that, then let industry compete for what we're
    buying. You know, coal will have its place if we want--if we're
    prizing reliability and bulk power generation and base load.
    It's going to win some of the marketplace. But solar is going
    to win if we monetize that nonpollution factor. This is what
    Germany, I think, is pointing toward. But I wouldn't copy them
    either. I think there's an opportunity for the U.S. to create a
    policy regime here for the long term that heads us toward
    dealing with climate change and the environment and economic
    growth, all together.
        Senator Kerry. So, what happens if you don't have a long
    term, when your leading climatologist tells you you've got a
    10-year window, and you have a margin of about .5 degrees
    centigrade that is allowable for a continued increase in
    temperature, and perhaps, you know, 90 parts per million of
    atmospheric greenhouse gas addition? Don't you have to move
    more rapidly? Don't we, as public people, have a moral
    responsibility to say, ``We've got to meet this goal and make
    some choices''?
        Mr. Eckhart. I have spoken with Al Gore and other people
    about the 10 years, and that's a political motivator, that we
    get moving fast. I would prefer that we say that the train has
    already left the station and we have to act yesterday.
    Everything we do, or don't do, depends on how severe the
    problem gets.
        Senator Kerry. But let me continue on that, because I want
    to pick up on what Senator Ensign is saying. Look, I've--in all
    the years I've been here, I've always advocated not picking
    winners and losers. In every policy we've tried to adopt, we
    haven't tried to pick a winner or loser. But there is a
    distinction between, quote, ``picking a winner or loser'' in a
    particular technology in a particular field and making a clear
    policy judgment that carbon producing, fossil fuel burning is
    not what we want, and we have to have clean and/or alternative.
    Now, that's not picking a winner or--in a sense, it's picking a
    winner or loser, in a macro term. We've got to do that. I don't
    think we have any choice but to do that. You said to monetize--
    it would be great if we could monetize it. The best way that I
    can of monetizing it is to have a carbon cap. That effectively
    monetizes it, doesn't it?
        Mr. Eckhart. Exactly.
        Senator Kerry. Doesn't it?
        Mr. Eckhart. It does.
        Senator Kerry. And it does it fairly simply. We're not
    sitting there actually establishing the price, per se. It's
    going to happen in the marketplace. But we're at least
    beginning to establish some cost to the downside of what we're
    doing. Heretofore, we've had phony pricing of goods.
        Mr. Eckhart. Exactly.
        Senator Kerry. Goods are priced, but they don't reflect the
    real cost to any of us, because the citizen is picking up the
    back-end cleanup, the cancer, the hospitalization, the asthma,
    all the rest of it. That's the cost. So, somehow you've got to
    find a way to get the real cost in there. And then the
    marketplace can go to work and say, ``Well, that's not really
    worthwhile.'' But, in that regard, it seems to me, solar, in
    macro terms, and the alternative renewable, and wind, are the
    only things we know of to really--and geothermal--we ought to
    embrace with some major tax credit or some kind of policy that
    says, ``You choose if you want solar or if you want wind or if
    you want this.'' But, in macro terms, we ought to be directing
    the policy and creating a framework for those choices,
    shouldn't we? I'd like everybody to answer that. Is anybody
    opposed to that?
        Mr. Prindle. I could offer an opinion on that, Senator When
    we look at the policy picture and we look at the carbon
    imperative, particularly, the good thing about carbon, from a
    policy point of view, is that it tells you how good you have to
    do in the energy market, because it tells you what the
    trajectory has to be of carbon emissions. And so, that helps us
    decide, ``Well, we've got to accelerate energy efficiency at
    least this rate, we've got to accelerate renewable development
    at at least comparable rate in order to hit some kind of carbon
    target.'' And so, in a sense, the carbon imperative, I think,
    has given us a performance target for energy markets, overall.
    And, you know, from the energy efficiency point of view, we
    think cap-and-trade is a good overall framework, and yet energy
    efficiency occurs down at the customer end-use level. And so,
    if you set it--if you set the cap at the power-plant level, you
    can't actually claim that end-use efficiency savings is a
    carbon credit, because it's not a direct carbon emission
    reduction. And so, there are some things you have to do around
    the edges----
        Senator Kerry. Sure.
        Mr. Prindle.--applying standards and so on.
        Senator Kerry. Which is why you have to have a fairly
    significant----
        Mr. Prindle. Right.
        Senator Kerry.--energy efficiency component. And I think
    most of the bill----
        Mr. Prindle. Right.
        Senator Kerry.--Senator Snowe and I have a bill, and there
    are a couple of others out there, they all embrace that kind of
    efficiency----
        Mr. Prindle. So, it's a kind of a hybrid. You need carbon
    cap-and-trade as a----
        Senator Kerry. I understand. It's not----
        Mr. Prindle.--framework----
        Senator Kerry.--the whole deal.
        Mr. Prindle. Right.
        Senator Kerry. Believe me, I understand. It's not the whole
    deal.
        Mr. Prindle. Right.
        Senator Ensign. Mr. Chairman, could I add one----
        Senator Kerry. Sure.
        Senator Ensign.--thing to your----
        Senator Kerry. Yes.
        Senator Ensign.--question that maybe the witness----
        Senator Kerry. Absolutely.
        Senator Ensign.--could address? Because I haven't heard it
    today, and it at least needs to be discussed, although that's a
    little dangerous coming from Nevada, but it's nuclear power.
    Nuclear power, obviously, has certain negative aspects, as far
    as my State's concerned, but it at least needs to be part of
    the discussion.
        Mr. Prindle. Well, I'll just add that. We don't take a
    position on particular supply technologies, but what we do look
    at is the capability of energy markets to deliver resources
    under today's conditions. And what we see is that it's just
    tougher than ever to bring power plants, to bring LNG
    facilities, to bring pipelines and transmission lines into
    service. There are capital problems, siting problems,
    permitting, and so on. And so, the markets are really
    constrained. And so, from that point of view, we view energy
    efficiency as the first fuel, in that it buys enough time to
    bring--whether it's nuclear, clean coal, renewables, even
    natural gas--to market. In any of those cases, you're going
    to--we're going to need to moderate demand growth to have a
    chance to catch up with where demand growth has been taking us.
        Senator Kerry. Do the rest of you want to--go ahead.
        Dr. Sridhar. Senator, I think you've heard this stated many
    times before, but it's worth stating again. For this particular
    problem, there is no one single silver bullet as the solution.
    And, for that reason, I don't think there is one single policy
    that's going to solve the problem either. So, from a cap-and-
    trade perspective, it does two things. At the end of the day,
    that increases cost. And when cost goes up, in a way it
    addresses the conservation issue, because you don't waste
    something that's expensive. So businesses are going to react to
    that from that perspective, of making sure that they use it,
    but they don't waste it.
        Now the thing that we've got to be extremely aware of,
    which is what you're going after, which is the global warming
    issue----
        Senator Kerry. Can I just say, Doctor----
        Dr. Sridhar. Yes.
        Senator Kerry.--it doesn't necessarily--I mean, there's a
    capital cost, but, in fact, a lot of companies, by doing the
    efficiency piece, are reducing the emissions, effectively
    meeting a cap, and lowering cost.
        Dr. Sridhar. Absolutely.
        Senator Kerry. Saving money.
        Dr. Sridhar. Absolutely. So, what I'm trying to say is,
    that's the low-hanging fruit that's going to get you the first
    fraction of what you're looking for. But I'm going past that--
    --
        Senator Kerry. Ultimately, you get into a----
        Dr. Sridhar. Yes.
        Senator Kerry.--demand curve that goes----
        Dr. Sridhar. Yes. Yes.
        Senator Kerry. I understand that.
        Dr. Sridhar. I'm trying to go past that, you know, because
    that, alone, is not going to solve the global warming----
        Senator Kerry. And that's where the technology has to save
    us.
        Dr. Sridhar. So there are two things. Number one, when we
    do that, it also buys us the moral right in a global platform
    to say, ``We, as the largest consumer of energy, are doing
    something about it,'' so now we can speak to the world with a
    moral authority, saying, ``We are putting our money where our
    mouth is, we are putting our policy where our mouth is.'' So, I
    think, from that perspective, it's very good.
        But that leads to the important thing that global warming
    is really a global problem, and the CO2 knows no
    boundaries, and it does not require a visa to get into this
    country. So, we are going to have the same CO2 that
    comes from anywhere else. And therein, finding technologies
    that can create clean energy at equal or lower cost, and not
    have to pay for green, has to happen. And the history of
    technology suggests that it always happens. So, while we are
    doing things on cap-and-trade and anything else, I think a very
    robust parallel process of figuring out where the next
    breakthrough is going to come, technologically, is extremely
    important.
        You asked the question, because there's a time clock
    ticking on this, Do we pick winners and losers here? Well, it's
    extremely difficult for the Federal Government to do what a
    venture capital model would do. The venture capital model says,
    you know, ``Internet security is extremely important. I don't
    know what's going to succeed or not. I'm going to invest in 15
    companies.''
        Senator Kerry. Sure.
        Dr. Sridhar. ``Maybe two of them will succeed, other 13
    fail. I don't care.''
        Senator Kerry. Well, I agree. But, you see, where we're
    missing each other is--we have no disagreement of that. I'm not
    trying to come into the field of Internet security and say,
    ``Let's pick this.'' But I am trying to say Internet security
    is important.
        Effectively, what I'm saying here is, I mean, everything
    that I've read on this, we--I mean, solar is big-time free,
    renewable, clean, it's about 30 cents--30-plus-cents a kilowatt
    now. If we were to get that down in half or more, we'd begin
    to, you know, become competitive, you know, it would be out
    there more.
        Two, wind. We know that wind is a big future potential
    resource, but there's only about 6 percent of the country has
    an availability to put in place, but that's pretty significant.
    It's a big growth piece. It's going to be part of the mix,
    correct? So, we've got two pieces we know are clearly going to
    be part of the mix.
        Geothermal, unclear as to how we do what you're talking
    about, but clear that it's there--great, renewable, free, so
    forth and so on, except for the capital cost of getting at it,
    obviously--we ought to embrace.
        I mean, beyond that--and then, the question was raised by
    the Senator, on nuclear--I think there is going to be some
    pressure on nuclear. But Wall Street is going to decide that
    one, because the economics of it aren't great yet. And then,
    you have the proliferation and waste issues that just remain
    monumental. So, I don't think it's going to be the big embraced
    vision of the future, but it's going to be part of the mix. I
    think there are 160-plus plants that are currently in design,
    globally. I think there are some--I forget the number here in
    the United States--pretty significant number right here, maybe
    40 or--I can't remember exactly the number. But there are
    fairly decent number of plants that are going to be built here.
        What we can't allow to happen--we just can't allow it to
    happen--is having China build one pulverized coal-powered plant
    per week. Can't do it. And until TXU cut a deal, we didn't have
    any ability to go in and begin to say it. We still, I don't
    think, are where we need to be with that, because we're still
    going to build, apparently, three plants, and not according to
    the IGCC or other standards. So, we're going to have to take
    the lead here in order to leverage China or other countries.
    And that's why I think the Government has a responsibility,
    because of the short window, to pick the biggies that are out
    there and create some sort of incentive for your venture
    capital and others to go rushing in, and you'll decide which
    one of these is really going to ultimately work.
        But what's the matter with--if you have a 10-year window
    and the urgency we have and the size of the problem we have to
    overcome--with creating that framework? Is there some problem
    with that?
        Dr. Sridhar. Absolutely no problem. As long as you base it
    on performance standard and say, like you said, wind, solar,
    anybody can compete with that and win; and whoever comes to the
    table with the best-value proposition wins.
        Senator Kerry. Yes, Mr. Eckhart?
        Mr. Eckhart. Senator, I think there's a combination of two
    things that will get you what I think you want, which is the
    cap-and-trade, to get us moving on carbon; and second is to
    move toward performance-based incentives, the monetization of
    environmental benefits. That combination will both force action
    with the carbon cap-and-trade, providing a business
    environment, and, second, shift the incentives toward buying
    the benefit, not pushing technology. If we're buying the
    benefit, if we're putting public money on buying clean energy,
    no-polluting energy, rather than on pushing individual
    technologies, then the Government is out of the business
    completely of picking technology winners and is, instead,
    encouraging the country to shift toward a cleaner, lower-carbon
    environment. That combination of performance-based incentives
    and the carbon cap-and-trade, I think, will rocket this thing
    forward, if we can just do those two things.
        Senator Kerry. Well, that's good--that's a good thought.
        With respect--I mean, would you go anywhere, other than
    those that I mentioned, in terms of what you put into the pot
    of those incentives you're creating?
        Dr. Preli. Well, I think if you're performance-based on
    your incentives----
        Senator Kerry. Well, let me give you an example. For
    instance, there are--there's an increasing awareness of the
    potential tension in overly encouraging ethanol, for instance,
    corn-based at least, and so forth, in terms of land use, water
    use, energy use, and the production thereof, and so forth. How
    do we handle that, in your judgment, if you're going to
    encourage renewables? Are you going to let the market decide
    that, or should we be guiding that somehow, in terms of good ag
    policy, as well as good environmental policy?
        Dr. Preli. Well, I think it's--that's a matter of setting
    the ground rules. So, if you're careful about your well-to-
    usage analysis, then you will be able to determine the
    environmental impact; cellulosic ethanol versus corn ethanol,
    for example.
        Senator Kerry. We're not there with cellulosic ethanol.
        Dr. Preli. And I think that's exactly the point, is that
    you would make a decision on, How far do you want to go with
    corn-based ethanol, and how much effort do you want to put into
    the other technologies that might have a much bigger impact?
    So--and you can get to the decision, I think, rather easily by
    looking at CO2 production along the value stream.
    And you can evaluate the other technologies in exactly the same
    way. I think what you'll find is that there are some near-term
    things you can do that help a little, but you probably should
    do them, and you should also be investing in some of these
    longer-term things that will get you to the amounts of CO2
    reduction you need. And DOE has mapped that out, last fall, in
    their climate change report. The amount of CO2
    reductions are--the volume is staggering. And no technology
    that exists today really can practically accommodate those. So,
    a lot more needs to be done to make current technologies far
    more efficient, and even to develop new technologies.
        Senator Kerry. Of?
        Dr. Preli. Energy production with a smaller CO2
    footprint.
        Senator Kerry. OK. Energy production, generally, with a
    smaller footprint.
        Dr. Preli. That's right.
        Senator Kerry. Your Chena--``Cheena'' or ``Chayna''?
        Dr. Preli. ``Cheena.''
        Senator Kerry.--Chena Hot Springs Resort operation, is it
    30 cents a kilowatt hour?
        Dr. Preli. They pay 30 cents a kilowatt hour if they're
    firing up diesel generators to produce the electricity. They
    pay about 7 cents a kilowatt hour with the geothermal.
        Senator Kerry. Gotcha. OK. I was curious about that. Is UTC
    involved in other kinds of research, other than the cell? The--
    --
        Dr. Preli. Sure. We have a big focus on co-generation
    equipment, which is point-of-use heating, cooling, power, all
    from one system. And that's something you can do very easily.
    We can use microturbines, we can use reciprocating engines on
    natural gas, we can use fuel cells. And those systems all can
    get you from a 30-percent-or-so efficiency all the way up to 80
    to 85 percent, because you're using a lot more of the input
    energy. So, distributed generation is a real good way, in the
    short term, to dramatically reduce energy use.
        Senator Kerry. Well, that's been something that we've
    long--in the electricity deregulation, we sort of pushed for
    that concept.
        Dr. Preli. That's right. And the Government really can help
    by making it easier to do these co-gen----
        Senator Kerry. Right.
        Dr. Preli.--the amount of work to site a co-gen
    application--even though the benefits are tremendous, the
    amount of work to do that, with the current rules and
    regulations, is sometimes ominous.
        Senator Kerry. Right.
        Dr. Preli. Or onerous.
        Senator Kerry. Dr.--yes.
        Dr. Sridhar. Can I add to Dr. Preli's comment? If you're
    building refrigerators, the way it exists today in the DG
    market is for every county, every zip code will have to custom
    make it for a certain local law. We need uniform
    interconnectivity standards. And that doesn't exist in the DG
    field. And that's a huge----
        Senator Kerry. In the--which field?
        Dr. Sridhar. In the distributed generation field.
        Senator Kerry. I see. Yes.
        Dr. Sridhar. So, that's an important policy issue.
        Senator Kerry. Fair enough.
        Mr. Prindle. We did a study of state distributed
    generation, interconnection policies, as well as the utility
    rate policies that go along with them, because when you try to
    bring a facility--interconnect it into the grid, you have to
    pay for studies, fees, permits, time delays. And then,
    utilities will often charge you, well, some would say,
    predatory rates for standby or supplemental power, to make the
    project essentially uneconomic. And some States do better than
    others. I'm happy to say Massachusetts is one of the better
    ones. But there are some States that have a ways to go in
    modernizing their interconnection policies. And in the Energy
    Policy Act, there was a limit as to how much federalism could
    move on imposing those on state utility commissions.
        Dr. Katzer. I want to make a couple of relevant comments.
        Senator Kerry. Dr. Katzer--yes.
        Dr. Katzer. Yes, Senator Kerry. I want to make two
    comments. In our forward modeling that was part of this study,
    and that focused on how to stabilize CO2
    concentrations, it is clear that first off you need all of the
    above. And, in fact, energy conservation and efficiency is the
    biggest piece of the wedge as it comes out. Biomass and
    renewables are also large. And you need CCS, which is where we
    spend most of our focus on coal to power, and other products
    such as fuels and petrochemicals.
        Senator Kerry. CCS being, carbon capture and sequestration.
        Dr. Katzer. Yes, carbon capture and sequestration.
        CCS can be applied to other stationary emissions of
    CO2. But that was not a focus of our study, but much
    of the same technology and many of the same issues apply.
        Senator Kerry. Besides IGCC, didn't you talk about an
    alternative methodology?
        Dr. Sridhar. Pulverized coal.
        Dr. Katzer. Yes, pulverized coal, with CO2
    capture added at the back end of the future gas train.
        Senator Kerry. At the back end.
        Dr. Katzer. And oxy-fuel, which allows compression of the
    whole flue gas directly without CO2 separation.
        Senator Kerry. Right.
        Dr. Katzer. Oxy-fuel reduces the cost of capture without
    having to do any separation. We need all of these technologies
    to supply your energy demand and to meet constraints on
    CO2.
        The other piece of this, though, is, that our energy and
    emissions modeling involved the world as a whole; that is a
    global model. If you now look at the world as it really is,
    you've got China with over a billion people doing what it is
    doing, as you mentioned. You've got India with another 1.1
    billion people, and the economy's growing rapidly. With China,
    we've seen what has happened, since coal is their primary
    resource, and they're just using it in enormous quantities.
    They've doubled their amount in the last 10 years.
        Senator Kerry. I know.
        Dr. Katzer. That is a few years.
        Senator Kerry. I know.
        Dr. Katzer. India, coming along. I think, you know, if we
    can establish an effective, lower-cost way to capture and
    sequester carbon, that is CO2, from coal, we have a
    bargaining position to deal internationally with these
    countries, and to get them on the train somehow.
        Senator Kerry. I couldn't agree----
        Dr. Katzer. If we don't do it, we have no bargaining
    leverage.
        Senator Kerry.--with you more.
        Dr. Katzer. And to establish bargaining position we have to
    do it fast; we have to establish the technology and get on the
    innovation curve.
        Senator Kerry. If we don't do it----
        Dr. Katzer.--If we don't, we're losing our technology
    position in the world.
        Senator Kerry.--it's ``Katie''----
        Dr. Katzer.--Technology and political leverage.
        Senator Kerry.--``bar the door.'' I totally agree with you.
    That's the urgency of this.
        Yes, Mr. Eckhart?
        Mr. Eckhart. Senator, back to the 10-year issue or starting
    yesterday. The reality is--and nothing against other longer-
    term questions, but the reality is--and I would submit that the
    only strategies to deal with these problems in the next 10
    years, and to have any impact in the next 10 years, is, number
    one, energy efficiency; number two, renewables. That's the
    whole deal, in the short term, to actually begin to impact. And
    I would recommend a plan that I know you know well, which is
    the California Action Plan, that mandates that the utilities
    there, and the energy companies, must maximize on efficiency
    first, must then fill out, completely, their growth with
    renewables, and only turn to fossil fuel generation if those
    two can't be done.
        Senator Kerry. Well, we passed a--you know, we passed a
    renewable portfolio standard in the Senate. It was lower than
    what I wanted. I heard your--in your testimony, you talked
    about 2020. I proposed 2020 as part of the campaign in 2004. I
    thought it should be a national standard, 3 years ago, that we
    needed to have a goal of 20 percent renewables by the year
    2020. It was achievable, and based on the California
    experience. They were already at 13 and 14 percent, 3 years
    ago. And, you know, they've been leading the way on this.
        So, we are going to--I've talked to Jeff Bingaman, and
    we're working on this. I think--we're going to go for 15
    percent, at least, renewable portfolio standard this year, and
    try and get it in place, and we'll put a national standard in
    place. So, we need that. But I have to tell you, I'm not sure
    that either of those two are going to be enough without, you
    know, some sort of an urgent leverage with respect to the
    China/India piece. And it may be that, with respect to China
    and India--I mean, if you can't push the curve fast enough on,
    you know, CCS and on one of these technologies to deal with it,
    you may have to wind up suggesting to them that we--everybody
    help them build a nuclear plant. I hate to say that. But I--but
    right now my preference would be to do that than build the coal
    plant, because it's that dangerous. I mean, that's really--if
    you don't get IGCC in place. Now, can we? I think, yes. I do
    not believe--I'm told that, for every dollar spent on
    alternative renewable, geothermal, et cetera, you get a much
    better return than you're ever going to get in a nuclear plant.
    So, clearly the nuclear doesn't have to be the choice. And
    preference shouldn't be, because we haven't worked out a
    sufficient proliferation regime or a sufficient waste regime.
        But these are--these issues can't be left dwindling very--
    you know, few folks--you know, to be speaking about it,
    nationally and publicly--the governments have got to sit down
    and start to really move on this, negotiate it. And,
    regrettably, we've got one that still thinks the Earth is flat,
    so it's a problem.
        Dr. Sridhar. Senator, the problem with India and China is,
    even if we had to resort to nuclear, that cannot be the only
    option, because you would need one new nuclear power plant in
    construction started every 2 weeks----
        Senator Kerry. Correct. And you won't get there----
        Dr. Sridhar.--every 2 weeks.
        Senator Kerry.--fast enough. In addition, I think----
        Dr. Sridhar. Yes.
        Senator Kerry.--you also have major fuel problems----
        Dr. Sridhar. Yes.
        Senator Kerry.--because you don't have enough----
        Dr. Sridhar. Yes. We don't----
        Senator Kerry.--fuel, in the long run.
        Dr. Sridhar. So, that can be ``a'' solution, but not the
    ``only''----
        Senator Kerry. Right.
        Dr. Sridhar.--solution.
        Senator Kerry. A piece of it. No, I'm not suggesting it's
    the--ultimately, you've got to get into the clean and
    alternative. I understand. I was just talking short term.
        Mr. Eckhart. I'd like to agree with your comments on China.
    We were there recently, and many times in dealing with them,
    and I recently said they're--you know, they've made a
    commitment to 15-percent renewables by 2020, and we coined a
    phrase there that we're not going to deal with the problem
    until China commits to being 15 percent nonrenewables by 2020.
    If they're 85 percent nonrenewables, we have the problem you
    pointed out, the 1,000 megawatts a week of coal-fired power,
    which will live in infamy forever.
        I'd like to add, on the RPS, the national RPS, the
    possibility that you would consider a national RPS that
    encourages every State of the Union to have an RPS of some
    level, even if it's 0.1 percent, but that every State shall
    have an RPS of some kind. Even in the South, they have plenty
    of ag waste, biomass, that they could have some participation.
    And that would be a solution I have not heard discussed.
        And, second, you might add to that----
        Senator Kerry. As opposed to a national standard?
        Mr. Eckhart. Well, maybe the national standard is to have
    a----
        Senator Kerry. If we have a national standard, every
    State's going to effectively have to meet it.
        Mr. Eckhart. Well, if it--well, a national goal is
    certainly argumentative, but if the Federal Government simply
    required that every State have a standard, and then created a
    trading system to trade the renewable energy certificates
    between the States, so that Wall Street could monetize that,
    create a futures market, and then we're monetizing
    environmental benefit----
        Senator Kerry. That's an interesting idea. It's a
    possibility. Sure.
        Mr. Eckhart. Appreciate it if you could take that up or--
    maybe----
        Senator Kerry. Yes.
        Mr. Eckhart.--with the staff, later.
        Senator Kerry. We will. Appreciate that.
        Well, listen, I thank you all. It's--this is the challenge,
    I'll tell you. If you want to pick the domestic challenge--
    sure, we've got budget issues and Medicare, Medicaid,
    healthcare, you name it, but they're going to pale beside the
    consequences of this.
        And if you look at the--you know, you read the Stern Report
    and other analyses, it is clear that the cost of not doing
    anything is 5 to 20 times the cost of doing something. And when
    you look at the 1-percent-of-GDP prediction about potential
    cost, this becomes sort of a no-brainer. I mean, it--we've got
    to get going.
        So, I appreciate your testimony today. It's been very, very
    helpful. We appreciate your work. We will follow up with you.
    There are going to be further hearings, and we're going to
    continue to push this pretty intensely around here.
        Thank you.
        We stand adjourned.
        [Whereupon, at 4:15 p.m., the Subcommittee was adjourned.]