[Joint House and Senate Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 111-729
PROMOTING A CLEAN ENERGY ECONOMY
=======================================================================
HEARING
before the
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
JULY 27, 2010
__________
Printed for the use of the Joint Economic Committee
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
HOUSE OF REPRESENTATIVES SENATE
Carolyn B. Maloney, New York, Chair Charles E. Schumer, New York, Vice
Maurice D. Hinchey, New York Chairman
Baron P. Hill, Indiana Jeff Bingaman, New Mexico
Loretta Sanchez, California Amy Klobuchar, Minnesota
Elijah E. Cummings, Maryland Robert P. Casey, Jr., Pennsylvania
Vic Snyder, Arkansas Jim Webb, Virginia
Kevin Brady, Texas Mark R. Warner, Virginia
Ron Paul, Texas Sam Brownback, Kansas, Ranking
Michael C. Burgess, M.D., Texas Minority
John Campbell, California Jim DeMint, South Carolina
James E. Risch, Idaho
Robert F. Bennett, Utah
Andrea Camp, Executive Director
Jeff Schlagenhauf, Minority Staff Director
C O N T E N T S
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Members
Hon. Carolyn B. Maloney, Chair, a U.S. Representative from New
York........................................................... 1
Hon. John Campbell, a U.S. Representative from California........ 3
Hon. Michael C. Burgess, M.D., a U.S. Representative from Texas.. 4
Hon. Kevin Brady, a U.S. Representative from Texas............... 5
Witnesses
Mr. Anthony E. Malkin, President, Malkin Holdings, New York, New
York........................................................... 7
Dr. Michael Greenstone, 3M Professor of Environmental Economics,
Massachusetts Institute of Technology, Cambridge, MA; Director,
The Hamilton Project, The Brookings Institution, Washington, DC 9
Dr. E. G. (Skip) Ward, Associate Director, Offshore Technology
Research Center, Texas A&M University, College Station, Texas.. 11
Submissions for the Record
Prepared statement of Representative Carolyn B. Maloney, Chair... 38
Chart titled ``Oil Expenditures''............................ 40
Prepared statement of Representative Kevin Brady................. 41
Prepared statement of Mr. Anthony E. Malkin...................... 43
Prepared statement of Dr. Michael Greenstone..................... 83
Prepared statement of Dr. E. G. (Skip) Ward...................... 94
Questions dated July 27, 2010 from Senator Jim DeMint to Dr.
Michael Greenstone............................................. 103
Question dated July 27, 2010 from Senator Jim DeMint to Mr.
Anthony E. Malkin.............................................. 105
Questions dated July 27, 2010 from Senator Jim DeMint to Dr. E.
G. (Skip) Ward................................................. 106
Document dated August 27, 2010 transmitting Dr. Michael
Greenstone's responses to Senator Jim DeMint................... 107
Document dated August 11, 2010 transmitting Mr. Anthony E.
Malkin's response to Senator Jim DeMint........................ 110
Document dated August 16, 2010 transmitting Dr. E. G. (Skip)
Ward's responses to Senator Jim DeMint......................... 111
Document dated August 27, 2010 transmitting Dr. Michael
Greenstone's responses to Representative Michael C. Burgess,
M.D............................................................ 113
PROMOTING A CLEAN ENERGY ECONOMY
----------
TUESDAY, JULY 27, 2010
Congress of the United States,
Joint Economic Committee,
Washington, DC.
The committee met, pursuant to call, at 10:05 a.m. in Room
216 of the Hart Senate Office Building, The Honorable Carolyn
B. Maloney (Chair) presiding.
Representatives present: Maloney, Hinchey, Cummings,
Snyder, Brady, Burgess, and Campbell.
Senators present: Bingaman.
Staff present: Andrea Camp, Gail Cohen, Colleen Healy,
Kinsey Kiriakos, Jessica Knowles, Jane McCullough, and Ted
Boll.
OPENING STATEMENT OF THE HONORABLE CAROLYN B. MALONEY, CHAIR, A
U.S. REPRESENTATIVE FROM NEW YORK
Chair Maloney. The meeting will come to order. I would like
to recognize myself for my opening statement. I welcome my
colleagues and the panelists.
I am pleased to hold today's hearing on promoting
innovation in the clean energy sector. This is the second in a
series of hearings held by the Joint Economic Committee on the
role that innovation has in fueling employment and growth.
Innovation in the clean energy sector will improve
productivity, enhance job creation, and improve the quality of
life.
This hearing is timely for a number of reasons:
The Senate plans on discussing energy legislation this
week;
The nightly news and the camera footage of the Gulf oil
spill remind us of the human and environmental cost of the
spill;
While our economy is still raw from the devastating job
losses experienced in the Great Recession, it is obvious that
more robust growth is needed to reduce the unemployment rate.
Innovation in the energy sector can help fuel growth in the
future.
Innovation in the clean energy sector can also strengthen
the economy by making it less vulnerable to economic downturns.
While the United States has weaned itself from dependence on
oil in many sectors, progress to reduce our dependency on oil
to meet transportation needs has been particularly slow.
At a hearing last May, Dr. James Hamilton testified that
the oil price run-up in 2007-2008 was an important factor that
contributed to the Great Recession. He testified that the run-
up in oil prices caused a plunge in auto sales, deterioration
in consumer sentiment, and a slowdown in consumer spending and
problems in housing, especially in the exurbs where commuting
costs can rise significantly with gasoline price increases.
Continued reliance on oil leaves the economy vulnerable to
sharp increases in oil and gasoline prices and could
potentially derail the economic recovery that we are now
experiencing.
It appears that when oil expenditures reach 4 percent of
GDP, the U.S. is at risk of falling into a recession. And that
is what our chart shows--that in every major recession except
one, oil price played a major role.
[The chart titled ``Oil Expenditures'' appears in the
Submissions for the Record on page 40.]
Currently the share of GDP spent on oil is 3.5 percent,
much higher than in 1993 when the share of GDP spent on oil was
1.8 percent, but better than the 6.8 percent in mid-2008.
Innovations in the clean energy sector can reduce our
vulnerability to oil price rises. These innovations may arise
from a variety of different sources:
New technologies to produce energy;
New forms of energy, production of existing fuels, or
energy in a cleaner or a more efficient manner; or
New ways of reducing our consumption of energy.
In our hearing last month on innovation, witnesses
testified that federal spending on basic research in
universities can provide the spark that ignites regional
economic growth and job creation.
Universities, with help from venture capitalists, have
emerged both as producers of ideas and active players in the
innovation chain, creating start-ups that are among the most
successful small businesses. But witnesses at our last hearing
also testified that there is not enough funding or research in
the energy sector.
Congress and the Administration have recently increased our
country's commitment to clean energy. The Recovery Act invested
more than $90 billion in clean energy, including investments in
energy efficiency, advanced vehicles, clean energy equipment
manufacturing, and mass transit and high-speed rail.
Additionally, the America COMPETES Act, passed by the House
on May 28th, supports innovation and basic research by creating
new clean energy consortiums in a public-private partnership.
America COMPETES also provides a much-needed form of
funding for game-changing innovation through the
reauthorization of the Advanced Research Projects Agency for
Energy, and directs the agency to help ensure that these
promising technologies are shared with the private sector. This
is roughly funded at $200 million.
Federal investments can be especially effective when the
funds are combined with private sector investments. Just two
weeks ago, the Chair of the Council of Economic Advisers,
Christina Romer, testified before this Committee that $46
billion in public funding in the Recovery Act encouraged an
additional $100 billion in investment by the private sector in
projects related to clean energy.
I am especially pleased that my fellow New Yorker, Mr.
Anthony Malkin, is here to testify about energy efficiency
retrofits he is undertaking in one of our greatest cultural
icons, the Empire State Building.
New lighting, windows, and heating and cooling systems
reduce the amount of energy tenants use while improving the
quality of their space.
I am eager to discuss with our panel how Congress can
ensure that these needed investments in a clean energy economy
will occur, leading us to a stronger economy with good jobs and
a cleaner planet.
I welcome all of the panelists and I look forward to your
testimony, and I recognize Mr. Campbell for five minutes.
[The prepared statement of Representative Maloney appears
in the Submissions for the Record on page 38.]
OPENING STATEMENT OF THE HONORABLE JOHN CAMPBELL, A U.S.
REPRESENTATIVE FROM CALIFORNIA
Representative Campbell. Thank you, Madam Chairman.
I was not actually going to make an opening statement, but
in the absence of the Ranking Member right now, I will make
just a couple of comments.
I believe it is true that certainly innovation and some
forms of clean energy can add to economic growth and
productivity, but only if those things increase productivity
and are accretive to the economy.
So I do not think it is fair or correct to say that any
clean energy development, or anything in this area, is going to
add to economic growth. If we in fact promote forms of energy
which cannot be baselined, and which can only be occasional
uses of energy, and which are very expensive and actually
either through government subsidies or otherwise require that
the economy pay more for the same energy than it did before and
still has to keep the baseline, I do not see how that is
actually going to be providing any sustainable productivity or
economic growth.
And, in fact, if you require the economy to pay more for
something that they are already getting for less without some
other accretive benefit, then I am not sure where that does
anything but actually cost jobs and hurt the economy.
That being said, there are certainly plenty of areas of
energy development--such as nuclear--where there have been
tremendous advances in technology, where we can actually do it
all, where we can actually create cleaner energy that is more
domestically sourced, and that is as cheap or cheaper than the
energy sources that we have today.
So I hope that when we as a government and as a society
look at this, that we discriminate between those forms of
energy that actually can accomplish the objective while
creating economic growth and jobs, and not necessarily force
ourselves to be dealing with those forms of energy that perhaps
are not going to be as economically beneficial as others.
With that I will yield back.
Chair Maloney. Thank you very much. We are very pleased
that Senator Bingaman is here. He is recognized for five
minutes.
Senator Bingaman. Madam Chair, I have no opening statement.
I am here to hear the witnesses. Thank you.
Chair Maloney. Would you like, Mr. Burgess?
OPENING STATEMENT OF THE HONORABLE MICHAEL C. BURGESS, M.D., A
U.S. REPRESENTATIVE FROM TEXAS
Representative Burgess. I thank the Chairwoman for the
recognition. I want to welcome our witnesses here today. I am
certainly anxious to hear your testimony, Dr. Ward, a Texan. I
am certainly grateful that you are on the panel. We know it
will be an even-handed approach since there is a Texan in the
group.
Promoting our economy and increasing energy resources are
two of the most important issues facing our country today.
Alone, these two issues are important, but when combined the
increased energy resources will help revive our economy and in
turn increase economic output, and ultimately the bottom line
is, add jobs to the economy--which is the key issue right now.
I have personally spent a great deal of time focused on
this in my home District in North Texas. We have terribly hot
summers. Right now I think the projected heat index is well
over 100 degrees. Two weeks ago I brought together experts in
north Texas to discuss energy efficiency, and clean energy
production for the future.
It is an annual event that I hold every summer, because
regardless of which side of the discussion we find ourselves,
whether it is from the standpoint of global warming, or the
standpoint of national security, or we just worry that we are
going to run out of oil one day, the common ground is energy
efficiency. And no one--no one-- wants to be in favor of
wasting energy.
New technologies to reduce energy wastage will move us
towards, say, an electrical automobile fleet. This was actually
surprising for me, met with some degree of optimism in North
Texas. You know, we love our trucks. We love our Dooley pickup
trucks, but nevertheless people are willing to look at other
alternatives, particularly for a vehicle that would primarily
be involved in commuting.
The questions that I will have for the panel today are
about the availability of clean energy sources and their costs.
Achieving energy security and increasing renewable, less
carbon-intensive energy sources are important to our country's
energy discussion. However, there are important questions:
How can we promote clean energy sources like wind, energy,
solar, and thermal, and other methods, without increasing
consumer cost?
What is a realistic amount of clean energy to expect in the
future? And what energy efficiencies can we achieve until more
renewable sources are available?
My State of Texas is a leader in clean energy. In fact, if
Texas were its own country--which some people have talked
about--we would be the world leader in wind energy. And indeed,
it was our clean energy governor, George W. Bush, in the mid-
1990s who put the regulatory framework in place in Texas which
has made Texas one of the largest producers of clean energy in
the world.
The Barnett Shale is a huge reserve of natural gas and an
alternative for tight shale formation in my district. It
provides an economic boon, as well as a source for fuel for our
economy. But it does pose specific challenges. Whether it's the
oil industry encroaching upon civilization, or civilization
encroaching upon the oil industry, it has led to some tension
in my district, and the resource must be developed in a
sensible fashion which is sensitive to the fact that there are
people now living nearby to the fields of production.
In 2009, Texas produced more megawatts of wind energy in
the country--wind energy, and added more megawatts of this
energy than any other state, but we also have the situation
where we have to bring that energy to the place where the
people live. And so the siting of new transmission lines
becomes an issue in an area that has increased in population.
So with those above-mentioned sources accounting for such a
small amount of energy consumption, how realistic is it for our
government to rely on these sources for providing large numbers
of employment in our country in helping our economy?
Encouraging the use of clean energy sources is a laudable
goal. It cannot only revive our economy, but help boost it. But
the discussion I hope to hear today is what are the realistic
expectations for us to have in the short term? And what can
Americans be doing to promote the expansion of clean energy use
and energy efficiency to achieve what we need with existing
resources?
Thank you, Madam Chairwoman. I will yield back the balance
of my time.
Chair Maloney. Thank you very much.
Mr. Hinchey.
Representative Hinchey. Well, Madam Chairman, thank you
very much. I don't have an opening remark, either, but I want
to thank you very much for holding this session today. This
subject is critically important, and it is something that we
have to deal with.
As you know, we have already passed somewhat of a
significant bill in the House of Representatives. It was not
quite as strong as what some of us would like to have seen
passed, but it is something that really needs to be done. And
we certainly hope that before the end of this year, before the
end of this Congress is over, that this legislation is going to
be passed in the Senate, or something very much like it, so we
can get some progress advanced here.
So this issue is critically important, and critically
important in a variety of ways: the situation in the gulf of
Mexico, and the circumstances of global warming. These are
critically important issues that need to be addressed by this
Congress. I am very anxious to hear what you have to say, and
to engage in the interaction of questions and answers about
these issues.
So, Madam Chairman, thank you very, very much.
Chair Maloney. Thank you. Mr. Brady.
OPENING STATEMENT OF THE HONORABLE KEVIN BRADY, A U.S.
REPRESENTATIVE FROM TEXAS
Representative Brady. Well, Madam Chairman, I thank you for
holding this hearing on energy matters at this time. And I
welcome the panelists to what I hope will be a substantive
discussion of energy supply and environmental issues.
I find the submitted testimony very encouraging in this
regard. And, Dr. Ward, thank you for joining us as our guest.
To observe our Administration's energy decisions is to
wonder whether it has any comprehension of the future energy
supply challenges our country faces. The ill-conceived Gulf
drilling moratorium flies in the face of everything common
sense tells us about our precarious energy future and what we
should be doing about it today.
The drilling moratorium is already killing good-paying
American energy jobs, sending rigs overseas, and with them our
workers, equipment, capital, and eventually America's
traditional energy infrastructure.
Given the global nature of energy production, these rigs
will not be returning any time soon. What is more, President
Obama has not even responded to our invitation to travel to
Houston, Texas, to meet face to face with the energy workers
and small businesses whose livelihoods are at risk due to the
moratorium.
Yet, the President will be traveling to Houston on August
9th to raise campaign cash for the Democratic Party. We have
asked him for just an hour of his time, or maybe even just 15
minutes of his time to meet with our workers and businesses,
but as of today, just silence from the White House.
Mr. President, can you spare any time at all for these
Americans whose jobs you are killing and sending overseas?
Where are your priorities?
Neither the White House nor Congress seems to understand
that the current relative lull in energy demand results from a
weak economy. It does not mean we have the luxury of halting
large-scale energy projects and betting our future on small-
scale alternatives that we all support but that are not yet
ready to affordably meet America's energy needs.
The Gulf of Mexico accounts for 19 percent of the Nation's
total proven oil reserves, and 30 percent of total U.S.
production. Solar and wind technologies together account for
less than 1 percent of the Nation's energy supply.
In 2008, the Gulf of Mexico's Outer Continental Shelf had
the largest amount of new oil-field discoveries in the United
States, which increased our proven reserves while oil reserves
fell for the Nation as a whole.
By all means, let's help renewable energy develop its full
potential. But let's not foolishly thwart the growth potential
of our established energy industry which provides the
affordable bridge to America's green future.
After 50,000 wells have been drilled in the Gulf's Federal
Outer Continental Shelf, and nearly 4,000 in deep water without
a substantial spill, how can anyone jump to the conclusion that
the BP accident points to an imminent systemic threat, and then
shut off all deep-water drilling?
And who would bet America's economy on subsidized wind and
sun energy when there are private companies investing billions
of dollars to develop deep-water oil and gas reserves off our
shores?
Does this make any sense? And where is the cost/benefit
analysis? A recent study by IHS Global Insight found last week
that if policies were adopted by Congress or the White House
that effectively prevent independent oil companies from
participating in future Gulf offshore development, the
employment loss would reach 300,000 American jobs, and the loss
of local, state, and federal revenues would total $147 billion
in losses over the next decade.
And that is because independent energy producers hold
majority interests in 81 percent of all producing leases in the
Gulf of Mexico, nearly half of those in the deep water. This
week, rather than the House of Representatives hastily rushing
through legislation with far-reaching impacts on jobs, energy
prices, and energy security, it would be much wiser to bring
together science, industry, and government in partnership to
develop a thoughtful, safe, and prosperous path forward to Gulf
exploration and development.
Our National economy, already suffering with 9.5 percent
unemployment in a subpar recovery, cannot be harmed further
with the devastating drilling moratorium and hasty legislation
that kills jobs and makes us even more dependent on foreign
oil.
Madam Chairman, I will submit the rest of my statement for
the record, but we look forward to the discussion today on the
path forward. Thank you.
[The prepared statement of Representative Brady appears in
the Submissions for the Record on page 41.]
Chair Maloney. Thank you. Thank you very much. Senator
Bingaman has informed me that he must leave shortly, but he
particularly wanted to hear the testimony of Mr. Malkin, who
has been a leader in existing building energy efficiency
retrofits. I do want to call on Mr. Malkin first to speak while
the Senator is here so he can hear him.
Mr. Malkin is coordinating the team that is in the process
of retrofitting the Empire State Building, upgrading and
restoring it, and making it more energy efficient, and he is
the President of Malkin Holdings.
Mr. Malkin, you are recognized for five minutes.
STATEMENT OF MR. ANTHONY E. MALKIN, PRESIDENT, MALKIN HOLDINGS,
NEW YORK, NEW YORK
Mr. Malkin. Thank you very much.
My name is Anthony E. Malkin. I am the President of Malkin
Holdings, and I run the Empire State Building. Seated behind me
are Empire State Building team leaders Paul Rode of Johnson
Controls and Dana Schneider of Jones Lang LaSalle. Other
members in our work are the Clinton Climate Initiative and the
Rocky Mountain Institute. Duane Desiderio of the Real Estate
Roundtable, of which I am a member, is also present behind me.
At the Empire State Building, we created the first
replicable, nonproprietary, open source, quantitative process
to give transparent economic justification to energy efficiency
retrofits in the existing built environment.
Our work is guaranteed by the balance sheet of Johnson
Controls to reduce our watt and BTU consumption by 38.4
percent. Our contract only guarantees 90 percent of our
projected savings, so our actual savings will be in excess of
40 percent. Our payback period is three years.
It is estimated that, in American cities, 85 to 95 percent
of all buildings that will be here in 2035 are here today.
Building new and efficiently will not move the needle on energy
consumption. Only addressing the existing built environment
will make a difference.
Let's use New York City as an example: 80 percent of the
energy consumed is consumed by buildings; 20 percent of the
buildings consume 80 percent of energy consumed by buildings.
Therefore, 64 percent of all energy consumed in New York City
is consumed by 20 percent of the buildings.
If the 20 percent of buildings in New York City that
consumes 64 percent of all energy deployed our program to the
same effect, total energy consumption in New York City will be
reduced by 25 percent. In the process, many jobs are created,
skills are taught, and local economies are stimulated.
That is the equivalent of creating surplus power through
alternative generation right in the middle of New York City,
carbon free. But generating our savings is 3 to 5 times per
watt less expensive than alternative energy generation by wind,
solar, or geothermal. Until the cost of a watt of alternative
energy generation equals the cost of a watt of savings, we must
focus on savings. You get the same carbon reduction with better
economics and no additional infrastructure cost.
Creating this excess power allows for a number of options:
Shut down the sources of power;
Create carbon credits for trading; and/or
Reduce the size of investment in the smart grid for
distribution of new sources of power.
What can government do?
Treat the reduction of the consumption of energy, treat
that reduction as the production of energy through alternative,
low-carbon output sources.
Allow for the sale of tax credits, accelerated
depreciation, and expensing of capital expenditure to help fund
and reduce the net cost of such work.
These financial incentives will encourage building owners
to make investments that address broad, intelligent policy
objectives.
Focus on the big energy consumers first. The Empire State
Building consumes the equivalent of 40,000 single-family homes
in energy. The focus on the community model for creating
residential energy savings has been misplaced. Focus on the big
energy consumers with big systems to effect fast and rewarding
change.
Develop national standards for energy consumption
reporting. To understand energy consumption, we must share
consumption data. Individual cities and states are already
approaching this issue independently. We need one set of
standards rather than a series of conflicting standards.
Change EnergyStar from a database of relative measurement
to a reporting and rating program based on actual consumption
data. Empire State Building has earned an EnergyStar rating of
90, with only half our work completed. That means we are more
energy efficient than 90 percent of comparable buildings of any
age. But EnergyStar is only a relative rating system which does
not provide a return on investment measurement or argument.
Understand limitations. We need a framework which
recognizes realities and differences by building types, system,
uses, and geographical locations. Allow for life cycle analysis
instead of wasteful edicts. Inform your policy with our
practice. Significant savings are within tenant-controlled
spaces, and legislation cannot merely impose on landlords but
must address users as well.
Reward successes and encourage first movers. The real
estate industry is inherently competitive. Owners and lenders
who are early movers should be rewarded. This will
differentiate them and encourage others to catch up and
contribute to the health of the real estate industry.
We are the future. We are not motivated by ``doing the
right thing,'' but by making money. I look forward to answering
your questions and finding ways in which the Empire State
Building can inform government policy with the practices we
have developed.
I encourage you to visit our website:
esbsustainability.com, and come see the $2 million installation
we just unveiled yesterday in our observatory, which is viewed
by 4 million people a year from this point forward, all about
the process we have created and its broad impacts.
Thank you, very much.
[The prepared statement of Mr. Anthony E. Malkin appears in
the Submissions for the Record on page 43.]
Chair Maloney. Thank you very much. I would now like to
introduce another distinguished witness, Dr. Michael
Greenstone. He is the 3M Professor of Environmental Economics
at MIT, and he is also a Senior Fellow in Economic Studies and
Director of the Hamilton Project at the Brookings Institute.
Previously he served as Chief Economist for the President's
Council of Economic Advisers under President Obama.
Welcome, Dr. Greenstone. You're recognized for five
minutes.
STATEMENT OF DR. MICHAEL GREENSTONE, 3M PROFESSOR OF
ENVIRONMENTAL ECONOMICS, MASSACHUSETTS INSTITUTE OF TECHNOLOGY,
CAMBRIDGE, MA; DIRECTOR, THE HAMILTON PROJECT, THE BROOKINGS
INSTITUTION, WASHINGTON, DC
Dr. Greenstone. Thank you, Chair Maloney, and Members of
the Committee, for inviting me to testify today.
I am grateful for the opportunity to speak about two
challenges that our country faces: the stagnation in economic
opportunity and the risk posed by our continued reliance on
fossil fuels.
The key purpose of my testimony is to discuss how energy
research and development, or R&D, can enable us to begin to
confront these dual challenges.
Even before the Great Recession's arrival, there were
legitimate concerns about U.S. competitiveness. Between 1979
and 2007, real earnings for high school graduates with no
further education declined by 12 percent. Earnings for high
school dropouts declined by 16 percent over the same period.
Further, between 1990 and 2005, our world market share of
high-tech exports dropped from 20 percent to 12 percent, while
China's more than doubled, rising to 19 percent. At the same
time, our need for access to reliable and affordable petroleum
constrains our foreign policy objectives, especially our
national security ones. This is the essence of our energy
security challenge.
Further, climate scientists tell us that warming in the
climate is unequivocal and very likely due to burning of fossil
fuels such as petroleum. The global consequences of climate
change for health and economic growth are projected to be quite
negative.
Two interrelated factors increase the odds of such dramatic
changes in temperature will occur. First, fossil fuels like
coal and petroleum are the cheapest sources of energy available
today and are likely to remain inexpensive in the future
relative to alternative sources of energy.
Second, due to their low levels of income, developing
economies will continue to pursue cheap energy sources in the
coming decades.
Our nation needs a new solution to these dual challenges of
U.S. competitiveness and fossil fuel dependence. I believe a
new program of energy R&D should be part of it. Such a program
offers the prospect of innovation that will produce industries
of the future and good jobs for our nation.
Why is R&D so important? Our economic progress is driven by
invention and application of new technologies. And R&D spending
develops and drives these new technologies. However, the
private sector rightly focuses on applied projects where the
payoff is likely to accrue only to them.
In contrast, government can sponsor the kind of basic
research projects that seek wide-ranging scientific
understanding, and these basic research projects can affect
entire industries rather than individual firms.
Two of the most notable vehicles for supporting R&D in the
United States are the National Institutes of Health, the NIH,
and the National Science Foundation, the NSF.
NIH-funded scientists have won over 93 Nobel Prizes, and 15
of the 21 most important new drugs discovered between 1965 and
1992 were developed using NIH-funded research. NSF-funded basic
research has produced meaningful advances, including bar codes,
Doppler Radar, and web browsers. These advances have created
entirely new industries that have helped to make us a world
leader.
In contrast, funding for energy research has often been
focused on the deployment of existing technologies, rather than
the development of new ones. Deployment is a task that is
better left to the private sector.
Further, energy research funding decisions have not been as
single-mindedly based on peer review in contrast with the
approach that prevails at the NIH and NSF.
How much does the United States currently spend on R&D? As
the chart shows, the Federal Government's contribution to R&D
spending as a share of GDP has been declining over the last
several decades, from its Cold War peak of about 2 percent, or
more than 2 percent, to less than 1 percent today.
The next chart depicts the time series of federal R&D in
the energy sector. In 2009, federal R&D spending on energy
totalled just $1.7 billion, or a little more than 1/100ths of 1
percentage point of GDP.
Let me put this in some context. That $1.7 billion figure
is just 55 percent of the $3.1 billion that we currently spend
on subsidizing employee parking through the Tax Code.
It is also instructive to compare U.S. spending with other
countries. Our rate of energy R&D spending puts the United
States in last place among the 12 OECD countries that spent the
most between 2004 and 2008.
The Hamilton Project--so let me conclude. The Hamilton
Project, an Economic Policy Group at Brookings that I direct,
is commissioning a series of discussion papers on ways to
improve the Nation's R&D program, and we will unveil them in
2011.
In the meantime, I would like to suggest five broad
principles for reforming energy R&D policy:
Number one, federal energy R&D funding should be increased
substantially from its woefully inadequate current levels.
Two, energy R&D funding should follow the NIH and NSF's
model and be free of political influence.
Three, federal R&D funding should be focused on basic
research not applied research or deployment.
Four, the use of innovative funding mechanisms such as
prizes should be given consideration.
And number five, energy R&D should include funding for
projects to demonstrate that new technologies can be
implemented on a commercial scale.
Let me conclude. In pursuing a new energy R&D program,
there are difficult political issues that must be confronted.
Perhaps chief among them is the identification of a source of
enhanced funding in this tight budget environment.
At the same time, we cannot stick with the status quo. It
is imperative that we begin to confront the issues of
competitiveness and fossil fuel dependence that have hampered
our progress over the last several decades.
Thank you very much for the opportunity to testify before
you today. I would be happy to answer any questions that you
may have.
[The prepared statement of Dr. Michael Greenstone appears
in the Submissions for the Record on page 83.]
Chair Maloney. Thank you very much. And I would now like to
introduce Dr. E.G. Ward. He is the Associate Director of the
Offshore Technology Research Center at Texas A&M University.
His responsibilities include planning, coordinating, and
administering of the OTRC research program to meet industry and
government technical needs in areas associated with deep-water
offshore oil and gas development. Prior to joining Texas A&M,
he worked for Shell Oil Company managing the design of Shell's
deep-water structures, and conducting research in ocean
engineering.
I would like to welcome all of you, and I would like to
call on Mr. Brady to begin the questioning after Dr. Ward's
testimony.
STATEMENT OF E. G. (SKIP) WARD, PH.D., ASSOCIATE DIRECTOR,
OFFSHORE TECHNOLOGY RESEARCH CENTER, TEXAS A&M UNIVERSITY,
COLLEGE STATION, TEXAS
Dr. Ward. Thank you, Madam Chairman.
It is indeed an honor and a privilege to be able to address
you all this morning. I appreciate the opportunity.
I think we would all agree that a robust drilling program
must continue to maintain and increase our domestic oil
production for America's continuing energy needs, even while
alternative energy sources are being developed for our future.
Many consider the moratorium to be a six-month long period
during which the Macondo well disaster will be studied, safety
practices and regulations will be modified and improved,
decisions regarding cleanup and mitigation and containment
issues will be addressed, and then the drilling and production
will go back to the same levels as before the disaster.
However, in the face of the six-month moratorium and the
uncertainties as to when drilling can actually resume, and
under what conditions and circumstances and regulations,
drilling rigs are beginning to leave the Gulf of Mexico. Two
rigs have already announced their departure, and I expect there
will be more.
What I would like to address this morning is the aspect of
the moratorium that has not been considered to date, and that
is the impact on longer term Gulf of Mexico production as rigs
leave as a result of the moratorium.
I will focus on oil, but my remarks are equally applicable
to offshore natural gas production.
Consider two factors. When a rig leaves the Gulf of Mexico
to work overseas, it will not do so on a six-month contract. It
will go to Angola, Brazil, or some other place probably on a
two- to five-year contract. So the effective time when these
rigs are not drilling in the Gulf of Mexico, exploring,
producing, maintaining ongoing production will be two to five
years, not six months from the moratorium.
The second thing to consider is that the production rate
from an oil well begins to decline as soon as it starts to
produce. Reservoir management is undertaken to help slow this
decline, but it is inevitable and eventually the reservoir is
depleted, no more economic production can be sustained, and new
reservoirs must be found and produced to keep the oil flow
going.
So let's ask how fast the Gulf of Mexico wells decline. The
MMS has derived estimates based on their study of historical
production in the Gulf that the decline rate is on the order of
12 or 13 percent per year. This figure does include ongoing
maintenance drilling. And so for a no-drilling case, which I
would like to pursue, I am going to assume the effective rate
is actually about 15 percent.
Others have estimated that the actual decline rate is much
higher than even that, at 20 to 30 percent. I will use 15
percent and I've shown in my testimony some sensitivity cases
for up to 20 percent.
So let's look at the case where the moratorium results in
all rigs leaving the Gulf or being unable to drill for a two-
year period. What's the impact on production?
In 2010 before the moratorium, the Gulf of Mexico produced
1.6 million barrels of oil a day. That is 585 million barrels a
year.
By the end of 2012, assuming that no drilling occurs in the
two years till then, the production would drop to about 1.1
million barrels a day--a 30 percent reduction.
In that two-year period (2011-2012), 450 million barrels of
oil would have to be imported just to make up for this
production that was lost. The import value at $70 a barrel
would be over $30 billion. There would be 1,500 additional
shuttle tanker transits in the Gulf required to bring that
imported oil into the Gulf, creating further oil spill hazards.
And finally, when the rigs returned in late 2012, what
would it take to get production back from the then-1.1 million
barrels of oil a day to the 2010 value of 1.6 million barrels a
day that existed before the moratorium?
A very large Gulf of Mexico oil and gas production can
produce up to 200 thousand barrels of oil per day. So would it
take three of these major productions to get us back to where
we are today? No. It would take about four years to bring those
projects online. And during that period, the production rate
would drop another half a billion 500 thousand barrels per
daydollars a year, so it would take five very large projects to
catch up to where we were in 2010.
So the six month moratorium really has the potential to
cause lasting impacts to our ability to produce oil.
Let me sum up. No one knows how many rigs will leave and
for how long, but the potential production decline that could
result from the moratorium can have long-lasting impacts on our
domestic production.
There are many negative impacts of the moratorium that have
been discussed elsewhere, including unemployment, new safety
concerns, economic losses for both industry and governments,
and increased dependence on foreign oil.
However, much has been learned from the Macondo disaster to
date, and these lessons learned, plus the recommendations that
were included in Secretary Salazar's report to the President
that are now being implemented in Notices to Lessees, and the
oil spill containment system that industry has recently
announced, provide a strong basis to allow drilling to resume
now while continuing to further improve safety against these
very rare events.
Chair Maloney. The gentleman's time has expired. Could you
wind it up?
Dr. Ward. I have finished. Thank you.
[The prepared statement of Dr. E. G. (Skip) Ward appears in
the Submissions for the Record on page 94.]
Chair Maloney. Thank you very much. But one way we can
produce more energy is by preserving more. I was impressed
really by your statement, Mr. Malkin, that you were bringing
down the Empire State Building's energy consumption by over 40
percent. That is a very impressive accomplishment with not only
financial savings to the building, but also improving the
environmental benefits for others, and also freeing more energy
for other uses.
Can you elaborate more on what you are working to
accomplish? And how can we get other owners of commercial
buildings to follow the same type of lead that you are taking
in New York? And what does this mean for energy in terms of New
York City if other large buildings would follow your lead and
conserve that much energy, releasing it for other uses? Can you
elaborate how we can get more buildings involved, and the
benefits to energy saving overall?
Mr. Malkin. Yes. Thank you. First of all, I would like to
just restate the facts which I had said earlier to make sure
they set in. I wanted to get in within my five minutes, but
literally according to the Mayor's Office of Long-Term Planning
in New York City, 20 percent of the buildings in New York City
consume 64 percent of all of the energy consumed in New York
City. That includes railroads, buses, subways, taxis, all
energy.
So a 40 percent reduction in watts and Btu consumption by
those 20 percent of buildings would in fact be the equivalent
of generating 25 percent of all of the power consumed in New
York City right in the middle of New York City.
New York City is particularly energy dense. So the reality
is, in a city like Phoenix, it's probably more--and if you look
at Phoenix as an SMSA, as opposed to just the city proper, it's
probably more about 60 to 65 percent. But even in small towns
in America, the majority of all energy consumed is consumed in
buildings. That's point one.
Point two, this is the first quantitative approach ever
developed. And that was the groundbreaking work which we
started with Johnson Controls, Jones Lange LaSalle, and the
Rocky Mountain Institute, in an airplane hangar in Eagle,
Colorado, back in 2007.
There has been no quantitative approach up to this time,
and we did launch and announce it in April of 2009. But when we
launched it in April of 2009, it was with a contract signing
for work which we had already done in private and in secret. We
did it in private and in secret because we were afraid that one
of the outcomes might be that we would prove you could not have
an economic justification for energy efficiency retrofits, and
it would only be possible through regulation and additional
expenditure without economic result.
There are other people already copying what we are doing,
strictly from an economic perspective. As I mentioned to you in
confidence, there will be a large 2-million-square-foot
building in New York which will make the announcement that it
is already well underway with this project in September of this
year. There are two large corporate headquarters in New York
where this work is preliminarily underway.
And the key, I believe, is to look at the real estate
industry, a very large and vibrant and job-creating industry in
America, as a source of electricity, as a source of power, as
opposed to just a consumer. And, to try to coordinate the
efforts of the real estate industry with appropriate government
incentive and interaction, and legislation, to band together
and produce this power in an organized fashion by focusing on,
first of all, commercial applications. We consume 40,000
households' worth of energy at the Empire State Building.
The same two people behind me would be responsible for
doing four or five single-family homes. Instead, they are
responsible for doing the Empire State Building. So concentrate
on the big energy consumers, number one.
Number two, really one should look at the same sort of tax
credits and tax benefits which oil and gas drilling, wind,
solar, and geothermal have always enjoyed as energy producers.
But put some of that money into energy conservation. That is a
very good source of financing for this sort of work.
The third thing I would say is, you have to create openness
and sharing of energy consumption data. Real estate people love
attention and hate scrutiny. Everything that we are doing is
wide open for scrutiny. And we are hoping to create a
competitive atmosphere--we are succeeding in creating a
competitive atmosphere amongst brokers and tenants who are
choosing to come to us because we are helping them with their
own objectives of controlling costs. Salaries, rent, and
utilities are the three highest costs of businesses in America.
We are working on that third one.
Chair Maloney. Thank you very much. My time has expired.
Mr. Brady.
Representative Brady. Well thank you to the panel. Mr.
Malkin, your testimony is impressive. I know commercial
buildings have dramatically increased their energy efficiency
over the last several decades, but you bring a perspective on
the cost/benefit analysis that is very, very helpful.
Dr. Greenstone, thanks for making the point on the need for
R&D. If you could--I didn't find it in your testimony, but if
you have any information comparing federal R&D spending versus
private-sector R&D spending, especially in renewable that would
be helpful. I find a number of companies are doing research
that people are not even aware of that is creating, I think,
some hope for us moving forward. Any information you have along
that line would be very helpful.
And, Dr. Ward, your point about what happens with this
drilling moratorium in the here-and-now, clearly we have two
rigs that already announced they are going to Egypt and the
Congo. Many more rigs are contemplating leaving and will not
return any time soon.
Each rig takes with it at least 1,000 to 1,500 American
jobs. And then the vendors and suppliers who supply those rigs
are hurt. And your point is, if I read it right, is that along
with those losing rigs, and jobs, and equipment, and our
American businesses, that we end up, in fact, importing more
oil by more risky means of transmission than receiving it from
the Gulf today. And, that the Gulf also is sort of the buffer
to OPEC, that the amount of oil it produces keeps us from being
held hostage to foreign countries that can drive up prices and
really cripple our U.S. economy.
Can you go back to the point you made? What is--how much
less oil will we be producing? Not counting natural gas, which
is again I think the best bridge to an affordable green energy
future for America, it really is the backstop for wind and
solar and other renewables and allows them to grow and yet keep
reliability, but what is the production? How much less energy
will we be producing in the United States if this very poorly
thought of moratorium continues?
Dr. Ward. If the moratorium results in rigs leaving for two
years, the reduction in the Gulf of Mexico will decline by 450
million barrels a year.
Representative Brady. And that's what percent? That's
about----
Dr. Ward. About 30 percent of the Gulf production.
Representative Brady [continuing]. So we will lose a third
of our most critical portion of oil development?
Dr. Ward. That's correct.
Representative Brady. And if it goes longer, it is how
much?
Dr. Ward. If it goes longer, the 450 I believe goes up to
about over a billion barrels of oil in five years.
Representative Brady. So we would lose, at that point, two-
thirds of our production.
Dr. Ward. Correct.
Representative Brady. You were invited by the Interior
Department to peer-review their original drilling moratorium--
--
Dr. Ward. Not to review, but to contribute to the report.
Representative Brady [continuing]. Contribute to it. You
made a number of safety suggestions, but you and a number of
others in that group did not support the drilling moratorium,
saying it would not make the Gulf safer, and would have a
dramatic economic impact.
Can you----
Dr. Ward. That's correct.
Representative Brady [continuing]. Can you talk about that
a moment?
Dr. Ward. Yes. There were a number of safety
recommendations that dealt principally with procedures, both
from the standpoint of planning wells, executing wells, the
regulatory environment that would give more scrutiny to ongoing
wells. I think it is pretty generally recognized that the
procedures and design of the BP well are not ones that are
practiced by the wide majority of industry.
And I think the rarity of blowouts, as disastrous as they
are, certainly belie that point.
Representative Brady. Coming from the university setting,
as an academic one of the points that you made then and made
today in your testimony is that stopping the production here in
the U.S. does not make the shore safer by increasing----
Dr. Ward. The imports.
Representative Brady [continuing]. The imports.
Dr. Ward. Right.
Representative Brady. And using the tankers. You have
actually increased the risk of oil spills in the Gulf.
Dr. Ward. Of near-shore oil spills in particular, yes.
Representative Brady. Is there any other point about your
testimony? I know we always keep a strict five-minute rule. Any
other point you wanted to make today on the impact on jobs or
pricing in the future?
Dr. Ward. Well certainly one only has to look at recent
hurricane interruptions in production between 2004 and 2008 to
see the rapid and significant price increase that occurs when
oil is curtailed in the Gulf of Mexico. So I think it is a
fairly rapid response.
Representative Brady. All right, thank you, Dr. Ward, and
thanks for traveling here today.
Dr. Ward. Thank you.
Chair Maloney. Thank you. Mr. Hinchey.
Representative Hinchey. Dr. Greenstone had a comment.
Chair Maloney. Yes, excuse me.
Dr. Greenstone. I just wanted to comment on this last point
about the impact of the moratorium on prices. I looked this up
in the U.S. Energy Information Administration Report, and
according to them by September the moratorium will have
contributed to a 1/100th of 1 percentage point reduction in
global petroleum production. And I think, as difficult a
political decision as it is to have a moratorium, and I think
there are good arguments on both sides, I think the notion that
it would somehow affect global prices for petroleum I think is
not well founded.
Representative Brady. I guess we will see where that goes,
huh?
Chair Maloney. Thank you. Mr. Hinchey.
Representative Hinchey. Madam Chairman, thanks very much
for this hearing. And thank you, gentlemen, for everything that
you have said. We really need to be dealing with this issue
much more effectively.
Mr. Malkin, I thank you very much for all the talk that you
gave about energy efficiency. I am delighted to hear that the
City of New York is doing the kinds of things that you talk
about. That is very positive. Very progressive. And it is going
to make a big difference.
Twenty percent of the buildings are using up more than 40
percent of the energy there? That's something----
Mr. Malkin. 20 percent are using 64 percent.
Representative Hinchey [continuing]. 64 percent--20 percent
using 64 percent. That is absolutely shocking. And it is
something that really needs to be overcome. And I am sure it is
not unique. It is probably the same in every city all across
the country and a lot of other places all around the world. So
energy efficiency is critically important.
The whole system that we have to deal with also is the
bringing about of the practical use of energy effectiveness in
other ways. One of the most effective things that we could do,
it seems to me, would be utilizing solar energy. We have more
energy coming out of the sun every single day all around this
planet, much more than is used right now.
So this is something that really needs to be dealt with. We
are paying much too much attention to oil and gas and the
standard forms of energy. One of the things we have here is $18
billion that we spend in subsidies for the oil and gas industry
in the United States every single year.
If we were to take half of that, just take half of that
away from them and put it into energy research and development,
we would be doing something that would be very, very
significant. So I would appreciate it if we could talk a little
bit about that and how it needs to be done.
Dr. Greenstone, one of the things that you really surprised
me with was the fact that almost a dozen countries around the
world are engaged in more research and development in the
energy operations in those countries than here in the United
States--simple countries like South Korea, Finland, France,
Spain, Italy, Canada, Germany, Sweden, Mexico, the Netherlands,
and of course Japan, the most. And China is not included in
that, but China is doing an awful lot, and they are doing it in
different ways.
So I think the main issue that we should be dealing with is
alternative energy. And the main form of alternative energy is
solar energy. Yes, there's wind energy. There's a whole lot of
things that can be done positively with that. Countries like
the Netherlands are generating huge amounts of energy through
wind forms, and there are some other countries that are engaged
in that as well.
But what would you suggest that we do with regard to the
development of solar energy, that simple form of energy that
flows down on this planet every single day--huge, huge amounts
of energy, much more than we are ever using? Why aren't we
doing it?
I mean, this government frankly, as you pointed out,
beginning in, when was it, something around 1980 I think, was
it, that sharp decline in the use of----
Dr. Greenstone. In the early '80s, yes.
Representative Hinchey [continuing]. The early '80s. Well,
maybe you could talk a little bit about that and tell us what
we need to be doing, and how we should be doing it more
effectively.
Dr. Greenstone, if you would start?
Dr. Greenstone. Yes, I think, Congressman Hinchey, these
are excellent comments you made and I just want to try and
amplify a few of them.
I think the basic problem is that fossil fuels--fossil
fuel, petroleum and coal, remain the cheapest source of energy
that we have right now. And until we undertake a serious
program of research and development, that will remain to be the
case.
And so to your point, the sun is a wonderful source of
energy. And I think if we devoted the kind of substantial
increase in funding for research and development into solar
energy, that could well cause solar to be cost competitive with
the fossil fuels that are the source of both our energy
security and our climate problems.
Representative Hinchey. Mr. Malkin.
Mr. Malkin. I sit before you importantly as a capitalist.
We invest in the oil and gas business. We have owned
refineries. We're--I'm also relatively green, as it were,
looking forward.
We've got to deal with the national priorities of this
country, and we've got to deal with energy independence. Solar
has a role. Solar is still three to five times as expensive as
energy savings. So my thinking is, we've invested in solar as
well and done very well on that. But my thought is there's a
mix here. There's a cocktail that's required: conservation,
maintaining baseload, and bringing on the alternatives.
There's got to be the correct mix. So I think that there
are good policies in place for solar right now, and there are
big leaps being made. The biggest and most important thing you
could do to sustain the development for solar, the
technological development, is maintain a consistent and
straightforward and understood set of programs in the U.S.
Federal Government that extend over a five-year period, not a
one- to two-year period, so that people can justify long-term
planning and capital expenditure.
The exact same thing for energy conservation. The same way
the oil industry and gas industry has benefitted for so long
because of the knowledge that these programs and policies and
subsidies were in place and could be relied upon when you're
making long-term capital expenditure decisions. The big
projects in the Southwest for solar that will be coming are
very large. They're billion dollar projects. They need to have
a firm regulatory framework underfoot.
Chair Maloney. The gentleman's time has expired. Mr. Brady
is recognized for the purpose of a request.
Representative Brady. Thank you, Madam Chairman. I would
seek unanimous consent to have Senator DeMint submit questions
for the record.
Chair Maloney. No objection.
Representative Brady. Thank you.
[Questions dated July 27, 2010 from Senator Jim DeMint to
Dr. Michael Greenstone appear in the Submissions for the Record
on page 103.]
[Question dated July 27, 2010 from Senator Jim DeMint to
Mr. Anthony E. Malkin appears in the Submissions for the Record
on page 105.]
[Questions dated July 27, 2010 from Senator Jim DeMint to
Dr. E. G. (Skip) Ward appear in the Submissions for the Record
on page 106.]
[Document dated August 27, 2010 transmitting Dr. Michael
Greenstone's responses to Senator Jim DeMint appears in the
Submissions for the Record on page 107.]
[Document dated August 11, 2010 transmitting Mr. Anthony E.
Malkin's response to Senator Jim DeMint appears in the
Submissions for the Record on page 110.]
[Document dated August 16, 2010 transmitting Dr. E. G.
(Skip) Ward's responses to Senator Jim DeMint appears in the
Submissions for the Record on page 111.]
Chair Maloney. Mr. Campbell.
Representative Campbell. Thank you, Madam Chair.
I am going to try and ask each one of the three of you in
the order in which you said something.
Mr. Malkin, I think I heard you say that your technology in
the Empire State Building in New York is producing a payback in
three years?
Mr. Malkin. Yes.
Representative Campbell. That is phenomenal from any----
Mr. Malkin. It is phenomenal, and it is documented.
Representative Campbell [continuing]. So really you don't
need an incentive, or a subsidy, or whatever, for that kind of
payback. Won't the private sector just jump all over that?
Mr. Malkin. You know, I wonder how many oil industry
investments would be made if they had to do it on their own
without some form of subsidy on just a three-year--I would
suggest that, and having been in the industry I can tell you,
we--a little quicker than that.
But I would tell you that----
Representative Campbell. I understand you would like it
because you could sell more, with a two-year payback, I get
that.
Mr. Malkin [continuing]. The important thing is--by the
way, this is nonproprietary. We do not own it. We created this
in partnership with a bunch of other organizations. It is
absolutely free. It is open source. You don't have to deal with
any particular products.
I would suggest as follows: For an even playing field that
you should look at energy conservation just as another form of
energy. And put that into the mix. That is really my thought. I
don't look at it as a panacea, but I certainly look at it as a
giant force of change once it has been quantitatively
organized.
Representative Campbell. And I am from Southern California,
so I am sure in a more temperate climate that payback is not
going to be quite the same.
Mr. Malkin. No, actually it will be different because it
will be different steps. There are 67 different energy
efficiency measures which we looked at iteratively. We chose 8
at the Empire State Building. They will differ by virtue of
climate, building type, building use.
Representative Campbell. Okay.
Mr. Malkin. And it is all on a relative basis. You may in
fact find that the savings that you would find have nothing to
do with heating, but have more to do with air conditioning,
have more to do with lighting, but the important thing is there
is a variety.
Representative Campbell. Okay, fair enough.
Dr. Greenstone, the thing about research, I have spent most
of my career in the car business and I was involved with the
General Motors electric car back in the '90s, and I can tell
you everyone, by now, thought there would be a breakthrough in
battery technology, and it has not come in spite of billions of
dollars of research both from the government, both under
President Clinton and President Bush, and in the private
sector.
So the research, I think you would agree, does not
guarantee obviously a breakthrough. So what I wanted to ask you
is, if we were to have a substantial increase in energy
research done by the government, what would you charge them
with doing? What would you ask them? What would you tell them
to look into? Where do you think the breakthrough is closest,
or the most practical, or the area in which we could get the
most productivity?
Dr. Greenstone. Thanks for the question, Congressman
Campbell. As you rightly point out, research does not have
guarantees. It proceeds in fits and starts. I do not think when
the NSF was funding what became web browsers anyone had in mind
that it would produce web browsers, and the myriad industries
and very high-paying jobs that have fallen out of that.
I think what we will have to do is convene a panel of
experts, as is done at the NIH and NSF, who are only concerned
with advancement of knowledge, and not concerned--and free of
political influence--and try and focus research on where the
highest returns are. And I think they could be given the charge
of trying to find the lowest cost, low carbon source of energy
and/or ways to sequester carbon.
You know, I would give a broad mandate and keep an eye on
costs and kind of let science proceed as best it can.
Representative Campbell. Okay.
Dr. Greenstone. I also wanted to respond to one thing that
came up in your excellent question of Mr. Malkin. I completely
agree that for too long our energy policy has been focused on
providing subsidies for deployment of particular technologies,
be they oil----
Representative Campbell. Dr. Ward, what I want to ask you
is, your focus has been obviously on the drilling and so forth
in the Gulf, and again coming from the car industry as I have,
there's 130 million vehicles on the road in the United States
now that run--virtually all of them run on some form of refined
petroleum product.
Even most of the new technologies that are out there, if
everybody goes to a plug-in electric five or six years from
now, those plug-in electrics will largely run on a refined
petroleum product. Even if we went to fuel cells, the most
practical use of the fuel cell runs on a refined petroleum
product.
So my point is simply that we are going to--no matter what
we develop for a long period of time, 10, 20, 30 years, we are
going to need a lot of refined petroleum in this country under
almost any scenario, are we not?
Dr. Ward. Yes, that is true.
Representative Campbell. And developing that domestically
would be better than importing it?
Dr. Ward. Right. As Congressman Brady said, that is the
bridge to these future energy alternatives.
Chair Maloney. The gentleman's time has expired.
Mr. Cummings.
Representative Cummings. Thank you very much.
I was listening to you all's testimony and, Mr. Malkin, I
too am impressed with what you have said about your work in New
York. As I was sitting here, I was just thinking that, you
know, in a City like Baltimore where I am from, many cities are
cash-strapped today and they are trying to figure out ways to
save money.
I am just curious. How do you see that playing like, for
example, the things that you do, with government buildings and
buildings that are run by cities? I mean, that is maybe a way
to knock out two birds, at least two birds, with one stone:
save money and at the same time save energy? I was just
wondering.
Mr. Malkin. Absolutely. We have actually had the City of
San Francisco and the City of Philadelphia, in particular, and
the City of London come and visit us at the Empire State
Building so they can look at what we are doing and incorporate
it into not only their buildings themselves but into the
policies in the building codes which govern what happens in
their cities.
There is no question that you will get two benefits. Every
city has a capital-expenditure-based program. Every city is
constantly reinvesting in its capital, and largely buildings
are a big part of that.
So there is a big opportunity to combine these expenditures
with integrated energy efficiency retrofits. The incremental
cost is tiny, and the paybacks are very significant. And I
think it would be very beneficial.
Representative Cummings. And long-lasting.
Mr. Malkin. Once you get your payback, that savings
continues forever. I would like to just point out, by the way,
that coal, nuclear, gas, and hydro are really the sources for
the grid, not oil. Oil is really a transportation fuel. So my
Tesla is powered off of the grid, and not by petrochemicals.
Representative Cummings. Dr. Greenstone, one of the things
that you talk about in your testimony is how addressing this
whole energy situation can--or not addressing it--affects
infant mortality and all kinds of other problems. We just got a
report in Maryland where African American babies, their infant
mortality rate is going up; Whites are coming down. We just got
that in yesterday. Could you talk about that a little bit?
Dr. Greenstone. Thanks for the question, Congressman
Cummings.
In some research I've shown that very hot days increase the
rate of infant mortality. So to the extent our continued
reliance on fossil fuels will continue--will produce more and
more hot days, that will lead to higher rates of infant
mortality. And I think it underscores that we have been baking
into the system through our reliance on fossil fuels changes in
climate that are going to disrupt the way we live and impose
economic costs both through health costs that you've outlined,
and reduced agricultural yields, and a series of other negative
changes in our environment.
And if we do not undertake changes in our reliance on
fossil fuels, we are going to be subjecting ourselves to those
costs.
Representative Cummings. And how would you say we should
ensure that say, for example, jobs produced by a clean energy
economy are American jobs and not just another industry that
moves overseas? I mean we've got a lot of people out of work.
And one of the things that I am doing in my District on August
7th is, we are bringing in young people who have either dropped
out of school, or are trying to figure out where to go, and
trying to direct them into areas like--first of all, getting
their GEDs, and trying to get them into community colleges--but
we are also trying to tell them where the jobs are going to be.
These are young people and we want to get them into some
kind of careers. It would be a shame if we produce these
energy-reducing jobs, and then they just get shipped overseas
because I am trying to figure out where these people are going
to work.
Dr. Greenstone. So there is no question, Mr. Congressman,
that there is an international competition for jobs. We are
seeing that every day. And one thing that, you know, decades of
economic research have shown is that where ideas are created,
there is stickiness. And so to the----
Representative Cummings. There's whatness?
Dr. Greenstone [continuing]. Stickiness. And so let me
elaborate on that. So to the extent that we can fund a program
of basic R&D that produces new ideas and new industries, while
some of those jobs in those industries will go overseas, many
of them will stay behind in the United States.
And that is I think the strongest part of the argument for
the need for a clean energy revolution to further our economic
competitiveness.
Representative Cummings. Thank you, Madam Chair.
Chair Maloney. Thank you. And Mr. Burgess.
Representative Burgess. I want to thank the Chair for the
recognition.
Mr. Malkin, your story is nothing short of fascinating. As
I mentioned, I do an energy efficiency summit in my District,
and I have done that every year since my wife and I built a new
house, and I wanted to put solar panels on but the technology
was not there, and they are terribly expensive, and my wife,
who is the architect, said maybe we can just do this with off-
the-shelf efficiency technologies: foam insulation, efficient
attic systems so important in a Texas summer, the high-
efficiency air conditioners.
So I guess my question is: You mentioned you can do the
equivalent of 40,000 households, but we also have a lot of
power out there in those households. And, while not everyone is
going to build a new house, there are off-the-shelf retrofits
that can be done on the existing housing stock. And every
summer when we do this efficiency summit, I am impressed by the
local builders who show up and talk about the things that can
be done, the energy audit, finding the places in your home
where the energy is not being utilized appropriately.
Presumably you have done that with your building in New
York? Is that correct?
Mr. Malkin. I have done it with my building in New York,
and I have done it with my home. And the interesting thing is
that the paybacks in my home really to do the comparable work,
because of the systems involved and the fact that it is an
existing home and happens to be 100 years old, far, are far
longer than with commercial.
My emphasis is: Go to where the money is. And the money
right now, the low-hanging fruit is concentrated in buildings,
big buildings: hospitals, office buildings, retail facilities.
I don't mean to say forget about homes altogether, but I do
mean to say I think it is misdirected to focus on HomeStar when
BuildStar or other things which address the commercial real
estate industry could have a much more immediate, very near-
term effect on our total energy demand, and can free up power
and source of power for other uses.
I would emphasize, by the way, I would not want to bog this
down with too much data, but the folks at Johnson Controls and
Jones Lange LaSalle are readily available to testify at any
time, and they have got all the data on this.
Representative Burgess. I hope we will call them.
You mentioned 67 things to do for energy efficiency. In the
Empire State Building you concentrated on 8. Can you give us,
in the interest of time, the top 2?
Mr. Malkin. I think the two most interesting things that we
have done, one is we are taking 6,514 windows which are
thermopane or duopane, installed 12 or 15 years ago, out of the
building to a facility in the building with 5,000 square feet
where we take them apart, clean them, put in a mylar sheet,
reseal them with krypton argon gas. We take their energy
efficiency from an R-2, energy resistance to transfer of
energy, from an R-2 to an R-8.
We re-use 96 percent of the components: the frames, the
glass. We reinstall them the next night in another floor.
Through that process, we are greatly reducing the heat and cool
transfer and reducing our load.
The second thing which I think is very interesting is we
have a DDC system which is 100 percent, 24/7, 365 days a year
operating every variable air volume damper, every fan, every
pump, every radiator. It's all linked. So we are not only
curing the number one complaint in an office building, ``too
hot/too cold,'' but we are fine-tuning the building so that it
runs at peak efficiency. And if it ever slips out of
commissioning, you know it immediately, as opposed to every
five years when you check.
Representative Burgess. I'm anxious to hear about the other
six, but in the interest of time I do need to ask Dr.
Greenstone, on the--of course we passed a cap-and--or they
passed a cap-and-trade bill in the House, I guess I should say.
It was an absolutely dreadful bill.
But when Al Gore came and talked to our Energy and Commerce
Committee--and he did this twice--he talked about maybe it was
time for a new paradigm and we get rid of the income tax, and
the payroll tax, and just have a carbon tax, or an energy tax.
Have you looked into that at all? Replacing our existing
tax codes with just purely an energy tax?
Dr. Greenstone. Congressman Burgess, I have not looked into
replacing the income tax with a carbon tax. I think what is
probably worth highlighting, though, is it is possible to
design a carbon tax, or we can call it a cap-and-trade system,
where the costs are minimized to American families.
Representative Burgess. It may be possible--I'm going to
interrupt you--it may be possible, but we did not do it in that
bill.
Let me just ask you this, because you mentioned about X
prices, or national prizes. H.R. 5505 is an X Prize for dealing
with nuclear waste. Now if we want Mr. Malkin to have his Tesla
charged with noncarbon electricity generating, and it just
seems like nuclear power would be the way to go. Any interest
in us pursuing something like that?
Dr. Greenstone. I think it is important to pursue research
and development into nuclear energy. It's got to be at the top
of the list.
Representative Burgess. I would appreciate you looking at
H.R. 5505 and giving me feedback on what you think.
Dr. Greenstone. I would be happy to.
[Document dated August 27, 2010 transmitting Dr. Michael
Greenstone's answers to Representative Michael C. Burgess, M.D.
appears in the Submissions for the Record on page 113.]
Chair Maloney. Mr. Snyder.
Representative Snyder. Thank you, Madam Chair.
I apologize for not being here earlier. I was at an Armed
Services Committee hearing. I want to ask a two-part question,
which all three of you may decide you do not want to respond
to, and then my time will be done and your time will be done,
but the first part of the question is:
We talk a lot about competing with the international
community in terms of R&D and developing new technologies, and
it's all about jobs, and who is going to sell what to whom. The
first part of my question is: As part of that, though, should
we not be encouraging Chinese investment in the United States?
They are certainly willing to manufacture products that are
part of new energy sources. Why are we not aggressively
encouraging them to set up manufacturing plants here like we do
with other countries and other technologies? It seems like it
would be a win/win thing for both the Chinese and the American
people, the American workers.
And second, it seems like every few weeks there is some
article about how aggressive the Chinese, the business
community and government, are about buying up energy type
resources and mineral resources around the world. And we read
those, and we get alarmed. Is not the alarming part of it that
American businesses are not investing in those areas? Are not
the Chinese businesses doing what perhaps folks ought to be
doing, which is, you're looking ahead and you think you need
more energy. Should you not be making investments in countries
that have the resources you need? Is there not a difference in
risk tolerance?
Why are not U.S. businesses more aggressively going after
investments overseas like Africa, recognizing that 50 years
from now Africa is certainly going to be wanting to buy clean
energy sources also? And if this is off the wall for all three
of you, just defer to the next guy and we'll be done.
But Dr. Greenstone, any comment?
Dr. Greenstone. Thank you, Congressman Snyder. I think I
will take on your first question.
We have too much labor that is not working right now, and
too many American workers do not have jobs. And I think it
would be a great idea to encourage investment from China, and
all other countries, in the United States. And if we set up
factories that are owned by others, those would still be jobs
that American workers can have, and American workers can draw
wages and support their families and I think that would be an
important part of any economic policy.
Mr. Malkin. I would just like to say to your second
question that, you know, where China is going, I was in Kenya
visiting with my family and the roads are being made there,
graded by Chinese engineers all up and down the country.
We have got the, what is it, the Corrupt Foreign Practices
Act, or Foreign Corrupt Practices Act, I forget which it is.
They don't have any such restrictions on where their capital
goes.
But I also think that, you know, American capital is
wonderful because it can be moved where it is best rewarded.
And what I am trying to emphasize is, less reliance on overseas
sources of energy, and to look at energy efficiency as a source
of energy for our own country so we can really define what our
requirements are and we can have less extension. That is a huge
component of what has driven me to do what I have done, the
work that we put together at the Empire State Building, really
to make America stronger and less reliant on overseas. China is
reliant on overseas because it has grown fast and does not have
the resources to grow its economy.
Dr. Ward. I think that the oil industry is a great example
of the research that has been plowed into it, and the jobs that
have stuck in the United States. The U.S. is a world leader in
technology, and seen as a leader in implementing that
technology throughout the world.
In terms of competing internationally for jobs, I would
imagine a lot of it gets down to labor costs when you go into
the implementation and rolling out of the technology for a mass
market. And that is a tough one to deal with.
I will pass on the second one because I think we are all
about trying to create energy in the United States.
Representative Snyder. Except that if what we are saying is
this is about jobs in which we sell products internationally,
why would we not be saying there is a huge market in Nigeria 30
years from now, or 20 years from now, or 10 years from now for
solar kinds of things? Or clean energy? And yet I think
American business right now, when you combine European and
American investment in Africa, it is much, much higher than
Chinese, but the rate of investment today is much greater by
the Chinese for reasons that seem to be one of risk tolerance
more than anything else.
There is money to be made in Africa. There is money to be
made making products there to sell to Africa. It is not just,
Mr. Malkin, to sell, to bring energy back to the United States,
that we are falling behind.
Thank you, Madam Chair.
Chair Maloney. Thank you very much. I would like to give
Dr. Greenstone the opportunity to respond to your statement.
You ran out of time. You were responding to Mr. Malkin's
statement that we should be treating savings as energy, and if
you would like to expand on that concept more, Mr. Malkin, or
Dr. Ward, you are welcome to.
Dr. Greenstone. Thank you, Chair Maloney.
Yes, the point I was going to make is I think for too long
our energy research has been focused actually on deployment, or
subsidies for particular forms of energy. Sometimes it's oil.
Sometimes it's coal. Sometimes it's solar. Sometimes it's wind.
Sometimes it's for energy efficiency. However, deployment is
really an activity that is best left to the private sector.
Instead of favoring particular technologies, economic theory is
clear, all technologies should be allowed to compete on a level
playing field. The lone exception is in cases where there are
what economists call externalities, like greenhouse gas
emissions.
And what all those subsidies do is unlevel the playing
field. And the thesis of my testimony was that if we take those
subsidies and turn them into research and development, pure
research and development that is focused on basic knowledge
that no firm will undertake on their own because it will
benefit all kinds of firms, not just their own firm, we can
address these two challenges that have been bedeviling the
country for several decades--which is U.S. competitiveness, and
our increasing reliance on fossil fuels.
So switching from deployment to basic R&D I think will
offer a lot of benefits.
Chair Maloney. Well, talking about research, in this weeks'
Newsweek, the Ford CEO, Alan Mulally was talking about the
challenges faced with coming up with a solution with the
batteries, and he said what we need is a moon shot. We need a
total commitment, as we had when we sent a man to the moon with
government support, to come up with a solution for the
batteries. And why is private sector, or government funding in
this case, going to fill the gap? And why isn't the private
sector investing in this? Once we do, I am confident that
American businesses and researchers can come up with a
solution. How does this compare to China, which is spending
more money on battery research than we are?
And then to the point that Mr. Cummings made so
eloquently--once we do come up with the new technologies, too
often I hear from my colleagues the new technology, the new
solar technology, has moved to another country to be developed
and exported back to America.
Why can't we hold on to our innovations and our
intellectual property and create the jobs and the products here
in our own country? And I welcome Mr. Malkin and Dr. Ward for
any comments on it, but do you think we need a moon shot, as
the CEO of Ford says, for battery development? And once we do
develop it, what then would keep that technology and jobs here
in America?
Dr. Greenstone. I think we need a moon shot for research
and development into energy, period. And batteries are
obviously a key constraint. They constrain the electric
vehicles. Storage also constrains the use of solar, due to
solar's intermittency. And, you know, if I were in charge of
research and development, I would certainly devote substantial
resources to the basic understanding of how batteries work, and
how to advance that.
As to your more difficult question of how do we ensure that
the jobs stay here, I think there is no getting around that we
have a global competition for jobs. We have a global
competition for capital. And, as I mentioned earlier, what
decades of economic research have shown is when ideas are
generated in a particular place, they tend to stick in that
place.
And so if we develop the ideas here in the United States,
we can feel some confidence that the jobs will remain in the
United States.
Chair Maloney. Mr. Malkin, in your--Dr. Ward?
Dr. Ward. One of the things I would like to bring up on the
deployment of technology, though, I don't think the role of the
government should be overlooked, because once a new technology
is developed, if it is a very capital-intensive technology to
roll out, then it takes a stable regulatory environment to
ensure that the benefits can be realized.
There is a lot of risk on the private sector. And in
addition to the stable regulatory environment, perhaps there
ought to be some accommodation made by the government in terms
of tax breaks for rolling out new technology. I have seen it be
a breaking point on technologies that have been developed.
Everybody wants to be a fast follower, not a bleeding
leader.
Chair Maloney. Again I have heard from my colleagues, where
tax breaks and incentives have been given to develop
technologies by businesses in their districts, then they have
seen those businesses actually completely move to another
country, after receiving quite a bit of government support to
develop the technology and to develop the business.
So it is a challenge. And that is what I repeatedly hear
from my colleagues as we discuss jobs.
I do want to go back to your rather major initiative, Mr.
Malkin, of retrofitting the Empire State Building, which
included private and nonprofit sectors. How could a government
be most helpful in removing obstacles that you encountered in
the process? What were the type of obstacles that you
encountered? How could government be more helpful in helping
other major buildings convert to save so much energy?
Mr. Malkin. I think there are a few things.
One, the common theme here is a stable regulatory
environment and is very important. But I think also a
regulatory environment, in and of itself, has some merit. What
we did was we were able to convince the folks at Johnson
Controls and Jones Lange LaSalle to, on speculation, commit
millions of dollars of research, people power, men and women
power, around a problem.
And they did it with the prospect of being able to go out
and market this product. And I think they intelligently did it
with the prospect of marketing a product which can be used
domestically.
I think that it would be far better for the environment, it
would be far better for the economic environment I mean, far
better for businesses, if they knew what was coming at them
from a regulatory perspective so that what they choose to do
for their own profits' interest is not going to be
countermanded or wasted based on future regulation.
I really do believe that what is happening is, particularly
for large property owners, cities and states are coming up with
their own regulations. Some of them are very enlightened, but
many of them are conflicting. And if you are looking for the
real estate industry, the commercial real estate industry, and
large industries devoted around that, lending, construction and
the like, the prospect of national codes, if it is going to be
out there, it needs to come forward.
Otherwise, we are confronted with having to comply with
numerous codes in numerous different jurisdictions, many of
which--all of which we assume are well intentioned but could be
conflicting and reduce efficiency in implementation.
Chair Maloney. Thank you. Dr. Ward? And my time is expired.
Dr. Ward. I couldn't agree with that more, in that as new
technologies are developed and rolled out, the regulatory
environment, the government, needs to be brought along with
that technology so that they are familiar with it, so they know
its strengths and weaknesses, and can come up with intelligent
regulations for the application of it. You can't have one get
ahead of the other. Thank you.
Chair Maloney. Thank you.
Mr. Brady.
Representative Brady. Thank you. I think whenever you lose
a customer, especially a long-standing customer, you normally
do not blame them. You take a hard look at yourself. I think
one of the reasons companies are choosing to invest and
innovate and create jobs overseas is that what used to be a
very strong business climate in America has changed.
Other countries have taken a page from our playbook, lower
taxes, less regulation, more innovation, better R&D tax
credits, encourage innovation, and basically are beating us
over the head with our own playbook. And until we re-create a
strong business climate, and a job creation and innovation
climate, we will not see those jobs return.
Dr. Ward, let me ask this from an academic standpoint. Dr.
Greenstone, in responding to a question, made the assertion
that fossil fuels contribute to higher infant mortality rates
on hot days. In other words, oil and natural gas somehow
contribute to more deaths of babies during hot days.
In all your scientific work dealing with offshore, onshore
oil and gas production, is there any scientific basis for that
assertion?
Dr. Ward. Not that I'm aware of.
Representative Brady. Aren't oil and natural gas, which we
are trying to transition from our dependence on that to a more
diversified portfolio both in our homes and in our cars and in
our industry, which have traditionally been the most
affordable, along with coal, the most affordable sources of
energy, as opposed to wind, and solar, biomass, others. Has
that changed?
And if you are looking at affordability, and that infant
mortality rates are somehow tied to the ability to afford your
energy, wouldn't that be more affordable for families than some
of the alternative fuels that are being developed today?
Dr. Ward. Yes. Certainly oil and gas--fossil fuels in
general are a more affordable means of providing energy in
today's market. And if the idea is to provide better
environmental systems for households and whatnot, that would
certainly be the one that would be the most affordable until
these alternative, cleaner sources become more available and
affordable.
Representative Brady. Thank you. Dr. Greenstone also made
the point that he could assure us there would be no price
increases in oil here this fall, or apparently in the future.
But when we have hurricanes coming to the Gulf, until there is
assurance that there hasn't been a disruption, oil prices on a
world basis tend to go up?
Dr. Ward. That's correct.
Representative Brady. If there's a hiccup in Nigeria's
production, oil prices tend to go up. Can you, or anyone on
this panel, assure us that energy prices will not go up as a
result of this drilling moratorium?
Dr. Ward. I certainly can't. And I think that the price
situation is so inelastic with oil and gas that any little
hiccup, or big hiccup, certainly has immediate impact on
prices.
Representative Brady. It is one of the reasons I think that
we are hopeful there won't be an increase because demand is
down. World demand is down right now. Will that demand ever
increase? Will we move back to the point, as economies globally
increase, where there won't be sort of like the credit card
that's maxed out, you're out on the edge? That's been one of
the drivers of energy prices, one of the reasons, Gulf
production, which gives us that buffer against that, has been
so helpful.
Dr. Ward. Right. Well I think the United States and every
other country is very anxious for an economic recovery, and
energy usage will certainly increase as the economies recover.
Representative Brady. One of the concerns that have been
raised on the drilling moratorium is the loss of up to 300,000
jobs if we drive Independents from the Gulf. The rigs are
already leaving. We have a global environment. Companies do not
have to invest in the U.S., they choose to.
We are already hearing from companies that, as they plan
their capital budgets, they are looking at investing capital,
their precious capital, in other countries rather than doing it
here in our backyard.
Does that mean, should we lose that investment, along with
the rigs and the equipment and the jobs, does that also cause a
problem for future production and future jobs in the United
States?
Dr. Ward. Well I think that that is an opportunity that the
majors have, but the smaller independents, which are an
integral and important part of oil and gas production in the
United States, do not have the luxury to go overseas as easily
as a global company. We could lose those.
Representative Brady. Yes, we will lose them. What
businesses can survive six months without their main source of
revenue?
Dr. Ward. Not many. I know a number of people in the
industry that have lost their jobs in the last three months.
Representative Brady. Thank you, Doctor.
Chair Maloney. Mr. Hinchey.
Representative Hinchey. Thank you very much, Madam
Chairman.
And thank you, gentlemen. I think this has been a very
interesting discussion, and I thank you very much for
everything that you have been dealing with here.
I can't help but be deeply impressed about the energy use
efficiency operation that you are engaged in in one of the most
important buildings anywhere on this planet, the Empire State
Building, and all of the things that are going to happen as a
result of that.
I hope that is going to continue, that it is going to be
more effective, and apparently the Mayor of the City of New
York is closely involved in this, and he is working strongly to
support it. All of that is very, very important.
I can't help but--in fact, I have been feeling this way for
a long time, that solar energy is the most effective, most
important, most useful way in which we can reduce our
dependence upon fossil fuels and deal with the rising cost of
energy, but also deal with this issue of global warming, which
is becoming critically important.
As we know, 2005 was the warmest year that we have
experienced on record. And it may be that 2008 or 2009 may be
warmer than 2005. In any case, this is an important thing that
we have to deal with.
In the District that I represent in Upstate New York, a
couple of years ago we set up a not-for-profit corporation
called The Solar Energy Consortia. As a result of that, we have
generated a significant number of jobs, several hundred jobs,
and we have got a number of companies that have come in that we
are working with.
I will just mention two of them and the things that they
are doing. One of them is developing a solar battery. And this
battery is in the process of generating energy and being able
to hold onto this energy for a long period of time. And the
essential idea of that is to use it in automobiles for
transportation. But of course that could be expanded very
easily and used for a whole host of other things in addition to
transportation.
Another company that we have has just set up the
manufacturing of solar panels. And this company is the only
company in eastern New York that is now manufacturing solar
panels. And that operation is going to be expanding over the
course of the next few weeks, and well into next year. The
estimation is that in the process of that one operation they
will be hiring something in the neighborhood of 400 jobs over
the course of the next several months, running into next year.
So I am wondering what you think about that operation.
Shouldn't we be focusing our attention on solar energy? Isn't
it the most effective and the most efficient? And Dr. Greenspan
specifically, you mentioned that there are recommendations of
U.S. energy research and development capacity that is going to
be unveiled in 2011. And I wonder if you would give us some
hints about what that unveilment is going to look like in 2011.
Dr. Greenstone. Thank you for your questions, Congressman.
I think there is no question that solar has got to be part
of the suite of sources of energy, including energy efficiency,
that should be researched carefully. Currently solar is not
cost competitive in most settings. And I think further research
and development could change that.
And as I said, we are going to be coming forward with some
specific recommendations. I just tried to highlight five
principles in my testimony, which they all boil down to
increased funding, funding that is completely merit-based,
funding that is focused on basic research rather than on
deployment, or applied research, and attempts at using
innovative funding techniques like prizes. And then also the
support for demonstration of new technologies at commercial
scale. Those are the broad principles I think that we are ready
to talk about at this point.
Mr. Malkin. I think that the use of solar is important,
again as part of a suite. We have had some very good
investments in solar, both from production of solar as a
utility with Sun Edison, which is a company which we recently
sold, but also through companies which have made the conversion
of sunlight to electricity more efficient. That is an
investment we still have.
I think that it is very important with government policy to
sponsor innovation. Only through repeated manufacturing will
innovation come, breakthroughs come, both through research and
the manufacturing process in determining where the bottlenecks
exist, developing the supply chains.
So I think with wind and solar and geothermal--I don't want
to miss the point--energy efficiency is five times less
expensive now, but they will converge, because alternative
energy sources will become less expensive, and the costs of
achieving greater efficiency will become more expensive as we
get rid of the low hanging fruit.
Representative Hinchey. Dr. Ward.
Chair Maloney. Yes.
Representative Hinchey. Dr. Ward.
Dr. Ward. No comment.
Representative Hinchey. No? Okay.
Chair Maloney. No comment. Dr. Greenstone has a comment.
Dr. Greenstone. Chair, thank you. I think my testimony or
my comments might have sown a little confusion. I wondered if I
could have just one minute to clarify them?
Chair Maloney. Sure.
Dr. Greenstone. I think I just wanted to respond to one of
Congressman Brady's fine points. I think what Congressman Brady
has really done is focus everyone's mind on the important point
that currently fossil fuels are the cheapest source of energy
around. There's no getting around that.
And if we continue to use fossil fuels, that will save
American families money, and that is something that everyone is
obviously supportive of.
What I think my testimony was not perfectly clear about is:
The continued reliance on fossil fuels also has a set of costs
that are not quite visible, in the same way when you pay a
utility bill every month. And those fossil fuels, what they do
is, according to scientists, is they increase global
temperature. And that increase in global temperature has a
series of negative consequences--infant mortality being one of
them, but there are a series of other ones. And I was only
trying to highlight that we don't see those costs in quite the
same way we do when we pay a utility bill every month, but
those costs are real nonetheless.
And I think the second thing I want to clarify, which I
feel my testimony might have sown a little confusion about, was
that my statement was not about shutting down drilling in the
Gulf forever more. My statement was that if we had a moratorium
that lasted through September, it would not fundamentally alter
total production of oil across the globe. And that the impact
on prices through September, and potentially longer, would be
difficult to discern.
I was not making a statement that if we stopped drilling in
the Gulf forevermore there would be no impact on world prices.
Representative Brady. I appreciate that. Because as we
know, the moratorium will go through November unless changed.
But we actually--while I disagree with some of the climate
change assertions--I think we actually--and, Madam Chairman,
the reason I appreciate you calling this--I think almost all of
us agree we need to get to a greener energy future.
How we make that transition is really sort of the debatable
point right here, and how we do it in a way that benefits us
all. This is not a zero sum game. We are going to need energy
from all sources if we are going to be diversified, and
affordable, and clean in the future. So we actually, while we
may have some differences in how we get there, I think the
point of your whole hearing is we need to get there.
Chair Maloney. Thank you. Mr. Campbell is recognized.
Representative Campbell. Thank you, Madam Chair.
And, Mr. Malkin, when I was doing my last questioning you
made a comment that will cause me now to make a little bit of a
view, give you a little bit of my perspective on things, of
which all three of you are welcome to comment and say I am full
of garbage, I am dead on right, or somewhere in between.
But I think there is a distinct difference between energy
for mobile sources and energy for stationary sources. And the
solutions for each are very different. The vast majority of
energy for mobile sources in the United States today is
petroleum based. It's cars, it's trucks, it's diesel, it's
gasoline, et cetera.
The propulsion systems that are alternative to that, rather
than internal combustion, are electric, which by the way, from
the standpoint of the efficiency of the propulsion system,
driveability of the propulsion system, is an excellent
propulsion system. The problem is how you get the energy to it.
And that is where batteries become a barrier right now. And
cost. And not just batteries, but their cost, their efficiency,
and everything else.
Or in the case of like a fuel cell where you have a whole
bunch of barriers--cost, and also what kind of fuel; actually
the most efficient fuel because the infrastructure is already
there to fuel a fuel cell today is still gasoline. So you still
have that. So that is one set.
Then on the other set is stationary sources, which we're
not talking about batteries but we're talking about producing
it, and there most of the energy is either coal or natural gas
based in the United States. There's obviously a lot of
hydroelectric and some nuclear. But I see the barriers there as
being substantially different.
Because people will say, well, we have to get off
dependence on foreign oil, therefore we need solar. Well unless
you can create a battery for a vehicle, solar does not help you
with oil because there is very little oil that is used to
create electricity in the United States.
So what you have got, if you want to displace natural gas
or coal or both producing electricity, then there already is
large hydroelectric, which produces zero emissions and is
cheap, and there is already nuclear which produces zero
emissions and is cheap, and those technologies exist, but there
are a number of people who don't want to go down that path for
one reason or another it seems. But the barriers over there
seem to me to be considerably less than the ones in the mobile
source, but that they are, no matter how you look at it, very
different problems that have some overlap but not a significant
amount of overlap.
And depending on what your objective is, whether it is a
global warming objective, whether it is a dependence on foreign
oil objective, whether it is a dependence on a national
security objective, there are many different objectives people
have for moving down this course. But as Mr. Brady says, I
think we all understand that we want to move down this course.
But I do think the two things have different solutions, and
different challenges.
So with that, I will let you all comment on my little
diatribe, if you desire.
Mr. Malkin. Yes. I totally understand from where you are
coming, and I guess my comment would be, from what I am expert
at, if I am expert at anything, is the energy efficiency piece.
We will free up that fixed base of energy generation. It
will free up that fixed piece, and you can begin to look at
reallocating the pool of things that are otherwise used for
generating fixed. Get rid of some of the higher polluting
sources. Start looking at different infrastructure for the
transportation side.
And that is absolutely an issue, that we have an
infrastructure for transportation to use fossil fuels. There
are other alternatives, but they will require infrastructure,
which, by the way, will require jobs and will require
innovation.
Representative Campbell. Right. Okay, but I just--until you
have a battery or something, you can't transfer that from fixed
to mobile source until there's some technological breakthrough
somewhere that doesn't exist right now.
Dr. Greenstone. Congressman, I think your categorization of
the problem is spot on. And I think from sitting here, I am not
a scientist, but it seems like we can see the way to get there
on the stationary sources. We are not there yet, but we can see
the way to get there.
We are a long ways away in terms of dealing with mobile, or
transportation. And I think that is where a lot of research and
development spending should go. And I think Chair Maloney made
that exact point when it comes to batteries, and I agree with
that.
Representative Campbell. And there have been billions of
dollars--and I am not saying it was sufficient--but both from
the private sector and the public sector in the last 20 years
on batteries, and we have not gotten there yet.
Now was it insufficient? Did we try the wrong way? Did we
have it wrong--I don't know. But, you know, it is not because
there hasn't been some effort. There has been a significant
effort, and a significant reward to anybody who makes a
breakthrough in the last 20 years. We just haven't gotten it
yet.
Dr. Greenstone. I agree. And when I put together some of
these statistics in my testimony, I was a little taken aback,
frankly, that we have made serious investments in R&D, but from
an international perspective we are falling way behind.
Chair Maloney. Thank you.
Mr. Malkin, you said in your testimony that policy should
be informed by practice, and I couldn't agree more. We don't
just need pools of money, we need to really have objective
assessments.
Could you elaborate on how we would go forward with these
objective assessments? How could we inform tenants about how
much they pay per square foot? I know we have a LEED
certification in New York. Is that working? And then you talked
earlier about the need to change the EnergyStar assessments to
a way that really looked at output in a more detailed way.
Would any of the panelists like to discuss that?
Mr. Malkin. I would just say that the number one issue for
me is that we do have groundbreaking work that we are doing. We
are only a little more than a year-and-a-half into its
implementation. And we are now producing the data. And I think
that that data and the fact that it works, and that the
assumptions we had to make based on our research are actually
now producing real, verifiable data. That's the practice which
I think is helpful.
LEED is a qualitative destination. I agree with green
practices. We recycle tenant waste. We recycle construction
debris. We use recycled materials and low off-gassing materials
in our buildings, but that does not really address the energy
piece. And LEED is deficient in that.
EnergyStar is a terrific product put together by the U.S.
Government. It should be upgraded to a new version which gets
away from a relative measurement and gets into specific rating
and disclosure of consumption.
You cannot get away from the fact that, if everyone
consumed energy at an equal efficiency rate, everyone's
EnergyStar rating would be 50, because it's a relative
measurement. Therefore, it doesn't justify what the economic
result will be, the savings you will get for the investment you
get. And I think there is room for that. It is a good model
which has done a lot of good but should be improved.
Chair Maloney. Any other statements? Yes, Dr. Greenstone.
Dr. Greenstone. Chair Maloney, I think I just want to
amplify a point Mr. Malkin is making about EnergyStar, and
actually something that relates to today's hearing more
generally.
One problem in the energy market for consumers is it is not
very transparent. So when you buy a computer, you know how much
it costs today to pay to the Dell Corporation; you do not know
how much it is going to cost to run it over time. I think
different computers can have different rates of energy
efficiency, just like different televisions do.
And currently the way that the government tries to provide
information in that market is through these EnergyStar ratings.
As Mr. Malkin has emphasized, those ratings are often
qualitative, or give you a rank order, but they do not give you
the fundamental information, which is: Well how much will it
cost to run the thing?
And I think a reform of the EnergyStar program and more
generally the provision of information that allows consumers to
make more informed choices would be a tremendous reform.
Chair Maloney. Thank you so much. My time has expired. Mr.
Brady, and it has to be our last round. We only have this room
for a limited amount of time.
Representative Brady. No, Madam Chairman, thank you.
Chair Maloney. No questions? Well I want to thank all of
our witnesses--Oh, Dr. Ward?
Dr. Ward. Could I make one more point----
Chair Maloney. Sure. Absolutely.
Dr. Ward [continuing]. In response to Dr. Greenstone's
comment about the price of oil in the short term due to the
moratorium. Probably by September or October not much would be
noticeable. My concern is that, as rigs leave, and there is
much less drilling in the Gulf of Mexico in the future years,
that is where the real hurt will come. Thank you.
Chair Maloney. I want to thank all of our witnesses for
their informative and enlightening testimony. We need to make
smart decisions about how we invest in energy, and your
testimony today underscores the need to add rigor to our
assessment of proposals and the need to provide guidance on how
these innovations can benefit energy consumption and consumers,
and help preserve energy.
I would like to thank everybody for coming, and this
meeting is adjourned.
[Whereupon, at 11:52 a.m., Tuesday, July 27, 2010, the
hearing was adjourned.]
SUBMISSIONS FOR THE RECORD
Prepared Statement of Carolyn Maloney, Chair, Joint Economic Committee
I am pleased to hold today's hearing on promoting innovation in the
clean energy sector.
This is the second in a series of hearings held by the Joint
Economic Committee on the role that innovation has on fueling
employment and growth.
Innovation in the clean energy sector will improve productivity,
enhance job creation, and improve the quality of life.
This hearing is timely for a number of reasons:
The Senate plans on discussing energy legislation this
week.
The nightly news and the camera footage of the Gulf oil
spill remind us of the human and environmental cost of this spill.
While our economy is still raw from the devastating job
losses experienced in the Great Recession, it is obvious that more
robust growth is needed to reduce the unemployment rate. Innovation in
the energy sector can help fuel growth in the future.
Innovation in the clean energy sector can also strengthen the
economy by making it less vulnerable to economic downturns.
While the U.S. has weaned itself from dependence on oil in many
sectors, progress to reduce our dependency on oil to meet
transportation needs has been particularly slow.
At a hearing last May, Dr. James Hamilton testified that the oil
price run-up in 2007-2008 was an important factor that contributed to
the Great Recession.
He testified that the run-up in oil prices caused a plunge in auto
sales, deterioration in consumer sentiment, a slowdown in consumer
spending and problems in housing, especially in the ex-urbs, where
commuting costs can rise significantly with gasoline price increases.
Continued reliance on oil leaves the economy vulnerable to sharp
increases in oil and gasoline prices and could potentially derail the
economic recovery now underway.
It appears that when oil expenditures reach 4 percent of GDP, the
US is at risk of falling into a recession. (See Chart)
Currently, the share of GDP spent on oil is 3.5 percent, much
higher than in 1993, when the share of oil GDP spent on oil was 1.8
percent, but better than the 6.8 percent in mid-2008.
Innovations in the clean energy sector can reduce our vulnerability
to oil price rises.
These innovations may arise from a variety of different sources:
New technologies to produce energy,
New forms of energy, production of existing fuels or
energy in a cleaner or more efficient manner, or
New ways of reducing our consumption of energy.
In our hearing last month on innovation, witnesses testified that
federal spending on basic research in universities can provide the
spark that ignites regional economic growth and job creation.
Universities, with help from venture capitalists, have emerged as
both producers of ideas and active players in the innovation chain,
creating startups that are among the most successful small businesses.
But witnesses at our last hearing also testified that there is not
enough funding or research in the energy sector.
However, Congress and the Administration have recently increased
our country's commitment to clean energy.
The Recovery Act invested more than $90 billion in clean energy,
including:
Investments in energy efficiency,
Advanced vehicles,
Clean energy equipment manufacturing, and
Mass transit and high-speed rail.
Additionally, the America Competes Act, passed by the House on May
28th, supports innovation and basic research by creating new Clean
Energy Consortiums in a public-private partnership.
America Competes also seeds game-changing innovation through the
reauthorization of Advanced Research Projects Agency for Energy (ARPE-
E), and directs ARPA-E to help ensure that these promising technologies
are shared with the private sector.
Federal investments can be especially effective when the funds are
combined with private sector investments.
Just two weeks ago, CEA Chair Christina Romer testified before this
committee that $46 billion in public funding in the Recovery Act
encouraged an additional $100 billion in investment by the private
sector in projects related to clean energy.
I am especially pleased that my fellow New Yorker, Mr. Anthony
Malkin, is here to testify about the energy efficiency retrofits he is
undertaking to one of our greatest cultural icons, the Empire State
Building.
New lighting, windows, and heating and cooling systems reduce the
amount of energy tenants use while improving the quality of their
space.
I am eager to discuss with our panel how Congress can ensure that
these needed investments in a clean energy economy will occur, leading
us to a stronger economy with good jobs and a cleaner planet.
I welcome each of you this morning and look forward to your
testimony.
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Prepared Statement of Representative Kevin Brady
I welcome the chair's decision to hold a hearing on energy matters
at this time, and I welcome the panelists to what I hope will be a
substantive discussion of energy supply and environmental issues. I
find your submitted testimony very encouraging in this regard.
To observe our Administration's energy decisions is to wonder
whether it has any comprehension of the future energy supply challenges
our nation faces.
The ill-conceived Gulf drilling moratorium flies in the face of
everything common sense tells us about our precarious energy future and
what we should be doing about it now.
The drilling moratorium is already killing well-paying American
energy jobs, sending rigs overseas and with them our workers,
equipment, capital and eventually America's traditional energy
infrastructure. Given the global nature of energy production, these
rigs won't be returning anytime soon.
What's more, President Obama has not even responded to our
invitation to travel to Houston, Texas, to meet face to face with the
energy workers and small businesses whose livelihoods are at risk due
to the moratorium.
Yet the President will be traveling to Houston on August 9th to
raise campaign cash for the Democratic Party. We've asked him for just
an hour of his time, or even just 15 minutes of his time, to meet with
our workers and businesses. But as of today, just silence from the
White House.
Mr. President, can you spare any time at all for these Americans
whose jobs you are killing and sending overseas? Where are your
priorities?
Neither the White House nor Congress seem to understand that the
current relative lull in energy demand results from a weak economy. It
doesn't mean that we have the luxury of halting large-scale energy
projects and betting our future on small-scale alternatives that we all
support but are not yet ready to affordably meet America's energy
needs.
The Gulf of Mexico accounts for 19% of the nation's total proven
oil reserves and 30% of total U.S. production. Solar and wind
technologies together account for less than 1% of the nation's energy
supply. In 2008, the Gulf of Mexico's outer continental shelf had the
largest amount of new oil field discoveries in the U.S., which
increased its proven reserves while oil reserves fell for the nation as
a whole.
By all means, let's help renewable energy develop its potential,
but let's not foolishly thwart the growth potential of our established
energy industry which provides the affordable bridge to America's green
future.
After 50,000 wells have been drilled in the Gulf's federal outer
continental shelf and nearly 4,000 in deep water without a substantial
spill, how could anyone jump to the conclusion that the BP accident
points to an imminent systemic threat and shut off all deepwater
drilling? And who would bet America's economy on subsidized wind and
sun energy when there are private companies investing billions of
dollars to develop deepwater oil and gas reserves off our shores? Does
this make any sense? Where is the cost-benefit analysis?
A recent study by IHS Global Insight found that if policies were
adopted by Congress or the White House that effectively prevent
independent oil companies from participating in future Gulf offshore
development the employment loss would reach 300,000 jobs--and the loss
of local, state and federal revenues would total $147 billion over the
next decade.
That's because independent energy producers hold the majority
interest in 81% of all producing leases in the Gulf of Mexico and
nearly half of those in the deepwater.
This week, rather than the House of Representatives hastily rushing
through legislation with far-reaching impacts on jobs, energy prices
and energy security, it would be much wiser to bring together science,
industry and government in partnership to develop a thoughtful, safe
and prosperous path forward to Gulf exploration and development.
Our national economy, already suffering with 9.5% unemployment and
a subpar recovery, cannot be harmed further with a devastating drilling
moratorium and hasty legislation that kills jobs and makes us more
dependent on foreign oil.
Natural gas is a cleaner fuel than oil or coal and can be a
suitable substitute for both in many applications. As of 2008, the U.S.
had experienced the sixth consecutive yearly increase in natural gas
discoveries.
In October of last year, the Energy Information Administration said
``Today, increases in shale gas proved reserves reflect the industry's
rapidly maturing ability to apply two technologies to shale formations:
horizontal drilling and hydraulic fracturing.''
Why is this important? Not because U.S. oil consumption is rising--
it has been declining for several years--but because industrialization
the world over will continue to increase oil demand. China now is the
world's largest energy consumer. Our mindset should be how government
can work with industry to develop safe operating standards for an
energy source such as unconventional natural gas. It already has
attained a commercial scale, moved the needle in the right direction on
our energy reserves, and is relatively benign environmentally.
The Administration and Congressional Democrats operate by
assertion, not by performance metrics, be that with jobs, energy
supply, or the environment. The work of our witnesses today shows how
important it is to apply the proper metrics to federal policy and
quantify the effects of regulation, good and bad. Dr. Ward's work shows
a potential 29% reduction in the cumulative Gulf oil production through
2016 from an extended drilling moratorium. Dr. Greenstone has shown how
environmental regulations can retard industrial growth. He also has
found that there is, in fact, no consensus on whether the Clean Air Act
is responsible for the dramatic improvements in air quality that have
occurred in the last 30 years. Mr. Malkin demonstrates the importance
of designing government policy with an understanding of how businesses
do their financial analysis.
Gentlemen, our approach to regulating the economy in this country
must change. I look forward to your advice.
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