[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

                              ----------                              

                                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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