[Senate Hearing 111-681]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-681
 
NATIONAL ASSESSMENT OF ENERGY POLICIES--SIGNIFICANT ACHIEVEMENTS SINCE 
 THE 1970S AND AN EXAMINATION OF U.S. ENERGY POLICIES AND GOALS IN THE 
                             COMING DECADES

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

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            SPECIAL HEARING

                     APRIL 28, 2010--WASHINGTON, DC

                               __________

         Printed for the use of the Committee on Appropriations


       Available via the World Wide Web: http://www.gpo.gov/fdsys

                               __________


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                      COMMITTEE ON APPROPRIATIONS

                   DANIEL K. INOUYE, Hawaii, Chairman
ROBERT C. BYRD, West Virginia        THAD COCHRAN, Mississippi
PATRICK J. LEAHY, Vermont            CHRISTOPHER S. BOND, Missouri
TOM HARKIN, Iowa                     MITCH McCONNELL, Kentucky
BARBARA A. MIKULSKI, Maryland        RICHARD C. SHELBY, Alabama
HERB KOHL, Wisconsin                 JUDD GREGG, New Hampshire
PATTY MURRAY, Washington             ROBERT F. BENNETT, Utah
BYRON L. DORGAN, North Dakota        KAY BAILEY HUTCHISON, Texas
DIANNE FEINSTEIN, California         SAM BROWNBACK, Kansas
RICHARD J. DURBIN, Illinois          LAMAR ALEXANDER, Tennessee
TIM JOHNSON, South Dakota            SUSAN COLLINS, Maine
MARY L. LANDRIEU, Louisiana          GEORGE V. VOINOVICH, Ohio
JACK REED, Rhode Island              LISA MURKOWSKI, Alaska
FRANK R. LAUTENBERG, New Jersey
BEN NELSON, Nebraska
MARK PRYOR, Arkansas
JON TESTER, Montana
ARLEN SPECTER, Pennsylvania

                    Charles J. Houy, Staff Director
                  Bruce Evans, Minority Staff Director
                                 ------                                

              Subcommittee on Energy and Water Development

                BYRON L. DORGAN, North Dakota, Chairman
ROBERT C. BYRD, West Virginia        ROBERT F. BENNETT, Utah
PATTY MURRAY, Washington             THAD COCHRAN, Mississippi
DIANNE FEINSTEIN, California         MITCH McCONNELL, Kentucky
TIM JOHNSON, South Dakota            CHRISTOPHER S. BOND, Missouri
MARY L. LANDRIEU, Louisiana          KAY BAILEY HUTCHISON, Texas
JACK REED, Rhode Island              RICHARD C. SHELBY, Alabama
FRANK R. LAUTENBERG, New Jersey      LAMAR ALEXANDER, Tennessee
TOM HARKIN, Iowa                     GEORGE V. VOINOVICH, Ohio
JON TESTER, Montana
DANIEL K. INOUYE, Hawaii (ex 
    officio)

                           Professional Staff

                               Doug Clapp
                             Roger Cockrell
                         Franz Wuerfmannsdobler
                    Carolyn E. Apostolou (Minority)
                         Tyler Owens (Minority)
                       LaShawnda Smith (Minority)

                         Administrative Support

                          Molly Barackman-Eder


                            C O N T E N T S

                              ----------                              
                                                                   Page

Opening Statement of Senator Byron L. Dorgan.....................     1
Statement of Senator George V. Voinovich.........................     5
Statement of Senator Dianne Feinstein............................     6
Statement of Senator Lamar Alexander.............................     7
Statement of Senator Thad Cochran................................     8
Statement of Hon. Steven Chu, Secretary, Department of Energy....     9
    Prepared Statement...........................................    12
Statement of Hon. Philip R. Sharp, President, Resources for the 
  Future.........................................................    26
    Prepared Statement...........................................    29
Assumptions Underlying Policy in the 1970s.......................    29
The Carbon Challenge.............................................    32
Appendix: Relevant Research......................................    33
Statement of Robert W. Fri, Past President and Visiting Scholar, 
  Resources for the Future.......................................    35
    Prepared Statement...........................................    37
Reflections on 40 Years of U.S. Energy Policy....................    37
Lessons Learned..................................................    37
Looking Ahead....................................................    40
Statement of Dr. Eric P. Loewen, Chief Consulting Engineer, 
  Advanced Plants Technology, GE Hitachi Nuclear Energy..........    43
    Prepared Statement...........................................    45
Advancing Technology for Nuclear Energy..........................    45
Overview of the Development of Nuclear Technology................    45
Recycling--What is it?...........................................    47
Generation IV Reactor--What is it?...............................    47
Toward a New GEN IV Policy.......................................    48
Summary of Recommendations.......................................    48


NATIONAL ASSESSMENT OF ENERGY POLICIES--SIGNIFICANT ACHIEVEMENTS SINCE 
 THE 1970S AND AN EXAMINATION OF U.S. ENERGY POLICIES AND GOALS IN THE 
                             COMING DECADES

                              ----------                              


                       WEDNESDAY, APRIL 28, 2010

                               U.S. Senate,
      Subcommittee on Energy and Water Development,
                               Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:02 a.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Byron L. Dorgan (chairman) 
presiding.
    Present: Senators Dorgan, Feinstein, Landrieu, Cochran, 
Alexander, and Voinovich.


              OPENING STATEMENT OF SENATOR BYRON L. DORGAN


    Senator Dorgan. We are going to begin the hearing today. We 
have chosen a room in order to demonstrate that America has an 
energy problem. It is a room without adequate heat and without 
adequate lights. I am told that those who know about heat and 
lights are working on the problem, but I think we do need to 
begin on time.
    Mr. Secretary, thank you very much for being here. We 
appreciate your willingness to testify.
    This hearing is a bit of a different hearing than the 
normal hearings we have held, and it is to take a broader look, 
a bigger-picture look at our energy future and talk about where 
we have been and where we are heading. We are doing that 
because we are so engaged in the incrementalism on a lot of 
public policy, including energy.
    I believe Mr. Fri in his testimony has a chart, or at least 
a piece in his testimony that reminds me of the urgency for us 
to do this as we now look forward to an energy future that we 
want to try to create. His chart says Stops and Starts in 
Energy Technology Policy, and he will describe it in more 
detail. But he goes back to 1970, the Nixon policy of a 
virtually pollution-free car; reinventing the car under Carter; 
the partnership for a new generation of vehicles under Clinton; 
the freedom car under Bush. That is just in vehicles. In coal, 
the Synthetic Fuels Corporation in 1979; clean coal technology 
in 1987; the clean coal power initiative, 2001; nuclear 
technology, Clinch River breeder reactor, 1970 to 1983; liquid 
metal reactor, 1989-1994. And the list goes on.
    When you look at these issues, you see that we have 
different administrations coming in and then we go one way for 
a while in a very significant effort. Then we go another for a 
while, and we kind of zigzag, always moving forward a bit, but 
never in a very consistent direction that has put America on a 
path to be where it wants to be with respect to a destination.
    I wanted to show just several charts that you probably 
cannot see very well. And this chart you certainly cannot read, 
and it is not intended for you to read. But it is a chart that 
shows where the energy comes from, the source of energy, and on 
the left-hand side, it talks about coal, natural gas, crude 
oil, nuclear electric power, renewable energy, petroleum and 
then on the right-hand side, its use, residential, commercial, 
industrial, transportation. And that gives us a sense as of 
2008 at least of where their energy is coming from, that is, 
the source, and how it is being used or who needs it.




    The second chart is an interesting chart that goes all the 
way back to the 1850s and describes our energy use. As you can 
see, going all the way back on the left-hand side in the middle 
of the 1800s, we basically just burned wood for energy and then 
began using coal, which is the second tranche, and coal became 
a dominant source of energy, and then began natural gas and oil 
and some renewable up on the top. But it is interesting to see 
how we have changed our energy use in a very significant way in 
about 150 years.




    The next chart shows this same phenomenon in graphic form, 
the sources of energy and the growth or the increase in those 
sources of energy. The top line, by the way, is petroleum. The 
second line is natural gas. The green line is coal.




    The next chart shows research and development by the 
Federal Government, and it shows that energy research and 
development accounts for about 1 percent of Federal research 
and development investment. You will see the bottom tranche is 
national defense. That is a very large portion. Then it is 
health, then space, and so on.




    Energy, while in the late 1970s had somewhat of a 
resurgence in the amount of money spent in research and 
development, is now somewhere around 1 percent, probably just 
slightly more now as a result of what was done in the Economic 
Recovery Act.
    But here is the reason I wanted to have a bigger-picture 
hearing. The world's population is growing. We in this country 
have a prodigious appetite for energy. We use almost a quarter 
of the world's oil every single day. But we also know that with 
a growing population in the world, there are going to be 
hundreds of millions of people in China and India that want to 
find a gas station probably once a week or once every couple 
weeks in the future. So we are going to have substantially 
increased demand for energy, and the question is where it is 
going to come from.
    There are many aspects to the energy policy issues that 
confront us: supply and distribution and the effects of it on 
our national security and that relates to one piece of this, 
which is excessive dependence on foreign supplies of oil; and 
the cost of energy and the effects of energy costs on the 
economy; and then the environmental impacts of energy 
production, climate change, water scarcity, pollution, and so 
on.
    So all of these play a role in both the development of 
policies and where we get our energy and how we use our energy 
and what kind of destination we would like for energy policy 
well out into the future.
    I had asked some years ago of the Energy Department what 
are you driving us toward in terms of a set of goals and 
policies well out into the future. In other words, where would 
you want America to be in the year 2050 with respect to the use 
of energy, supply of energy, source, and so on? And the answer 
was, well, you know what? We are just struggling to get along 
in the next 5 years let alone the next 40 or 50 years.
    I understand that answer, but I do not think, given where 
we are these days and the challenges we face, it is an 
acceptable answer. Nor do I think it is acceptable to revert 
back to what Mr. Fri is describing in his testimony, you know, 
6, 8, or 10 or 15 or 20 different iterations of energy 
technology policy--let us go this way for a while with this 
emphasis, and then let us turn go this way for a while. I know 
that time and circumstances change, but it seems to me not so 
much as we have seen the different initiatives by different 
administrations.
    What I am hoping that our country will do and I hope that 
the policy choices and discussions about policies will lead us 
to is some better understanding of what is our destination out 
there. What are we really striving to achieve and what will be 
the mix of policy choices that will allow us to get there. That 
is the purpose of this hearing. I hope I have described it as 
best I can in a way that you might understand it.
    We asked the Secretary to be here as the first witness, I 
think very appropriately. He is a scientist. He runs the Energy 
Department, has massive amounts of money given the Economic 
Recovery Act and the $36 billion or $37 billion, which someone 
described as the largest energy venture fund on the planet. He 
has a permanent grin as a result of having all that money to 
invest, and I think the actions of this Energy Department and 
this administration will take in many ways will set us on a 
course that is very important.
    So let me call on my colleagues, if they have any comments 
at the front end. Senator Voinovich?


                STATEMENT OF SENATOR GEORGE V. VOINOVICH


    Senator Voinovich. Thank you, Mr. Chairman.
    First, I want to welcome our witnesses today, Dr. Chu and 
the other witnesses.
    I like the fact that this is an assessment of national 
energy policies, what we have achieved over the last decades 
and what our goals are for the coming decades. The hearing is 
timely and relevant. One of the most important lessons we have 
learned about national energy policies is that their key to 
success is ensuring that they are comprised of comprehensive 
solutions, solutions for strengthening both our national and 
economic security.
    I certainly believe we were thinking comprehensively, Mr. 
Chairman, when we introduced our National Energy Security Act 
which was intended to increase and diversify the supply of 
domestic energy resources, promote electric and alternative 
fuel transportation and strengthen our energy infrastructure. 
And I was pleased that many of the provisions of our bill were 
included in the Bingaman-Murkowski bill that was passed out of 
the Energy Committee last year. As you know, we started in 2003 
to start doing something about this and finally got a bill in 
2005, 2007, now in 2009.
    And I would really hope that in spite of the fact that 
people are conscientiously working on some kind of a climate 
bill that serious consideration be given to the energy bill, 
which is something on a bipartisan basis that I really think we 
could actually get done in this session of the Congress.
    For the last 10 years, I have spent a lot of time as 
ranking member and chairman of the Environment and Public Works 
Committee on Nuclear Safety. The goal was to try and create an 
environment where we could take advantage of nuclear power. I 
refer to nuclear power as a ``three-for.'' First of all, it is 
a way of reducing our carbon emissions. Without it, we are not 
going to be able to provide the baseload energy that our 
country demands, and without it, I think we are missing an 
amazing opportunity to strengthen our U.S. manufacturing base 
and create good-paying jobs. It is a part--not the total 
solution, but it is part of it.
    Although we have seen some gains, a number of formidable 
challenges to realizing a renaissance remain particularly in 
the areas of regulatory uncertainty, financing, availability of 
human capital, expansion of the domestic supply chain 
infrastructure, and used nuclear fuel management. I believe 
that solving the challenges are paramount to the safe and 
secure growth of the U.S. energy sector as a whole because 
utilizing nuclear energy is absolutely essential if we are 
going to harmonize the country's needs for energy security, 
economic competitiveness, and a healthy environment.
    So in closing, I must say that time is of the essence. You 
are right. The Department has some money through the--what do 
we call that?
    Senator Dorgan. The economic recovery bill.
    Senator Voinovich. Yes. And Dr. Chu and his colleagues have 
a wonderful opportunity to send us in a new direction, and I am 
really anxious to hear what your thoughts are about where we 
ought to be going.
    Senator Dorgan. Senator Voinovich, thank you very much.
    Senator Feinstein?


                 STATEMENT OF SENATOR DIANNE FEINSTEIN


    Senator Feinstein. Well, Mr. Chairman, I am the unhappy 
Senator from California. And I have written a multitude of 
letters on this subject and the answers have been nonresponsive 
and unacceptable. So I am going to say a few things.
    Many California companies have applied for DOE loan 
guarantees under title VII of Energy Policy Act of 2005, which 
was expanded in the American Recovery and Reinvestment Act. The 
Department of Energy simply has not fixed the problems that I 
believe a commitment was made to fix, and I would like to give 
a few examples.
    Multiple applicants tell me that DOE does not stick to its 
own schedules. Although I wrote to Secretary Chu on October 30 
and April 6 to raise concerns in this area, there is no 
evidence of improvement. I am told by my staff that DOE cannot 
at this time identify how many application reviews are behind 
schedule.
    Point two. Applicants trying to develop solar projects on 
disturbed private lands, like Abengoa Solar, tell me they are 
in permitting no man's land because DOE refuses to initiate a 
NEPA process while the California Energy Commission is 
aggressively permitting. My April 6 letter addressed this.
    Point three. Firms proposing to develop multiple sites on 
disturbed land, instead of one large plot of public land, 
inform me their applications are being turned down. I wrote to 
you, Secretary Chu, on February 23 to ask that this matter be 
addressed, but it has not.
    Point four. Governor Schwarzenegger's team reports that DOE 
encouraged Next Light Energy to withdraw its application to 
build a project on disturbed private land in California and 
focus on its project on public land in Nevada. This is 
inexplicable. I wrote to you on November 17 to inform you that 
this project was one of the best in California.
    Point five. Last week I learned that DOE turned down a loan 
guarantee application from Tessera Solar to build an 800-
megawatt facility in Imperial County where unemployment is 
currently 27.2 percent. The project would have drastically 
lower environmental impacts than other projects, as I explained 
in my August 27 letter to you supporting the application. I 
understand DOE never asked the applicant a question--I have 
heard this from three sources--raised a concern or engaged in a 
dialogue regarding the application during 7\1/2\ months of 
review. The reasons given in their rejection letter, the 
applicant tells me, could have been quickly and easily resolved 
by a phone call, but none was made.
    So I use this so that I can get the response from you 
during my question time. But let me say there are a number of 
very unhappy people trying to do positive things in my State.
    Thank you.
    Senator Dorgan. Senator Feinstein, thank you very much.
    Senator Alexander, do you wish to make an opening comment?


                  STATEMENT OF SENATOR LAMAR ALEXANDER


    Senator Alexander. Well, thank you, Mr. Chairman. Excuse me 
for being late.
    Dr. Chu, it is good to see you. I admire your service and 
the quality of talent that you have attracted to your 
Department and your independence. I agree with much of what you 
do.
    The observation that I wanted to make--and then I will save 
my other remarks for questions, Mr. Chairman--is that it seems 
to me that there is an increasing amount of consensus about 
clean energy between the President and the Senate anyway and in 
a bipartisan way. We notice that Senator Dorgan and Senator 
Merkley and others and I have been working together, for 
example, on electric vehicles. The administration has taken a 
number of very important steps to encourage electric vehicles. 
Senator Merkley and I were this morning seeing a new FedEx 
truck that is 100 percent electric. FedEx has 40,000 trucks. 
They just have four of these, but if they were to have 40,000, 
that could make a real dent. I believe that the greatest 
untapped resource in our country probably is the amount of 
electricity we already have at night that is unused. So we have 
bipartisan support on the idea of moving ahead to encourage 
electric cars and trucks.
    Because of your leadership, Secretary Chu, we have begun to 
make a shift from what I have called a national windmill policy 
toward a real national energy policy that also includes an 
emphasis on nuclear power, and I look forward to talking with 
you more about that during the questions and answers. So there 
is more of a bipartisan consensus on that.
    The same is true on energy research and development. I 
think all of us on both sides of the aisle see the need for the 
500-mile electric battery or the photovoltaic cell that is much 
more efficient. So there is agreement on that.
    There is agreement on some offshore drilling.
    And there is agreement on reducing air pollution because 
the environment goes right along with energy production. And 
while we still do not have agreement on how to deal with 
carbon, we do have agreement; it seems to me, on what to do 
about mercury, sulfur, and nitrous oxide. And a bipartisan 
group of about 15 of us now support a strong clean air bill.
    So my hope would be that we take advantage of this broad 
consensus on nuclear power, electric cars, offshore drilling, 
and energy research and development, as well as clean air, and 
move ahead with it this year in every way that we can. We still 
can argue and work on the difficult questions about how to deal 
with carbon, but there is no need to stop our efforts to clean 
up the air and move ahead with clean energy until we have a 
consensus on carbon. It took us several years to get it on 
clean air. It took us several years to get it on clean energy. 
I think it may take us a while longer to do it on carbon, even 
though I think a majority of us recognize that there is a real 
problem there.
    So I welcome you and I welcome your leadership. I look 
forward to talking with you specifically about a new generation 
of nuclear reactors and small modular reactors when my turn 
comes back around.
    Thank you, Mr. Chairman, for your courtesy.
    Senator Dorgan. Senator Alexander, thank you very much.
    I wanted to mention that Senator Bennett is not able to be 
with us today, but he had an opportunity to look at the 
testimony.
    Senator Cochran, do you have a comment?


                   STATEMENT OF SENATOR THAD COCHRAN


    Senator Cochran. Mr. Chairman, I simply want to bring to 
the attention of the subcommittee a question that relates to 
environmental impact statements and record of decision progress 
in connection with the Strategic Petroleum Reserve. We have 
provided funds and we have Federal policies on the books now 
relating to the Strategic Petroleum Reserve as a matter of 
national security and economic security for our country in case 
something happens to energy supplies.
    One of the areas being looked at was in the State of 
Mississippi, the Richton salt dome, and there had been funding 
made available to study that and to make a report on the 
suitability of that area and what the intentions of the 
Department of Energy would be with respect to construction. And 
on your Web site, Mr. Secretary, there is a provision 
explaining that a new site in Richton, Mississippi would be 
constructed. Existing sites would be expanded as well. And we 
have provided some funds and asked for a report on what the 
intentions were. When would this happen?
    And the fact is apparently nothing has happened. So we are 
curious to know what the Department of Energy is going to do. 
Are you going to keep the money? What are you going to do? Are 
you going to give it back? Are you going to say that you found 
things that the previous administration overlooked? I am just 
curious to know what is happening.
    Senator Dorgan. Senator Cochran, thank you very much.
    There is an old saying that if you do not care where you 
are going, you will never be lost. And so the question is, 
where are we going? Where are we headed with respect to energy 
policy? What is our destination?
    Mr. Secretary, we are very pleased that you are here to 
share your thoughts with us about that subject, and you may 
proceed. Your entire statement will be made a part of the 
permanent record.

STATEMENT OF HON. STEVEN CHU, SECRETARY, DEPARTMENT OF 
            ENERGY
    Secretary Chu. Thank you, Chairman Dorgan and members of 
the subcommittee.
    My written statement cannot be read. It is too long. I have 
some brief oral statements that are taken from that, and I want 
to rush through them so we can get to the questions as quickly 
as possible.
    Senator Dorgan. Mr. Secretary, in addition to not having 
heat or adequate lighting in this room, we apparently have 
inadequate microphones. Maybe if you will just move it away 
from you that would be helpful.
    Secretary Chu. America is highly dependent on oil and our 
climate is changing as a result of our carbon emissions. In 
order to mitigate the considerable risks to climate change, the 
world has to transition to a sustainable energy future. And 
America's future jobs and prosperity may well depend on whether 
we lead or follow in this transformation.
    As an example, leaders in China now recognize if the world 
continues on its current path, climate change will be 
devastating to China and the rest of the world. They also see 
the economic opportunity that clean energy represents. One 
company in China, State Grid, is investing $88 billion by 2020 
in ultra-high voltage transmission lines. These lines will 
allow China to transmit power from the huge wind and solar 
farms far from the cities. China is also building--now under 
construction--20 nuclear power plants, and it is playing to win 
in this clean energy race.
    For the sake of our economy, our security and our 
environment, America must develop decisive policies that will 
allow us not only to compete in the clean energy race, but to 
become a leader in providing clean energy technology to the 
world. And what will be required is nonpartisan leadership and 
collaboration between Congress and the administration.
    Several studies have concluded that aggressive deployment 
and evolutionary advances in technology will help us achieve 
our energy climate goals at an affordable cost. With a robust 
R&D effort and the right policy signals, I believe we can 
achieve our goals even more economically.
    As we have seen many times in history, for example, with 
catalytic converters, the acid rain program, the phase-out of 
fluorocarbons, and appliance efficiencies, once a problem is 
taken away from lobbyists and given to scientists and engineers 
and American businesses, it can be solved much more quickly and 
cheaply than anticipated.
    We need a policy framework that emphasizes two parties, 
policies that will accelerate innovation and policies that will 
drive the private sector investment in clean energy. As stated 
in a comprehensive report, America's Energy Future, issued by 
the National Academies recently--and I quote--``Actions taken 
between now and 2020 to develop and demonstrate the viability 
of several key technologies will, to a large extent, determine 
our Nation's energy options for many decades to come.''
    So here are a few steps that we need to take.
    First, we need to accelerate efforts in energy efficiency, 
our cleanest and cheapest energy resource, to save money and 
create jobs. The National Academies' report states that we 
could save about 30 percent of the energy used annually in 
buildings, transportation, and industry sectors. This estimate 
only included those investments which could provide a minimum 
of a 10 percent return on your investment based on net present 
value.
    Strong efficiency standards and the enforcement of those 
standards will be of the highest importance.
    And we need new models to overcome barriers, barriers such 
as lack of information and lack of financing, so that you can 
achieve widespread adoption of cost effective home energy 
efficiency technologies. The administration is working with 
Congress to establish the HOMESTAR program, designed to jump-
start our economic recovery by boosting demand for energy 
efficiency products and installation services.
    Second, we have to develop and deploy cleaner energy 
technologies for electricity generation. We need to provide 
market draw for renewable energy sources. In a preliminary 2010 
report, EIA projects that non-hydro renewables will account for 
more than 10 percent of electricity sales in 2020 without any 
additional Federal or State policies. And I note that RES 
proposals often exempt smaller generating sources such as a 
cogeneration plant at a university. It would be not wise to 
demand that they have a renewable portfolio standard, but with 
those exemptions, that could reduce the effective target by 
several percentage points below the nominal target.
    We need to invigorate America's nuclear power industry. 
Earlier this year, DOE made a conditional commitment to finance 
the construction of what will be the first nuclear reactor to 
break ground in decades. In fiscal year 2011, the Department is 
requesting an additional $36 billion in loan guarantee 
authority for nuclear power, and with this additional 
authority, DOE estimates we could support six to nine reactors 
in the next few years.
    The barriers to CCS deployment must be addressed. As 
America's Energy Future report says, through a combination of 
retrofits and new plant construction, quote, ``the entire 
existing coal powered fleet could be replaced by CCS coal power 
by 2035.''
    To help realize the potential of CCS technologies, 
President Obama has established an interagency task force to 
look at overcoming barriers to the widespread, cost effective 
deployment of CCS within 10 years, with a goal of bringing 5 to 
10 commercial demonstration projects online by 2016.
    In addition, the Department of Energy is completing an R&D 
road map to further reduce the cost of CCS.
    Third, we need to modernize our electric grid. Smart 
metering technologies can save money for consumers and reduce 
the need to build new power plants to meet peak load 
requirements.
    Fourth, we need transportation policies and technologies 
that can cut emissions and reduce our dependence on oil. The 
best near-term option for reducing dependence on imported 
petroleum is through greater vehicle efficiency. We also need 
to develop better batteries and address the other barriers to 
electrification of vehicles. Biofuels, particularly advanced 
biofuels that can be generated from agricultural residues can 
play a significant addition to our transportation fuel supply. 
The National Academies' study pointed out that there are a 
number of potentially viable technologies which can add to our 
energy security that have negative CO2 equivalent 
emissions, such as growing plants that grab carbon dioxide out 
of the air. When you make biofuels, you sequester the excess 
carbon dioxide. You burn that fuel. The net life cycle cost is 
you have taken net CO2 out of the atmosphere.
    Fifth, we need a sustained commitment to research and 
development. Only research and development can yield game-
changing technologies to lower costs, accelerate innovation, 
and drive new American industries. It is imperative that the 
Government support R&D investment, especially at the front end. 
Through a continued commitment in efforts like the DOE's Energy 
Innovation Hubs and ARPA-E, we can marshal the Nation's 
brightest minds to accelerate the development of new 
technologies.
    All these efforts will be vital to our energy future, but 
even these steps will not be enough in the end. To truly drive 
changes, we need a policy that will guide investments over a 
generation. We need to put a long-term cap on carbon that 
ratchets down over time. Only a cap on carbon will give 
industry the direction and certainty it needs.
    For example, suppose you operate a utility company and have 
a coal plant that is near the end of its life. A new coal plant 
will cost billions of dollars. If you knew there would be a 
cost to emitting carbon, you would have to think hard about 
whether the next plant should run on coal that captures carbon 
emissions or gas or nuclear power or wind or solar. Eventually 
there will be a cost, and because you do not know when, you 
limp along with the old plant until you know what the costs 
would be and how they would be structured.
    Industry is asking for certainty.


                           PREPARED STATEMENT


    Thank you again for the opportunity to testify, for holding 
this hearing. America still has the opportunity to lead the 
world in a new industrial revolution that we need, but only if 
we make wise choices today. Thank you.
    [The statement follows:]

                 Prepared Statement of Hon. Steven Chu

    Chairman Dorgan, Ranking Member Bennett, and members of the 
subcommittee, thank you for the opportunity to appear before you to 
discuss our Nation's energy policy.
    We are driven to change our energy habits by several serious 
challenges. America is highly dependent on oil. Our climate is changing 
as a result of our carbon emissions. In order to mitigate the 
considerable risks of climate change, the world must transition to a 
sustainable energy future, which will require nothing short of a new 
industrial revolution. America's future jobs and prosperity may well 
depend on whether we lead or follow in this transformation.
    The leaders in China now recognize that if the world continues on 
its current path, climate change will be devastating to China and to 
the rest of the world. They acknowledge that China's growth in carbon 
emissions is environmentally unsustainable and are working hard to 
lessen their emissions growth. They also see the economic opportunity 
that clean energy represents. China is investing $44 billion by 2012 
and $88 billion by 2020 in Ultra High Voltage transmission lines. These 
lines will allow China to transmit power from huge wind and solar farms 
far from its cities. While every country's transmission needs are 
different, this is a clear sign of China's commitment to developing 
renewable energy. They also currently have 20 nuclear power plants 
under construction and more construction starts are expected soon. 
China largely missed out on the IT revolution, but it is playing to win 
in the clean energy race. For the sake of our economy, our security, 
and our environment, America must develop decisive policies that will 
allow us not only to compete in this clean energy race, but to become 
the leader in providing clean energy technology to the world.
    The American Recovery and Reinvestment Act made a down payment on 
our clean energy future, while creating jobs and putting Americans back 
to work. For example, we are on track to double our renewable energy 
generation capacity by 2012.
    But for the longer term, we will need a comprehensive energy and 
climate policy. Before becoming Energy Secretary, I was a member, along 
with three Assistant Secretaries now serving in the Department of 
Energy, of the National Academies committee that issued a comprehensive 
and authoritative report, America's Energy Future. That report stated: 
``The United States has never implemented a truly comprehensive set of 
national policies for obtaining and using energy to meet national goals 
for sustainability, economic prosperity, security, and environmental 
quality.'' \1\
---------------------------------------------------------------------------
    \1\ America's Energy Future, Summary Edition, 2009, page 26.
---------------------------------------------------------------------------
    America's competitiveness is inseparable from our energy policy. 
With the right policies and a sustained national commitment, we can 
mobilize America to lead the world in the transition to a sustainable 
energy future and guarantee prosperity for ourselves, our children and 
our grandchildren. What will be required is non-partisan leadership and 
collaboration between Congress and the administration.
    In addition to the America's Energy Future report, several studies 
have examined the feasibility of achieving President Obama's 2020 and 
2050 greenhouse gas reduction targets, including analyses by the 
Environmental Protection Agency (EPA) and the Energy Information 
Administration (EIA) of comprehensive energy and climate legislation. 
These studies concluded that aggressive deployment and evolutionary 
advances in technology will help us achieve our goals at an affordable 
cost. With a robust R&D effort and the right policy signals, I believe 
we will be able to achieve our goals even more economically.
    As we have seen many times in history--for example with catalytic 
converters, the Acid Rain Program, the phase-out of 
chlorofluorocarbons, and appliance efficiencies--once a problem is 
taken away from the lobbyists and given to the scientists, engineers, 
and American businesses it can often be solved much more quickly and 
cheaply than anticipated. For example, while compliance costs for EPA's 
acid rain program were originally estimated in 1990 to be $750 per ton 
of sulfur emitted, by 1996 the cost was $70 per ton of sulfur.
    Let me be clear, however, that our success is not inevitable. We 
need a policy framework that emphasizes two priorities: policies that 
will accelerate innovation and policies that will drive private sector 
investment in clean energy. We must harness America's entrepreneurial 
spirit and leverage private sector imagination and ingenuity to 
transform the way we produce and use energy. Part of those policies 
must promote the research and development of key technologies needed in 
the coming decades without crowding out private investment. As stated 
in America's Energy Future: ``Actions taken between now and 2020 to 
develop and demonstrate the viability of several key technologies will, 
to a large extent, determine the Nation's energy options for many 
decades to come.''
    Here are a few of the steps we need to take:
  --We Need to Accelerate Efforts in Energy Efficiency--Our Cleanest, 
        Cheapest Energy Resource--to Save Money and Create Jobs.--
        Energy efficiency and conservation will remain the lowest 
        hanging fruit for reducing carbon emissions for the next few 
        decades. The National Academies report states that ``Technology 
        exists today, or is expected to be developed over the normal 
        course of business between now and 2030 that could save about 
        30 percent of the energy used annually in the buildings, 
        transportation and industrial sectors. These savings could 
        easily repay, with substantial dividends, the investments 
        involved.'' \2\ This estimate was based on only those 
        investments that could provide a minimum 10 percent rate-of-
        return on investments based on net present value.
---------------------------------------------------------------------------
    \2\ America's Energy Future, Summary Edition, 2009, page 82.
---------------------------------------------------------------------------
    --Strong Efficiency Standards and the Enforcement of Those 
            Standards Will Be of the Highest Importance.--For example, 
            the improvement in the efficiency of refrigerators alone 
            since the 1970s is responsible for energy savings today 
            greater than all non-hydro renewable power generation. 
            During that time, the inflation adjusted cost of 
            refrigerators dropped by about one-half while energy 
            consumption was simultaneously reduced by more than 75 
            percent. There are many opportunities to make our 
            buildings, vehicles, and appliances more efficient and save 
            money. Appliance standards issued in the last 16 months 
            alone will save American consumers more than $250 billion 
            over the next 20 years.
    --We Need New Models to Overcome Information, Financing and Other 
            Barriers to Rapid, Widespread Adoption of Cost-Effective 
            Home Energy Efficiency Technologies.--The administration is 
            working with Congress to establish the HOMESTAR program, 
            which has the potential to jumpstart our economic recovery 
            by boosting demand for energy efficiency products and 
            installation services. For middle-class families, this 
            program will help them save hundreds of dollars a year in 
            energy costs while improving the comfort and value of their 
            most important investment--their homes. In addition, the 
            program would help reduce our economy's dependence on oil 
            and support the development of an energy efficiency 
            services sector in our economy. In addition, DOE is also 
            trying new approaches to promoting energy efficiency 
            through our Retrofit Ramp-Up initiative. Communities, 
            governments, private sector companies and non-profit 
            organizations will work together on innovative programs to 
            enable retrofits of entire neighborhoods and towns. These 
            programs are expected to save households and businesses 
            about $100 million annually in utility bills, while 
            leveraging private sector resources to create an estimated 
            30,000 jobs during the next 3 years.

We Need to Develop and Deploy Cleaner Technologies for Electricity 
        Generation
    We Need to Provide a ``Market Draw'' for Renewable Energy 
Sources.--In April of 2009, EIA updated its ``reference case'' to 
account for the anticipated impacts of the Recovery Act. One the most 
striking changes is a significant increase in renewable electricity 
generation. In the preliminary 2010 report, EIA projects that non-hydro 
renewables will account for more than 10 percent of electricity sales 
in 2020 without any additional Federal or State policies. Implementing 
new market-based policies, such as pricing carbon and a strong national 
renewable electricity standard can create new demand for renewable 
energy and its upstream manufacturing activity. I note that RES 
proposals often exempt some smaller generating sources, such as a 
cogeneration plant at a university, which reduces the effective target 
several percentage points below the nominal target. For example, last 
April, EIA found that a nominal share of 25 percent results in only 
about 13 percent of electricity coming from non-hydroelectric renewable 
sources in 2025. This 12 point gap is due to exemptions for small 
retailers, exemptions for hydroelectric facilities, and energy 
efficiency credits.
    We Need to Reinvigorate America's Nuclear Power Industry.--Earlier 
this year, DOE made a conditional commitment to finance construction of 
what will be the first nuclear reactor to break ground in the United 
States in decades. In fiscal year 2011, the Department is requesting an 
additional $36 billion in loan guarantee authority for nuclear power. 
With this authority and the $18.5 billion in existing authority, DOE 
estimates we could support 6 to 9 new reactors in the next few years. 
We're also pursuing new technologies, such as Small Modular Reactors, 
which could serve as drop-in replacements at utility sites too small to 
accommodate the large present-day nuclear reactors. We see the 
possibility of significant new American export opportunities.
    Barriers to CCS Deployment Must Be Addressed.--While CCS technology 
available today is costly, the technical potential for CCS is 
considerable. As America's Energy Future states: ``Coal-fired plants 
with carbon capture (CCS) could provide as much as 1200 TWh of 
electricity per year by 2035 through repowering and retrofits of 
existing plants and as much as 1800 TWh per year by 2035 through new 
plant construction. In combination, the entire existing coal power 
fleet could be replaced by CCS coal power by 2035.'' \3\ To help 
realize the potential of CCS technologies, President Obama has 
established an Interagency Task Force on Carbon Capture and Storage, 
co-chaired by the Department of Energy and the Environmental Protection 
Agency. The task force is looking at overcoming barriers to the 
widespread, cost-effective deployment of CCS within 10 years, with a 
goal of bringing 5 to 10 commercial demonstration projects online by 
2016. The plan should address any financial, economic, technological, 
legal, institutional, social, or other barriers to deployment. In 
addition, the Department of Energy is completing an R&D roadmap beyond 
2016 to further reduce the costs of carbon capture and sequestration in 
both coal and gas plants.
---------------------------------------------------------------------------
    \3\ America's Energy Future, Summary Edition, 2009, page 51.
---------------------------------------------------------------------------
We Need to Modernize Our Electric Grid
    Smart Metering Technologies Can Save Money for Consumers and Reduce 
the Need to Build New Power Plants to Meet Peak Load Requirements.--An 
analysis by the Electric Power Research Institute estimates that 
implementation of smart grid technologies could reduce electricity use 
by more than 4 percent per year by 2030. That would mean annual savings 
in 2030 of more than $20 billion for businesses and consumers around 
the country.
    A Smarter Grid Can Facilitate a More Efficient and Effective Use of 
Intermittent Energy From Renewable Sources Like Solar and Wind Power as 
Well as Enable Plug-in Vehicles to Buy and Sell Power to the Grid at 
Optimal Times.--We also need better batteries to provide grid-scale 
storage. Modernizing our transmission and energy storage systems is 
largely still an unsolved problem and an opportunity for America's 
international leadership in a key technology area.
    We Need Transportation Policies and Technologies That Cut Emissions 
and Reduce Our Dependence on Oil.--Transforming the transportation 
sector is one of our most difficult tasks. Oil has a very high energy 
density that makes it a particularly good transportation fuel. In order 
to decrease our dependency on government-controlled oil supplies from 
the most politically fragile parts of the world, we should embark on a 
three part strategy:
  --Fuel Efficiency is Critical.--The best near-term option for 
        reducing dependence on imported petroleum is through greater 
        vehicle efficiency. The administration recently announced 
        vehicle standards that will ultimately require an average fuel 
        economy standard of 35.5 mpg in 2016, but we can do even better 
        in subsequent years. The first improvements could come from 
        improved internal combustion engines and from lighter weighting 
        of cars.
  --We Also Need to Develop Better Batteries and Address Other Barriers 
        to Electrification of Vehicles.--A battery that can last for 
        5,000 deep discharges and has 4-5 times higher storage capacity 
        and lower cost will lead to large scale penetration of hybrid 
        electric and all-electric vehicles.
  --Biofuels, Particularly Advanced Biofuels That Can Be Generated From 
        Agricultural Residues, Can Be a Significant Addition to Our 
        Transportation Fuel Supply.--The Renewable Fuels Standard 
        recently put into place requires that 36 billion gallons of 
        renewable fuel be blended into gasoline by 2022. Of this 
        requirement, 58 percent is to be met by advanced biofuels that 
        achieve at least a 50 percent reduction in greenhouse gas 
        emissions over conventional petroleum-based fuel. The National 
        Academies study also pointed out that there are a number of 
        potentially viable technologies which can add to our energy 
        security and have negative CO2 equivalent emissions. 
        That is to say, the production and use of these fuels will not 
        add to CO2 pollution, but rather have the potential 
        to provide a net removal of CO2 from the atmosphere. 
        All of these technologies require the capture and sequestration 
        of carbon in the fuel making process. Plants capture 
        CO2 from the atmosphere, and enough carbon can be 
        sequestered to more than compensate for the carbon released 
        when the fuel is used.\4\
---------------------------------------------------------------------------
    \4\ America's Energy Future, Summary Edition, 2009, page 71-73 and 
Figure 2.16.
---------------------------------------------------------------------------
    We Need a Sustained Commitment to Research and Development.--Only 
R&D can yield game-changing technologies to lower costs, accelerate 
innovation, and drive new American industries and jobs.
  --It is Imperative That Government Support R&D Investment.--
        Especially at the front end when private investments would not 
        recoup the full value of the shared social good or when a new 
        technology would displace an embedded way of doing business. As 
        the National Economic Council recently stated: ``Certain 
        fundamental investments and regulations are necessary to 
        promote the social good. This is particularly true in the case 
        of investments for research and development, where knowledge 
        spillovers and other externalities ensure that the private 
        sector will under-invest--especially in the most basic of 
        research.'' Through a continued commitment to efforts like 
        DOE's Energy Innovation Hubs and ARPA-E, we can marshal the 
        Nation's brightest minds to accelerate the development of new 
        technologies.
    All of these efforts will be vital to our energy future, but even 
these steps will not be enough in the end. To truly drive the changes 
we need--and create the jobs of the future--we need a policy that 
matches the scale of this problem and that will guide investments over 
a generation: we need to put a long-term cap on carbon that ratchets 
down over time. Only a cap on carbon will give industry the direction 
and certainty it needs.
    For example, suppose you operate a utility company and have an old 
coal plant that is near the end of its life. A new coal plant will cost 
billions of dollars. If you knew there would be a cost to emitting 
carbon, you would have to think hard about whether the next plant 
should run on coal that captures the carbon emissions, or gas, or 
nuclear power or wind or solar energy. Eventually, there will be a 
cost, but if you didn't know when, you would try to limp along with the 
old coal plant until you knew what the costs would be and how they 
would be structured.
    Providing certainty will drive investment and job creation today as 
well as the changes we need in our energy mix over the long term.
    Finally, I want to mention that, as we continue our examination of 
energy and climate policy options, independent and impartial data and 
analysis, particularly from the Energy Information Administration, will 
become increasingly important. EIA provides vital information about 
where we are and where we are going, and, if we are to make sound, 
data-driven decisions, we must make sure EIA has the tools it needs to 
do this work.
    Thank you again for the opportunity to testify and for holding this 
hearing. America still has the opportunity to lead the world in the new 
industrial revolution that we need but only if we make wise choices 
today.

    Senator Dorgan. Mr. Secretary, thank you very much for that 
analysis.
    Since the oil embargo of 1973-1974, the U.S. Government has 
spent billions on energy research, although as I indicated, it 
is nonetheless a small part of the amount that we spend on 
research in the Federal Government. But we have spent a 
substantial amount to create new energy technologies and reduce 
vulnerability to foreign imports, and yet all these years 
later, 40 years later, we are more dependent on foreign oil for 
our energy, especially in transportation, than we were 40 years 
ago.
    So what do you anticipate will be our energy supply mix 40 
years from now, for example, and do you have some optimism that 
we will have a different mix and be less vulnerable and less 
dependent? I guess, what is the outlook for the mixture of 
fuels for the United States in the next 10, 20, 30 years?
    Secretary Chu. Well, I do have some optimism. I think what 
happened in the past, particularly in the late 1970s/early 
1980s in the first of these oil shocks and the long gasoline 
lines, was that there was great energy and enthusiasm to do 
something about it, but when the price of oil went down to $20-
$30 a barrel and stayed there for a number of years, I think 
that enthusiasm was depleted.
    There are new factors now, the rise of developing 
economies, things like that. It is a safe bet to say--although 
one cannot predict the price of oil in the next year or two--
over the long term, it is a safe bet to say it will be as high 
or higher than it is today, according to the Energy Information 
Administration and other private financial predictors. That is 
one thing.
    The other thing is the growing concern about carbon 
emissions.
    So to answer your question, what is the mix that I 
anticipate 40 or 50 years from today, well, in electricity 
generation, we are now 20 percent nuclear, I hope that will, as 
a minimum, be maintained and perhaps be increased to 30 percent 
or perhaps even higher.
    We will be increasing renewables, but that will take time 
because we have to concurrently build up the electricity 
distribution and transmission system to handle these variable 
sources, and again, this is going to take decades.
    In terms of transportation fuel, I outlined a three-point 
strategy that does make sense that will get us to, hopefully, 
greatly decreasing our oil imports.
    The first is efficiency. We have accelerated the energy 
efficiency of cars now to 35 miles a gallon for cars and light 
trucks. I think this is a start. We should continue to 
accelerate that.
    Regarding biofuels and advanced biofuels in particular, 
great progress in the labs is being made today. So I am very 
optimistic. This will also create great wealth in rural America 
because in rural America, you now have the opportunity not only 
to raise food crops, but you can use your agricultural residues 
to create value.
    The electrification of vehicles is another one that I think 
you and Senator Alexander and others have mentioned. There has 
been great progress in the last 5 years on batteries. When you 
start with plug-in hybrids and go to electric vehicles that can 
greatly offload the transportation needs for local city and 
suburban driving. So I think with those things, I believe in 
the next 50 years, we can greatly reduce the transportation 
need for external oil.
    Senator Dorgan. Mr. Secretary, I showed a chart a while ago 
that shows back to 1850 or so, and if we had had an Energy 
Secretary back then and you had been the Energy Secretary and 
someone had asked you at this table, what will our energy mix 
be in 150 years, of course, you probably would have said, well, 
we are going to probably use a little less wood and a little 
more coal, based on what you see and know then. But obviously 
energy uses have changed, as we have discovered oil and natural 
gas and used renewables.
    I would like you, as a scientist, to think out about 40-50 
years. I think you and all of us on the subcommittee are 
thinking in terms of that right side of the chart because that 
is what we know. Yet at Sandia National Laboratory there are 
some folks working on the proposition of getting fuel from thin 
air, maybe, maybe not, I do not know, when somebody says we can 
create fuel out of thin air, I say, well, that is something 
that I cannot contemplate, but maybe scientists do.
    As you think as a scientist out 40 or 50 years beyond just 
the traditional things that we understand and know and think 
about, what do you see?
    Secretary Chu. Well, the fuel out of thin air, thin air 
plus sunlight, is one of the energy hubs we are proposing, to 
actually use the sunlight energy and directly make 
transportation fuel. We think that has sufficient promise that 
we had proposed this so-called energy hub to do that. So we are 
exploring radical departures which we think have a shot.
    Actually I love that graph because it actually shows you 
what the challenge is. If you look at the time it takes to 
transition from wood to coal, coal to oil and gas, it is 
typically a half a century. We do not have that time to 
transition to a lower-carbon economy. So one of the things that 
in the Department of Energy we are thinking very hard about is 
how do you make that transition in a way that can be faster and 
that speed will also be very helpful in our economic prosperity 
because if we lead in that transition and develop those 
technologies, this is great for American competitiveness.
    Senator Dorgan. But in many ways, the question is 
transition to what, and we are in a frantic search for what.
    Secretary Chu. So I commend this report, America's Energy 
Future, and it calls for--and I agree with this--a diversified 
supply of energy. It does not sound like the right answer is to 
pick only one thing that will solve our problem, because if you 
look at what we have in the United States, we have still 
abundant sources of natural gas, we have oil. We are the third 
or fourth largest producer of oil in the world. We have great 
agricultural resources that can be used, in part, again 
including the agricultural residues, to make energy as well as 
food.
    So what I believe has to be done is to create diversity of 
supply, because of what we have been blessed with. But we have 
some, as I mentioned, nuclear technology. We anticipate a 
renaissance in nuclear technology. We anticipate that solar 
will get better and better, but it is still more expensive, to 
be quite frank, than fossil fuel generation. But it has gone 
down considerably.
    I still believe it needs about a factor of 4 decrease 
before people put it on their rooftops and in fields without 
subsidy. And factor 2 is in the cards. We see that very 
clearly. But the other factor of 2 I think needs more R&D and 
radical R&D that could be game-changing. And it is the whole 
cost. It is not just the solar modules.
    So it is not satisfying, but I think bits and pieces are 
the way to go. I go back to energy efficiency, huge, huge gains 
in energy efficiency. The average cost of decreasing our energy 
consumption and our dependency and the carbon emissions is 
something like a few cents a kilowatt-hour. And in many 
instances, as I pointed out in my testimony, it is actually a 
money-maker. If an industry says I can invest a hunk of 
change--let us say $1 million--and I get a 10 percent return on 
my capital to save energy, now sadly that may not be enough for 
industry because industry might be expecting a 20 percent 
return on their investment of capital. But if you want to save 
energy, if you want to decrease our carbon emissions, if you 
want to decrease our dependence on importing foreign sources of 
energy, we should think hard about what it will take to get 
industry to make those investments.
    Senator Dorgan. Mr. Secretary, thank you. I have exceeded 
my time.
    I will call on Senators in order of appearance, Senator 
Voinovich.
    Senator Voinovich. Thank you, Mr. Chairman.
    First of all, I want to congratulate you on the people that 
you have got working in the nuclear area and also in the area 
of fossil fuels. One of the things that puzzle me is what are 
we doing to coordinate the effort to get to clean coal 
technology more rapidly than it appears that we are doing. You 
are talking about building some CCS plants in the next several 
years. We have China building them every day or a couple a 
week. And it seems that the money for the technology is spread 
all over.
    For example, I have introduced the Asian-Pacific 
Partnership bill in the Foreign Relations Committee. It is 
ready to come out. It creates a separate committee in the 
Asian-Pacific Partnership that deals with clean coal technology 
and puts in, I think, $200 million a year from the United 
States to match the other countries that participate. Senator 
Rockefeller and I are working on a bill to deal with this, and 
that provides about $20 billion over 10 years.
    You have got money that you are working on.
    And it seems to me that one of the best things that we 
could possibly do for the United States or internationally 
would be to come up with some concept of where we could create 
some kind of an international DARPA that would move this clean 
coal technology forward rather than the 10 years that MIT says 
is going to be required. We know darned well that even though 
The Sierra Club and others are shutting down new coal-fired 
IGCC plants in this country, China is building them. India is 
building them. In fact, India said they are going to build the 
biggest coal-fired plant ever in the history of the world.
    And I am just wondering from our point of view and 
internationally, what thought is being given to China to 
coordinate all of this effort? So we are doing our thing. You 
talked to the Canadians. They are doing their thing. The Brits 
will tell you we are doing our thing. You know, everybody is 
doing their own thing, and what is being done to try to 
coordinate this? Because I think if we do not do it, in terms 
of greenhouse gas emissions, you can shut everything down here 
in the United States and we are still not doing anything about 
that. And we know we should be building coal because of our 
supply. We know the Chinese are buying up coal mines all over. 
So what are we doing to coordinate that effort?
    Secretary Chu. There are a number of coordinations. The 
Australians have set up a worldwide initiative that we are 
members of. Specifically with China, the President announced--I 
think it was about 6 months ago--a research cooperative where 
it is $150 million in three areas: energy efficient buildings, 
vehicle electrification, and clean coal technologies. So China 
and the United States are putting $25 million apiece into co-
developing some clean coal technology we can both use.
    I agree with you absolutely that China and India are not 
going to turn their back on coal, and so we have to develop the 
technologies that can use coal. And the United States, quite 
frankly, I do not believe will turn its back on coal as well. 
So we do need to develop these clean coal technologies.
    Jim Markowsky, who I believe you know, an old friend of 
mine, is a very, very capable person. He and his team put 
together a road map of three or four technologies we think are 
promising, and we are working hard. How do you push these? One 
way is the retrofitting of existing coal plants. New existing 
coal plants, the highly efficient coal plants will not be shut 
down. These are multi-billion investments, so one has to 
develop the technologies to retrofit those. In addition, the 
other plants you mentioned, the gasification plants, are 
another technology. And finally, there is something where you 
separate out the oxygen from the nitrogen and you burn coal in 
an oxygen plus CO2 atmosphere. It creates a pure 
stream of carbon dioxide that you can then sequester. So these 
are three primary approaches. We need to look at all three of 
them because of the existing fleet and what might come before.
    Now, Jim Markowsky believes that the IGCCNN will probably 
be less expensive, but we are pushing very hard. The cost is 
still too high, and so although we are piloting things for 
2016, there will be very valuable lessons learned. We are more 
ambitious and we still want to drive the cost down. So there is 
coordination.
    I have already talked to my counterparts in Europe. And my 
counterparts are the energy ministers, but in addition, the 
scientists there. We are beginning to think of how we are going 
to trade notes, not only trade notes, but actually co-invest in 
pilot projects. These pilot projects are not inexpensive. They 
are pretty expensive. So we actually say, okay, we are going to 
be testing this technology, that technology, this technology. 
And my proposal, which has always been met favorably, is to say 
by co-investing, you do not mean necessarily money the way, let 
us say, we are doing with China, but at the very minimum, we 
actually put engineers, when these pilot projects are being 
done, on the site. So the lessons learned are immediately seen 
and felt by people in other countries. So these are some of the 
things we are trying to do to coordinate this and again to 
accelerate this transition.
    Senator Voinovich. Thank you.
    Senator Dorgan. Senator Voinovich, thank you very much.
    Senator Feinstein.
    Senator Feinstein. Thank you very much, Mr. Chairman.
    Mr. Secretary, I gave you my litany of complaints. Let me 
try to ask a couple of generic questions about it.
    What is the Department's policy with respect to building 
solar and wind on disturbed private lands?
    Secretary Chu. Well, in terms of the loan guarantees, what 
we try to do is evaluate the loan guarantee on several major 
criteria. One of them is the----
    Senator Feinstein. Is it permitted?
    Secretary Chu. On disturbed private land?
    Senator Feinstein. That is correct.
    Secretary Chu. I believe that should be fine.
    Senator Feinstein. So there is no disincentive in the 
permitting process----
    Secretary Chu. As far as I know, that is correct.
    Senator Feinstein. Well, I am not sure that is correct. So 
if it is correct, I think that is fine, and I am going to hold 
you to your word.
    Secretary Chu. Yes. I mean, I think it would be more 
appropriate in terms of the specifics of your things----
    Senator Feinstein. Okay, let me give you a specific. Small 
proposals, close to cities, maybe 30-50 megawatts and multiple 
sites from one person that wants to, let us say, build three 
sites where they have got transmission, where it is easy to do 
on disturbed private land.
    Secretary Chu. Okay, sorry.
    I would have to look at the specifics of that particular 
loan because sometimes loans are turned down not for those 
reasons, but they may be turned down for reasons of the 
financial viability of the company, the backing of the company. 
So it would have to be looking at--you know there is no policy 
that says you cannot do that on disturbed private land, 
absolutely not. But I think in some of the instances, I 
believe--this hearing is not the appropriate time to look at 
specific companies.
    Senator Feinstein. Right. Well, I am going to do----
    Secretary Chu. Right. But I would love to talk to you in 
private----
    Senator Feinstein. I agree with that, but I want to get 
your attention.
    Secretary Chu [continuing]. On the specifics of specific 
loans regarding the financial issues.
    Senator Feinstein. All right.
    Now, I am going to talk about one company and that is 
Tessera that wanted to build a large facility, 800 megawatts, 
in Imperial County. The technology they are going to use was 
produced by Sandia. Sandia just won an award on that 
technology. Their application was summarily turned down. Nobody 
talked to them for 7\1/2\ months. Should that be?
    Secretary Chu. Actually, no, but again, no in the sense 
that if there were clarifications and issues of that nature, 
they should be talking with the applicants, clarifications of 
the application.
    If there were other issues, again if there were sort of 
balance sheet issues, things of that nature, that were giving 
the loan guarantee program pause, I am not sure whether it is 
necessary to have a discussion with that because that is all 
black and white. That is on paper. But again, I would have to 
look at the specifics of that particular loan.
    Senator Feinstein. Well, the point that I am trying to make 
with you is there is a problem with California projects. I do 
not know whether there is a bias. I do not know whether there 
is a problem in the projects. I have written to you. I do not 
get adequate responses. I would like an opportunity to be able 
to express this to you in another forum if that would be 
agreeable.
    Secretary Chu. I would love to talk to you about those 
loans.
    Senator Feinstein. Okay.
    Secretary Chu. We believe we have no bias against 
California. I can say that as a Californian. No bias for or 
against.
    Senator Feinstein. Okay.
    I was going to ask you a quick question on the NIF, the 
National Ignition Facility. Many believe it might be a 
prototype for a fusion nuclear powerplant some day, and I 
gather that the National Academies and the Academy of 
Engineering are now conducting a study on inertial fusion 
energy to explore the viability of that vision.
    Do you agree that the results of that study could be 
enhanced if the NIF is able to provide the Academies with 
analysis and testing?
    Secretary Chu. Yes.
    Senator Feinstein. So----
    Secretary Chu. We have great hopes for NIF. So far as they 
have turned on, that facility has worked very well. We 
anticipate, although it cannot be predicted with certainty that 
you could get an ignition in a year or two. The technical 
milestones, as they begin to put it through its paces, have 
been met, and in the last communication I had, they are ahead 
of schedule. So there is an opportunity, and both the 
Department of Energy and the National Academies are looking at 
now saying, okay, it looks like if you do get ignition, let us 
develop a scientific program that can actually explore those 
areas where it might be possible to develop commercial inertial 
fusion.
    Senator Feinstein. So, in other words, they can participate 
together with the Academies.
    Secretary Chu. Yes. I think we in the Department of Energy 
applaud what the Academy is doing because now is the time to 
start thinking about what experiments to do to test the 
commercial feasibility.
    There are two issues. The major issue is the lasers. Right 
now NIF on a good day can have a couple of shots. Let us say 
one or two shots. In a commercial reactor, you will need 20 a 
second and not have down time. So there is a huge difference. 
So there are numbers of very capable people also looking at 
whether it is possible to make cost effective lasers that have 
that degree of reliability. But in the meantime, there are 
still some fundamental issues on how you can make this 
efficiently.
    And finally, the lessons learned from laser fusion can be 
also used to explore inertial fusion using ions as well.
    So it is a technology I do not anticipate in the next 
couple of decades will go commercial, but it is like magnetic 
fusion. It is something that you want to look at because if you 
do get fusion, it is cleaner source of energy, much, much less 
reactivity issues.
    Senator Feinstein. It is very exciting. I have been to the 
facility, and it is an amazing place.
    Thank you.
    Secretary Chu. Thank you.
    Senator Feinstein. We agree on one thing. Thank you.
    Secretary Chu. I think we agree on more.
    Senator Feinstein. Well, I hope so.
    Senator Dorgan. Senator Alexander.
    Senator Alexander. Thank you, Mr. Chairman.
    The chairman has constructed this hearing around the future 
of energy. Let us talk about the Department of Energy's future. 
You have a goal to reduce your greenhouse gas emissions from 
the Department of Energy by 28 percent by 2020 I believe.
    Secretary Chu. Right.
    Senator Alexander. In one of your recent articles in the 
Wall Street Journal on nuclear power, you commented on the 
interest in smaller modular reactors----
    Secretary Chu. Correct.
    Senator Alexander [continuing]. If I am correct.
    I am told that a single 125-megawatt reactor would help the 
Department of Energy meet one-half of its greenhouse gas goals 
by 2020. Does that sound about right?
    Secretary Chu. That sounds about right.
    Senator Alexander. A 125-megawatt reactor would also be 
about the amount of electricity that the entire Oak Ridge 
National Laboratory and the computers would use.
    What I am leading to is--well, let me ask this. The Navy 
has small reactors, right? I mean, the United States Navy.
    Secretary Chu. Right.
    Senator Alexander. And the United States Navy approves its 
own reactors, right? It does not go through the Nuclear 
Regulatory Commission.
    Secretary Chu. Correct.
    Senator Alexander. And do you know if there has ever been 
an accident on a Navy sub or a Navy ship in the 60 years?
    Secretary Chu. Well, there have been accidents, but I do 
not believe there----
    Senator Alexander. That has harmed someone?
    Secretary Chu. There certainly have been unfortunate 
accidents on nuclear submarines, but I believe----
    Senator Alexander. Yes, not the result of the reactor.
    Secretary Chu. Not the result of a nuclear malfunction.
    Senator Alexander. The Navy's safety record on small 
nuclear reactors is pretty good----
    Secretary Chu. Correct.
    Senator Alexander [continuing]. Over that period of time.
    I am wondering if your own departmental goals for 
greenhouse gases and the interest in small modular reactors 
might offer a way to accelerate pilot programs to see how they 
work. I know that in Alaska, for example, Senator Murkowski has 
said that for the last 10 years a remote community in Alaska 
has considered the idea of a small modular reactor because it 
has no better way to get electricity. I was thinking of the Oak 
Ridge example. It might even be a reactor operated by the 
Department of Energy. I was thinking there might be a naval 
base in Hawaii or some other place where the Department of the 
Navy might have a small reactor.
    I am sure that the first three, four, five small reactors 
would have an additional cost to them, a risk cost that is 
always associated with a startup, but if it were part of a Navy 
installation or part of a Department of Energy greenhouse gas 
goal or part of some other relevant goal--you have got the 
Tennessee Valley Authority who is interested in this, and they 
are a Federal utility who are supposed to do things for the 
Nation rather than just for private investors.
    So I am running it through my mind whether, given your 
interest and that of so many people in smaller, cheaper modular 
reactors, if maybe a Navy reactor, a Department of Energy 
reactor, as well as a Nuclear Regulatory Commission reactor 
over the next 5 or 10 years might not be a wise approach.
    Secretary Chu. Well, Senator, as you know, I am a big fan 
of small modular reactors. I think the economy of scale you get 
from making these very big 1/1.5-gigawatt reactors you can 
perhaps recover by mass producing the smaller ones.
    When I first became Secretary, I asked Admiral Donnelly 
whether we can modify a nuclear submarine reactor for this. He 
smiled at me. He laughed and said you cannot afford our nuclear 
reactors. They are very high-performance, very robust reactors. 
And they also work on highly enriched uranium which is 
something we prefer not to do.
    But let me just say that we are very keen on it. We put it 
in our budget to help build and license two to try to 
accelerate the development of those reactors. We think it is 
useful for a wide variety of purposes. The Oak Ridge example--
you are absolutely right about that. In fact, there is a site 
near Oak Ridge that was designed for a reactor that is waiting 
and ready to be used. If you build, let us say, 100 megawatts 
or something like that, you can size the number of modules to 
fit the site, to fit the electrical distribution system of that 
site. Many sites cannot accommodate a large 1.5-gigawatt 
reactor, both for the cooling and for the electricity 
transmission distribution.
    You also can size it to the finances of the company because 
if you have a $7 billion or $8 billion thing and your total 
capitalization of the company is on the order of $10 billion or 
$20 billion, you are essentially betting your company on a 
single reactor, whereas if you go to one-third, one-quarter, it 
satisfies a lot of needs.
    And finally, it is an area where we think the United States 
can be a technological leader. We lost the lead in the large 
ones over the years, especially after we were sending signals 
that we were going to run out the current fleet of nuclear 
reactors, close them down, and that would be it. Now because of 
the carbon dioxide issues, there are a number of people, 
including many environmentalists, who say now we should bring 
this back.
    So as we bring this back, small modular reactors are one 
area where we think we can take a technological lead, and it 
would be great for export as well. So there are many, many 
reasons why we want to do this.
    Senator Alexander. Thank you, Mr. Chairman.
    Senator Dorgan. Thank you very much.
    Senator Landrieu.
    Senator Landrieu. Thank you, Mr. Chairman, for calling this 
really important, very important hearing.
    And Mr. Secretary, thank you for your leadership.
    I want to follow up, staying on the nuclear theme for just 
a minute. One of the unfortunate changes in U.S. policy over 
the last 30 years has been the almost complete abandonment of 
our nuclear program. And I for one and many of my constituents 
are very pleased that it is coming back with your leadership 
and your determination with President Obama. We hope to 
reinvigorate the U.S. nuclear power since it is a plentiful 
source of emission-free and carbon-free electricity that this 
country is going to need.
    So Senator Voinovich has been a tremendous leader in this 
area. The former chair of the Energy Committee, Pete Domenici, 
helped to lead this effort.
    I wanted to ask just a question, though, about something 
that may be a small blockage in our move forward. The 
President's budget this year requested an additional $36 
billion for nuclear loan guarantees, as you are aware. It is my 
understanding, however, that there are two nuclear projects 
that are ready to go kind of neck in neck. Both show a lot of 
promise, but unfortunately, the budget may be insufficient.
    Is that your understanding that the budget is currently 
insufficient to support both, and if so, what is your 
recommendation?
    Secretary Chu. That is my understanding. $8.3 billion was 
used at the Vogel site for two reactors. We have roughly $12.3 
billion and some change left. There are two. There is possibly 
even a third application not immediately ready to go, but it 
could be done before the 2011 budget. We feel that if you allow 
that both of them have the opportunity to build, we would need, 
in addition to the $12.3 billion--$12.5 billion--I forget the 
exact number--an additional $4 billion. There is a third 
reactor that we are looking at. If you want to capture all 
three, that would be an additional $9 billion.
    Senator Landrieu. So basically for almost $50 billion--$50 
million--is it billion?
    Secretary Chu. Well, okay, so here----
    Senator Landrieu. Well, I know it is billion, but it is 
only 1 percent that it would score. So actually for a $50 
million appropriation, we could potentially leverage those 
three projects. Am I doing that correctly?
    Secretary Chu. I think it is $9 billion in authority. So 
$90 million would get the three projects, so we would have a 
total of five.
    Senator Landrieu. So it would be $90 million. I said $50 
million. It would be $90 million. Okay.
    You know, Mr. Chairman and Senator Voinovich, I really 
think that this is something specific that we should look at. I 
mean, for a relatively small additional investment, we could 
really leverage the culmination of many years of work to 
actually get these projects built and underway. I just wanted 
to mention it because I think it is very significant. And as a 
member of the Appropriations Committee, I will be working 
closely with you to see what we can do.
    Second, let me ask this. We have spent a lot of time both 
in this subcommittee and others focused on also increasing 
demand for new kinds of vehicles, which is very important as we 
try to put a climate bill together, as you know. And we want 
vehicles that can run on reduced carbon emissions, both kind of 
new engines, electric engines, et cetera and hybrid.
    But in the meantime, as we are building the technology to 
do that, we also have some innovative projects. DOE has been 
looking at some of them. One of them happens to be in 
Louisiana, but we are not the only one. It is a car that runs a 
much more highly efficient conventional internal combustion 
engine that will get more than double the current capacity.
    Could you comment on just the general kind of conventional 
but highly efficient vehicles? Do you think that there is a 
place for them as a bridge vehicle so we can move our country 
to actually carbon-free emission vehicles?
    Secretary Chu. Yes. In fact, I briefly mentioned in my 
testimony today that the immediate way we reduce our dependency 
on foreign oil is to drive toward efficiency, and it is 
efficiency in commercial internal combustion engines. There is 
now being developed a clean generation of diesel, small 
diesels, that can even satisfy California pollution air 
standards, a lighter weighting, better rolling resistance on 
the tires. Even though it is not dramatic--it is not going to a 
plug-in hybrid, all-electric vehicle--the market penetration 
could be must faster because until we get batteries that can 
last 15 years of deep dischargers that are reduced in present 
cost, the forecasters are not saying that this is going to be 
truly significant.
    Now, I applaud what companies like GM and their Chevy Volt 
are doing. I think those are great things. The Nissan Leaf, all 
these things are wonderful. But the low-brow internal 
combustion engine--if you make it 10 percent more efficient, it 
affects all of them. If you get better tires, it affects 
everything immediately. If you get better, you know, lighter 
weighing materials, those things go immediately into the entire 
fleet.
    Senator Landrieu. Well, that is very good to know--my time 
is up--because we have a project that will meet those 
guidelines, as you know, and we are excited about the 
possibility.
    Thank you so much, Mr. Chairman.
    Senator Dorgan. Senator Landrieu, thank you very much.
    Mr. Secretary, thank you very much for appearing here 
today. I hope you will be available if we wish to submit some 
written questions to be able to respond to them. But we 
appreciate your leadership and the work. As several of my 
colleagues have indicated, I think you have put together a very 
strong team at the Department of Energy, and we appreciate the 
work of all of them.
    Secretary Chu. And could I make one last----
    Senator Dorgan. Yes, of course.
    Secretary Chu. In response to the intent of this hearing, 
we are developing a road map master plan. It will be heavily 
influenced by this very authoritative report, America's Energy 
Future. This plan is not just a laundry list but timelines of 
what we think can happen in the years and folding in the 
economics.
    So we are busily working with the team that we now have in 
the Department of Energy--it is an extraordinary bunch of 
individuals. Just as an example, there are five members now in 
our team that are either members of the National Academy of 
Engineering or National Academy of Science, which is unusual. 
One of them, a member of the National Academy of Engineering, 
also has 25 years of industrial experience. He worked in a 
power company. He built coal plants. So in addition to being--
so they are not all academic scholars--this is Jim Markowsky--
and people who have founded many companies. So we have a team 
we think that can perhaps start to lay a rational road map 
that, as you say, does not lunge here and there, but perhaps 
can give us ideas on formulating a comprehensive energy policy.
    Senator Dorgan. Well, I have a copy of the summary edition 
of America's Energy Future here. It is a great menu of all of 
the things that have been discussed here and much, much more. 
So I am encouraged by your report.
    Secretary Chu. Thank you.
    Senator Dorgan. Thank you very much, Mr. Secretary. We 
appreciate your being here.
    Next we will call on the second panel: the Honorable Phil 
Sharp, President of the Resources for the Future in Washington, 
DC; Mr. Robert Fri, who is the Past President and Visiting 
Scholar, Resources for the Future, Washington, DC; and Dr. Eric 
Loewen, who is the Chief Consulting Engineer, Advanced Plants 
Technology, at the GE Hitachi Nuclear Energy facility, 
Canonsburg, Pennsylvania.
    Mr. Sharp, I have had the pleasure of serving with you a 
long, long time ago in the U.S. House of Representatives and 
have long, long admired your work both there and since you have 
left the U.S. House. But welcome to you and to Mr. Fri and Mr. 
Loewen.
    We will begin, Mr. Sharp, with you. As I indicated, all of 
the testimony will be part of the permanent record in its 
entirety, and we will ask the witnesses to summarize. Thank 
you.

STATEMENT OF HON. PHILIP R. SHARP, PRESIDENT, RESOURCES 
            FOR THE FUTURE
    Mr. Sharp. Well, Mr. Chairman, thank you very much for 
inviting me. It is an honor to be here. You folks have played 
an incredible role for years. You personally have and are going 
to be gone, unfortunately, from this chamber--and dealing with 
energy questions. So I am not sure how much of what I have to 
say will be new to you, but I think some of the things it is 
important for us to look back and remember as we try to figure 
out where to go in the future.
    First, let me just quickly say I must say these are 
strictly my own views, not those of the scholars at Resources 
for the Future. I deserve any blame or credit and do not hold 
it against our hard-nosed scholars who are quite independent.
    I was asked to give something of an historical perspective 
since now I am part of history, and basically let me suggest a 
couple things.
    We are at a time of incredible change in our energy markets 
and, indeed, in our energy policy as well. And I think it is 
important to recognize this, and it is something that you and 
others are focused on. This is not a pattern of usual work if 
you are trying to make investments, if you are trying to figure 
out where the future is.
    Our markets have gone through, in several years, a radical 
change in prices, obviously in oil, but also even in natural 
gas, beginning earlier in the decade. And those price shifts, 
as they did in past history, have had profound impacts on how 
investors behave, on how consumers behave, and on how 
Government operates in terms of policy. Indeed, if there is 
anything that is clear from the experience of the operations of 
Congress in 2005, 2007, and in the stimulus package is that we 
have significantly expanded the Government's role and its 
intervention in our energy markets. By the way, this is 
happening around the world. And that is a radical change that 
is, frankly, akin to what many of us went through in the 1970s.
    Compared to the 1970s--and I do not want to stay focused on 
them and live in them too much, but it is important to 
recognize that today we have incredible technological and even 
fuel options that were not readily available or on the horizon. 
They were a glint in somebody's eyes. This subcommittee and 
others made major investments over those years, as did the 
private sector, that in fact have put before us these options 
that several of you folks have mentioned this morning.
    But the question becomes why they did not get into the 
marketplace. And of course, Secretary Chu in two sentences 
answered the question essentially, and that is, once oil prices 
dropped in 1986, simply the investments fell flat. Many people 
lost money in the market, and indeed, what policies had been 
adopted in terms of investments from the Federal Government 
certainly did not look wise and many of them, obviously, were 
repealed or failed.
    Let me just mention a couple of the assumptions that were 
very broadly held in industry, Government, and academia when we 
were engaged in a lot of policymaking in the 1970s because I 
think one of the hardest things we struggle with, as you think 
about a 50-year period, is we frankly have great difficulty 
getting it right and knowing where the world is going to be, 
which I think suggests to you having a robust set of policies 
and a robust marketplace are the only approach to hedging 
against this intellectual as well as economic and political 
uncertainty.
    But let me quickly mention them. They are outlined here and 
you will not be surprised.
    But it was widely believed that we would see major 
disruptions and we were at risk for disruption in the oil 
supply since we had been disrupted in 1973. We drove to try to 
cut imports through additional production, through CAFE 
standards. We drove to prepare for emergencies with the 
Strategic Petroleum Reserve and even the crazy thought that we 
might be able to ration gasoline again in this country. But our 
experience since then, frankly, has been that this global oil 
market has been quite robust and resilient. And while we have 
had disturbances we do not like, the fact is it has delivered 
the oil even with military action in the Middle East, even with 
political turmoil in Venezuela and Nigeria and other places 
that at times in the past we would have thought would have been 
devastating to us.
    That does not mean because we have had this good 
experience, we are not still at risk, however. And as we know 
today, there are possibilities for major military or terrorist 
activities that could significantly disrupt and probably create 
lengthy disruptions in oil supplies which would have a major 
impact on the world economy and probably would lead to 
significant political and social instability in any number of 
governments.
    The second assumption was that whether it got disrupted or 
not, we would see oil prices continue to rise. The real 
argument was how fast and how far they would go. Widely 
accepted, so major private investments were made. Major public 
investments were made in technologies, in efficiencies and 
alternative fuels that we thought would quickly come into being 
cost effective in the marketplace. But of course, that 1986 
drop and persistent drop in prices just totally undermined 
that.
    I only want to say in pricing one of the biggest mistakes 
made in the 1970s that is now, I think, deep in people's 
knowledge was when we had price controls on the oil system--by 
the way, on the gas system too. That was a profound mistake 
that even when we had these radical price increases in 2006 and 
2007, we did not see anyone on Capitol Hill advocating price 
controls. And so I think we probably learned our lesson from 
that.
    But my point here is the obvious one that everybody knows. 
Major shifts in the price of oil still can have major impacts 
to either enhance the policy you are trying to get across or to 
undercut it. And that is something we, frankly, do not have an 
effective tool in my view to deal with unless you are willing 
to tax oil in a persistent manner to keep it at a certain price 
level.
    The third assumption that was often involved was the 
domestic gas supply was in decline naturally in the United 
States. Of course, we find getting rid of the oil price 
controls, opening to Canada, we had plenty of gas. Then we 
thought we were in shortage again, and you folks in 2005 and 
2007--the prevailing assumption was we needed to have LNG 
because now we see we have more supply, although there is a 
great deal of uncertainty of how much, what its impact is on 
transportation, like will it undermine the electric car, will 
it not, what it will do in the electric power field. The point 
is that is another of the uncertainties we face, although that 
is a positive uncertainty in the sense that we have that.
    Let me just say, to wrap up on the carbon challenge, which 
is the longer-term, most profound complication that we face. 
Even though much is happening, as we know, you folks are 
engaged in a discussion of what should be the architecture or 
the framework of policy going forward to constrain emissions. 
And we have two broad strategies before us: try to set up a 
pricing on carbon either through cap and trade or tax or a 
combination; or we have under the Clean Air Act somebody may be 
able to figure out another strategy, but at the moment those 
are the two broad strategies.
    Nearly every analyst and economist believes that, depending 
on the details, the much smarter strategy from a cost effective 
way for this country is to go with some kind of pricing of 
carbon because in the end I think there are three things that 
we want to keep just in front of us as we go ahead with some 
kind of profound move to change the system for carbon or for 
oil security.
    And that is, one, what the Secretary said, what is the 
central point of the American energy future that you just held 
up is you must go for a portfolio. We do not know for sure 
which things will really work out to what extent. So have a 
portfolio of fuels, a portfolio of energy efficiency 
technologies.
    Two, have serious independent review periodically, perhaps 
every 4 or 5 years, of whether these policies are really paying 
off. Are they cost effective? Is the problem still what we 
thought it was?

                           PREPARED STATEMENT

    And three and finally, which is I think a prevailing view 
today, is wherever possible capitalize on the competitive 
marketplace to help drive the policy we need. The Government 
will have to do things, and it is doing things. But it must, 
every time it can, leave the possibility for the innovation, 
the drive, the incentive, and I think we are most likely to 
have a better energy future in that way.
    Thank you very much, Mr. Chairman.
    [The statement follows:]

               Prepared Statement of Hon. Philip R. Sharp

    Chairman Dorgan, thank you for the opportunity to be here today. 
For the record, I am president of Resources for the Future (RFF), a 58-
year-old research institution based in Washington, DC that focuses on 
energy, environmental, and natural resource issues. RFF neither lobbies 
nor takes institutional positions on specific legislative or regulatory 
proposals.
    I emphasize that my views today are my own, and not those of 
Resources for the Future. I have included in an appendix, however, some 
related key studies and forthcoming research from RFF.
    In the last few years, U.S. energy markets and energy policies have 
undergone incredible change. Ahead, we face more significant 
developments and uncertainties.
    Markets have seen radical price swings. World oil prices began 
rising above $40 per barrel in 2004, reached an extreme peak of $137 in 
July 2008, and fell back to a low of $34.00 in January 2009. Today, 
prices hover above $80. Natural gas prices in this decade made 
similarly radical shifts.
    Rising prices energized both markets and politics. Investors, 
consumers, and Government policy changed in significant ways. New 
attention has been given to efficiency and to alternatives to oil and 
natural gas--much as we witnessed in the 1970s.
    Government efforts to influence energy markets dramatically 
increased with the landmark energy legislation of 2005 and 2007 and the 
stimulus package of 2009.
    A host of mandates, regulations, and subsidies have been adopted to 
influence investor and consumer behavior. A variety of goals is cited 
for various interventions: oil security, protection of the economy, and 
environmental urgency, especially with regard to climate change. 
Congress, of course, is currently grappling with major initiatives 
embodied in the House-passed Waxman-Markey bill and the proposals under 
construction in the Senate.
    These policy actions represent a level of market intervention not 
seen since the 1970s.
    From the mid-1980s to early in this decade, market liberalization 
was the prevailing view. The most significant policy initiatives were 
the efforts in the 1990s to restructure the electric industry to bring 
competition into those markets, often misnamed ``deregulation.'' There 
were only a few significant Federal market interventions such as 
adoption of the production tax credit for renewables and the 
advancement of appliance efficiency standards. The Clean Air Act 
amendments of 1990, of course, imposed significant requirements on 
energy industries entailing major investments, but generally the 
changes were achieved at less cost than previously advertised. This was 
especially the case with the Acid Rain Program, which imposed a cap-
and-trade system on electric utilities.
    Compared to the 1970s, we now have available many technologies and 
techniques that are already changing our energy systems or have the 
potential to do so. This is in no small part due to past private and 
public investment in technology development, heavily pushed in the 
1970s by the allure of rising energy prices and Government policies--
technologies that did not make it into our markets after world oil 
prices dropped in 1986 and Government incentives were either repealed 
or became irrelevant.
    During that time the Nation also was embarking on serious 
environmental regulation that had major effects on industry and 
consumer behavior. Today we are focusing on greenhouse gas (GHG) 
emissions, which will have a profound effect, over time, on the 
production, distribution, and use of energy.

               ASSUMPTIONS UNDERLYING POLICY IN THE 1970S

    Oil crises in 1973 and 1979 generated intense public focus on 
energy markets and policy. During that decade a number of widely held 
assumptions about our energy future influenced much of the policy that 
was adopted; indeed there was also much private investment driven by 
the same assumptions. Some have relevance for today.
    1970s Assumption--Oil Supply Disruptions Likely.--It was widely 
expected that oil supplies from the Middle East were vulnerable to 
periodic disruption, creating major costs for our modern economies and 
potential security issues for the West, especially vis a vis the Soviet 
Union.
    Presidents of both parties made it a high priority to achieve ``oil 
independence.'' A host of policies were adopted that presumably would 
cut oil imports. Most knowledgeable people understood such a goal to be 
very challenging, requiring a transformation of energy markets that 
would be costly at least in the near term, though public rhetoric often 
made the path sound cheap and easy.
    Major public investments were made in research, development, and 
even deployment of technology to push the use of domestic coal, gas, 
oil, and nuclear power and also advance solar, wind, geothermal, 
ethanol, and other longer-term possibilities.
    Fuel economy standards (CAFE) were adopted in 1975 as the primary 
measure to cut gasoline consumption. Though strongly advocated by 
policy wonks and by President Carter, a major gasoline tax increase was 
not imposed.
    Emergency preparedness also became a major policy focus. The 
Strategic Petroleum Reserve was created but took years to fill with 
crude oil. This program has been sustained for decades but we still 
have not achieved a clear consensus on when we should use the reserve.
    Among other emergency measures was a plan for rationing gasoline. 
Billions of coupons were printed but later torched in the 1980s. At the 
time, many of us doubted we could successfully manage such a system, 
the likes of which had last been tried during World War II in a far 
smaller market.
    The ``oil crises'' generated widespread public outrage and 
intensely volatile politics in Washington. In 1979, the shortage of 
gasoline and the long lines at filling stations ignited public fury, 
sparking a few instances of serious social disorder. In areas facing 
shortage, States adopted restrictions, allowing cars to be filled only 
every other day depending on the odd or even last number on license 
plates.
    It is critical to note that Federal policy at the time--price and 
allocation controls--almost certainly contributed to the regional 
gasoline shortages.
    Our experience since the 1970s with respect to disruptions has been 
far more sanguine that expected. The global oil market has been far 
more resilient than predicted in the face of military actions in the 
Middle East and political and social turmoil that limited production 
from other key suppliers such as Nigeria and Venezuela.
    Oil dependency remains a serious security issue for the United 
States. Ahead, of course, the possibility remains that a terrorist or 
military attack on critical oil facilities in the Middle East and 
elsewhere could create major and lengthy disruptions with great 
economic cost and potentially significant consequences for political 
and social stability in many countries.
    1970's Assumption--Oil Prices Would Rise.--It was widely believed 
that world oil prices would continue to rise in the years ahead. 
Disruptions in oil supply immediately translate into price spikes, but 
even in the absence of disruptions, oil prices were expected to rise, 
though there were major differences of opinion about how far and how 
fast. Some believed OPEC could and would push them higher; others 
believed global production would ``peak'' in the foreseeable future.
    Such an assumption about the future meant there were big 
opportunities for private investment in alternatives to conventional 
oil and provided justification for many of the Government's investments 
in the commercialization of unconventional fuels, which became the 
focus of the Government's $88 billion Synthetic Fuels Corporation.
    The radical drop in oil prices in 1986 shattered this assumption, 
killing all kinds of private investments, and pulling the rug out from 
under claims about the cost-effectiveness of various Government 
policies, many of which were repealed or went dormant. Today, the Great 
Plains coal gasification project is one of the few survivors from that 
era.
    Many observers have long cited the Synthetic Fuels Corporation and 
other such policies as major failures. Clearly they did not produce the 
intended results, though a few defenders argue the Government failed to 
stick it out. Given the major role oil prices play, it seems highly 
unlikely the goals could have been met without dramatically increasing 
oil costs either through taxation or regulation.
    But, we should also recognize that some of the technology choices 
on the horizon today were advanced through past Government investment. 
Public research and investment have contributed to today's new shale 
gas supplies; to the variety of transportation fuel and technology 
options, such as plug-in hybrids and fuel cells; to breakthroughs in 
lighting efficiency; to advanced designs in windmills and nuclear power 
plants; and to smart grid technologies and more.
    It is important to say a word about Government efforts to directly 
control prices. Early in the 1970s price controls on domestic oil had 
been imposed as part of an economy wide anti-inflation program of wage 
and price controls; the controls were retained on the oil sector when 
the larger program lost credibility and was ended.
    Such controls proved to be counterproductive to reducing oil 
imports. They deterred conservation and discouraged domestic 
production, and, further, they disrupted the internal shipment of fuels 
to consumers seen in the gasoline lines of 1979. We appear to have 
learned the lesson of such failure. During the recent run-up in oil 
prices, there were no political leaders calling for price controls.
    So, Where Will World Oil Prices Head?--That is one of the most 
significant uncertainties that will shape our future energy markets. In 
general, many observers believe that as the world economy rebounds 
there will be upward pressures on price. Some analyst are even certain 
that we could face a major market upheaval; they expect us to reach 
``peak'' production in the near future--a view that is not yet the 
conventional wisdom. And of course, there is the possibility that 
prices will fall back to lower levels. Only a couple of years ago, a 
major forecaster claimed that market fundamentals meant the markets 
would settle somewhere above $40 a barrel.
    Despite major domestic and international efforts by industry, 
government, and academia to collect and analyze data, given the scale 
and nature of the global oil markets, we have difficulty answering with 
a high degree of certainty some of the most basic questions: How large 
are the reserves? What is the global level of production and 
consumption at any given moment? And, when are prices likely to 
radically shift?
    1970s Assumption--Domestic Natural Gas Supply Would Decline.--For 
several decades prior to the 1970s, the Federal Government had been 
regulating well-head prices for gas sold into the interstate market. As 
a result, segregated markets had developed for ``intrastate'' gas in 
the producing States and adequacy of supply ultimately became a problem 
for much of the country beyond those States. Indeed, the big interstate 
pipelines were required to develop curtailment plans to establish which 
customers could be shut out during shortages.
    In 1978, the National Gas Policy Act was adopted after ferocious 
political fighting. It was a complicated, but in the end effective, 
transition out of the bifurcated markets. Prices were deregulated for 
new supplies. (Old gas supplies were finally deregulated in 1989, 
without controversy.)
    In 1978, the Fuel Use Act also was passed to block the burning of 
natural gas as a boiler fuel, especially when used in generating 
electricity, thus reserving it for preferred uses such as household 
heating, industrial processing, and chemical feedstock. When the supply 
assumption was shattered by a more favorable supply picture, the act 
was repealed.
    At the same time, Canada was moving away from the ``nationalistic'' 
policies it had adopted during the 1970s energy crises and became a 
major supplier for the United States.
    With gas deregulation and imports from Canada, supplies became 
readily available. Indeed, there was much talk about the ``gas bubble'' 
and argument over when it might break.
    Over the last 40 years, we have witnessed several changes in the 
conventional wisdom about the availability of domestic natural gas.
    In the 1990s, there was a major build-out of new gas-fired electric 
power plants. When gas prices unexpectedly rose significantly after the 
turn of the century, new concerns about supply availability arose.
    Indeed, the prevailing assumption during consideration of the 
legislation in 2005 and 2007 was that we needed to accelerate the 
building of liquefied natural gas terminals to bring in foreign gas and 
resurrect plans for an expensive pipeline to bring natural gas from the 
Prudhoe Bay in Alaska down to the lower 48. (In the 1970s a major, but 
ultimately unsuccessful effort, was made to stimulate building of the 
line. Special regulatory incentives were adopted and a treaty was 
signed with Canada to facilitate construction.)
    In only the last year or two, a whole new wisdom has emerged with 
the demonstration that we can economically extract gas from shale. We 
are only beginning to sort out just how large this supply may prove; 
how environmental regulation, especially with respect to water, may 
affect its availability; and what impact such supplies may have on fuel 
choices for electric generation and for transportation. Unless this new 
wisdom is short-lived, it will certainly reshape the thinking of energy 
investors and policymakers. Depending on policy choices, this new 
supply has the potential for making our path to decarbonization easier 
and cheaper over the next few decades.
    1970s Assumption--Economic Growth is Dependent on Growth in Energy 
Supply.--This assumption was widely held, though vigorously contested 
at the time. There had been a pattern of one-to-one growth in the 
United States--meaning a 1 percent growth in GDP was accompanied by 1 
percent growth in energy supply. For many that meant that expanding 
supply was the most important policy need. Others pointed to experience 
in Europe and Japan which suggested economic growth was not so rigidly 
connected to energy supply. There was almost a pitched battle between 
two camps: those believing we should conserve our way out of the crisis 
and those determined to produce our way out.
    Our experience since that time demonstrates the fallacy of this 
assumption. The energy intensity of our economy has significantly 
declined because of major efficiency gains and because the character of 
the economy has been shifting away from industrial production toward 
services and the newer digital opportunities.
    Among the efficiency initiatives of the 1970s, two in particular 
endured for several decades: CAFE in the auto sector and the Public 
Utility Regulatory Policies Act (PURPA) in the electric sector.
    While there has long been argument over the cost-effectiveness of 
the fuel-economy standards compared to other policy choices, it is 
generally accepted that our oil use and therefore our oil imports would 
be higher today had we not had such a policy. Of course, now the 
standards are being redesigned and tightened.
    PURPA, another part of the 1978 Carter Energy Act, required 
electric utilities, when adding generation, to buy power from 
cogeneration facilities and small renewable sources, when the cost 
estimates did not exceed new conventional generation, a determination 
made by each State. Today, we are still trying to encourage greater 
acceptance of combined heat and power systems for which Congress 
recently added incentives.
    PURPA also sought to encourage States to reexamine how they 
regulated prices with a view toward achieving more efficient end use. 
In recent years, the Federal Energy Regulatory Commission and several 
States have tried a number of pricing formulations to encourage peak 
shaving and more persistent end-use conservation.
    The fuller story of the 1970s includes a number of other efficiency 
policies such as tax credits for home insulation and weatherization for 
the poor.
    Today there is far wider agreement that we still have considerable 
potential for efficiency gains that can reduce oil dependency, reduce 
carbon dioxide (CO2) emissions, and contribute to a 
competitive 21st century economy.
    Many studies have identified cost-effective possibilities 
throughout our economy, but we have learned over the years that there 
are many barriers to achieving such gains. Consequently, a number of 
policies have been put in place and are under consideration now in 
Congress: performance standards, tax incentives, Government purchase 
policies, public information systems, and so on. As we adopt 
regulation, however, we should not lose sight of the power of price to 
help drive innovation, speed the adoption of efficiency technologies, 
and change our habits.
    Today, the digital revolution is empowering us to manage energy use 
in our homes, businesses, commercial buildings--in every aspect of our 
economy--with real-time knowledge about how much energy we are using, 
its changing costs, and how our usage compares to best practices. Much 
of this ``management'' can be automated to reduce the decisionmaking 
burden many consumers want to avoid. Several years ago, the Electric 
Power Research Institute tagged this possibility as ``prices to 
devices.'' Digitalization is improving the efficiency of the energy 
industry itself. ``Smart grid'' is all about operating the electric 
grid more efficiently and reliably as well as empowering customers to 
more efficiently manage their needs.
    Modernizing our technology not only should help us meet our energy 
needs and reduce our carbon emissions, it is likely to prove essential 
for a modern, competitive economy. But, with digitalization, of course, 
comes the new challenge of cyber security.

                          THE CARBON CHALLENGE

    We are now grappling with how we should change and indeed, 
transform, our energy system to deal with global warming over decades 
ahead. Significantly cutting emissions of GHGs is a daunting 
challenge--global in scope, reaching deep into our economy, and 
requiring a long-term focus.
    In the United States and elsewhere there are major public and 
private efforts underway to change the way we produce and use energy. 
Many incentives have been put in place to advance energy efficiency, 
renewables and lower-carbon fuels, and to develop potentially critical 
technologies such as carbon capture and storage and advanced nuclear 
reactors.
    Currently under consideration are options for how to restrict GHG 
emissions, especially CO2. A number of countries have 
adopted regulatory policies, as have several American States. The hard 
challenge is to design a policy framework or architecture which will 
hold up over many years and change our economy in the most cost-
effective way.
    At this time, we appear to have a choice between two broad 
strategies: (1) put a rising price on carbon, or (2) regulate emitters 
of carbon under the current provisions of the Clean Air Act. Pricing 
carbon, of course, can be accomplished either by adopting a tax that 
rises over time or adopting a cap on emissions with allowance trading--
or some combination of the two. Either strategy--pricing carbon or 
regulating emitters--can put us on a path to cut emissions; both will 
spur some level of technological innovation.
    Most economists and many policy analysts, however, believe the 
pricing option is superior in terms of finding the least-costly 
emissions reductions and providing incentives for continuous 
technological innovation.
    Of course, in judging either strategy it is critical to know the 
details where the devil and angels reside. In pursuing such a long-term 
challenge requiring persistent policy, there are a few, perhaps 
obvious, lessons from our previous experience.
  --We should pursue a portfolio of fuels and technologies--indeed, a 
        portfolio of policies. This is a basic conclusion of multiple 
        studies by multiple groups. Do not put all our eggs in a few 
        baskets, as the saying goes.
  --We should periodically conduct major assessments of the 
        effectiveness of our policies--perhaps every 4 or 5 years. Such 
        evaluation should not only be done inside the Government, but 
        also independently of the Government. This subcommittee and 
        other congressional committees, naturally, will need to 
        continue their critical oversight role.
  --And, whenever possible in policymaking, we should capitalize on the 
        dynamism competitive markets can provide in meeting our policy 
        goals.

                      APPENDIX: RELEVANT RESEARCH

Forthcoming Study--Toward a New National Energy Policy--Assessing the 
        Options
    Early this summer, Resources for the Future (RFF) will be 
presenting findings from its study entitled Toward a New National 
Energy Policy--Assessing the Options, funded by the George Kaiser 
Family Foundation. The main study report is designed to offer a 
thorough evaluation of the effectiveness and cost-effectiveness of a 
variety of energy policy alternatives, in order to provide 
decisionmakers with a clear basis on which to develop an overarching 
national energy policy that deals with the twin challenges of oil 
security and climate change.
    In particular, the study uses the Department of Energy's National 
Energy Modeling System to examine and score on an ``apples-to-apples'' 
basis a variety of policies designed to spur reductions in oil 
consumption and greenhouse gas emissions in the United States. The 
report is being developed in collaboration with the National Energy 
Policy Institute (NEPI), and draws on several technical and background 
papers commissioned by RFF and NEPI.
    Each technical paper focuses on a type of policy investigated in 
the study, including:
  --Transportation policies such as fuel taxes, fuel economy standards, 
        and feebates, as well as an emphasis on liquefied natural gas-
        fueled heavy trucks;
  --Policies to promote deployment of hybrid, plug-in hybrid, and 
        electric vehicles;
  --Energy efficiency policies, such as building codes and subsidies 
        versus financing of geothermal heat pumps;
  --Carbon pricing policies (both cap-and-trade systems and carbon 
        taxes);
  --Policies such as clean energy portfolio standards that mandate 
        electricity generation from renewables and other lower-carbon 
        sources; and
  --Policies (loan guarantees) to spur expansion of nuclear power 
        generation.
    (Some of the above policies are examined with and without newly 
expanded resources of natural gas.)
    The report launch is currently scheduled for late June 2010, at 
which point a comprehensive Executive Summary will also be available.
Recent RFF Research on Energy and Climate
    Recent RFF research addresses a number of questions central to the 
development of climate and energy policy. Topics include:
            Options for Regulating Greenhouse Gases Through the Clean 
                    Air Act
    Greenhouse Gas Regulation under the Clean Air Act: Structure, 
Effects, and Implications of a Knowable Pathway, Nathan Richardson, 
Arthur G. Fraas, Dallas Burtraw RFF Discussion Paper 10-23, April 2010
            The Economic Impacts on U.S. Industries From Placing a 
                    Price on Carbon
    Impact of Carbon Price Policies on U.S. Industry, Mun Ho, Richard 
D. Morgenstern, and Jhih-Shyang Shih RFF DP 08-37, December 2008
            The Regional and Distributional Impacts of Different 
                    Allowance Allocation Approaches
    The Incidence of U.S. Climate Policy: Alternative Uses of Revenues 
from a Cap-and-Trade Auction, Dallas Burtraw, Richard Sweeney, Margaret 
A. Walls RFF DP 09-17-REV, June 2009
            The Relative Merits of a Carbon Tax Versus a Cap-and-Trade 
                    Approach
    Should the Obama Administration Implement a CO2 Tax? Ian 
W.H. Parry, RFF IB 09-09, April 2009
            The Impact of a Price Collar on Greenhouse Gas Emissions 
                    and the Costs of Climate Policy
    A Symmetric Safety Valve, Dallas Burtraw, Karen Palmer, and Danny 
Kahn RFF DP 09-06, February 2009
    Alternative Approaches to Cost Containment in a Cap-and-Trade 
System Harrison Fell, Richard D. Morgenstern, RFF DP 09-14, April 2009
            The Economic and Legal Implications of Different Approaches 
                    to Protecting Energy-intensive, Trade-sensitive 
                    U.S. Industries Under a U.S. Carbon Policy
    Comparing Policies to Combat Emissions Leakage: Border Tax 
Adjustments versus Rebates, Carolyn Fischer and Alan Fox, RFF DP 09-02, 
February 2009
            The Long-term Effect of Newly Increased U.S. Natural Gas 
                    Supplies on Carbon Emissions
    Natural Gas: A Bridge to a Low-Carbon Future? Stephen P.A. Brown, 
Alan J. Krupnick, Margaret A. Walls RFF IB 09-11, December 2009
            The Potential Role of Tropical Forests as a Source of 
                    Offsets
    Forest Carbon Index: The Geography of Forests in Climate Solutions, 
Adrian Deveny, Janet Nackoney, Nigel Purvis, Mykola Gusti, Raymond J. 
Kopp, Erin Myers Madeira, Andrew R. Stevenson, Georg Kindermann, Molly 
K. Macauley, Michael Obersteiner, RFF Report, December 2009
            The Effects of Cellulosic Fuel Mandates on U.S. Timber 
                    Markets
    The Implications of Increased Use of Wood for Biofuel Production, 
Roger A. Sedjo, Brent L. Sohngen, RFF IB 09-04, June 2009
            The Cost-Effectiveness of Energy Electricity Efficiency 
                    Programs
    Cost-Effectiveness of Electricity Energy Efficiency Programs, Toshi 
Arimura, Richard G. Newell, Karen L. Palmer, RFF DP 09-48, November 
2009
Other Relevant Studies
            Published Studies:
    Council on Foreign Relations. 2006. National Security Consequences 
of U.S. Oil Dependency. Washington, DC: Council on Foreign Relations. 
www.cfr.org/content/publications/attachments/EnergyTFR.pdf
    Deutch, John and Ernest Moniz, co-chairs. 2003. The Future of 
Nuclear Power. Cambridge, MA: Massachusetts Institute of Technology. 
http://web.mit.edu/nuclearpower/pdf/nuclearpower-summary.pdf
    Deutch, John and Ernest Moniz, co-chairs. 2007. The Future of Coal. 
Cambridge, MA: Massachusetts Institute of Technology. http://
web.mit.edu/coal/The_Future_of_Coal.pdf
    National Commission on Energy Policy. 2004. Ending the Energy 
Stalemate. Washington, DC: National Commission on Energy Policy. http:/
/bipartisanpolicy.org/library/report/ending-energy-stalemate. Note.--A 
number of other topical studies are available on the NCEP Web site.
    National Petroleum Council. 2007. Hard Truths: Facing the Hard 
Truths About Energy. Washington, DC: National Petroleum Council. http:/
/www.npchardtruthsreport.org/
    National Research Council. 2009. America's Energy Future: 
Technology and Transformation. Washington, DC: National Academies 
Press. http://sites.nationalacademies.org/Energy/index.htm
    Revis James, Richard Richels, Geoff Blanford and Steve Gehl. 2007. 
The Power to Reduce CO2 Emissions: The Full Portfolio. Palo 
Alto, CA: Electric Power Research Institute. MERGE/PRISM analysis 
available at http://mydocs.epri.com/docs/public/000000000001019563.pdf
            Forthcoming Studies:
    Deutch, John, Chair. The Future of Solar Energy. Cambridge, MA: 
Massachusetts Institute of Technology. http://web.mit.edu/mitei/news/
spotlights/solar-future.html
    Kazimi, Mujid and Ernest Moniz, co-chairs. The Future of the 
Nuclear Fuel Cycle. Cambridge, MA: Massachusetts Institute of 
Technology. http://web.mit.edu/canes/research/fuelcycle.html
    The National Academies. America's Climate Choices. http://
americasclimatechoices.org/

    Senator Dorgan. Mr. Sharp, thank you very much.
    Mr. Fri, you may proceed.

STATEMENT OF ROBERT W. FRI, PAST PRESIDENT AND VISITING 
            SCHOLAR, RESOURCES FOR THE FUTURE
    Mr. Fri. Thank you, Mr. Chairman. It is really a pleasure 
and an opportunity to appear before you today.
    And what I would like to do is spend the next few minutes 
summarizing my full statement and focusing on the role of 
technology change in the energy policy portfolio. In doing so, 
I am going to draw extensively on a number of National Research 
Council studies in which I have participated happily, including 
America's Energy Future. But the views I express are, of 
course, my own.
    We all know that from the time of the first OPEC oil 
embargo nearly 40 years ago, the United States has looked to 
technology for solutions to its energy problems. In fact, the 
first Government reports to recommend an energy research and 
development agenda appeared within a few weeks of that 1973 
event.
    But despite this evergreen promise of technology solutions, 
today's energy system is not very much different from the one 
that we had 40 years ago. It still relies on fossil energy, and 
the transportation sector is still dominated by the use of 
petroleum.
    Now, the system has become considerably cleaner and more 
efficient over the past 40 years, and Federal energy R&D has 
made a positive, although modest, contribution to this 
evolutionary change in the system. But the record is uneven. A 
2001 study by the National Research Council of DOE's applied 
research programs showed that a very few, inexpensive programs 
produced large economic benefits while some very expensive 
demonstration programs produced no benefit at all.
    Well, although the record of the last 40 years, therefore, 
may leave something to be desired, I think it has taught us 
several valuable lessons about what the Government can do to 
accelerate technology change, and I would like to focus on how 
that might happen.
    Now, perhaps the most important lesson is that unless the 
Nation responds affirmatively and aggressively to the 
challenges of energy security and climate change, the energy 
system of the future will look a lot like the energy system of 
today. It will be cleaner, again, probably more efficient, but 
fossil fuels, as Phil Sharp has just pointed out, will continue 
to be convenient and markets will work and will still rely 
pretty much on the same fuels we have today.
    And, Mr. Chairman, if you look at that wonderful chart you 
had of the transitions from coal to oil and so forth and ask 
why those transitions took place, it was not because we 
preferred coal over wood or oil over coal. It is because we 
like cars better than horses. There was a societal reason 
driving change in the system. And that societal reason today 
that could drive fundamental change is going to look a lot like 
climate change and energy security.
    But more of the same is not destiny because technology is 
capable of making this fundamental change, as the Secretary 
pointed out in referring to the America's Energy Future study. 
So the potential is there to make the change. The challenge of 
doing so is immense, and so the key question is, what can the 
Government do to accelerate technology change in the energy 
system? And building on the lessons of the past, four 
strategies seem to me to be particularly important.
    First, as I have already said and others have said, align 
private incentives with public goals. Innovation, which is what 
we are talking about here, is a complex function of the private 
sector and, as such, innovation works best when it is 
economically rewarded in private markets. And experience 
strongly suggests that rewarding private sector activity that 
also produces a public good is the most powerful strategy for 
technology change, and I seriously doubt that an overhaul of 
the energy system will take place without such a reward.
    Second, it is important to support purpose-driven, 
fundamental research. Virtually all authorities agree that 
funding fundamental research is an appropriate function of 
government, but beyond that, it is essential for driving 
technology change because it sets the table for innovation in 
the private sector in ways that we cannot really predict. But 
the research needs to be focused on basic problems which, if 
solved, would create fundamental change in the energy system. 
For example, the development of artificial photosynthesis would 
revolutionize the capture and storage of solar energy, and it 
seems to me that Secretary Chu's new ideas for organizing the 
research program at DOE are pointed very much in that 
direction.
    Third, limit the applied research programs to overcoming 
well-defined market barriers. Unlike basic research, DOE's 
applied research program, that is, its fossil, efficiency, 
renewable, and nuclear programs, focuses on fairly well defined 
technologies. And experience suggests that in designing 
programs of applied research, the Government should observe two 
prerequisites. First, there must be a reasonable chance of 
adoption in the existing private market, and second, the 
Government intervention should focus tightly on removing well-
defined barriers in the way of getting to that market. And that 
is evidence drawn from the National Research Council study 
where we looked back at 40 or so of these programs, and that is 
what characterized success.
    Finally, invest with great care in technologies that do not 
yet have markets. In the past, Government energy research 
programs have invested pretty heavily in such technologies, the 
synthetic fuels program of the late 1970s, for example. Often 
the costs are high and the record of success is poor. Now, that 
is not to say the Government should avoid investing in 
insurance policies, only that it should do so with its eyes 
open. And Secretary Chu pointed out that the America's Energy 
Future study strongly recommends that moving ahead to 
demonstrate new nuclear technology and carbon capture and 
storage by 2020 is really important. We should do that. It is 
going to be expensive. It is possible that some of that money 
will not prove to be successful, but nevertheless important to 
do, and I fully support that recommendation.

                           PREPARED STATEMENT

    Well, that is a very brief overview of a complex topic, Mr. 
Chairman, and I look forward to your questions. Thank you.
    [The statement follows:]

                  Prepared Statement of Robert W. Fri

             REFLECTIONS ON 40 YEARS OF U.S. ENERGY POLICY

    Mr. Chairman, thank you for the invitation to testify today about 
my reflections on the last 40 years of energy policy and my assessment 
of the implications of that history for future policy. It's a large 
question and I want to focus my comments on one important part of it--
technological change.
    From the time of the first OPEC oil embargo nearly 40 years ago, 
the United States has looked to technology for solutions to its energy 
problems. Indeed, the first Government reports to recommend an energy 
research and development agenda appeared within weeks of that 1973 
event. In 1975, President Ford established the Energy Research and 
Development Administration, pulling together energy research programs 
scattered across the Federal landscape. In late 1977, ERDA became part 
of the new Department of Energy. And today, energy R&D remains a major 
element of DOE's mission, and of the administration's energy policy.
    But despite the evergreen promise of technology solutions, the 
history of Federal energy R&D has been full of twists and turns in both 
program goals and management philosophy. President Nixon opted for 
energy independence. President Carter created the first National Energy 
Plan and with it, the Synthetic Fuels Corporation. Presidents Reagan 
and Bush preferred a more modest effort focused on precompetitive 
research and avoided large demonstration programs altogether. President 
Clinton favored efficiency and renewable energy programs, while 
reducing the nuclear budget at DOE to near zero. The second President 
Bush attempted to reverse some of the Clinton priorities, and laid 
management emphasis on achieving tangible results from Federal R&D. At 
the National Academies' Summit on America's Energy Future in 2008, 
Senator Jeff Bingaman summarized in the attached image these stops and 
starts of energy technology policy over this period.
    Although this record leaves a lot be to desired, I believe it has 
taught us several valuable lessons. Today I'd like to focus on the 
lessons that seem to me to be most important, and then on what they can 
tell us about how the Federal Government might approach energy 
technology policy in the future. In doing so, I will rely on several 
National Research Council reports in which I've participated over the 
last dozen years. While these reports are exceedingly valuable sources, 
I should stress that the views I will express are my own.

                            LESSONS LEARNED

    First, energy security and a clean environment are the overarching 
goals for energy policy, and hence for energy R&D. There are other 
desirable attributes of the energy system, such as reliability and 
affordability, but the private sector has substantial regulatory and 
economic incentives to provide them. But energy security and 
environmental goals dominate energy policy in two crucial ways. First, 
they are public goods, hard for the private sector to provide and so 
appropriate subjects for public policy. And second, unlike the more 
modest goals like affordability, meeting these overarching goals may 
well require a total overhaul of the energy system.
    Energy security and a stable climate share another important 
characteristic. It's easy to see what needs to be done to meet them, 
but hard to decide how much to do. Thus, energy technology enhances 
energy security largely reducing the economy's dependence on oil the 
economy from all sources. Similarly, limiting future climate change 
requires greatly reducing the emission of carbon dioxide from the 
energy system. These strategies are clear and their costs are real. On 
the other hand, it's very hard to calculate the benefits of greater 
energy security or a more stable climate. As a result, policy makers 
face a difficult choice in balancing fairly certain costs against 
uncertain risks in deciding how to much oil or carbon dioxide to carve 
out of the system.
    I dwell on this policy dilemma because it's easy to fall into the 
trap of doing nothing while waiting for science to provide some kind of 
optimal level of action. Waiting is not a strategy, and as I'll mention 
next, we've been doing a lot of waiting around when it comes to energy 
policy.
    Second, today's energy system is cleaner and more efficient, but 
not fundamentally different, from the one we had 40 years ago. The 
Clean Air Act has driven a significant improvement in air quality 
associated with energy system emissions. For example, EPA reports \1\ 
that between 1980 and 2008 national average atmospheric concentrations 
of sulfur dioxide has decreased by 71 percent, of nitrogen dioxide by 
46 percent, and of ozone by 25 percent. Concentrations of particulate 
matter (PM10) declined 31 percent between 1990 and 2008, while 
concentrations of the smaller PM2.5 particles dropped 19 
percent between 2000 and 2008. These reductions were achieved despite 
an economy that more than doubled in size.\2\
---------------------------------------------------------------------------
    \1\ At http://www.epa.gov/airtrends/sulfur.html.
    \2\ Despite this considerable progress, more remains to be done. A 
2009 NRC report, The Hidden Costs of Energy, evaluates the damages from 
air pollution in the electric and transportation sectors caused by 
remaining pollution.
---------------------------------------------------------------------------
    The story on energy efficiency is similarly positive. EIA reports 
that the energy intensity of the U.S. economy \3\ declined by 51 
percent between 1973 and 2008, a substantial fraction of which can be 
attributed to improvements in energy efficiency (the balance is 
attributable to a structural economic shift from a manufacturing base 
of activities to a services base). The improvement was most dramatic in 
the consumption of petroleum and natural gas, where the intensity of 
these fuels dropped by 60 percent. Oil use alone fell by the same 
amount, arguably enhancing energy security by reducing national 
dependence on oil. The intensity of fuels connected with electricity 
use (coal, nuclear, renewables) fell less--by nearly 23 percent between 
1973 and 2008, and by 31 percent from its peak in 1983.
---------------------------------------------------------------------------
    \3\ Measured as quadrillion Btu of energy used per 2005 dollars of 
GDP; see http://www.eia.doe.gov/emeu/mer/pdf/pages/sec1_16.pdf.
---------------------------------------------------------------------------
    But if the energy system has become cleaner and more efficient over 
the past 40 years, it is not much different. Importantly, the system 
still depends almost entirely on fossil fuels. In 1973, fossil fuels 
accounted for almost 93 percent of energy use in the United States.\4\ 
By 2008, this fraction had dropped to 84 percent. However, the growth 
of nuclear power accounts for the entire decline. During this same 
period, the near monopoly of petroleum fuel in the transportation 
sector changed hardly at all, from 96 percent in 1973 to 94.5 percent 
in 2008.\5\
---------------------------------------------------------------------------
    \4\ See http://www.eia.doe.gov/emeu/aer/pdf/pages/sec1_9.pdf.
    \5\ See http://www.eia.doe.gov/emeu/aer/pdf/pages/sec2_10.pdf.
---------------------------------------------------------------------------
    An important corollary to this continuing reliance on fossil fuels 
is that the basic technology of energy production and use has not 
changed much in 40 years. The internal combustion engine and the fossil 
fuel powerplant still dominate the system. That these technologies 
produce considerably fewer air pollutants is a tribute to increased 
efficiency and post-combustion clean-up devices, not to the deployment 
of a fundamentally cleaner way of making energy.
    Third, Federal energy R&D has made a positive but modest 
contribution to changing the energy system. Since the consolidation of 
energy research into a single agency during the Ford administration DOE 
has been responsible for most of the Government energy R&D program. 
Between 1978 and 2009, DOE budgets added up to well over $100 billion 
on energy R&D (2000$). And since Government polices--from R&D cost-
sharing to environmental regulation to tax incentives--strongly 
influence the allocation of private investment in energy R&D, the 
Federal Government has probably been the single largest force in U.S. 
energy R&D expenditures since 1978. This despite the fact that, 
adjusted for inflation, the total level of DOE-sponsored energy R&D 
sponsored in 2010 is one-half of what it was in 1980.
    But what has this expenditure achieved? In 2001 the National 
Research Council published one of the few independent evaluations of 
the results produced by some of these R&D programs.\6\ The review was 
limited to DOE's energy efficiency and fossil energy programs, and 
looked back at the benefits and costs of those programs over the first 
25 years of DOE's existence. The net result of this evaluation 
indicated that DOE had made positive contributions to the changes in 
the energy system. In particular, the aggregate economic and 
environmental benefits attributable to these DOE programs exceeded the 
Government's total costs by a factor of more than two.
---------------------------------------------------------------------------
    \6\ National Research Council, Energy Research at DOE: Was It Worth 
It? Energy Efficiency and Fossil Energy Research 1978 to 2000, 2001. 
The summary benefit cost assessment on which this section is based is 
found at p. 6 of the report.
---------------------------------------------------------------------------
    But this broad conclusion obscures a more complex dynamic. To 
paraphrase the study's conclusions:
  --Almost all the benefits came from four programs--three that 
        introduced new energy efficiency technology to large consumer 
        markets (more efficient fluorescent light ballasts, more 
        efficient windows, and more efficient refrigerators), and one 
        that resulted in a major reduction in damages from 
        NOX emissions through the use of low NOX 
        burners and selective catalytic reduction. It is worth noting 
        that the total Federal cost of the three efficiency programs 
        was only $12 million, although they produced $30 billion in 
        economic benefits.
  --The large realized benefits accrued in areas where significant 
        market barriers existed. For example, the building market is 
        fragmented and not conducive to innovation in energy 
        efficiency. And the NOX reduction produces an 
        environmental benefit that private markets cannot easily 
        capture. Public funding would be expected to have considerable 
        leverage in removing these barriers.
  --Other programs produced important but smaller benefits. In all such 
        cases, however, the report observed that DOE participation took 
        advantage of private sector activity to realize an additional 
        public benefit. In other words, getting the public benefit 
        depended on the existence of a private market for the 
        underlying technology. (In the case of NOX controls, 
        that market was established by the Clean Air Act and subsequent 
        Federal requirements for NOX controls on all new 
        power plants.)
  --In contrast, Government attempts to force introduction of new 
        technologies for which there is no private market have rarely 
        been successful. In this connection, the NRC study pointed 
        especially to the large synthetic fuels demonstration programs 
        that the Government undertook in the 1970s and early 1980s, but 
        which produced no tangible benefit.
    A number of technological advances in the energy system did in fact 
take place between 1978 and 2000, but the private sector was the 
principal source of technological innovation. The NRC study selected 23 
of the most important innovations in fossil energy and energy 
efficiency during this period and determined the level of DOE 
contribution to their development. In only three cases was DOE research 
the dominant factor, while in 13 cases DOE's influence was absent or 
minimal. In the remaining 7 cases, DOE made an influential but not 
dominant contribution.
    Finally, Innovation is More Than RDD&D.--From the beginning, it was 
understood that Government energy R&D had to develop products that 
would meet public policy goals by succeeding in the marketplace. This 
imperative thus raised the issue of how to design a Government program 
that would lead to private sector commercialization of new technology 
that had a public benefit. To resolve that issue, we needed a model of 
the commercialization process we wanted to influence.
    At the outset, we picked the wrong model (I say ``we'' because I 
helped get it wrong). We borrowed from the Defense Department and NASA 
the standard model for Government product development--Research, 
Development, and Demonstration--and added a third ``D''--Deployment. 
Unfortunately, the linear RDD&D model has had staying power, and indeed 
still sometimes appears in DOE's program designs. But it's not the 
right model.
    A more useful model is the innovation process that routinely takes 
place in the private sector, because that is the process that DOE 
research needs to influence. Studies of this model \7\ show that the 
innovation process is not neatly linear but messy; it is incremental, 
integrative, and cumulative. Innovators tend to take small, incremental 
steps to minimize the already considerable risk they are assuming in 
trying to develop a new product. They integrate ideas from a variety of 
sources, assembling them into an innovative product. And over time, 
these incremental steps cumulate into major--even disruptive--changes 
in technology. An excellent example of how this process has worked in 
the energy system is the introduction of the aeroderivative turbine for 
electricity generation. The basic technology was developed for defense 
programs to power aircraft, then borrowed from the aerospace industry, 
and ultimately adapted to electric generation applications to become a 
very energy efficient powerplant. The improved technology was so 
successful that for a time it dominated investments in new powerplants. 
And although this final result may have seemed like breakthrough 
technology, it was really a borrowed idea integrated into the energy 
system and improved incrementally over time.
---------------------------------------------------------------------------
    \7\ For a summary of this research see, for example, Robert W. Fri, 
The Role of Knowledge: Technological Innovation in the Energy System, 
The Energy Journal, Vol.24:4.
---------------------------------------------------------------------------
    It is also useful to see this innovation step as a part of a 
broader process of technological change. Rubin \8\ describes the change 
process in four steps--invention, innovation, adoption, and diffusion. 
Invention involves the generation of the new scientific and 
technological ideas that set the table for innovation. The adoption 
step carries an innovative product into the marketplace. Diffusion 
happens as the product expands its markets, importantly due to learning 
than reduces costs and improves performance. Finally, it's important to 
note that both the innovation step and the whole change process are 
intensely recursive. Feedback loops and trial-and-error abound in this 
world until the innovator finally ``gets it right'' or loses his shirt.
---------------------------------------------------------------------------
    \8\ E.S. Rubin, ``The Government Role in Technology Innovation: 
Lessons for the Climate Change Policy Agenda,'' Proceedings of the 10th 
Biennial Conference on Transportation Energy and Environmental Policy, 
Institute of Transportation Studies, University of California, Davis, 
Davis CA.
---------------------------------------------------------------------------
                             LOOKING AHEAD

    Against this background, what can we say about the future of the 
Federal energy R&D programs? Addressing this key issue posed by this 
subcommittee--requires answering four questions.
    Should the Energy System Change in a Fundamental Way?--As noted 
earlier, the existing energy system is cleaner and more efficient, but 
not really different, from the one that existed in 1973. Looking 
forward, however, taking energy security and climate change seriously 
would mean decarbonizing the energy system and drastically cutting the 
Nation's dependence on oil. And that, of course, would require a 
wholesale change in the existing energy system.
    As noted in the first lesson discussed above, the benefits of 
limiting climate impacts and enhancing energy security are real, but 
hard to pin down. The costs of a wholesale change in the energy system 
are real and potentially large. While economists have tried to quantify 
these values, unfortunately, science can't provide a clear balancing of 
the benefits and costs. Deciding how much climate change and how much 
oil use is acceptable are thus both crucial judgment calls.
    My own view is that the benefits are real and potentially much 
larger than the costs of change. If I'm right, we should be planning 
for a major change in the energy system. If not, continuing the 
incremental improvements that have characterized the last 40 years is 
probably good enough and we will simply accept and adapt to whatever 
future climate change and oil price shocks may occur.
    What Will the Future Energy System Look Like?--Unless the Nation 
responds aggressively to the challenges of energy security and climate 
change, the energy system of the future will look very much like the 
one of today. It will be cleaner as environmental regulations continue 
to tighten, and increasingly efficient as old capital stock turns over. 
But electricity will continue to be produced mostly by burning fossil 
fuels, and most light duty vehicles will continue to rely on gasoline. 
Renewable sources of electricity, alternative transportation fuels, and 
electric vehicles--pure or hybrid--will slowly gain market share. 
However, using fossil fuels will continue to be convenient and 
relatively cheap, so a fundamental change in the energy system is 
unlikely for a long time to come.
    But more of the same is not destiny, for technology is capable of a 
fundamental change if we decide we want one. A recent NRC study, 
America's Energy Future (AEF), assessed the potential \9\ of available 
(or nearly available) technology to change the energy system. Its key 
conclusions were:
---------------------------------------------------------------------------
    \9\ National Research Council, America's Energy Future: Technology 
and Transformation, 2009. In the AEF study, potential is defined as the 
maximum deployment of a technology with an aggressive (but not crash) 
program, and in the absence of any barriers to deployment.
---------------------------------------------------------------------------
  --Efficiency measures can reduce energy consumption by 15 percent by 
        2020 and by another 15 percent by 2030. These reductions would 
        more than offset the projected increase in energy consumption 
        in the EIA 2007 reference case.
  --Renewable energy sources, coal or natural gas-fired powerplants 
        with carbon capture and storage, and new nuclear power could 
        completely replace the existing electric power production 
        system by 2035.
  --Substantial opportunities to reduce fuel use in transportation 
        exist, but liquid fuels made from biomass or coal have a 
        limited potential to displace oil before 2035. Further 
        reduction of oil use will require a new generation of vehicles, 
        probably powered with electricity or hydrogen.
    While this technical potential is impressive, optimism about 
actually realizing it should be guarded. A multitude of market 
imperfections, regulatory obstacles, and behavioral barriers stand in 
the way of reaching anything like the full potential. In addition, 
while AEF judged that carbon capture and storage and new nuclear 
technologies could be deployed in large quantity after 2020, it also 
noted that both technologies need first to be proved in the United 
States at commercial scale before attracting significant private 
investment--and we are only beginning to take the steps necessary for 
this purpose.
    Finally, even if the technical potential reported in AEF were to be 
reached, the energy system would still depend largely on old 
technology, especially for electricity production. Moreover, AEF 
concludes that the cost of electricity would rise with any of the new 
production technologies. And new technology to reduce oil consumption 
in the transportation sector would be required, as noted earlier. For 
all these reasons, it seems likely that technologies that are yet to be 
invented must enter the energy system by 2035, and certainly beyond, if 
we are to have truly clean, efficient, and affordable energy system.
    What can Government do to Accelerate Technological Change in the 
Energy System?--As discussed earlier, the experience of the last 40 
years has provided a clearer picture of how Government policy can 
accelerate technological change in the private sector. Building on this 
experience, four strategies seem to me to be especially important in 
crafting this policy.
    Align Private Incentives With Public Goals.--Innovation is a 
complex function of the private sector and as such innovation works 
best when it's economically rewarded in private markets. Indeed, 
experience strongly suggests that rewarding private sector activity 
that also produces a public good is the most powerful strategy for 
technological change. I seriously doubt that an overhaul of the energy 
system will take place without such a reward.
    Both price signals and regulation can provide the necessary 
incentive. A price signal is usually more directly linked to the 
desired outcome (increasing the price of carbon directly affects 
CO2 production, for example) and, if applied economy-wide, 
engages the maximum range of innovative activity. Regulation can also 
have a potent effect, as has been the case with refrigerator efficiency 
and light duty vehicles, but runs the danger of unintended side 
effects. Arguably, efficiency standards for light duty vehicles both 
substantially reduced fuel consumption for the target vehicles, but 
also helped to induce a vast market for unregulated trucks posing as 
sports utility vehicles.
    Fund Purpose-driven Basic Research.--Virtually all authorities 
agree that funding basic research is an appropriate function of 
Government, and it is an essential one for changing the energy system 
for two reasons. As noted above, we need wholly new technologies create 
an energy system that is affordable and effective, particularly in 
reducing oil consumption. In addition, because innovation is an 
integrative process, it needs a robust menu of scientific and 
technological research on which to draw. Basic research thus sets the 
table for innovation in ways that cannot be predicted.
    But this research needs to be plausibly connected to desired 
outcomes for the energy system. Broadly speaking, this connection can 
be made in two ways. One is to focus research on problems which, if 
solved, would create fundamental changes in our energy options. For 
example, artificial photosynthesis could revolutionize the capture and 
storage of solar energy. Similarly, basic advances in catalysis could 
greatly increase the attractiveness of carbon capture, especially if it 
promoted the retrofit of existing power plants. The second general 
approach is to encourage the application of diverse disciplines to 
energy problems. Both genomic engineering and nanotechnology could make 
important contributions to energy, although neither was developed with 
energy in mind.
    Focus Applied Research to Overcoming Well-defined Market 
Barriers.--Unlike basic research, DOE's applied research (its fossil, 
efficiency, renewable, and nuclear programs) focuses on fairly well-
defined technologies. In some cases, such technologies have a 
reasonable chance of market success if they meet attainable technical 
and commercial goals.
    If a technology has a reasonable chance of market adoption, and if 
its adoption would also help achieve a public policy goal, then the 
Government has an interest in its success. Energy efficiency 
technologies often combine these attributes, for example. The NRC 
retrospective study noted earlier provides persuasive evidence that 
Government support of such technologies can be very effective if it is 
directed toward removing a well-defined barrier standing between the 
technology and the marketplace. The barrier may be a technical problem 
that an innovator is unable to solve, or it may be a problem of market 
structure. Many barriers to efficiency technologies are of the latter 
type.
    In short, while designing programs of applied research is as much 
art as science, Government policy should observe two prerequisites. 
First, there must be a reasonable chance of adoption in an existing 
market. And second, the Government intervention should focus sharply on 
removing well-defined barriers in the way of getting to that market.
    Invest With Great Care in Technologies That Do Not Yet Have 
Markets.--In the past, Government energy research programs have 
invested heavily in such technologies--the synthetic fuels program of 
the late 1970s, for example. The rationale for these investments is 
usually that, although not competitive now, the technology in question 
will be needed in the future to meet public policy goals. 
Unfortunately, such programs usually don't work out very well. The 
market turns out not to materialize, or if it does, it addresses the 
problem in ways that Government programs did not foresee. Thus, the 
crash of oil prices in the 1980s--and not the synthetic fuels program--
solved the looming oil crisis of the late 1970s. Similarly, reductions 
in SOX emissions required by the Clean Air Act amendments of 
1990 were achieved initially by transporting low sulfur coal to eastern 
power plants, not by flue gas desulfurization technology that almost 
all policy analysts assumed.
    This is not to say, of course, that Government should never invest 
in insurance policies, only that it should do so with its eyes open. In 
particular, the record of success is poor, and so the risk of loss is 
high. A current example will illustrate the nature of the risk. Both 
carbon capture and storage and evolutionary nuclear technology need 
demonstration at commercial scale before attracting significant private 
sector investment. But the market for both depends in a major way on 
Government policy that aggressively promotes decarbonization of 
electricity production. So the policy question is: in the absence of 
Government policy to control carbon, should Government invest in 
demonstrating CCS and evolutionary nuclear technology?
    I advocate an aggressive Government demonstration program, fully 
understanding that the result may be money wasted. But because I think 
that the Nation is likely to have an aggressive carbon policy in the 
next few years, then CCS and nuclear could have a major market and play 
an important role in meeting climate objectives. However, both are 
large and expensive technologies at commercial scale, and their 
demonstration will take several years to produce the commercial 
experience that would give confidence to investors. As a result, 
waiting to conduct the demonstration until our climate policy is 
decided would only delay getting started on the challenge of reducing 
domestic carbon dioxide emissions. On balance, therefore, it seems 
prudent to me to move urgently to demonstrate these technologies in the 
hope that one or both proves to be a winner in a world of carbon 
dioxide control. That world may not happen, and commercial experience 
with one or both technologies may prove to be disappointing, but in 
this case the risk seems worth it.
    What are the Main New Challenges for Research?--I'm confident that 
the scientists and technologists can craft a research agenda that 
expands basic research and that focuses applied research on specific 
market barriers. Indeed, Secretary Chu and his team have already 
introduced organizational innovations that seem to me to be very much 
in the right direction. So in concluding my testimony, I'd like to 
raise two issues from the social sciences that strike me as crucial to 
the success of technology change going forward.
    First, we need to know more about household energy use and consumer 
behavior. Household decisions directly determine 40 percent of total 
energy use and another 30 percent indirectly. But household decisions 
are not always made on the sole basis of economic rationality. Energy 
efficiency programs famously fall short of the level of adoption that 
so-called rational behavior suggests should be the case. Therefore, it 
seems to me that behavioral science research may be as important as 
technology R&D in promoting the use of energy efficiency.
    Second, it's clear that any program to change in a fundamental way 
the composition of the national energy system requires a sustained 
effort over a long period of time. The history of Government energy 
R&D, however, is one of twists and turns in goals and philosophy. 
Designing an energy R&D portfolio that maintains a reasonable degree of 
continuity over several decades is an extraordinary governance 
challenge, but one that needs to be addressed if the Nation is to see 
real results from its substantial investment.




    Senator Dorgan. Mr. Fri, thank you very much.
    Finally, we will hear from Dr. Eric Loewen, Dr. Loewen.

STATEMENT OF DR. ERIC P. LOEWEN, CHIEF CONSULTING 
            ENGINEER, ADVANCED PLANTS TECHNOLOGY, GE 
            HITACHI NUCLEAR ENERGY
    Dr. Loewen. Mr. Chairman, Senator Alexander, my name is 
Eric Loewen, chief consulting engineer for advanced plants at 
GE Hitachi Nuclear Energy. Thank you for the opportunity to 
testify before you today to share with you a vision for a 
cleaner, more secure energy future for America.
    Headquartered in Wilmington, North Carolina GE Hitachi 
Nuclear Energy is a world-class enterprise dedicated to serving 
the nuclear industry with over 100 years of combined 
experience, and our nuclear alliance with Hitachi is recognized 
as a world leader for boiling water reactors.
    Today let us talk about American innovation for a solution 
to three challenges that face this country: used nuclear fuel; 
excess weapons material; and clean energy. U.S. innovation has 
always led this industry.
    In 1954, Congress removed barriers to nuclear energy 
development, allowing for the commercialization of U.S. light 
water reactors which became the world standard. For the next 50 
years, U.S.-developed technologies underpinned more than 300 
plants in over 30 countries around the world.
    The next great opportunity for the U.S.-developed 
technology is the GEN IV reactor. The GEN IV reactor that I am 
most familiar with is the PRISM, a sodium-cooled reactor under 
development since 1981. The PRISM is America's sodium-cooled 
reactor developed jointly by nine U.S. companies under the 
leadership of General Electric. PRISM is the only active small 
modular reactor design that has been reviewed by the Nuclear 
Regulatory Commission. The reactor can generate electricity. It 
can consume weapons-grade material and recycle used nuclear 
fuel.
    Let me explain the vision for recycling under the context 
of the three R's: repository, reprocessing or recycling.
    The repository, which many people think of as Yucca 
Mountain, was envisioned to store today's used nuclear fuel for 
1 million years.
    The reprocessing option is widely used today in the United 
Kingdom and in France and soon in Japan. It is a process that 
extracts plutonium from used nuclear fuel with an aqueous-acid 
system and organic solvents. The recovered plutonium is made 
into fuel for water-cooled reactors. The wastes, fission 
products, and transuranics are incorporated into a glass 
requiring safe storage for 10,000 years.
    Finally, recycling simply put, turns waste into watts. This 
is an American technology we seek to commercialize from our 
Nation's national laboratories. The process recovers uranium 
and transuranics used in a molten salt bath, which become fuel 
in a sodium-cooled reactor. The wastes, just the fission 
products, are incorporated into a rock and a piece of metal 
requiring safe storage for 300 to 500 years. No pure plutonium 
is extracted. Therefore, proliferation risks are greatly 
reduced.
    Earlier this year, President Obama directed Secretary Chu 
to establish a blue ribbon commission to make recommendations 
for used nuclear fuel. GE Hitachi has requested an opportunity 
to engage the commission to discuss the benefits of recycling, 
as we are doing today with the subcommittee. We believe that 
recycling is a credible alternative to Yucca Mountain that 
deserves serious consideration by Congress and the commission.
    And some of the benefits of recycling are: first, it 
reduces the required storage time of wastes from greater than 1 
million years to hundreds of years; second, the used nuclear 
fuel can generate the U.S. electricity needs for the next 100 
years; and third, if you add in the U.S. inventory of depleted 
uranium, you can meet the electricity needs of the United 
States for close to 1,000 years.
    While GEH believes that PRISM is an excellent technology, 
we acknowledge that it is not the only technology and we 
encourage Congress and the commission to embrace the concept of 
recycling rather than a particular technology. GEH supports 
establishing recycling projects in regions where the reactors 
stand and where consumers have paid into the Nuclear Waste 
Fund.
    GEH believes that in order to sustain a long-term 
development of full recycling, the United States must learn 
from the United Kingdom, France, and Japan regarding best 
practices from reprocessing. But we must also stand on our own 
to develop full-recycling technology and the following will 
reduce the risks to get there.
    First, we should competitively award industry-led licensing 
projects for the sodium-cooled reactors.
    Second, reenergize the domestic manufacturing base by 
competitively awarding the manufacture and siting of two sodium 
recycling reactor vessels to support that licensing effort.
    And third, allow for the use of sodium-cooled recycling 
reactors to use weapons-grade materials to generate 
electricity.
    Our current challenges of finding a waste solution and 
disposing of weapons-grade materials calls for policymakers to 
take a fresh look at how to fast-track the building of a 
sodium-cooled recycling reactor to leap frog out allies leading 
to a transformational full recycling approach.

                           PREPARED STATEMENT

    That is our vision for the future.
    That concludes my remarks and I would be pleased to answer 
any questions, Mr. Chairman.
    [The statement follows:]

                Prepared Statement of Dr. Eric P. Loewen

                ADVANCING TECHNOLOGY FOR NUCLEAR ENERGY

    Mr. Chairman, Senator Alexander, and members of the subcommittee, I 
am Eric Loewen, Chief Consulting Engineer of Advanced Plants at GE 
Hitachi Nuclear Energy. Thank you for the opportunity to testify before 
you today. As you look at energy policy over the past 40 years, I have 
been asked to help you look forward--to look at the next generation of 
nuclear technology--the technology that will help the United States 
achieve energy independence, create new jobs and move toward a low 
carbon future.
    Headquartered in Wilmington, North Carolina, GE Hitachi Nuclear 
Energy (GEH) is a world-class enterprise with a highly skilled 
workforce and global infrastructure dedicated to serving the nuclear 
industry. We are proud of our record of accomplishments that spans more 
than five decades; our nuclear alliance is recognized as the world's 
foremost developer of boiling water reactors, robust fuel cycle 
products and highly valued nuclear plant services. Combining deep-
rooted experience with fresh insight, we provide light water plant 
operators with responsive reactor services to support safe, efficient 
and reliable operation.
    The Nation has already begun to witness the success of the recent 
Federal polices designed to bring about a renaissance of the nuclear 
industry in the United States. Today, with the incentives of the Energy 
Policy Act of 2005 in effect, the design and even some basic 
construction have begun on the next generation of light water reactors 
in the United States. Public support for clean, reliable nuclear energy 
is at record high levels. We have an opportunity to increase the 
percentage of electricity produced by nuclear plants above the current 
20 percent.
    My testimony today will give you an overview of how nuclear 
technology has developed over the past 40 years, the current state of 
technology in the United States and the rest of the world, and 
perspectives on where the technology might go in the 40 years to come.

           OVERVIEW OF THE DEVELOPMENT OF NUCLEAR TECHNOLOGY

    U.S. leadership in nuclear energy started in 1951 at the National 
Reactor Test Station near Arco, Idaho. This sodium-cooled reactor 
produced enough electricity to light four light bulbs. Interestingly, a 
study done for President Harry Truman in 1952 made a ``relatively 
pessimistic'' assessment of nuclear power and actually called for 
research instead in solar energy. President Eisenhower's call for 
``Atoms for Peace'' 1 year later, however, led to the initial 
indication that the Federal Government would be a strong partner in the 
development of civilian nuclear energy. The Atomic Energy Act of 1954 
removed barriers to nuclear energy development by the private sector. 
The stated purpose of the 1954 Act was to encourage widespread 
participation in the development and utilization of atomic energy for 
peaceful purposes, although nuclear materials remained under Government 
control. The new law for the first time permitted private industry to 
build and operate nuclear plants on their own initiative, and not just 
as Government contractors. GE, the first company to take advantage of 
this opportunity, built a reactor in Vallecitos, CA--the first 
commercially funded reactor in the United States. to provide power to 
the grid.
    In 1955, an early concept of a boiling water reactor developed by 
Argonne National Laboratory powered a city--Arco, ID--the first such 
use of nuclear power in the world. This U.S. technical leadership lead 
to the first generation of commercial nuclear power plants (GEN I), 
some of which are still in operation. The world's first commercial 
nuclear power plant opened in England in 1956; the first plant in the 
United States came a year later in Pennsylvania. Availability of 
adequate funding to provide compensation in the very unlikely event of 
a nuclear or radiological incident was addressed through the passage of 
the Price-Anderson Act in 1957.
    GE commercialized Argonne's concept of the boiling water reactor by 
first building a small commercial reactor at our GE facility in 
Vallecitos, CA, followed by the larger commercial boiling water 
reactors at the Dresden unit in Illinois, the KRB unit in Europe and 
the Tsuruga plant in Japan. GE management proceeded in the confident 
expectation that it could develop the Boiling Water Reactor (BWR) 
technology and have a commercially competitive product by the 1960s.
    The construction of Generation II reactors followed in the early 
1960s and represent the 104 nuclear power plants operating in the 
United States today. Of the GEN II reactors in the United States today, 
34 percent are BWR designs and 66 percent are pressurized water 
reactors (PWR). The power output of U.S. GEN II reactors ranges from 
482 to 1,300 MWe. In the early 1960s, these were built as ``turnkey 
projects'' to overcome the reluctance of utilities to assume the 
uncertain risk of building nuclear plants. By the mid 1960s, the 
industry had evolved to the point where architect engineers and 
constructors contracted directly with owners and turnkey plants were no 
longer offered.
    During the 1960s, U.S. light water reactor (both BWR and PWR) 
technology also became established in the world nuclear market, with 
large orders in Western Europe and Japan. The light-water reactor 
became the world's technology standard, outstripping the British gas-
cooled reactor and Canadian heavy-water reactor technologies by wide 
margins.
    From the construction and operating experience of the GEN II 
reactors, design improvements were made by industry, and the U.S. 
Government improved the Nuclear Regulatory Commission's licensing 
processes. The Energy Policy Act of 1992 authorized the one step 
licensing process known better in the industry as ``Part 52.''
    GE submitted its GEN III design, the Advanced Boiling Water Reactor 
(ABWR) to the NRC in 1987 and received design certification in 1997. To 
date, no certified GEN III reactor has yet been built in the United 
States. There are currently four ABWRs operating in Japan and work will 
soon be complete on construction of two additional ABWRs in Japan and 
two in Taiwan.
    The year 1992 was the high water mark for U.S. nuclear power plant 
installed capacity. The technical successes were enormous. We now have 
in operation nuclear power plants with a generating capacity greater 
than the total U.S. electrical capacity installed in 1940, and the 
plants have a superb safety record. The technical issues that the 
industry has been able to resolve are far greater than those that 
remain to be solved. Yet no new plants were started. Why? One 
significant reason is the substantial financial risks due to the large 
capital investment required and uncertainties about cost and schedule 
on new reactor designs.
    The Energy Policy Act of 2005 responded to these financial risks by 
authorizing loan guarantees for carbon free technologies such as 
nuclear power plants, tax incentives for first movers, and risk 
insurance during the construction phase. This promise of these policies 
became reality when President Obama announced in February that the 
Department of Energy has offered conditional commitments for a total of 
$8.33 billion in loan guarantees for the construction and operation of 
two new nuclear reactors at a plant in Burke, Georgia. This project is 
expected to be the first new nuclear power plant to break ground in the 
United States in nearly three decades.
    It is important to note that, despite the fact that the United 
States has not built any new plants in recent years, U.S.-developed 
light-water reactor technology has become the world standard. Japan, 
Germany, France, Italy, Spain, Sweden, and Switzerland have all adopted 
our light-water reactor design for their nuclear programs.
    GEH submitted the next advancement in technology its GEN III+ 
design, the economic simplified boiling water reactor (ESBWR), to the 
NRC for design certification under part 52 in 2005, and is expecting 
final certification in September 2011. This effort was supported by the 
DOE Nuclear Energy Office through the Nuclear Power 2010 program.
    Looking forward to the next generation of nuclear plant design, in 
2000, the United States organized the world technical community to look 
at GEN IV reactors in order to improve safety, and address waste 
issues, and reduce cost and proliferation concerns. This international 
effort screened over 100 different reactor concepts to identify 6 
plausible designs for continued study. Three of the six GEN IV reactor 
concepts could be used for nuclear fuel recycling.

                         RECYCLING--WHAT IS IT?

    The next area for U.S. innovative leadership in nuclear energy is 
the commercialization of full-recycling technology.
    There are three basic options for used fuel management: the 3 Rs--
Repository, Reprocessing or Recycling. Let me provide an overview of 
each:
    Repository.--Underground storage for used nuclear fuel from the GEN 
I and GEN II fleet, where it needs to be stored for at least 1,000,000 
years.
    Reprocessing.--Takes GEN I and GEN II used nuclear fuel for the 
separation of plutonium using an aqueous-acid system and organic 
solvents. The recovered plutonium is used in GEN II reactors. The 
wastes, fission products and high-heat-load transuranics (also known as 
actinides) are incorporated into glass requiring safe storage for at 
least 10,000 years. Reprocessing is done currently in the U.K. and 
France, and soon will be in Japan.
    Recycling.--Takes GEN I-GEN III used nuclear fuel and separates the 
usable uranium and transuranics using a molten salt bath and 
electricity. The recovered uranium and transuranics are then used as 
fuel for GEN IV reactors, thereby generating electricity from nuclear 
waste. The remaining fission products wastes are placed into a rock 
(ceramic) and chunk of metal (a metallic alloy of Zr or Fe) requiring 
safe storage for just a few hundred years. Because no pure plutonium is 
extracted, the proliferation risks are eliminated. The United States 
uses a form of this approach currently in treating spent fuel at the 
Idaho National Laboratory. We call this process ``full-recycling.''
    GE and now GEH have supported investigation of the full-recycling 
approach initially called the Integral Fast Reactor concept, which was 
funded under DOE's Advanced Liquid Metal Reactor program for 10 years 
and by the Global Nuclear Energy Partnership for the past 3 years. What 
does it take to recycle? A Generation IV reactor.

                   GENERATION IV REACTOR--WHAT IS IT?

    Perhaps the greatest promise of the next generation reactor is the 
ability to recycle used fuel from today's light water reactors.
    The GEN IV reactor that I am most familiar with is the PRISM, a 
Sodium Fast Reactor or ``SFR'' under development since 1981. The PRISM 
is America's sodium-cooled reactor, developed jointly by nine U.S. 
companies under the leadership of GE. The reactor recycles used nuclear 
fuel, generates electricity and incorporates the lessons learned from 
the development of earlier reactors.
    Following is a brief overview of how the technology works. First, 
the recycled elements (uranium and transuranics) from today's light 
water reactors are fabricated into a metallic reactor fuel, which is 
submerged in liquid sodium. During operation the recycled material 
fissions (i.e. splits in half) releases energy, and is removed by the 
flow of sodium and ultimately turned into electricity. The unique 
element in this recycling reactor is the sodium coolant, which allows 
nuclear interactions at higher energies so that full-recycling can 
occur. This cannot occur in a water-cooled GEN II or GEN III reactor 
where nuclear reactions occur at lower energies.
    The sodium-cooled GEN IV reactor is designed with passive safety 
features. These include passive reactor shutdown, passive shutdown heat 
removal (requires no human or automatic systems), and passive reactor 
cavity cooling (improves safety and reduces cost). The sodium-cooled 
GEN IV reactor supports a sustainable and flexible fuel cycle to 
consume transuranic elements within the fuel as it generates 
electricity.
    Key milestones and attributes associated with this technology 
include:
  --EBR-II is a sodium test reactor with 30 years of successful 
        operation at the Argonne National Laboratory, which provides a 
        significant base of technical data;
  --The Energy Policy Act of 1992 authorized the building of a sodium-
        cooled recycling reactor;
  --The 2002 DOE GEN IV Roadmap rated the sodium-cooled reactor ahead 
        of the other five GEN IV concepts;
  --Most recently the Global Nuclear Energy Partnership, with four 
        industrial teams including GEH, all agreed that a sodium-cooled 
        reactor was needed to fully recycle all the transuranics in 
        used nuclear fuel;
  --A GEN IV sodium-cooled reactor vessel can be fabricated in the 
        United States today; and
  --This technology uses small modular reactors suitable for smaller 
        electrical grids.
    Earlier this year, President Obama directed the Secretary of Energy 
to establish the Blue Ribbon Commission on America's Nuclear Future to 
make recommendations for developing a safe, long-term solution to 
managing the Nation's used nuclear fuel and nuclear waste. The highly 
respected members of the Commission have already started their work and 
will provide a final report to the President within the next 2 years. 
GEH has requested an opportunity to engage with the Commission to 
discuss the benefits of full-recycling and the establishment of 
recycling centers. Some of the benefits of recycling that we will 
outline include:
  --Reducing the required storage time of used nuclear fuel by over 
        99.99 percent, from greater than 1 million years to several 
        hundred years;
  --Using the current U.S. inventory of 60,000 metric tons of used 
        nuclear fuel to meet the electricity generation demands of the 
        United States for over 100 years if recycled within a high 
        energy GEN IV reactor (using 2008 U.S. electricity generation 
        data); and
  --Using the U.S. inventory of depleted uranium that is discarded 
        during the enrichment process that has the potential to meet 
        the electricity generation demands of the United States for 
        over 900 years if recycled within a sodium-cooled GEN IV 
        reactor (using 2008 U.S. electricity generation data).
    While GEH believes the PRISM is an excellent technology, we 
acknowledge that it is not the only technology and will encourage the 
Commission to embrace the concept of recycling rather than endorse a 
particular technology. GEH supports establishing advanced recycling 
centers in the regions where the reactors stand and where consumers 
have paid into the Nuclear Waste Fund.

                       TOWARD A NEW GEN IV POLICY

    GE has worked with the U.S. Government to develop civilian nuclear 
power technology since the beginning of the U.S. nuclear program. There 
was extraordinary creativity in fashioning novel arrangements to meet 
the demands of nuclear development; Congress established the Joint 
Committee on Atomic Energy, and industry established standards and 
professional societies such as the American Nuclear Society to support 
those standards. These Government/private sector approaches represented 
triumphs of pragmatism over ideology and of substance over form.
    Over the past decade, Congress has been responsive and creative in 
supporting the national laboratories and universities as they 
investigate the sustainable nuclear fuel cycle. This focus on education 
and research has played a significant role in the large increase of 
graduates in nuclear related fields, and must continue so that the 
industry is prepared for the future.
    Our current challenges (waste solutions and plutonium disposition) 
and opportunities for low carbon electricity call for policymakers to 
take a fresh look at how to fast track the building of sodium-cooled 
recycling reactors.
    GEH believes that in order to sustain long-term development of 
full-recycling, the United States must learn from our foreign allies 
(U.K., France, and Japan) regarding best practices from the modified 
open fuel cycle approach (reprocessing). But we must also stand on our 
own in support of an even more innovative full-recycling technology.
    It is critical to recognize that the United States is falling 
behind in developing innovative nuclear technologies. China and India 
are in the process of building sodium-cooled GEN IV reactors, which are 
expected to be the drivers in their development of sustainable nuclear 
fuel cycles. Without a similar long-term policy, the United States can 
expect to place third, at best in the near future.
    Before I conclude my remarks, I want to shift gears a little and 
mention an additional innovative nuclear technology that GEH is 
pursuing in the United States-Global Laser Enrichment. This new method 
of enriching uranium for peaceful purposes is being developed in the 
United States under strict oversight by the NRC and the Department of 
Energy. If the testing of the GLE technology continues to return the 
positive results we have seen thus far, we will soon build the first 
commercial facility in Wilmington, NC, adding hundreds of high paying 
jobs and providing our U.S. customers with a competitively priced, 
domestic supply of enriched fuel for their power plants.

                       SUMMARY OF RECOMMENDATIONS

    The advanced nuclear power technology developed at GEH is a vital 
part of GE's clean energy portfolio. The world needs the innovative 
energy technology solutions America has to offer, and America needs 
them too.
    Safe, reliable base-load electricity generated without producing 
greenhouse gas emissions is needed to meet the heavy demands of 
industrial and residential users. Congress and the public have endorsed 
the expansion of nuclear power in the United States, understanding the 
energy independence and job growth potential of this low-carbon power 
generation technology. The helpful provisions in the Energy Policy Act 
of 2005, including loan guarantees have helped set the stage for a 
nuclear power renaissance.
    We must continue the great tradition of the Government and private 
sectors working in partnership to enable nuclear energy to grow. Our 
recommendations for this subcommittee for investments in an abundant 
and responsible long-term energy supply, for weapons plutonium 
disposition and for addressing used nuclear fuel using full-recycling 
are to support:
  --Competitively awarded industry-led licensing project(s) for sodium-
        cooled recycling reactor(s).
  --Reenergize the domestic manufacturing and sodium research and 
        development base by competitively awarding the manufacture and 
        siting of two GEN IV sodium recycling reactor vessels to 
        support the licensing project.
  --Expand the weapons disposition program to include converting 
        weapons material into fuel for disposition in a sodium-cooled 
        recycling reactor.
  --Funding the President's budget request for the nuclear energy 
        programs including an additional $36 billion in loan 
        guarantees, Reactor Concepts R&D, Fuel Cycle R&D and the 
        Nuclear Energy Enabling Technology program.
    The Nation faces a choice today: should we continue down the same 
path that we have been on for the last 30 years with a repository-only 
solution, should we take the path of our allies and adopt reprocessing, 
or should we lead nuclear innovation with full-recycling? By building a 
sodium-cooled recycling project, we can lead the transformation to 
full-recycling, use a previously untapped energy source, and provide 
another path for weapons plutonium disposition.
    Thank you. This concludes my formal statement. I would be pleased 
to answer any questions you may have at this time.

    Senator Dorgan. Dr. Loewen, thank you very much.
    Mr. Sharp, first of all, I appreciate your testimony. I 
think there is an understanding that much of what we need to do 
requires additional funding, research, and commitment to have a 
consistent scientific inquiry in a range of areas. For example, 
decarbonizing the use of coal, it is pretty clear to me we are 
going to continue to use coal in this country's future, but we 
need to use it differently and will. But to get to that point, 
we are going to need to make investments.
    How do you think that is going to progress? There is a big 
group down at the White House starting yesterday trying to 
figure out how you cut back spending and find additional 
revenues to reduce the budget deficit. So this is not a very 
easy time in which to accomplish that which you believe need to 
be done.
    Mr. Sharp. Well, what you raise is the problem of how to 
get persistent policy, and of course, our past experience is it 
is up and down and that means we do not advance in a number of 
ways.
    Let me just first back up. Just investing in research does 
not guarantee the product comes out, but we still need to do 
this, especially on carbon capture and storage because of the 
critical role of coal. Obviously, if you turn to a system of 
cap and trade, you have some additional possibilities for 
funding because you are generating in the private market value 
which is in the allowances, for example, that can be used to 
fund this because I think one of the things--all these 
initiatives taken in 2005 and 2007 and in the stimulus 
package--any of them based on appropriations are bound to run 
into severe pressure on them in the next 3 to 5 years because 
of the deficit. I do not see any other way you folks can manage 
that. That does not mean they are all abandoned, but this has 
been the historic problem.
    So one of the virtues of the carbon tax, which is difficult 
to sell I realize, or the cap and trade system is that they at 
least generate either in the private sector or in the public 
sector some kind of value that can be directed toward these 
goals.
    Senator Dorgan. Without having a long discussion about it, 
those who are working on climate change in the Senate 
breathlessly announced that cap and trade is dead. So whatever 
the alternative may or may not be. I personally believe there 
should be a price on carbon, and I would support a carbon fee. 
I think we should cap carbon and price carbon. I understand 
that, but I do not support cap and trade and would not.
    Mr. Sharp. Well, I understand that announcement, Senator, 
but I might just say my impression of the Kerry-Graham-
Lieberman is that while they are not any longer supporting an 
economy-wide cap and trade system, that they have something 
with a different name called the ``cap on the electric 
utilities sector,'' which is where we had the experience of 
SO2. It has the same function.
    Senator Dorgan. You are right, of course. I was simply 
describing what their announcement was.
    Mr. Sharp. Right.
    Senator Dorgan. You are absolutely correct that in that 
area, it is cap and trade.
    Mr. Fri, you indicated in your testimony that with respect 
to the research that is being done in energy and has been done 
now for some while from the Ford administration forward, that 
almost all of the benefits from this research came from four 
programs. You talk about the total Federal cost of the three 
efficiency programs being $12 million and producing $30 billion 
in economic benefits. What that implies, without saying it, is 
a lot of the research, of course, does not amount to anything, 
and some of the research and perhaps some of the research that 
is the least costly research can provide huge benefits.
    Is it not the case that, in terms of finding a way to make 
fuel from thin air, as we described earlier, or trying to find 
the right way to decarbonize coal--we held a hearing on 
beneficial use of carbon, which I am very interested in--in 
order to reach these areas and find some positive conclusions 
to research, you are going to have to, perhaps, go down a lot 
of blind alleys? Therefore, a lot of that money will not be 
effectively spent, but that is just the nature of research. Is 
it not?
    Mr. Sharp. It is the nature of research, of course, and you 
cannot expect everything to be a winner, much less a home run 
like those little efficiency programs. But looking at those 
three programs, as I suggested in my testimony, tells you 
something about what you should look for when you are planning 
research, and in those three cases, there was a clear private 
market for more efficient refrigerators, for low-emissivity 
windows, and electronic ballasts to fluorescent light bulbs. 
Those were the three programs, plenty of private market out 
there. There was in each case a fairly specific market barrier, 
not even a technology barrier that needed to be removed that 
would let the private market move that new technology to 
market. And that is the lesson I think you need to draw in 
terms of planning and funding research, is to be disciplined 
about the two crucial questions. If you are successful, is 
there likely to be a market and what barrier can be removed by 
Federal action that will allow the private sector to get that 
technology to market? Now, even with those rules, you are not 
going to win every one, but I think you can avoid some of the 
blind allies.
    Senator Dorgan. Mr. Loewen, your testimony is exclusively 
about nuclear energy, and that has been a part of what we have 
done, although we have not built new plants for a long, long 
while. I think everyone concedes--you described the President's 
comments--and myself and others concede that nuclear power is 
going to be a part of our future and we are going to see 
additional plants built.
    The concept of this hearing is a broader look at what 
aspirations we have for an energy mix and the development of 
additional energy sources, given that nuclear is going to be a 
part of that. Have you done work and studies in other areas? Do 
you have some comments about the larger energy mix going 
forward 20, 40, 50 years from now?
    Dr. Loewen. Yes. Senator Dorgan, my role is as a Chief 
Engineer for a company that sells nuclear powerplants. I work 
for a larger company that also sells a wide portfolio of energy 
products. And our chairman, Mr. Immelt, came to Washington, DC 
in 2005 and announced the ecoimagination project, and that has 
really started our company to look at green energy sources 
across the spectrum of our suite of technologies.
    The reason why I drilled down so far in the details on this 
particular nuclear technology is that it is using a completely 
different source of energy input than we have from our current 
nuclear power plants. And that is where I see with your chart 
up there with the wood piles and all these different pictures 
depicting how we changed, you could have a picture where you 
are using all those canisters that are in Oak Ridge, Tennessee 
and Portsmouth, Ohio and Paducah, Kentucky of the depleted 
uranium, and that becomes an energy source. So that was where I 
was trying to provide the committee kind of that broader look, 
that this is an energy source that we have not tapped into yet.
    Senator Dorgan. I want to ask Senator Alexander to inquire 
further.
    As I said, I am very interested in beneficial use of carbon 
because, Mr. Sharp, you and Mr. Fri both described the need to 
restrain carbon. I think most everyone understands that now. 
Tell me your assessment of the promise of beneficial use of 
carbon.
    We know in North Dakota, you can put CO2 down 
into an oil well and enhance oil recovery. But there are a lot 
of other breathless ideas out there that are trying to 
demonstrate at scale a solution for the beneficial use of 
carbon, actually bringing the price of carbon down to near zero 
if they find the right beneficial use. What is your assessment 
of that?
    Mr. Sharp. Well, I am the wrong person to ask. I honestly 
do not know.
    Obviously, enhanced oil recovery is a known operational 
thing, but that will never use the large quantities that we 
need to sequester. But I certainly think it is well worth us 
spending some incentive money on finding out in the research 
area whether some of these things can pan out.
    Again, one of the biggest questions for all of these kind 
of things that we face is the scale of what we are ultimately 
talking about is gigantic, whether it is in oil, gas, 
electricity, or whatever. And when we talk about these things, 
the important reason to go multiple ways on these technologies 
is precisely because few of them end up being able to scale up 
to do what we need.
    So I do not have an answer on this. Maybe Bob Fri has a----
    Senator Dorgan. We had a scientist from Sandia testify at 
one of our hearings, and she said, change your mind set a 
little bit, which I thought was interesting. We think of carbon 
as a problem. Think of carbon as a product and how would you 
use the product, a very different approach for a scientist.
    Mr. Fri.
    Mr. Fri. That is right. There are certainly a lot of great 
ideas out there about ways of using carbon in an agricultural 
setting and others that would make it a valuable resource and 
we ought to explore those.
    But Phil Sharp is right. The portfolio that we are dealing 
with has two dimensions, maybe more. But one is scale. If we 
cannot ultimately scale something up to a point where it makes 
a substantial difference in a very large energy system, then it 
can be of some help, but we really do need the scale. And the 
other is timing in the sense there are some things we know how 
to do now and if we are serious about particularly climate 
change, we really need to start doing them.
    And there are a lot of very good ideas about what we might 
be able to do in the future, and we need to pick the ones of 
those that are going to be game-changers. Some of the uses of 
carbon that have been suggested do have the scale properties 
and could be game-changers and I think are worth support.
    Mr. Sharp. Senator, if I just add a note. Part of this goes 
to how effective different kinds of policies are. You folks 
have a responsibility--you have done it--of investing in these 
kinds of technologies. But going back to Mr. Fri's articulation 
of the need for market incentives, if you put in place in this 
country a carbon constraint policy, that is likely in and of 
itself to at least produce in the marketplace a number of 
incentives which tell somebody at Sandia and everywhere else 
you build it and they will come because if it works, we will be 
sucking it into the marketplace. It will not stay on the shelf.
    Senator Dorgan. Thank you very much.
    Senator Alexander.
    Senator Alexander. Mr. Chairman, this has been a very 
interesting hearing.
    Mr. Fri, as I understood your comments, you are saying 
every now and then we ought to review what we are doing in 
research and make sure it is appropriate.
    And then we were talking a little bit. The Senator and Mr. 
Sharp were talking about, well, where we are going to get the 
money for this research.
    To make this topical, I think Secretary Salazar is going to 
announce today that the Federal Government is going to approve 
the Cape Wind project which has put wind the size of Manhattan 
Island in Nantucket Sound.
    Mr. Fri, if you were persuaded that the Energy Information 
Administration figures show that our subsidies for wind today 
are 25 times as much per megawatt hour as subsidies for all 
other forms of electricity combined and that to produce 20 
percent of our electricity from wind would cost taxpayers $170 
billion over 10 years, would you think that a wiser use of some 
of that money might be for research into other areas such as 
advanced batteries or photovoltaic cells or the carbon capture 
ideas that we were talking about?
    Mr. Fri. I suppose the short answer is yes, to some extent. 
I think that the wind experience has actually been a success 
story with a lesson associated with it. The success story is we 
do now have some considerable amount of wind capacity in the 
United States. It is a promising technology which is, even 
without the production tax credit, becoming economically 
competitive in certain regions.
    The lesson goes back to something Mr. Sharp was saying and 
that is we tended to have a production tax credit one year and 
then not the next year and then back again. And that kind of 
jerking the system around does not lead to an efficient use of 
resources. It is better in my judgment to moderate the level of 
resource commitment and be more consistent about doing it each 
and every year until you get the job done.
    Senator Alexander. It produces 1.3 percent of our 
electricity, and it is going to cost us--we have already 
committed $30 billion to it.
    Mr. Sharp, I noticed the President has appointed you to the 
Nuclear Security Commission which is a very distinguished group 
of people. I am very pleased with what he has done there with 
the Nuclear Regulatory Commission.
    I was doing some quick math in my head. And you know that I 
have been at your forum talking about the renewable energy 
sprawl, and we have had a lot of talk about scale today. The 
Cape Wind project would cover an area the size of Manhattan 
Island. It would produce about one-tenth the amount of 
electricity that one reactor would on 1 square mile, and the 
reactor electricity would be more reliable at a cheaper cost 
and cost taxpayers a lot less. Is that an appropriate thing to 
consider as we go forward?
    Mr. Sharp. Well, I certainly think that is one of the 
factors that will and should be considered as we go forward. I 
would simply say, as you can appreciate, that I personally 
believe we need and should have more nuclear power, especially 
if we are confronting the climate change issue. But I think the 
larger energy picture requires a broad mix, and so we want to 
be careful not just to say we only will go with this one, but 
not with that one.
    However, if I can resort to your previous question, I do 
think ultimately over time, when we decide to subsidize an 
infant industry, we must have an exit strategy, and there has 
got to be a point at which we are as consumers confronted with 
what the real costs are.
    Now, I think in the developmental stage, there is a 
justification for the Government, just as I think on the 
nuclear power for testing out these new reactors--what we are 
really testing is whether the regulatory system and the 
construction process and the management of it can be done in an 
effective and timely manner--should have loan guarantees for 
the Government to do that, but not for loan guarantees forever 
for nuclear, any more than a subsidy forever on wind.
    Senator Alexander. And if we have an interest in low carbon 
energy production, would it not make more sense to have a low-
carbon energy standard rather than a renewable energy standard 
that picks and chooses particular forms?
    Mr. Sharp. Yes.
    Senator Alexander. Mr. Fri, do you agree with that?
    Mr. Fri. Yes. Whether it is by regulatory means or economic 
incentive means, the broader the application, the more people 
you get trying to innovate, the more success you are going to 
have in showing up with something that really works.
    Senator Alexander. Thank you.
    And Mr. Chairman, if I could ask Mr. Loewen just one 
question in my time, thank you for coming today.
    The President talked in his State of the Union Address 
about a new generation of nuclear reactors, and he may have 
been talking about more of the same kind we already build. But 
as we talk about the 500-mile battery for an electric car and 
cutting the cost of photovoltaic cells by a factor of 4, we 
should also be talking about how do we do a better job of 
recycling used nuclear fuel in a way that reduces its mass, 
makes it easier to store, and does not isolate plutonium. The 
reactor on which you are working is one that does that. How 
soon do you think that reactor could be commercially available 
in the United States?
    Dr. Loewen. Thank you, Senator Alexander. That is a 
question that I have been asked a lot.
    Senator Alexander. Probably by people in your own company.
    Dr. Loewen. Yes, on the second day of employment.
    The initiatives that I outlined in both my written and oral 
testimony are not really about the technology. It is not really 
about the cost. It is about gaining that sort of confidence to 
reduce the risk. So broadly, our vision is how we reduce that 
risk. So that is where we see starting a licensing process now, 
tomorrow. And in that context, now we harness the intellectual 
capital of our universities and our national laboratories. So 
in that licensing process, when a vendor like General Electric 
submits it to the Nuclear Regulatory Commission, that is open 
and transparent, and when we get questions for additional 
information, some of those questions would be more appropriate 
for the national laboratory to answer or a researcher at a 
university. Then those get fed back so that then we feel 
comfortable about this technology, with that license in hand, 
then I can come before this subcommittee and say this is how 
much it is going to cost because it is a difficult thing to do 
right now with the licensing risk.
    Then the other one is let us build a reactor vessel that is 
a test stand. It does not need a license. It gets filled with 
water. We put that at a university. We put another one at a 
national laboratory and fill that full of sodium, and that 
becomes a place that we can get some of the answers that we 
need in the licensing process.
    So to answer your question simply, sir, we could start 
tomorrow with those incremental steps to gain that confidence 
so that we can bring this technology forward.
    Senator Alexander. Thank you, Mr. Chairman.
    Senator Dorgan. Senator Alexander, thank you very much.
    Let me just say again I support some additional nuclear 
energy in this country, and my hope is that my colleagues and 
others will support finding ways to get clean, less expensive 
energy where the sun shines and the wind blows. That, it seems 
to me, will be an inexhaustible source of cheap, clean energy 
in the future, provided that we bring to bear on that our best 
scientific minds. We have made a lot of progress in wind 
energy, I might say.
    But I think we have really disserved wind energy and some 
others with what we have done on the production tax credit. 
Consider what we did with oil. I think it was 1916 we said to 
people, you want to look for oil and gas in this country, God 
bless you. That is what this country wants you to do, and we 
are going to put in place significant tax incentives for you to 
do that, very significant, permanent, long-term tax incentives. 
That is what we said to those who looked for oil and gas, and I 
have supported most of that.
    In 1992, we said to people who want to produce wind energy 
that we are going to put together a production tax credit. We 
will let it expire three or four times over the next 20-30 
years. We will extend it six times, short-term, stutter, start, 
and stop. I mean, you want to shut off investments in something 
that is promising, that is a quick way to do it.
    I happen to think that we ought to pick some of these 
areas--nuclear would be fine, as well as wind and solar--and 
say here is where America is headed. Here is what we aspire to 
achieve for the next decade. Count on it. Believe in it. Invest 
in it.
    Now, Europe, taking a look at solar and wind energy, has a 
much longer commitment, but also has a commitment that 
diminishes as the technologies improve and there is less need 
for the incentives.
    So we can and should be much smarter in a wide range of 
these areas. Yes, nuclear, but also wind and solar and 
renewables as well.

                         CONCLUSION OF HEARING

    So this has been, I think, a very interesting hearing. We 
appreciate the work all three of you are doing and appreciate 
your testimony today.
    This hearing is recessed.
    [Whereupon, at 11:58 a.m., Wednesday, April 28, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]

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