[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
                        GREEN JOBS AND RED TAPE:

                      ASSESSING FEDERAL EFFORTS TO

                          ENCOURAGE EMPLOYMENT

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


                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON INVESTIGATIONS AND

                               OVERSIGHT

              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                       WEDNESDAY, APRIL 13, 2011

                               __________

                           Serial No. 112-14

                               __________

 Printed for the use of the Committee on Science, Space, and Technology


       Available via the World Wide Web: http://science.house.gov




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              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                    HON. RALPH M. HALL, Texas, Chair
F. JAMES SENSENBRENNER, JR.,         EDDIE BERNICE JOHNSON, Texas
    Wisconsin                        JERRY F. COSTELLO, Illinois
LAMAR S. SMITH, Texas                LYNN C. WOOLSEY, California
DANA ROHRABACHER, California         ZOE LOFGREN, California
ROSCOE G. BARTLETT, Maryland         DAVID WU, Oregon
FRANK D. LUCAS, Oklahoma             BRAD MILLER, North Carolina
JUDY BIGGERT, Illinois               DANIEL LIPINSKI, Illinois
W. TODD AKIN, Missouri               GABRIELLE GIFFORDS, Arizona
RANDY NEUGEBAUER, Texas              DONNA F. EDWARDS, Maryland
MICHAEL T. McCAUL, Texas             MARCIA L. FUDGE, Ohio
PAUL C. BROUN, Georgia               BEN R. LUJAN, New Mexico
SANDY ADAMS, Florida                 PAUL D. TONKO, New York
BENJAMIN QUAYLE, Arizona             JERRY McNERNEY, California
CHARLES J. ``CHUCK'' FLEISCHMANN,    JOHN P. SARBANES, Maryland
    Tennessee                        TERRI A. SEWELL, Alabama
E. SCOTT RIGELL, Virginia            FREDERICA S. WILSON, Florida
STEVEN M. PALAZZO, Mississippi       HANSEN CLARKE, Michigan
MO BROOKS, Alabama
ANDY HARRIS, Maryland
RANDY HULTGREN, Illinois
CHIP CRAVAACK, Minnesota
LARRY BUCSHON, Indiana
DAN BENISHEK, Michigan
VACANCY
                                 ------                                

              Subcommittee on Investigations and Oversight

                   HON. PAUL C. BROUN, Georgia, Chair
F. JAMES SENSENBRENNER, JR.,         DONNA F. EDWARDS, Maryland
    Wisconsin                        ZOE LOFGREN, California
SANDY ADAMS, Florida                 BRAD MILLER, North Carolina
RANDY HULTGREN, Illinois             JERRY McNERNEY, California
LARRY BUCSHON, Indiana                   
DAN BENISHEK, Michigan                   
VACANCY                                  
RALPH M. HALL, Texas                 EDDIE BERNICE JOHNSON, Texas


                            C O N T E N T S

                       Wednesday, April 13, 2011

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Paul C. Broun, Chairman, Subcommittee 
  on Investigations and Oversight, Committee on Science, Space, 
  and Technology, U.S. House of Representatives..................     7
    Written Statement............................................     8

Statement by Representative Donna F. Edwards, Ranking Minority 
  Member, Subcommittee on Investigations and Oversight, Committee 
  on Science, Space, and Technology, U.S. House of 
  Representatives................................................     9
    Written Statement............................................    10

                               Witnesses:

Dr. Kenneth Green, Resident Scholar at the American Enterprise 
  Institute
    Oral Statement...............................................    12
    Written Statement............................................    15

Dr. David Kreutzer, Research Fellow in Energy, Economics, and 
  Climate Change, The Heritage Foundation
    Oral Statement...............................................    29
    Written Statement............................................    31

Dr. Josh Bivens, Economist, Economic Policy Institute
    Oral Statement...............................................    38
    Written Statement............................................    40

Dr. David W. Montgomery, Vice President, NERA Economic Consulting
    Oral Statement...............................................    54
    Written Statement............................................    55

Mr. William Kovacs, Senior Vice President, Environment, 
  Technology, & Regulatory Affairs, U.S. Chamber of Commerce
    Oral Statement...............................................    62
    Written Statement............................................    65


              Appendix: Answers to Post-Hearing Questions

Dr. Kenneth Green, Resident Scholar at the American Enterprise 
  Institute......................................................   158

Dr. David Kreutzer, Research Fellow in Energy, Economics, and 
  Climate Change, The Heritage Foundation........................   162

Dr. David W. Montgomery, Vice President, NERA Economic Consulting   164

Mr. William Kovacs, Senior Vice President, Environment, 
  Technology, & Regulatory Affairs, U.S. Chamber of Commerce.....   167



                        GREEN JOBS AND RED TAPE:


                  


          ASSESSING FEDERAL EFFORTS TO ENCOURAGE EMPLOYMENT

                              ----------                              


                       WEDNESDAY, APRIL 13, 2011

                  House of Representatives,
      Subcommittee on Investigations and Oversight,
               Committee on Science, Space, and Technology,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 2:05 p.m., in 
Room 2318 of the Rayburn House Office Building, Hon. Paul Broun 
[Chairman of the Subcommittee] presiding.


                            hearing charter

              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

              SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT

                     U.S. HOUSE OF REPRESENTATIVES

                        Green Jobs and Red Tape:

                      Assessing Federal Efforts to

                          Encourage Employment

                       wednesday, april 13, 2011
                          2:00 p.m.--4:00 p.m.
                   2318 rayburn house office building

Purpose

    The Subcommittee on Investigations and Oversight meets on April 13, 
2011 to examine the issue of green jobs and efforts to create them. The 
term ``green jobs'' generally refers to employment in the alternative 
energy and energy efficiency industries. One of the primary goals of 
the recent growth in federal incentives and funding for alternative 
energy sources and energy efficiency industries has been the creation 
of green jobs.
    The hearing will examine international efforts to create green 
jobs, as well as historical efforts domestically, including the 
American Recovery and Reinvestment Act. In light of the 
Administration's recently announced ``Winning the Future'' initiative, 
the Subcommittee will explore the effectiveness of loan guarantees, 
subsidies, tax incentives, regulations, mandates, research, and other 
federal efforts to create green jobs. Under House Rules, the Committee 
has jurisdiction over all energy research, development, and 
demonstration projects; all environmental research and development; as 
well as the commercial development of energy technologies.

Background

Pre-2009 Incentives
    Prior to enactment of the American Recovery and Reinvestment Act of 
2009 (ARRA), the federal government provided a series of tax incentives 
for users and producers of green energy. These incentives were 
continued, and in many cases, expanded with the enactment of ARRA. 
These pre-existing incentives included tax credits for:

          Biofuel production

          Solar and fuel cell investments

          Energy efficient appliances

          Energy efficient commercial buildings

          Energy efficient new homes

          Renewable energy production

          Residential solar and fuel cell installation

          A range of tax credits for alternative fuel 
        automobile technologies

    In addition to tax incentives, renewable energy portfolio mandates 
are also a means by which the public sector attempts to create green 
jobs. Currently, there is no federal renewable energy portfolio 
mandate, but 43 states have renewable energy portfolio mandates set by 
their State Public Utility Commissions that require a percentage of 
each state's energy usage to be generated by renewable energy sources 
such as solar, wind, biomass and hydroelectric. For example, the state 
with the biggest long-term commitment, Maine, will require 40 percent 
of its energy to be generated by renewable sources by 2017 while the 
state with the lowest long-term commitment, Pennsylvania, will require 
only eight percent by 2020. Seven states have either non-binding 
targets or non-percentage goals.
    Similar to mandates, regulations are often used as a method of 
encouraging green jobs development. By placing restrictions and 
limitations on certain energy sectors, governments can artificially 
influence the market by creating a disincentive for certain energy 
sources and technologies, therefore making others more financially 
viable. This increased demand creates jobs in a new sector, but as some 
argue, this comes at the detriment of employment in the regulated 
sector. Proponents of regulation as an incentive for job growth argue 
that the market is already unbalanced when it fails to adequately take 
into account externalities such as environmental impacts, and 
regulations simply force the market to account for those externalities.
    Loan guarantees are yet another way the federal government attempts 
to bring about green jobs. Created as part of the Energy Policy Act of 
2005, the program leverages federal dollars by allowing the Department 
of Energy to guarantee the debt of privately owned clean energy 
developers and manufacturing companies instead of investing directly 
into these companies through grants or tax subsidies.
    Additional federal efforts aimed at increasing green job growth 
include subsidies, direct expenditures, and research and development. 
Subsidies and direct expenditures seek to directly affect the energy 
industry by providing funds to producers or consumers of energy. 
Federal research and development spending focuses on a variety of 
goals, such as increasing U.S. energy supplies, or improving the 
efficiency of various energy production, transformation, and end-use 
technologies. Research and development expenditures do not directly 
affect current energy production and prices, but, if successful, they 
could affect future production and prices.

ARRA Funding
    ARRA contained over $60 billion in tax credits and grants to fund 
various federal, state, local, and private sector efforts related to 
alternative energy and energy efficiency including $21.6 billion in tax 
credits for renewable energy and $45.2 billion for direct 
appropriations. These funds were in addition to pre-existing tax 
incentives and federally funded research and development efforts in the 
same areas. ARRA funding and incentives for alternative energy and 
energy efficiency had several purposes:

          Research and development by public and private 
        scientists to develop new sources of energy and to lower the 
        cost of existing technologies

          Reductions in overall energy usage through tax 
        incentives and grants to reward particular actions and 
        investments

          Commercialization of alternative energy technologies

          Job creation in these sectors of the economy

    ARRA tax credits expanded pre-existing incentives for renewable 
energy and created several new ones, resulting in more projects 
becoming financially feasible. ARRA direct appropriations were used for 
significantly more research and development, increased block grants to 
states for weatherization of residential properties and consumer 
purchases of energy efficient appliances, federal grants for advanced 
battery manufacturing, alternative fueled vehicles, increases in 
federal building energy efficiency, smart grid development, and loan 
guarantee programs. The vast majority of the jobs created by ARRA are 
believed to be in weatherization projects of residential homes.
    To address concerns that new funding benefit Americans, Section 
1605 of ARRA contained a ``Buy American'' provision that required 
stimulus funds to be spent only on American steel, iron, and 
manufactured items, subject to three exceptions for non-availability, 
unreasonable cost, and inconsistent with the public interest. The 
Department of Energy's Office of Energy Efficiency and Renewable Energy 
(EERE) is responsible for issuing these waivers. To date, EERE has 
issued 44 non-availability categorical waivers and three public 
interest waivers, two of which are no longer in effect. The categorical 
waiver items cover a range of items, from specific products such as LED 
lamps for television studio lights to broad categories such as all 
Energy Star rated in-wall air conditioners. It appears that no 
statistics have been collected to determine how many jobs have been 
created overseas as a result of these categorical waivers, some of 
which cover broad areas of manufacturing. In addition, large scale wind 
projects have turned to wind turbines in Europe and China to build 
American wind farms. These projects have received project waivers to 
allow the importation of foreign manufactured wind turbines.

FY12 Budget Proposal
    This February the Administration released its ``Winning the 
Future'' initiative, as well as the ``Strategy for American 
Innovation,'' and the ``Startup American'' campaigns. The goal of these 
proposals is to ``bring greater income, higher quality jobs, and 
improved health and quality of life to all citizens.'' Some of the main 
goals outlined in these agendas include:

          The development of a Clean Energy Standard which 
        would call for 80 percent of the nation's electricity from 
        ``clean'' sources by 2035

          Increased funding for the Advanced Research Projects 
        Agency--Energy (ARPA-E)

          The creation of three Energy Innovation Hubs

          The Reauthorization of the Clean Energy Manufacturing 
        Tax Credit

          Funding to reach the goal of one million advanced 
        technology vehicles on the road by 2015

          Two $1 billion initiatives for investing in early-
        stage seed financing and other incentives to invest in high-
        growth startups

          Permanent extension of the Research and 
        Experimentation Tax Credit

Issues

Defining and Calculating Green Jobs
    Jobs are typically considered ``green'' when they involve 
alternative energy or increased energy efficiency. More uncertain is 
how to count jobs that are somewhat related such as the truck drivers 
who deliver solar panels across America, the state employees who 
process the tax credits for energy efficient appliances, and the 
consultants that advise cities and states on how to improve energy 
efficiency. At its broadest scope, green jobs could include:

          Factory workers that manufacture solar panels, wind 
        turbines, etc.

          Architects and engineers who design these 
        manufactured goods

          Construction workers who increase the energy 
        efficiency of existing homes and buildings by installing 
        insulation, caulking doors, and installing new more efficient 
        windows

          Factory workers who manufacture the same insulation, 
        caulk, and windows

          Truck drivers who deliver energy efficient appliances 
        to job sites

          Construction workers that install solar panels, wind 
        turbines, etc.

    However, many of these jobs would still exist even if they were not 
``green'' in nature. Architects and factory workers would still be 
needed to design and build components for coal mines and natural gas 
plants. Less efficient windows still need to be manufactured by the 
same workers, delivered by the same truck drivers, and installed by the 
same construction workers. Coal miners would be as in demand as they 
were before, if not more so, should alternative energy projects not be 
subsidized to the extent they are today.

Energy Savings
    A great deal of uncertainty surrounds the energy savings resulting 
from the ARRA funding. Initially, ARRA grant applicants were required 
to estimate the energy savings that would result from their proposed 
projects. However, the Department of Energy's Office of Inspector 
General found that original estimates for the energy savings due to 
ARRA projects were wildly overestimated:
    For example, the sum of the state's estimates for anticipated 
energy savings was 88 billion MBtus based on their initial proposed SEP 
projects. However, our review of this estimate found that it contained 
a number of errors and inconsistencies. Management agreed, pointing out 
that the estimate was not realistic or achievable since the United 
States' total energy consumption is estimated at 100 billion MBtus.
    The Department is no longer collecting energy savings estimates.

Regulatory Impediments and Underutilized Authority
    The creation of jobs that also benefit the environment is a goal 
shared by many. Unfortunately, the ability to create green jobs can be 
stymied by regulatory and legal challenges. For example, a wind energy 
project proposed to be located off Cape Cod called Cape Wind originally 
filed for its permits in 2001 and has repeatedly faced legal challenges 
from those opposed to the location of wind turbines offshore. Finally 
in January 2011, the Army Corps of Engineers issued one of the last 
permits required for construction to proceed.
    Other projects related to green energy such as the construction of 
Midwestern transmission lines to deliver wind power to large cities 
have also faced strong opposition. The U.S. Chamber issued a report in 
March 2011 entitled, Project No Project, highlighting permitting 
problems and legal challenges faced by energy projects nationwide.
    In addition to regulatory hurdles, a number of existing authorities 
relating to green jobs are underutilized. U.S. government agencies have 
the authority to enter into energy savings performance contracts 
(ESPCs) under which private sector entities pay to improve the energy 
efficiency of federal buildings in return for keeping the savings to 
pay for their investments with some profit. ESPCs require minimal 
federal funding and shift the costs of upgrading energy efficiency in 
federal buildings to the private sector.

Additional Issues
    Additional questions relative to green jobs include the following.

          Do incentives actually produce a net increase in 
        jobs?

          Are they an efficient way to increase jobs?

          Are jobs the correct economic output the country 
        should be measuring?

          On a job-for-job basis, should green jobs be 
        subsidized more than non-green jobs?

          Could the same amount of money spent on creating 
        green jobs be more effective in creating jobs in other ``non-
        green'' industries?

          Could federal funds spent on renewable projects have 
        a greater employment and environmental impact if the same funds 
        were spent on other energy projects?

          Will these newly created jobs be permanent or will 
        they remain in existence only until subsidies for them expire?

          Are these jobs created domestically, or overseas?

          Can these international jobs statistics be accurately 
        tracked?

          Are we borrowing money to create these investments 
        and create these jobs?

          Where are we borrowing this money from?

          Are we funding foreign companies?

          Are domestic companies doing this work overseas?

          Have U.S. subsidies and incentives helped foreign 
        countries expand their own industries to the detriment of the 
        U.S.?

          How does the growth of foreign green industries 
        impact the U.S.?

          What metrics should decide whether federal funding 
        related to green jobs is successful and a wise use of scarce 
        federal funds?

          Should federal funding be shifted more towards basic 
        research and development?

Witnesses
          Dr. Kenneth P. Green, Resident Scholar, The American 
        Enterprise Institute

          Dr. David Kreutzer, Research Fellow in Energy 
        Economics and Climate Change, The Heritage Foundation

          Dr. Josh Bivens, Economist, Economic Policy Institute

          Dr. David W. Montgomery, Vice President, NERA 
        Economic Consulting

          Mr. William Kovacs, Director of Environment, 
        Technology & Regulatory Affairs Division, U.S. Chamber of 
        Commerce
    Chairman Broun. The Subcommittee on Investigations and 
Oversight will come to order. Good afternoon. Welcome to 
today's hearing entitled, ``Green Jobs and Red Tape: Assessing 
Federal Efforts to Encourage Employment.'' You will find in 
front of you packets containing our witnesses' panel written 
testimony, biographies, and truth in testimony disclosures.
    I recognize myself now for five minutes for an opening 
statement. The economic crisis of 2008, provided a new 
Administration with the opportunity to expand government's role 
in a number of different areas. One of the most prominent was 
the energy sector.
    This expansion was meant to be, ``timely targeted and 
temporary,'' yet spending is still ongoing today. One of the 
highlights of the Stimulus Bill's energy agenda was the goal of 
creating green jobs that would spur employment, aid the 
environment, make us most secure, and keep us competitive.
    With the President's 2012, budget, the President is asking 
Congress to double down on that strategy. The Start-up America 
Campaign, the Clean Energy Initiative, and the Strategy for 
American Innovation extends and expands many of the same 
initiatives put forth in the Stimulus Bill.
    In the course of reviewing the President's FY '12, budget, 
the Science, Space, and Technology Committee heard from a 
number of agency officials about the importance of maintaining 
and expanding these green economy investments. This hearing is 
the first opportunity to hear perspectives from outside 
entities.
    It is important to realize the context that we are 
assessing these proposals. When the President took office, the 
average price of gasoline was $1.84 a gallon. Today the average 
price is around $3.79 a gallon. This should come as no 
surprise. In 2008, before he became the Secretary of Energy, 
Dr. Stephen Chu, stated, ``Somehow we have to figure out how to 
boost the price of gasoline to the levels in Europe.'' Gasoline 
in Europe is roughly $8 a gallon.
    In a 2008, interview with the San Francisco Chronicle, 
President Obama, then candidate Obama, stated that, ``Under my 
plan of a cap and trade system, electricity rates would 
necessarily skyrocket.'' Necessarily skyrocket. That is what he 
wants to do.
    It seems as though this Administration's energy and green 
jobs agenda are both built less upon stimulating our economy 
and creating domestic jobs and more on picking winners and 
losers and financing foreign investment and production.
    On one hand, the Administration is limiting development of 
oil production in the outer continental shelf. On the other 
hand it is promoting the development of oil off the coast of 
Brazil. On a recent trip to Brazil President Obama stated 
Americans, ``want to help with technology and support to 
develop these oil reserves safely, and when you are ready to 
start selling, we want to be one of your best customers.''
    On one hand the President advocates for federal investments 
and green technologies as an economic stimulus and jobs 
creator. On the other hand U.S. taxpayer dollars are purchasing 
renewable energy equipment manufactured in Europe and in Asia.
    A 2010 report by the Investigative Reporting Workshop found 
that more than $1.6 billion in Stimulus funds were used to buy 
foreign-manufactured products. If the goal is to create jobs 
here in America, I am not sure that this is the right method. 
It seems to me that the left hand does not know what the far 
left hand is doing.
    There are a number of important policies that will ensure 
economic prosperity here in the United States. A competitive 
tax policy that maintains and entices corporate activity, a 
legal system that respects contracts and patents, thereby 
rewarding innovation, a stable regulatory environment that both 
protects public health and safety and encourages economic 
activity, and a highly-educated and trained workforce capable 
of meeting 21st century challenges are all imperative to 
prosperity.
    Unfortunately, we find ourselves with the highest corporate 
tax rate in the developed world, an Administration that stated 
it seeks to, ``share all intellectual property as much as 
possible,'' and an ever-expanding regulatory system strangling 
small businesses and killing jobs.
    Today we will hear from outside experts on what role 
government incentives such as loan guarantees, subsidies, tax 
incentives, mandates, R&D, and regulations can or should play 
in augmenting these principles.
    [The prepared statement of Mr. Broun follows:]
               Prepared Statement of Chairman Paul Broun
    The economic crisis of 2008 provided a new Administration with the 
opportunity to expand government's role in a number of different 
areas--one of the most prominent was the energy sector. This expansion 
was meant to be ``timely, targeted, and temporary,'' yet spending is 
still ongoing today. One of the highlights of the stimulus bill's 
energy agenda was the goal of creating green jobs that would spur 
employment, aid the environment, make us more secure, and keep us 
competitive.
    With the President's FY12 budget, the President is asking Congress 
to double down on that strategy. The Startup America Campaign, the 
Clean Energy Initiative, and the Strategy for American Innovation 
extends and expands many of the same initiatives put forth in the 
stimulus bill. In the course of reviewing the President's FY 12 budget, 
the Science, Space, and Technology Committee heard from a number of 
agency officials about the importance of maintaining and expanding 
these green economy investments. This hearing is the first opportunity 
to hear perspectives from outside entities.
    It is important to realize the context that we are assessing these 
proposals. When the President took office the average price of gas was 
around $1.84 a gallon. Today the average price is around $3.79 a 
gallon. This should come as no surprise. In 2008, before he became the 
Secretary of Energy, Stephen Chu stated ``Somehow we have to figure out 
how to boost the price of gasoline to the levels in Europe.'' Gasoline 
in Europe is roughly $8 a gallon. In a 2008 interview with the San 
Francisco Chronicle, President Obama (then Candidate Obama) stated that 
``under my plan of a cap and trade system electricity rates would 
necessarily skyrocket.'' It seems as though this Administration's 
energy and green jobs agendas are built less upon stimulating our 
economy and creating domestic jobs, and more on picking winners and 
losers and financing foreign investment and production.
    On one hand, the Administration is limiting development of oil 
production in the Outer Continental Shelf. On the other hand, it is 
promoting the development of oil off the coast of Brazil. On a recent 
trip to Brazil, President Obama stated Americans ``want to help with 
technology and support to develop these oil reserves safely, and when 
you are ready to start selling, we want to be one of your best 
customers.''
    On one hand, the President advocates for federal investments in 
green technologies as an economic stimulus and jobs creator. On the 
other hand, U.S. taxpayer dollars are purchasing renewable energy 
equipment manufactured in Europe and Asia. A 2010 report by the 
Investigative Reporting Workshop found that more than $1.6 billion in 
stimulus funds were used to buy foreign manufactured products. If the 
goal is to create jobs here in America, I'm not sure that this is the 
right method.
    There are a number of important policies that will ensure economic 
prosperity here in the U.S.A competitive tax policy that maintains and 
entices corporate activity, a legal system that respects contracts and 
patents thereby rewarding innovation, a stable regulatory environment 
that both protects public health and safety and encourages economic 
activity, and a highly educated and trained workforce capable of 
meeting 21st century challenges are all imperative to prosperity. 
Unfortunately, we fmd ourselves with the highest corporate tax rate in 
the developed world, an Administration that stated it seeks to ``share 
all intellectual property as much as possible,'' and an ever expanding 
regulatory system strangling small business and killing jobs.
    Today we will hear from outside experts on what role government 
incentives such as loan guarantees, subsidies, tax incentives, 
mandates, R&D, and regulations can or should play in augmenting these 
principles.

    Chairman Broun. Now the chair recognizes my Ranking Member, 
Ms. Edwards, for an opening statement. Ms. Edwards, you are 
recognized for five minutes.
    Ms. Edwards. Thank you, Mr. Chairman, and thank you to our 
witnesses today.
    Interesting hearing that we have. The idea that government 
cannot make public investment choices that benefit the country 
actually flies in the face of our Nation's actual history. 
Canals, railways, roads, ports, highways, airports, the 
electrical grid, and the Internet are all products of 
government activities. The government has used different tools 
at different times to encourage these investments, but all of 
it was accomplished through government initiative.
    Building our current infrastructure created jobs and 
established the base for a national economy that has been among 
the most creative and productive in the world. As we see new 
competitors rise around the world and as we face new 
environmental challenges and energy supply issues, we need to 
make sure we step up and prove that we are just as innovative 
and dynamic as the Americans who came before us.
    The collapse of the housing market bubble in 2008, brought 
the country to the edge of an economic disaster with high 
unemployment and drying up of capital for businesses to meet 
their day-to-day expenses, much less look for opportunities to 
expand. And while we like to think that the normal, that normal 
economic times find consumer demand the bedrock of our economic 
prosperity, in the months after September, 2008, the times were 
hardly normal. Consumers reeled from collapsing value in their 
homes and investments, high unemployment left even those with a 
job feeling deeply insecure about their financial future, and 
when faced with these real conditions, it would be foolish to 
think that consumer demand alone was going to pull the economy 
out of a nosedive of what could have been a full-blown 
depression.
    The American Recovery and Reinvestment Act or Recovery Act 
was adopted by Congress and signed into law by President Obama 
with the twin goals of getting America back to work and funding 
projects that would create a more modern, robust 
infrastructure, 21st century infrastructure, to support 
economic growth for future generations.
    The fact that the infrastructure could also reduce our 
dependence on imported oil and help reduce our carbon 
emissions, producing a cleaner environment and fighting global 
climate change was actually an added social benefit, and 
despite the investments of the Recovery Act, much still remains 
to be done. We are no longer officially out of the--we are 
officially out of the recession, but we need to create almost 
14 million jobs in order to get Americans back to work.
    I believe that we have to make sustained commitment to 
public investment in our infrastructure and our research 
enterprise, and in supporting innovation. I don't believe that 
government is incapable of choosing wisely about public 
investments, and I do not believe that the government has no 
effective role in the face of high unemployment. Congress can't 
just sit on its hands while people are losing their jobs, their 
security, their homes, and their future. The government has 
many tools at its disposal to help.
    I am particularly interested in seeing the research and 
development tax credit made permanent and to increasing the 
domestic production activities deduction for property 
manufactured in the United States, which was the result of 
research and development done here. In fact, I have introduced 
along with my colleague from Maryland and colleague on the full 
committee, Roscoe Bartlett, H.R. 689, the 21st Century 
Reinvestment Act, that would do just that.
    The Information, Technology, and Innovation Foundation 
issued a report in 2006, that found that the U.S. had gone from 
offering the most generous research and development tax credit, 
that we had dropped to number 17 by 2004. An effective way to 
get people back to productive work and to reward innovation is 
to reward companies that innovate and create jobs here in 
America domestically.
    I look forward to the testimony of our witnesses as we 
explore these issues today, less investigation and oversight 
and much more in exploration.
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Edwards follows:]
           Prepared Statement of Ranking Member Donna Edwards
    The idea that the government cannot make public investment choices 
that benefit the country flies in the face of our nation's actual 
history. Canals, railways, roads, ports, highways, airports, the 
electrical grid and the internet are all the product of government 
activities.
    The government has used different tools at different times to 
encourage these investments, but all of it was accomplished through 
government initiative.
    Building our current infrastructure created jobs and established 
the base for a national economy that has been among the most creative 
and productive in the world.
    As we see new competitors rising around the world, and as we face 
new environmental challenges and energy supply issues, we need to make 
sure we step up and prove that we are just as innovative and as dynamic 
as the Americans that came before us.
    The collapse of the housing market bubble in 2008 brought the 
country to the edge of economic disaster with high unemployment and a 
drying up of capital for businesses to meet their day-to-day expenses, 
much less look for opportunities to expand.
    While we like to think that normal economic times find consumer 
demand the bedrock of our economic prosperity, in the months after 
September, 2008, the times were hardly normal. Consumers reeled from 
collapsing value in their homes and investments. High unemployment left 
even those with a job insecure about their financial future.
    Faced with these real conditions, it would be foolish to think that 
consumer demand was going to pull the economy out of the nose dive of 
what could have become a full-blown depression.
    The American Recovery and Reinvestment Act (ARRA) was adopted by 
Congress and signed into law by the President with the twin goals of 
getting American's back to work and funding projects that would create 
a more modern, robust infrastructure to support economic growth for 
future generations.
    The fact that the infrastructure could also reduce our dependence 
on imported oil and help reduce our carbon emissions producing a 
cleaner environment and fighting global climate change was an added 
social benefit.
    Despite the investments of ARRA, much remains to be done. While we 
are no longer officially in a recession, we need to create almost 14 
million jobs to get all Americans back to work.
    I believe that we need to make a sustained commitment to public 
investment in our infrastructure, in our research enterprise and in 
supporting innovation. I do not believe that the government is 
incapable of choosing wisely about public investments. I do not believe 
that the government has no effective role in the face of high 
unemployment. Congress cannot just sit on its hands while people are 
losing their jobs, their security, their homes and their future.
    The government has many tools at its disposal to help. I am 
particularly interested in seeing the R&D tax credit made permanent and 
increase the domestic production activities deduction for property 
manufactured in the U.S. which was the result of R&D done here. With 
bipartisan support, I have introduced a bill, H.R. 689, that would 
accomplish all this.
    The Information Technology and Innovation Foundation issued a 
report in 2006 that found the U.S. had gone from offering the most 
generous R&D tax credit, we had dropped to number 17 by 2004. An 
effective way to get people back to productive work, and to reward 
innovation, is to reward companies that innovate and create jobs in 
America.
    I look forward to the testimony of our witnesses.

    Chairman Broun. Thank you, Ms. Edwards. If there are 
members who wish to submit additional opening statements, your 
statements will be added to the record at this point.
    At this time I would like to introduce our panel of 
witnesses. Dr. Kenneth Green is a Resident Scholar at the 
American Enterprise Institute. Dr. David Kreutzer, is that 
correct? Kreutzer. Okay. I can't spell, and I can't pronounce 
my name. It is Broun spelled with a U, but anyway, Doctor, I 
apologize. Dr. Kreutzer is the Research Fellow in Energy, 
Economics, and Climate Change at the Heritage Foundation. Dr. 
Josh Bivens is an Economist with the Economic Policy Institute. 
Dr. David Montgomery is a Senior Vice President at NERA 
Economic Consulting, and Mr. William Kovacs is a Senior Vice 
President for Environment, Technology, and Regulatory Affairs 
at the U.S. Chamber of Commerce.
    I welcome all of you all here today and appreciate you all 
coming and participating. As our witnesses should know, spoken 
testimony is limited to five minutes each, so, please, we are 
facing some votes here shortly, so if--we want to try to get 
through this and not be here all afternoon. If you all would 
try to limit your spoken testimony to five minutes or less. 
Your full written testimony will be put in the record. And then 
each committee member will have five minutes to ask questions.
    It is the practice of the Subcommittee on Investigations 
and Oversight to receive testimony under oath. Do any of you 
have any objections to taking an oath?
    [No audible response.]
    Chairman Broun. Dr. Montgomery, I don't see--okay. Let the 
record reflect that all witnesses are willing to take an oath 
by shaking their head that they had no objections to doing so.
    You also may be represented by counsel. Do you, any of you 
have counsel with you here today?
    [No audible response.]
    Chairman Broun. Okay. Let the record reflect that all 
witnesses indicated they have no counsel. Now, if all of you 
would please stand and raise your right hand.
    [Witnesses sworn.]
    Chairman Broun. Thank you very much, gentlemen. Let the 
record reflect that all the witnesses participating have taken 
the oath.
    Now I recognize our first witness, Dr. Kenneth Green, of 
the American Enterprise Institute. You are recognized for five 
minutes. Dr. Green.

    STATEMENT OF DR. KENNETH GREEN, RESIDENT SCHOLAR AT THE 
                 AMERICAN ENTERPRISE INSTITUTE

    Mr. Green. Thank you, Chairman Broun, Ranking Member 
Edwards, members of the subcommittee, for having me here today. 
At the end of my testimony I have appended a pertinent study 
that I recently completed for AEI titled, ``The Myth of Green 
Energy Jobs: The European Experience.'' Much of my testimony is 
derived from that paper.
    My testimony represents my personal views only, and should 
not be construed as the official position of AEI or any other 
person or organization.
    The question of green job creation is simply a variant on 
the general question of whether or not government creates jobs 
by intervening in the marketplace. The question has been 
debated since at least the 1850s, when Frederic Bastiat, a 
French journalist and politician, wrote, ``What is Seen and 
What is Not Seen,'' an essay that should be mandatory reading 
for anyone interested in public policy.
    Bastiat framed the idea of government creation in the 
broken windows fallacy. As he explained, imagine some 
shopkeepers have their windows broken by a boy throwing rocks. 
At first, everyone is horrified, and they blame the boy. But 
then someone points out that, well, it is not really all that 
bad because now jobs have been created for the window makers, 
the glass blowers, glaziers. And so really there was no loss 
because you have new jobs in making windows.
    But, of course, did the child do a public good by breaking 
the window, the baker's window, and making a job for the 
glaziers? And the answer is, no, because beforehand the baker 
would have used his money perhaps to expand his bakery, put on 
a coffee shop, hire a new baker, and instead he used the money 
to replace a perfectly good window. So the village as a whole 
has lost the value of the window and has not gained any new 
jobs as a result.
    So let's look at--the analogy holds just as well when the 
government breaks jobs in one sector, breaks windows in one 
sector of the economy and uses the money it takes from there to 
create jobs elsewhere.
    When they pick product A over product B, what is seen is 
the new sales of product A. What is not seen are the loss of 
sales of product B and the associated job losses.
    So to look at our possible green future, let's look at what 
happened in Europe recently where they have been very 
aggressive in pushing for green energy on the premise that it 
will create green jobs, green technologies, and green economy.
    I will start with Spain.
    In March of 2009, researchers at the Universidad Rey Juan 
Carlos released a study examining what happened in Spain as a 
result of their push into green energy. The study calculates 
that from 2000 to 2009, it cost them $815,000 each to create a 
green job, rising to $1.5 million to create a green job in the 
wind industry.
    And they calculate that for every job created in the green 
energy industry, 2.2 jobs were destroyed elsewhere in the 
general economy.
    Now to Italy, where a study performed by the Bruno Leoni 
Institute, found an even worse experience. They found that 
because green jobs were so expensive to create in Italy, that 
for every green job created in the green energy sector, five to 
seven jobs could have been created in the general economy for 
the same amount of money.
    They also found that the majority of these green jobs were 
temporary, following through on existing plans they calculated 
for 2020, would create, indeed, create quite a few jobs, up to 
112,000, but 60 percent of them would be temporary.
    Now, the United Kingdom. A recent report by the consultancy 
Verso Economics found that for every job created in the United 
Kingdom in renewable energy, 3.7 jobs were lost in the general 
economy. What is interesting about that particular study is it 
uses a methodology that the Scottish government itself uses to 
calculate job losses as a result of taxes, of taxation. It uses 
a model that the other studies I mentioned were criticized for 
not using and yet it comes up with the same result as the other 
two studies.
    Before I conclude, I was asked to comment a bit about the 
American Recovery and Reinvestment Act of 2009, and its 
effectiveness in creating green jobs. A news article in 2010, 
September, pointed out that only 20 billion of the 92 billion 
allocated for renewable energy projects had been spent, and 
according to the Department of Energy, as was mentioned 
earlier, much of that was spent abroad, creating green jobs in 
China, Spain, and South Korea.
    For example, a report by the American University found that 
11 U.S. wind farms used their Stimulus grants to buy wind 
turbines made abroad, 695 out of about 1,000 wind turbines 
purchased with Stimulus grants were made elsewhere. The 
Department of Energy reports that for some green stimulus 
projects, 80 percent of the spending was abroad.
    So given that most of the green stimulus is unspent and 
much of what has been spent has been spent elsewhere, it is 
hard to see how it had a significant impact on creating green 
jobs here in the United States. And don't take only my word for 
it, April 11, 2011, the EPA put out an at-a-glance form, and 
this report says that they are unable to determine what the 
results were of their Stimulus spending, whether it created any 
jobs at all because while they can track having spent the 
money, they could not figure out what was done with it. So it 
is unlikely that we have seen an explosion of green jobs.
    In conclusion, the idea that government can create jobs on 
net in the economy is a myth, and painting the myth green 
doesn't make it any less of a myth. The experience of Europe, 
which has preceded us in the quest for a new economy, is 
uniformly negative and is proving unsustainable, with subsidies 
being cut back and feed-in tariffs reduced.
    And, not to discount American exceptionalism and ingenuity, 
there is absolutely no reason to believe that things would 
happen differently here. Green energy requires significant 
subsidization. By definition, that means that jobs in the wind 
and solar industry will be more expensive to create than those 
in the general economy and that means less jobs on net.
    I thank you for the opportunity to testify, and I look 
forward to your questions.
    [The prepared statement of Mr. Green follows:]
Prepared Statement of Dr. Kenneth Green, Resident Scholar, The American 
                          Enterprise Institute





























    Chairman Broun. Thank you, Dr. Green.
    I now recognize our next witness, Dr. David Kreutzer.
    Mr. Kreutzer. I will read my statement here. It says, my 
name is David Kreutzer.
    Chairman Broun. Kreutzer.
    Mr. Kreutzer. And I have to confess that I had to call your 
receptionist to figure out how to pronounce your name. I hope I 
get it right.
    Chairman Broun. You are recognized for five minutes, 
Doctor.
    Mr. Kreutzer. Okay. Thank you.

  STATEMENT OF DR. DAVID KREUTZER, RESEARCH FELLOW IN ENERGY, 
     ECONOMICS, AND CLIMATE CHANGE, THE HERITAGE FOUNDATION

    Mr. Kreutzer. I am Research Fellow in Energy Economics and 
Climate Change at The Heritage Foundation. The views I express 
in this testimony are my own and should not be construed as 
representing any official position of The Heritage Foundation.
    Chairman Broun, Ranking Member Edwards, and distinguished 
members of the committee, thank you for giving me this 
opportunity to discuss the employment impacts of federal energy 
and climate policies.
    I would like to make two fundamental points today. The 
first is that government regulation is costly. The second is 
that government spending is costly. Both of these statements 
are true whether the economy is at full employment or in a 
recession.
    Now, let me also say that government spending and 
regulation can have benefits, but we need to compare those 
benefits to the costs instead of pretending that there are no 
costs.
    Too often proponents of spending and regulation focus on 
the jobs and income going to those who receive the government 
money or who provide the necessary goods and services for 
compliance with the regulations. They ignore the losses to the 
other parts of the economy that are needed to finance these 
jobs.
    A report by the Blue Green Alliance and the Economic Policy 
Institute sets out an analogy to try to explain why an 
apparently ineffective Stimulus program was actually effective 
but undersized. Though probably not the intent of the authors, 
and I believe in a few minutes we will hear about that, the 
analogy captures the flawed logic of virtually every green jobs 
study I have seen.
    Here is the quote from that report. ``A good metaphor for 
this controversy is the temperature in a log cabin on a cold 
winter's night. Say the weather is forecast for the temperature 
to reach 30 degrees. To stay warm you decide to burn three logs 
in a fireplace. You do the math and chemistry and calculate 
that burning these three logs will generate enough heat to 
bring the inside of the cabin to 50 degrees or 20 degrees 
warmer than the ambient temperature. But the forecast is wrong, 
and instead of--and instead temperatures plummet to 10 degrees, 
and burning the logs only results in a cabin temperature of 30 
degrees. Has log burning failed as a strategy to generate 
heat?''
    The flaw in this analogy is that there isn't any woodshed. 
The only available logs come from the walls of the cabin. It 
would be no surprise that burning more of the wall does not 
make the cabin warmer. Likewise, there is no money shed from 
which the government can finance all the green subsidies and 
programs. These resources are extracted from other parts of the 
economy. They do not and cannot come from outside of the 
economy.
    Yes, when firms receive government subsidies, there may be 
additional jobs with those firms, just as it may get warmer 
right by the fireplace when more logs are torn from the wall 
and burned. But just as the overall cabin temperature will 
plummet, the overall economy suffers as resources are taken 
from better uses and put to less valued ones.
    There is no money shed to finance the cost of complying 
with a cap-and-trade regime such as Waxman-Markey. Indeed, 
Heritage analysis estimated that such legislation would reduce 
national income as measured by gross domestic product by nearly 
$9 trillion over the first 25 years of the program can cause 
employment losses of nearly 2.5 million jobs.
    There is no money shed to pay compliance costs of EPA 
regulations. There is no money shed to subsidize loan 
guarantees. Let me just use one example of the examples from my 
written testimony. The case of Solyndra. In the fall of 2009, 
Solyndra, a solar panel manufacturer, received a loan guarantee 
of $535 million. That is in the fall of 2009. In the spring of 
2010, half a year later or less, Solyndra failed to 
successfully complete its initial public offering because an 
independent audit questioned the viability of the company as 
people weren't going to buy the stocks. In the fall of 2010, 
Solyndra actually closed one of its manufacturing facilities 
that had been in operation when they got the loan.
    There is no money shed to finance green Stimulus programs. 
Even in a time of recession with under-utilized resources there 
are costs to government expenditure whether it is purchasing 
military jets, building highways, or subsidizing green energy 
projects.
    But even if government spending can stimulate the economy, 
and that doesn't mean there are no costs, but if the government 
can stimulate the economy, the spending needs to be correctly 
timed, and the targets should be those with the best return for 
the money. Spending that raises electricity rates does not fit 
this bill.
    Figure six from the Blue Green Alliance Economic Policy 
Institute report, reproduced in my written testimony, purports 
to show that GDP, consumption, and employment all improved 
after the enactment of the ARRA Stimulus Bill.
    However, using the measures offered in the chart, okay, 
rates of change at an annualized rate, it clearly shows that 
all three measures of economic activity were turning the corner 
months before any Stimulus spending started.
    Thank you.
    [The prepared statement of Mr. Kreutzer follows:]
 Prepared Statement of Dr. David Kreutzer, Research Fellow In Energy, 
         Economics, and Climate Change, The Heritage Foundation















    Chairman Broun. Thank you, Dr. Kreutzer. Is that better? 
Thank you, Dr. Kreutzer.
    Our next witness is Dr. Josh Bivens with Economic Policy 
Institute. You are recognized for five minutes, Doctor.

   STATEMENT OF DR. JOSH BIVENS, ECONOMIST, ECONOMIC POLICY 
                           INSTITUTE

    Mr. Bivens. I would like to thank the chairman and members 
of the committee for the opportunity to testify today. I am 
Josh Bivens. I am an economist at the Economic Policy 
Institute. Today's testimonies reflect only my own views.
    I would make a couple relatively quick points about the 
efficacy of what we are going to call green investments. I 
mean, essentially they have two benefits. One is in the short 
run we have a pressing problem of very high unemployment rates, 
and the reason why we have those high unemployment rates is 
because there is a shortfall in demand for goods and services 
in the economy. Green investments will help plug that 
shortfall, bring down the unemployment rate in the short run.
    In the longer run the reasons why you undertake green 
investments is because it is recognized that we need to 
transition to a cleaner energy economy for many reasons, one 
just for the health of citizens of the United States, coal-
fired power plants are very bad for that health, and also to 
deal with the effects of climate change.
    Let me take these in order. Obviously the most pressing 
problem facing the U.S. economy over the short-time horizon is 
high rates of unemployment, and we know why unemployment is 
high today. There is a shortfall of demand in the economy 
because an $8 trillion bubble in home prices destroyed 
household balance sheets, made households cut back on spending, 
destroyed the residential construction industry, cascaded 
throughout the economy, had businesses cutting back their 
capital spending because customers stopped coming through the 
door. Essentially, it is clear why unemployment is high today. 
There is a shortfall of demand in the U.S. economy.
    The shock to private sector demand stemming from the 
bursting housing bubble is actually larger than the shock that 
led to the Great Depression. A key reason why we didn't have a 
second depression is that we allowed fiscal support, debt 
finance, increases in spending, and decreases in taxes to act 
as a shock absorber. Until the economy reaches pre-recession 
unemployment rates, further fiscal support would provide 
similarly welcome downward pressure on the unemployment rate.
    For the simple purpose of propping up demand in our economy 
hit by a negative spending shock, you know, most kinds of 
spending and transfer payments are going to be as good as the 
others, but the architects of the American Recovery and 
Reinvestment Act, since we decided to make sure that many of 
these investments are long-term gains as well, and so they 
essentially were dedicated to providing a down payment on 
making a needed transition to a clean energy economy.
    The effects of ARRA have become controversial among 
policymakers, and that is really odd because these effects are 
not controversial at all among professional economic 
forecasters. People in the private sector and the public sector 
whose salary depends on knowing what is going to happen in the 
economy over the next couple of years are unanimous that the 
Recovery Act boosted GDP, jobs, and reduced the unemployment 
rate.
    The argument against the effectiveness of RA is kind of 
through a simple feat. It didn't work because we know it cannot 
work. It essentially says that any money borrowed by the 
government to finance Stimulus takes money out of the hands of 
households and businesses who will spend less.
    You know, this is just wrong. The recession happened 
because households and businesses were saving too much to 
generate enough demand to keep unemployment low. If the 
government didn't do anything, that would be the end of the 
story. We would be stuck at a high unemployment economy for 
quite some time.
    If the government instead decided to accommodate the 
savings that households and businesses were already doing, the 
savings was already there, if they just accommodated the 
savings by swapping money for treasury bonds and then spending 
the money on public sector investments to generate demand, then 
you would put more people to work, and that is exactly what has 
happened.
    Essentially, opponents of Stimulus want to argue that 
public spending chases away private spending by competing with 
it for scarce resources, but scarce resources are not the 
problem in the U.S. economy right now. Labor, not scarce. There 
is four and a half unemployed workers for every job in the 
economy. Corporations are sitting on record amounts of cash 
ready to finance investment. The problem is not scarce 
resources. The problem is demand, and green investments help 
solve that problem.
    In the longer term, say longer than five years, assuming 
once, again, we get to some tolerable unemployment rate, the 
primary benefit of green investments isn't in boosting the net 
number of jobs in the U.S. economy, rather the benefits are in 
making the U.S. economy more productive and better poised to 
meet the demand of transitioning to a cleaner energy economy in 
the future.
    In my written testimony I go over the evidence that says a 
larger stock of public capital, public investments would do 
much to boost U.S. productivity. I won't rehash that here.
    Last, I just want to sort of address the argument that 
green investment is just picking winners that the private 
sector is somehow by definition better at doing. Yeah. I don't 
think that is right. I mean, one, policy failures have so far 
not given the private sector the right price signals to 
incentivize green investment. You know, greenhouse gas 
emissions are free for individual emitters, but they are very 
costly for other stakeholders in the economy until this 
externality is priced, you know, the best way to price it would 
be through market-based programs like cap-and-trade. I know 
that is not going to happen soon. There is going to be stunning 
incentive for the private sector to undertake the optimal 
amount of green investment so the government has to step in and 
do some of it.
    And further, many of these green investments are for public 
goods, goods that are less viable, less excludable than private 
goods, and or have features of natural monopolies. This is the 
textbook example of goods that should be provided by the 
government, not the private sector, so the idea that we are 
chasing away the private sector from providing these goods and 
services I think is pretty clearly wrong.
    So I would like to just thank you again for the opportunity 
to testify, and I am happy to answer any questions you might 
have.
    [The prepared statement of Dr. Bivens follows:]
   Prepared Statement of Dr. Josh Bivens, Economist, Economic Policy 
                               Institute





























    Chairman Broun. Thank you, Dr. Bivens.
    Our next witness is Dr. David Montgomery with NERA Economic 
Consulting. I recognize you for five minutes, sir.

  STATEMENT OF DR. DAVID W. MONTGOMERY, VICE PRESIDENT, NERA 
                      ECONOMIC CONSULTING

    Mr. Montgomery. Thank you, Chairman Broun and Ranking 
Member Edwards. I am honored, again, by your invitation to 
appear before the subcommittee.
    I have recently joined NERA Economic Consulting as a Senior 
Vice President, but today I am testifying entirely on my own 
behalf. These are my own independent opinions and conclusions, 
do not necessarily represent the positions of my employer or 
any of its clients.
    I have two primary recommendations. First, stop using green 
technology as an engine of macro-economic policy. That approach 
takes resources away from R&D that could lead to fundamental 
technology advances, it increases the cost of meeting 
environmental goals, and it is inferior macro-economic policy 
as well.
    Second, take some of the resources now being spent 
unnecessarily on demonstration and deployment and put them to 
work cushioning real research and the onset of the inevitable 
and necessary era of fiscal austerity.
    It would also be helpful to create new institutional 
arrangement to assure continuity of energy R&D funding and 
prevent that funding from being starved in the future by the 
huge budgetary demands of large-scale demonstrations of unready 
or excessively costly technologies.
    As you consider reductions in spending it is critically 
important to preserve the current levels of funding for basic 
and applied energy research. All the rest of the direct 
funding, subsidies, loan guarantees, and standards to promote 
large-scale technology, demonstration, and deployment need to 
be examined critically because most can go without sacrificing 
either environmental goals or--and at a great saving to the 
taxpayer.
    Why are reductions in basic research so harmful? It is not 
possible to get the best science and technological advances 
with stop, go, stop funding. Good researchers will not tolerate 
being torqued around. They will go back to fields of research 
where that does not happen, and the flow of discovery that is 
required for breakthrough applications will stop.
    And why can reducing direct support for green energy be so 
beneficial? That support is a solution in search of a problem. 
Cost-effective environmental programs apply directly to the 
emissions that cause harm. That is what we environmental 
economists have been trying to teach our students at least for 
the 30 years I have been in the game. Tilting the playing field 
to favor specific technologies only forces American industry to 
adopt more costly ways of meeting the requirements of 
environmental laws and regulations.
    There is already every incentive for industry to choose the 
most cost-effective means to meet those requirements, and I 
cannot understand how we now think that energy is a public good 
since it has been provided cost effectively by the private 
sector for centuries.
    The only virtue green technologies can claim is superior 
performance and identifiable environmental dimensions. So 
environmental programs, not technology subsidies and mandates, 
should guide their adoption. In some specific cases particular 
kinds of support for technology demonstration might be 
justified.
    But history and economics make it clear that these are the 
exceptions, and allowing the exceptions also opens the door to 
a flood of rent-seeking pleas for support and earmarks.
    Government funding for basic and applied research is still 
needed to provide the flow of discoveries on which cleaner and 
cheaper technologies will be based. Every prior--unfortunately, 
every prior Congress that has been faced with the choice has 
sacrificed the unquestioned long-term benefits of R&D to 
maintain jobs through fundamentally-unnecessary and wasteful 
subsidies for existing technologies.
    I urge you to change that dismal record.
    I haven't used up much of my time. I would be happy in the 
future to debate some points of macro-economic policy, but I 
wanted to focus on R&D.
    Thank you.
    [The prepared statement of Mr. Montgomery follows:]
  Prepared Statement of Dr. David W. Montgomery, Vice President, NERA 
                          Economic Consulting
    Mr. Chairman and Members of the Subcommittee:
    I am honored by your invitation to testify today. I am an economist 
and have recently joined NERA Economic Consulting as Senior Vice 
President. I will start with a brief word about my qualifications.
    I have studied energy R&D and energy technology programs since the 
late 1 970s, when as a member of the faculty at Caltech I participated 
in a major study of the economics of R&D supported by the National 
Science Foundation. More recently I was coauthor of a statement of 
principles for energy R&D policy with some of the most distinguished 
academic experts in the field. At the Congressional Budget Office I was 
deeply involved in all the issues of this hearing, as my Natural 
Resource and Commerce Division was continuously active in analyzing 
Federal R&D programs and industrial policy. I have published many 
papers in peer-reviewed journals on related subjects, and I was honored 
by the Association of Environmental and Resource
    Economists with their 2004 award for a ``publication of enduring 
quality'' for my pioneering work on emission trading. I taught 
environmental economics at the California Institute of Technology and 
economic theory at Caltech and Stanford University. I was Assistant 
Director for Natural Resources and Commerce at CBO and until recently I 
led the group at Charles River
    Associates that developed a pioneering set of economic models and 
used them in studies of virtually every major proposal for climate and 
energy policies over the past decade.
    My testimony today will take a broad view of the subject. I will 
address the common-sense economics of federal efforts to create green 
jobs through federal R&D funding and through the use of loan 
guarantees, standards, subsidies, regulations, and tax incentives to 
promote ``green'' technologies. My statements in this testimony 
represent my own opinions and conclusions and do not necessarily 
represent positions of my employer or any of its clients . . .

Summary

    It is a fundamental error in policymaking and economics to design 
or justify federal support for new energy technologies as a jobs 
program. It subverts the entire purpose of government involvement in 
R&D, and is the greatest single cause of the continued failure of 
energy technology programs.
    Some advocates claim that Federal spending on green technologies is 
a ``triple winner;'' instead, it is at best a ``triple also-ran.'' \1\ 
No single policy tool can at the same time and in a cost effective way 
develop new energy sources, protect the environment, and reduce 
cyclical employment. A closer look shows that current efforts to do 
these three things at once must, lead to doing none of them well or 
even adequately.
---------------------------------------------------------------------------
    \1\  Jason Walsh, Josh Bivens and Ethan Pollack Rebuilding Green 
The American Recovery and Reinvestment Act and the Green Economy, Blue-
Green Alliance and Economic Policy Institute, February 2011.
---------------------------------------------------------------------------
    1. Promoting new energy technology: The federal government has a 
limited but vital role in the quest for new energy technology. But the 
right division of labor between public sector and private sector is 
absolutely crucial to success. Government should focus on basic and 
applied research. There, its intervention is essential; yet it is in 
these activities that the U.S. government traditionally allocates the 
smallest part of the Energy R&D budget. The policies promoting use of 
current green technology starve needed research in favor of 
demonstration and deployment of high cost current technology. The 
stimulus package tilted the balance still farther in the wrong 
direction.
    2. Cost-effective environmental protection: Current programs to 
promote a Green economy actually raise the costs of reaching 
environmental goals. Well-designed environmental policies would provide 
incentives to choose least-cost means of compliance. In contrast, 
current green jobs policies mandate use of specific technologies; yet 
these may often not be the most cost-effective means to the desired 
end. Some current policies even use subsidies to tilt the playing 
field. If such schemes work at all, they do so by encouraging the 
choice of needlessly costly means while shifting the added costs onto 
the taxpayers.
    3. Stimulus: To be efficient, energy R&D and investment incentives 
must be predictable, consistent, and sustained over a long period of 
time. But in a recession, fiscal policy experts all agree that the most 
effective jobs program spends its funds as quickly as possible and 
phases out the funding as the economy improves. Thus, energy research 
and investment are strikingly ill-suited to the task of leading the 
economy out of a down turn. The attempt to force these activities into 
so inapt a role is bound to frustrate the goals of both energy policy 
and economic stimulus.

Purposes of government intervention:

    Efforts to use government spending to create ``Green'' jobs lose 
sight of the real objectives of government intervention in energy 
technology and R&D. Economists call these reasons ``externalities,'' 
but they can be viewed simply as the problems that government 
intervention is designed to solve. There are two areas in which markets 
cannot be expected to bring about the most socially desirable outcomes 
without some fonn of government intervention, and these are R&D and 
environmental protection. There is less complete agreement among 
economists about the appropriate role of government in dealing with the 
business cycle, but for my testimony today I will assume that a third 
policy goal, more rapid recovery from the recession, is also relevant. 
The current mix of subsidies for technology deployment through the use 
of loan guarantees, standards, subsidies, regulations, and tax 
incentives has only a haphazard relationship to these three 
externalities, and cannot do a good job of dealing with any of them.

R&D

    Government must play a role in R&D because it is impossible for 
researchers and innovators to capture for themselves the full value of 
the information that their activities provide to society.This spillover 
effect is a positive externality, but it also implies that without 
active government intervention there will be less R&D than is socially 
optimal. The market failures associated withR&D are greatest in the 
early stages of basic and applied research: as activity moves into 
demonstration of technologies and their commercial deployment there are 
increasingly effective ways to protect intellectual property--including 
patents, trade secrets, and in-house development-- for innovators and 
investors to appropriate an adequate share of the gains their 
innovations provide to society. Thus government's role should be 
greatest in funding of basic and applied research and fade away as 
projects move toward large scale demonstration. \2\
---------------------------------------------------------------------------
    \2\  In support of this point, see Richard Newell, A U.S. 
Innovation Strategy for Climate Change Mitigation. The Brookings 
Institution Discussion Paper 2008-15 December 2008 p. 20 ff.
---------------------------------------------------------------------------
    In all sectors of the economy except energy, U.S. government 
funding is concentrated in basic and applied research as theory and 
experience demonstrates that it should be. Energy R&D programs tend to 
take too few risks, because they concentrate funding on pre-selected 
potential ``winners'' that are carried forward long after they have 
ceased to warrant continued government support. In large part, these 
failings can be directly attributed to the widespread perception of 
energy technology funding as a ``jobs'' program.
    A statement written by a number of the most distinguished experts 
in the economics of R&D described the kinds of policies that would be 
effective in promoting technological advances in energy: \3\
---------------------------------------------------------------------------
    \3\  ``A Statement on the Appropriate Role for Research and 
Development in Climate Policy'' Kenneth J. Arrow, Linda Cohen, Paul A. 
David, Robert W. Hahn, Charles D. Kolstad, Lee Lane, W. David 
Montgomery, Richard R. Nelson, Roger G. Noll and Anne E. Smith. 
Economists Voice, February 2009, Vol 6, No. i.

    Government R&D policy should encourage more risk-taking and 
tolerate failures that could provide valuable information. This can be 
accomplished by adopting parallel project funding and management 
strategies and by shifting the mix of R&D investment towards more 
``exploratory'' R&D that is characterized by greater uncertainty in the 
distribution of project payoffs. The single greatest impediment to an 
R&D program that is directed at achieving a commercial objective is 
that it will be distorted to deliver subsidies to favored firms, 
industries, and other organized interests. The best institutional 
protections for minimizing these distortions are multiyear 
appropriations, agency independence in making grants, use of peer 
review with clear criteria for project selection, and payments based on 
---------------------------------------------------------------------------
progress and outputs rather than cost recovery.

    The idea of parallel approaches is very important, and as I will 
discuss later it is rarely seen in Federal energy R&D. Studies of 
successful R&D show that a parallel approach, in which many early-
stage, high-risk projects are funded with the expectation that most 
will fail, would be provide far more information than the current 
approach, and would increase the likelihood of breakthrough 
discoveries.
    The statement also emphasized that commitments must be long-term 
and stable:

    Policy commitments must be stable over long periods of time. 
Climate change is a longrun problem and will not be solved by 
transitory programs aiming at harvesting available short-run 
improvements in energy efficiency or low-carbon energy. A much more 
stable commitment to funding and incentives for R&D is required to do 
better than the limited results of energy R&D efforts in the 1970s and 
80s.

    What should be equally clear is that a series of temporary, 
politically unstable, targeted subsidies, financial incentives, or even 
mandates for deploying specific green technologies will not provide 
adequate incentives for the R&D that would bring about large-scale 
technological change.

Environmental and other externalities of energy production and use

    Another rationale for energy R&D comes from externalities 
associated with energy production and use. Effective programs to 
address these externalities--such as the Clean Air Act Title IV program 
that through a cap and trade program put a price on sulfur emissions 
from utilities--created clear incentives for the private sector to 
develop and deploy new control technologies. One of the few things that 
most economists agree on is that a clear, credible, consistent and 
stable policy that puts a price on C02 emissions will lead to cost-
effective technology deployment and provide a demand-driven inducement 
to innovation. Federal support for energy R&D motivated by these 
externalities also needs to be concentrated on basic and applied 
research, as existing environmental regulations and new policies 
focused on the direct causes of environmental concern--such as 
greenhouse gas problems--provide the incentives for innovators to take 
these research findings into commercial demonstration and deployment.
    Even energy security is dealt with most efficiently by programs 
that directly increase domestic production of crude oil and reduce 
consumption oil consumption in a balanced way. The ideal in terms of 
cost-effectiveness is an import fee, not a set of targeted subsidies 
and mandates for costly or technologically unavailable substitutes for 
oi1. \4\ Production of more fossil fuels is a direct and--on an 
appropriate scale--more cost-effective way to reduce oil imports than 
promotion of non-petroleum fuels through regulation (Renewable Fuels 
Standards) or subsidies (ethanol).
---------------------------------------------------------------------------
    \4\ D. Bohi and W. D. Montgomery. Oil Prices, Energy Security, and 
Import Policy. With Washington, DC: Resources forthe Future, 1982.
---------------------------------------------------------------------------
    Many of the environmental consequences of energy production and use 
are already extensively regulated. Greenhouse gas emissions have not 
been regulated until now, but are the subject of proposed EPA 
regulations and much legislation. Development of new--and indeed 
radically new--energy technologies is critical to our ability to reduce 
greenhouse gas emissions sufficiently to stabilize temperatures at some 
level without unacceptable economic harm. For other externalities, this 
is less clear. Development of new technologies for production and use 
of fossil fuels or other forms of energy is already motivated by a 
perceived need for more cost-effective options for compliance with 
policies that address other externalities.

Recovery

    Recovery from the recession is a policy problem distinct from 
either R&D or energy externalities, and requires its own distinct 
toolkit. Economists differ seriously about the best strategy to pursue 
to address an economic downturn like the one we have faced. All agree 
that monetary policy in some form is necessary, but many are critical 
of using government spending to stimulate the economy because of the 
long-term consequences of increased debt and the difficulty of making 
the spending be effective and timely. Too often fiscal measures are so 
slow to get money into the economy that they only ramp up funding after 
the economy is well on its way to recovery, so that rather than 
reducing unemployment deficit spending ends up increasing inflationary 
pressures. Moreover, temporary stimulus programs create constituencies 
that lobby to keep the spending going long after stimulus is no longer 
needed.
    The basic principles of public finance for reducing cyclical 
unemployment are to choose methods of spending that get money into the 
economy as quickly as possible. Public works projects that have already 
been chosen as desirable investments by passing through the 
authorization process are good candidates. But the projects must be 
ones that can be ramped up quickly and also ramped down without waste 
or diminishing their value or effectiveness. Technology development 
that requires this kind of long term and stable funding does not 
satisfy these criteria.
    Another basic principle is that the stimulus comes from spending, 
and many different programs offer the same opportunity for job creation 
if they receive the money. Thus job creation does not serve to justify 
one form of spending over another. Choosing which among many competing 
uses of funds should be the recipient of stimulus funding is not 
different from normal authorization and appropriations, except for the 
need for speed to avoid missing the window when stimulus is needed. A 
program that cannot pass a normal cost-benefit test has no business 
being chosen as a recipient of stimulus funding.

Why Energy R&D and Green Economy programs achieve none of the policy 
                    goals well

    There is no such thing as a ``triple winner'' in economic policy. 
Economists have long observed that as many different instruments are 
required as there are distinct externalities. Using one policy 
instrument to address three different market failures assures that none 
will be addressed well or cost-effectively.

Energy R&D failures are largely attributable to an inability to resist 
                    treating technology investment as a jobs program

    R&D is carried out by governments, for-profit and not-for-profit 
entities, and national and multinational institutions. These 
institutions perform a wide variety of R&D as illustrated in Table 1. 
This suggests that the problem of appropriability is greatest in basic 
research, important in applied research, and smaller in development and 
later stages of demonstration, commercialization and deployment.
    Perhaps the most striking feature of the government's energy 
spending is the relatively low priority that it accords to R&D in 
general and basic and applied research in particular. In fact, in terms 
of total spending, deployment subsidies dominate. The following figure 
shows the relative resource commitments and the relatively modest role 
of basic and applied research in the Federal program. Thus even before 
the stimulus package, Federal funding was highly biased toward 
development where the private sector is capable of handling a much 
larger role if the technologies being advanced to that state promise to 
be commercially successful. Federal funding for this stage has been 
needed largely because too many unpromising technologies are advanced 
beyond basic and applied research.


    These funding patterns can be attributed to three serious failings 
in the total energy technology program:

     Large scale demonstration projects that provide ``jobs'' in 
politically influential regions drain funds from basic and applied 
research,

     Deployment subsidies that benefit specific constituencies are 
rationalized as creating ``jobs'' even if the technologies are not 
cost-effective, and

    Failing projects are not cancelled because of the ``jobs'' 
involved.

    And each of these failings arises because of favoring jobs'' over 
the most effective way of promoting technological advance.
    It is not surprising, therefore, that energy R&D had a long history 
of waste and failure. Cohen and Noll describe a dynamic based on 
incentives of executive agency staff and Congressional incumbents that 
leads to the conclusion that R&D programs will investigate too few 
risky alternatives in the early stages of research, commit prematurely 
to large scale demonstration, and continue to fund large scale projects 
long after their failure has become evident. \5\ This is exactly the 
opposite of the stable, long-term research program required to 
stimulate breakthrough research and introduce game-changing 
technologies.
---------------------------------------------------------------------------
    \5\  Linda R. Cohen, and Roger G. Noll (With Jeffrey S. Banks, 
Susan A. Edelman, and William M. Pegram). The Technology Pork Barrel. 
Washington, D.C.: The Brookings Institution, 1991.
---------------------------------------------------------------------------
    Newell, in the study cited earlier, expands on this point:

    A number of specific market problems have been suggested as 
rationales for technology deployment policies. These market problems 
include information problems related to energy-efficiency investment 
decisions, knowledge spillovers from learning during deployment, 
asymmetric information between project developers and lenders, network 
effects in large integrated systems, and incomplete insurance markets 
for liability associated with specific technologies (Newell 2007b). 
Although such problems are often cited in justifying deployment 
policies, these policies in practice often go much farther in promoting 
particular technologies than a response to a legitimate market problem 
would require. Therefore, while conceptually sound rationales may exist 
for implementing these policies in specific circumstances, economists 
and others tend to be skeptical that many of them, as actually proposed 
and implemented, would provide a cost-effective addition to market-
based emissions policies. Critics also point out deployment policies 
intended to last only during the early stages of commercialization and 
deployment often create vested interests that make the policies 
difficult to end .
     . . . the most notable failures in government energy R&D funding 
(e.g., the Synthetic Fuels Corporation, Clinch River Breeder Reactor) 
tend to be associated with large-scale demonstration projects-using up 
large portions of limited R&D budgets in the process (Cohen and Noll 
1991). The recent experience with the FutureGen Initiative for clean-
coal power tends to reinforce this perspective. \6\
---------------------------------------------------------------------------
    \6\  Newell, ibid.
---------------------------------------------------------------------------
    The nature of the electoral process biases authorization and 
appropriation processes against basic and applied energy research. 
Supporting R&D projects that yield large, but diffuse, net benefits and 
those only after a long time, is a poor re-election strategy. However, 
when an R&D project reaches a large enough scale, it begins to have 
distributive significance. At that stage, the project may become 
politically relevant to legislators interested in re-election (Cohen et 
al 1991).
    Energy R&D managers also exhibit an unwillingness to propose a 
sufficiently wide range of risky alternative approaches to achieve real 
breakthroughs. High-risk approaches with high potential may not come to 
their attention, since in the early stage of R&D there are significant 
agency problems in communicating the nature and potential of an 
approach (Cohen et al 1991).
    Career advancement is also more likely to come from successful 
projects rather than accumulation of useful information about 
approaches that do not work. This limits the set of alternatives 
considered for funding and leads to far too little risk-taking in 
government R&D and too narrow a view of possible avenues of approach.
    This dynamic introduces a series of perverse incentives.
    First, it encourages officials to move technologies too swiftly to 
the phase of large-scale demonstration. As a result, these projects 
often run into technical problems that could have been resolved much 
more cost-effectively at a smaller scale, and to end up having chosen 
the wrong route overall.
    Second, congressional involvement has often led to poor projects 
surviving long after they should have been terminated. Representatives 
gain electoral credit for continued funding of local facilities and 
lose almost no electoral credit because the funding is accomplishing 
nothing.
    Third, the excess resources that demonstration projects consume, 
either because they are launched prematurely or because they linger too 
long on political life support, are likely to crowd out more valuable 
earlier phase research. In effect, projects at the early stage of 
development are not politically appealing because further work on them 
is not expensive enough to have distributive significance.
    Fourth, the rush to demonstration may distort the selection of 
technologies toward those that are more mature rather than toward those 
that are more promising. Where there is path dependency in technology 
selection such distortions may have long-term consequences.
    In addition to the effects of the high political discount rate on a 
premature rush to demonstration at high cost, choosing the location and 
design of projects by earmarking to benefit influential constituents is 
unlikely to lead to the choice of the best qualified and most cost-
effective organization to carry out an R&D project.
    All of these characteristics are found in the expanded set of 
programs that were introduced in the stimulus package and are 
rationalized as a program to create a ``Green Economy.'' The history of 
energy R&D suggests that they will not promote technological advance 
effectively and that they will lead to waste of taxpayer's resources.

Green energy subsidies raise the cost of environmental policy

    Cost-effective environmental policies lead to a choice of 
technologies that achieve the goals of the policies at minimum cost. A 
price on pollution -like the price of sulfur or NOx allowances--
motivates every emitter to choose methods of reducing emissions that 
cost less per ton removed than the price of allowances. With a fixed 
cap on emissions, the allowance market causes the price of allowances 
to adjust until sufficient investments are made in pollution control 
that the cap is achieved. Introducing mandates for specific ``Green'' 
solutions, such as a Renewable
    Portfolio Standard or credits for manufacturing renewable energy 
equipment, only forces utilities to choose more costly renewable energy 
technologies over less costly solutions, because the cap will be met in 
either case.
    A performance-based emission standard does not achieve the broad 
cost-minimization that an emission trading system would do, but it does 
provide an incentive for regulated entities to choose the method of 
compliance with the standard that minimizes cost. A good example is the 
reformulated gasoline standard, which allows flexible choice of fuel 
components as long as the required emission performance is achieved. 
Adding a set of renewable fuel standards on top of the reformulated 
gasoline emission standards only increases the cost of meeting the 
emission standards, because the renewable fuel standards require that 
gasoline already compliant with emission standards be replaced with a 
much more costly alternative fuel that in some cases actually makes 
compliance with the emission standard more difficult.
    This is a general phenomenon. Regulations or incentives that deal 
directly with the emissions, or more generally the externality, in 
question are always more cost-effective than incentives or subsidies 
that tilt the playing field in favor of one set of technologies that 
would not have been chosen as an environmental solution without the 
subsidies. And the cost is absorbed by the taxpayer.

Energy R&D and technology investment have none of the characteristics 
                    of the optimal policy to create jobs in a recession

    First, they ignore the timing of proposed policies relative to the 
business cycle. One of the first principles of fiscal policy to counter 
recessions is to make sure that funds are expended quickly, and the 
most common political mistake is to authorize spending that will only 
hit its peak after the economy is well on the way to recovery. That 
mistake in timing means that the opportunity to help the economy out of 
the recession is missed, and that when spending does occur it fuels 
inflation and drives out other, more productive investments. Current 
regulatory programs and subsidies and loan guarantees for green 
technology fail this test. Even if some spending in these programs did 
ramp up quickly, most of the expenditures would still largely be made 
after even pessimists think the economy will be well on the way to 
recovery. In that case, workers supported by green technology subsidies 
will have to be drawn away from other jobs, just as the mandated 
investment will be drawn away from other areas where it would 
contribute to economic growth. The total result is no net job gain and 
an overall drag on the economy.
    Even if the expenditures for green technology were timely, they 
cannot take credit for the benefits of economic stimulus. As even Green 
Jobs advocates admit, about the same job benefits can be expected to 
come from any additional stimulus spending, so that job benefits do not 
differentiate between different kinds of spending. This kind of job 
analysis is a sheer waste of time and resources, because every proposal 
for more expenditure can make identical claims. In a slack economy, any 
increase in spending will create some jobs. The way to get the most out 
of fiscal stimulus is by putting additional spending into the areas in 
which a temporary funding increase provides the greatest return to the 
economy overall, and that does not include R&D or investment that 
requires stable and permanent incentives.

Conclusion: What About the Green Economy

    There are serious reasons of public policy for federal support of 
basic and applied research that could lead to breakthroughs in energy 
technology and for policies that deal with environmental protection and 
global climate change. Very specific kinds of measures are appropriate 
for each.
    Federal R&D funding deals with the market failure in R&D that leads 
to less than optimal R&D effort across the board in the economy. 
Programs like Title IV sulfur trading deal cost-effectively with SOx 
emissions, and a carbon tax could address greenhouse gas emissions at 
lower cost than any set of subsidies and standards. But even the best-
designed regulatory , programs have costs, as I have discussed in four 
previous appearances before House and Senate Committees in the past two 
months. They do not create additional jobs for the economy as a whole, 
but they do raise energy costs and lower worker compensation and the 
standard of living of the average household. Ideally, environmental and 
climate policies will be designed so that the benefits of addressing 
various forms of pollution and global climate change will exceed their 
costs.
    Energy R&D has the potential of leading to future technologies that 
can lower the cost of energy, but R&D has a cost as well. R&D requires 
both money and, more importantly, an adequate supply of qualified 
scientific researchers. Shifting the direction of research toward 
energy diverts dollars and researchers away from other fields, unless 
there is both a net increase in total R&D funding and additional 
investment in education and training.
    What, then, is the purpose of programs to promote a ``Green 
Economy?'' The vast majority of ``Green Economy'' funding is not going 
to basic and applied research, it is going to loan guarantees, 
standards, subsidies, regulations, and tax incentives for demonstration 
and, mostly, deployment of current technology. Environmental 
regulations and climate policy already address the externalities that 
provide a reason for government intervention. They provide incentives 
for private businesses to adopt clean energy or ``green'' technologies 
and practices when they are cost-effective ways of complying with 
environmental regulations and policies, and leave them free to do 
otherwise when green is not cost-effective. Therefore, federal funding 
and standards to promote adoption of green technology are unnecessary 
to achieve the environmental goals that have been accepted in public 
policy. For the economy as a whole, these large expenditures and 
requirements only serve to increase the cost of achieving the goals of 
environmental policy by predetermining which technologies will be 
favored. They do, of course, increase investment in favored 
technologies, but they do so at the expense of investment in more cost-
effective alternatives and the consumer who always pays the bill.

    Chairman Broun. Thank you, Dr. Montgomery.
    Just for the information of members of the committee, we 
have a vote on, and for the witnesses, we have a vote on now. 
We will be able to hear Mr. Kovacs' testimony. After Mr. 
Kovacs' testimony we will recess and reconvene 10 minutes after 
the last of four votes begins.
    So, if you would, please, come right back after you vote, 
and we will get back as quickly as we can. We apologize for the 
interruption, but, unfortunately, we have got the votes.
    So, now I want to recognize our final witness, Mr. William 
Kovacs, U.S. Chamber. Mr. Kovacs, you have got five minutes.

    STATEMENT OF MR. WILLIAM KOVACS, SENIOR VICE PRESIDENT, 
ENVIRONMENT, TECHNOLOGY, & REGULATORY AFFAIRS, U.S. CHAMBER OF 
                            COMMERCE

    Mr. Kovacs. Thank you, Chairman Broun, Ranking Member 
Edwards, and the members of the committee. You have asked me to 
address two issues; one, the impediments to the development of 
private sector energy projects, including the creation of green 
energy jobs and to identify under-utilized federal programs 
that could spur job growth without new statutory authority.
    There are actions Congress could take, and they could take 
them now with any--without any appropriated funds that would 
create tens of thousands of clean energy and energy-efficiency 
jobs, generate billions of dollars in additional GDP, expand 
the development of clean energy technology, and substantially 
reduce the energy use of the world's largest energy user, the 
Federal Government.
    You can do this by doing two simple things without any 
federal funding. One is you need to streamline the permitting 
process for private sector energy projects, and two, we need to 
maximize the implementation of the Energy Savings Performance 
Contracts that Congress passed in 2007.
    Let me expand on both of these. If you look at page four 
on--in my testimony, it is a map of what we call our Project No 
Project, and that is an identification of projects in March of 
2010, that were stopped by permitting challenges across the 
United States, and what is so fascinating about this is that 
the only common thread is that they were stopped by sequential 
challenges. They would start with one law, move to another law, 
move to another law, and because the statute of limitations is 
generally six years, you can be the last person in your law 
school class and hold it up for ten years. It doesn't--it is 
not a trick.
    But what is so important is that in this process, when we 
did the economic study, if these projects had all moved forward 
during the seven-year period of time which would have been the 
construction period, they would have generated about $1.1 
trillion in new GDP, and it would have created about 1.9 
million jobs a year. And then for the 20 or 30 years that they 
were in existence they would have produced more jobs.
    We recognize within the study that you couldn't build them 
all at once. There wasn't the people, there weren't the 
materials. So we did a sensitivity analysis, and even if you 
took whatever was happening and let's say we did the largest 
project in any state, you still had a $.5 trillion in GDP and 
hundreds of thousands of jobs, and we did that for nuclear or 
all renewables, pick your choice. But some of the projects, if 
a large group would have gone forward, you still would have 
created the jobs.
    The solution there is permanent streamlining. Congress has 
handled this issue many times. You handled it in the Highway 
Bill in 2005. You literally created the time to get through the 
process for NEPA in half from about 72 months to 38 months. You 
did it in the Stimulus Project with requiring the use of NEPA 
in as expeditiously a manner as possible. That allowed 180,000 
out of 250,000 projects to get into the marketplace quickly.
    The second point that I want to talk about is energy-
savings performance contracts. In a climate of fiscal restraint 
you literally have an $80 billion pool of contracts that you 
can move immediately. An Energy Savings Performance Contract is 
a statutorily-established, private sector partnership in which 
the private sector energy service company installs in federal 
buildings all the energy efficient equipment at its own expense 
and is paid from the energy savings over a 20 to 25-year period 
of time.
    You are probably all familiar with it. This building is 
subject to one of the Energy Savings Performance Contracts as 
well as the other House buildings. The energy service company 
guarantees the proposed energy savings and takes full 
responsibility for any of the shortfalls. So there is 
absolutely no risk to the Federal Government. It is an $80 
billion authorization that can be triggered literally by the 
Federal Government wanting to do this.
    One of the things that we have--that has been very clear is 
that there have been two problems with this issue. One is 
because it is outside of what we would call just using 
appropriations, the federal contractors in the Department of 
Energy that manage these programs really are not familiar with 
it, and they could use more training, and that is based on 
basically GAO reports.
    And the second is I think the Stimulus from what we can 
tell from both the GAO reports and the obligated funds under 
the Stimulus, because appropriated funds were available, it was 
easier for the Department of Energy to move and use the 
appropriated funds first rather than the Energy Savings 
Performance Contract. So what happens is you ended up in the 
last year with only six projects totally $104 million when you 
have an $80 billion authorization.
    Oak Ridge National Labs indicated that this would create 40 
billion jobs, $21 billion in saved energy, and take ten million 
cars off the road.
    In my last 10 seconds I recommend that solutions and 
executive order get the President behind us. This is an 
excellent law, and if he makes it--if he requires this to be 
used first before appropriated funds, that would move it along. 
We need training and then finally Congressional oversight.
    Thank you very much.
    [The prepared statement of Mr. Kovacs follows:]

   Prepared Statement of Mr. William Kovacs, Senior Vice President, 
Environment, Technology, & Regulatory Affairs, U.S. Chamber of Commerce






































    Chairman Broun. Thank you, Mr. Kovacs. I appreciate all the 
witnesses staying pretty much within your five minutes and Dr. 
Montgomery, for you being even under time. If I remember last 
time you were here, you were under time also, and I appreciate 
that very much.
    Unfortunately, we have got about six minutes or 6-1/2 
minutes on this vote. You all can stand, the witnesses can 
stand at ease. The committee will recess until 10 minutes after 
the last vote begins.
    [Whereupon, at 2:42 p.m. the subcommittee recessed, to 
reconvene at 3:28 p.m., the same day.]

    Chairman Broun. I call to order the continuation of this 
hearing, and I thank our witnesses for your forbearance in our 
going to vote, and we tried to rush back here to minimize you 
all's time. So I thank you all for your testimony, and I want 
to remind members that the committee rules limit questions to 
five minutes, and the chair at this point will open the round 
of questions. I recognize myself for five minutes.
    Federal efforts to create green jobs costs money. Our 
Nation is currently very heavily in debt and running a huge 
deficit that is unsustainable.
    Where are we getting the money to fund these projects, and 
what impact does that have on the overall economy?
    I would like anyone who--Dr. Green is nodding his head, so 
I will give you first go at that.
    Mr. Green. Other than printing up money the government 
doesn't have any money, and therefore, when it gives money to 
subsidize an industry or to create jobs in a certain sector or 
to subsidize battery production and so forth, it takes that 
money from another part of the productive economy.
    Unless you subscribe to the mattress theory of capital, 
which is that people actually stick their capital under a 
mattress and don't have it working somewhere in the economy, 
either in their bank or in their savings account or in 
investments, it is simply the truth that the government scoops 
money out of the economy here, and they hand it over here. They 
take their cut along the way, and the jobs they create are more 
expensive than would be created in the market, and you have 
less jobs.
    Chairman Broun. Dr. Kreutzer.
    Mr. Kreutzer. I would say even if people did put their 
money in their mattress, you have to follow the real resources, 
all right, and if you are somehow going to build a new high-
tech economy entirely with people from the unemployment line, 
you know, then that is where the cost would be low. But that 
isn't what happens. I mean, we use resources that have an 
opportunity cost.
    Chairman Broun. I think Mr. Kovacs, I saw that you were 
nodding. Did you want to----
    Mr. Kovacs. I am happy to take a crack at it.
    Chairman Broun. Dr. Bivens.
    Mr. Bivens. I mean, the short answer is they are borrowing 
it, and now is a perfect time to borrow it because U.S. 
households and businesses are saving at historic rates because 
they are terrified because of the recession, they have lost a 
lot of wealth, and they are taking that savings that otherwise 
would not go to productive use, and they are making sure that 
there is enough demand in the economy to fill the hole caused 
by the bursting of the housing bubble.
    Chairman Broun. Mr. Kovacs. Or Dr. Montgomery. We will just 
go right down the line. Dr. Montgomery.
    Mr. Montgomery. Thank you. I think that the notion of real 
resources really is the important one, that that is what most 
of the green jobs studies miss, that you have to ask where the 
money is, where the funding is coming from, and that means what 
the real resources are, what is the capital and labor that is 
building green technology, what would it be doing otherwise.
    And if the government has to provide subsidies to get that 
capital labor into green technologies, that means it costs more 
than what the alternative would have been.
    So, yes, that is the sense in which there is a cost, but I 
think in terms of fiscal stimulus, there really is an error in 
thinking that we can justify spending on green jobs as a short-
term stimulus, because it is probably the worst way to spend 
short-term money. What we need to do for--every fiscal 
economist agrees, I think, that in the recession what you want 
to do is you want to get money into people's hands as fast as 
possible, you want to ramp that spending up rapidly, and then 
you want to ramp it down just as rapidly when you are coming 
out of the recession.
    What you want to do for R&D and technology development is 
provide a long-term, stable set of incentives as I was 
describing before. That is exactly the opposite of the program. 
That is the last program you would want to try to ramp up and 
ramp down to do something about the recession, even if you 
believe that fiscal policy is going to work.
    Chairman Broun. Mr. Kovacs.
    Mr. Kovacs. Well, I certainly don't want to sound like a 
broken record, but I do want to push the Energy Savings 
Performance Contracts. In some way, shape, or form they have 
been around since 1985. They are a bipartisan effort. All the 
money is put forth through the private sector. You are--the 
government is guaranteed that they will not pay any more than 
their energy costs. They theoretically will save about $21 
billion depending on how the contract, depending on how long 
the equipment lasts beyond the contract period. They take, you 
know, what is the equivalent of ten million cars off the road, 
but more than anything the government is guaranteed that it 
will not pay more, and it creates jobs.
    Chairman Broun. Thank you, Mr. Kovacs. I have three-
quarters of a minute left, so I will ask Dr. Kreutzer, I think 
you brought up Evergreen Solar. They received $20 million in 
funds to build a plant in Devens, Massachusetts. Shortly after 
receiving those funds Evergreen Solar shuttered the plant, 
fired 800 workers, is now moving its operations to China.
    What presents--wasn't it you, Dr. Kreutzer that--oh, Dr. 
Green. Okay. Dr. Green then, what prevents other companies from 
doing the same?
    Mr. Green. Absolutely nothing, and in fact, all the 
incentives point in the opposite direction. China has 
temporarily at least cornered the market on the rare earth 
elements which are used to make advanced technologies, 
including cell phones, wind turbines, solar panels, and the 
like, and they are instituting cuts in exports of those 
materials.
    And so if you want to produce and have access to these 
materials and lower labor rates and lower environmental 
standards for production, and it is--these are quite damaging 
technologies to produce, you want to go build them in China.
    So the incentive is to actually take the Stimulus--take 
government money here, do your R&D here, and then take what you 
have learned to the low-cost production in China.
    Chairman Broun. Thank you, Dr. Green. My time is up, and I 
recognize Ms. Edwards for five minutes.
    Ms. Edwards. Thank you, Mr. Chairman, and thank you to our 
witnesses. I just have one quick question, and you can just 
answer yes or no, and then we will get to the meat of it.
    I am curious as to whether you or your organization, the 
organizations that you represent supported the American 
Recovery and Reinvestment Act, the Stimulus Package?
    Mr. Green. AEI as an institution does not take official 
positions. Some of our scholars did, and some of the scholars 
didn't, I believe.
    Ms. Edwards. Did you?
    Mr. Green. No, I did not.
    Ms. Edwards. Thank you.
    Mr. Kreutzer. Yeah. That is not my area of energy, and I am 
not speaking for Heritage, but I don't believe they supported 
it.
    Ms. Edwards. Thank you. Dr. Bivens.
    Mr. Bivens. Our institute did support it.
    Ms. Edwards. Thank you. Dr. Montgomery.
    Mr. Montgomery. No. Consulting firms clearly don't support 
legislation one way or the other.
    Ms. Edwards. Did you?
    Mr. Montgomery. I feel that my job is to try to explain 
when I am asked what the likely consequences of decisions are 
and----
    Ms. Edwards. So you don't have a position on the American 
Recovery and Reinvestment Act?
    Mr. Montgomery. I would be happy to, as I am today, 
discussing what I think its effects were. I don't know whether 
you mean that is a position or not, but these are certainly my 
professional opinions about what the effects of the act----
    Ms. Edwards. But you didn't have a position at the time 
whether you supported or opposed the Recovery Act?
    Mr. Montgomery. What do you mean by a position?
    Ms. Edwards. Did you support or oppose the Recovery Act? 
Did you----
    Mr. Montgomery. In what context?
    Ms. Edwards. --support----
    Mr. Montgomery. Party conversation or----
    Ms. Edwards. Let me finish my question, please. Did you 
support the President's signing into law and the passage out of 
this Congress of the American Recovery and Reinvestment Act?
    Mr. Montgomery. Well, I am not a member of Congress, so I 
didn't get to vote on it one way or the other.
    Ms. Edwards. Thank you. Mr. Kovacs.
    Mr. Kovacs. The Chamber supported it.
    Ms. Edwards. Thank you. I am just curious when it was 
passed, it was, you know, I think it was because of a collapse 
in consumer demand and a financial system that really was on 
the brink of disaster and job losses, and so I am curious as to 
each of you, if there is a situation that doesn't justify the 
government stepping in to create jobs and restore confidence in 
the economy such as the time that we experienced from 2008, and 
beyond, what would it be?
    Dr. Green.
    Mr. Green. Since I am not an economist, macro, micro, or 
otherwise, this is a personal opinion, and there are--there 
were different ways--was it legitimate for the government to 
step in? Probably so. I am actually not anti-government. I 
think government is widely important. It is like fire. It is a 
necessary thing. It is great in the fireplace, it is wonderful 
on the stove, it is not so good on the carpets and on the 
drapes.
    But there are different ways that I think it could have 
been implemented that I would have preferred, which is why I 
didn't support it.
    Ms. Edwards. Thank you. Dr. Bivens, is there an appropriate 
time when the government should intervene in cases of high 
unemployment and collapse of confidence in the market?
    Mr. Bivens. Absolutely. I mean, in specific over the past 
couple of years why it was so appropriate for the American 
Recovery Act to be passed is because our primary tool for 
fighting recession is Federal Reserve Policy, had already 
pretty much maxed out its conventional ammunition. There was 
very much little extra the fed could do, something else had to 
come in and try to support the economy. That is what made it so 
appropriate in this context.
    Ms. Edwards. And so you come to a conclusion in your 
testimony that jobs were created, the economy was stabilized. 
How do you know that? From an economic perspective and from an 
evaluation perspective. How do you know that?
    Mr. Bivens. I reference the sort of consensus among 
forecasters, and that is not evidence in and of itself, but 
what it reflects is that there is a lot of strong evidence 
underlying it.
    One is just the timing of the act. It works very well when 
the downward spiral was arrested. Two, you do economic 
simulations where you try to construct, and this is what the 
Council for Economic Advisors did when they did their quarterly 
reports on the Recovery Act, and you can get a baseline path of 
how the economy would have done given the trajectory of 
economic variables as the crisis hit and then see how it 
actually did do relative to that counter-factual baseline. And 
then, three, you know, you use the multipliers that have gotten 
such a bad name in this debate, you know, given the amount of 
spending on food stamps or public sector investment. People act 
like these multipliers come from thin air. They don't come from 
thin air. They come from lots and lots of empirical research of 
the affect of government spending in environments like we saw 
in 2008, that is when the interest rate is at or zero-lower 
bound, when you have got the threat of deflation in those 
environments, past government spending has provided very large 
multipliers. That is where those come from. So that is where I 
got those.
    Ms. Edwards. Thank you, and then lastly, Mr. Kovacs, can 
you imagine an environment today in which we wouldn't have done 
the--passed the Recovery Act and what that would mean to the 
businesses that you represent?
    Mr. Kovacs. Well, actually, I think we, as the Chamber put 
it, an enormous amount of constructive thought into trying to 
work with Congress. One of the provisions that we had been 
lobbying for was what Senators Barrasso and Boxer put in, which 
was the way that you have to treat NEPA. In other words, it has 
to be handled in the most expeditious way possible, and we had 
no idea how many projects were really going to be impacted, but 
we knew there weren't that many shovel-ready projects.
    In the end according to the Administration that provision 
was used over 180,000 times, so we think that we added to 
really making the act work.
    Ms. Edwards. Thank you, Mr. Chairman.
    Chairman Broun. Okay. The--I guess, Mr. Miller, you are 
recognized for five minutes. I was just looking around to see 
who was here, so you are recognized for five minutes. 
Congressman Miller, you are recognized for five minutes.
    Mr. Miller. All right. Thank you. Dr. Green, you just a 
moment ago said that you are not an economist macro and micro. 
Actually my information is that your Ph.D. is in environmental 
science and engineering. You have a B.S. in biology and a 
Master's in molecular genetics.
    Did you take macro and micro in college?
    Mr. Green. Yes, sir. Yes, Congressman. As part of my 
doctorate at UCLA, the program I was in was an inter-
disciplinary and policy-oriented doctoral program in which we 
had a core course on decision-making theory that included 
economics.
    Furthermore, I have worked at and with economists now for 
16 years, including for three years editing a journal on the 
think tank that was primarily economic studies. So I am not an 
economist, but that does not mean I am not versed in economics.
    Mr. Miller. Okay, but you don't have an academic credential 
that would--you would not be qualified to peer review for a 
peer-reviewed economics journal, would you?
    Mr. Green. I believe I have, but I will leave that to your 
judgment.
    Mr. Miller. Okay, but all of your testimony today is on 
economics. Correct?
    Mr. Green. Essentially. Yes.
    Mr. Miller. Okay. In the three studies that you refer to 
are all economic studies. Isn't that correct?
    Mr. Green. Yes.
    Mr. Miller. Okay. Do you know if those studies were peer 
reviewed?
    Mr. Green. I am not aware of whether they were peer 
reviewed or not, but then, again, I don't hold a peer review as 
a particular guarantor of accuracy, and that has been clearly 
documented in the university.
    Mr. Miller. Okay. Do you know if those studies have been 
criticized by other economists as methodologically unsound?
    Mr. Green. Well, yes, naturally. I mean, all studies in 
this area are criticized, including----
    Mr. Miller. Isn't that one of the reason for peer reviews 
is to have a discussion back and forth between those who are 
familiar with methodology about whether the studies are 
methodologically sound?
    Mr. Green. Sure, and my guess is, yes, they actually did 
consult with their peers to have their research findings 
checked.
    Mr. Miller. Okay.
    Mr. Green. However, even peer-reviewed studies are a source 
of debate. Look at the IPCC, look at all the studies----
    Mr. Miller. Do you know the extent to which--do you know if 
they got any funding from the fossil fuel industries?
    Mr. Green. I have no idea what their sources of funding 
are.
    Mr. Miller. You don't know that they did?
    Mr. Green. I don't know what their sources of funding are 
at all.
    Mr. Miller. Okay. You are a fellow at the American 
Enterprise Institute. You say that you are here expressing your 
own opinion. I assume you are not on unpaid leave today, and in 
fact, if we look at the website for AEI in a few days they will 
probably tout your testimony today as a credential for you.
    Tell us what support AEI gets from the fossil fuel 
industry.
    Mr. Green. Well, first to correct the record, I am a 
resident scholar at AEI.
    Mr. Miller. Okay.
    Mr. Green. It is an arbitrary distinction or distinction 
that only matters inside, but for the record that is the case.
    I have no idea to tell you the truth what the fossil fuel 
industry donates to AEI. The scholars are walled off from the 
fundraising process entirely, and I couldn't begin to tell you.
    Mr. Miller. Okay.
    Mr. Green. Or any other donor to AEI.
    Mr. Miller. All right. Dr. Bivens, are you familiar with 
the three studies that Dr. Green wrote about?
    Mr. Bivens. I am familiar with two of the three, the 
Spanish and Italian, but I have not read the Scottish one.
    Mr. Miller. Okay. What--you presumably are qualified to 
peer review them as an economist. What is your peer review?
    Mr. Bivens. I think they are pretty bad. I mean, 
essentially they compare the labor intensity of jobs supported 
by green investments versus some economy-wide average, and 
because the labor intensity is lower, they decide that money 
could be more profitably spent somewhere else in the economy.
    I mean, that is ridiculous. If you just look at jobs in the 
utility sector in the United States today, they are not labor 
intensive at all. It is not a real shock, you know. These are 
very capital-intensive industries, so the idea that you could 
somehow just stop spending on utilities in the U.S. economy 
today and devote the money to other activities and create more 
jobs that the utility sector is killing jobs, that is an insane 
way to think of the issue.
    So basically they have come up with the blockbuster finding 
that utilities are not very labor intensive, which was not a 
surprise to anyone.
    Mr. Miller. Okay. A lot of the testimony today has been 
that government support distorts the market, and I see some 
heads nodding yes, that is correct. That is what your testimony 
is, that presumably if government is supporting something in 
one way, presumably alternative energy is in competition with 
coal, with oil and gas, with nuclear, and by supporting 
alternative energies, it distorts what the market would 
otherwise do.
    Since 1948, there has been $91 billion in funding for 
nuclear energy. Excuse me. There has been a total of--that is 
correct. Ninety-one billion for nuclear energy, 46 billion for 
fossil energy, and 11 percent or 21 billion for alternative 
energy. That is wind and solar and everything else together.
    Has that distorted the marketplace at all? Mr. Green. Dr. 
Green.
    Mr. Green. I would like to say, first of all, one has to 
keep these things in perspective. When you look at subsidies 
per megawatt hour, you do not see a dominance in the oil and 
petrochemical sector.
    I testified before I believe all subsidies distort markets 
and all subsidies in the energy field, in the markets should be 
removed to everyone, fossil fuels, nuclear power, wind, solar, 
alternative, battery technology. It doesn't really matter.
    Mr. Miller. Mr. Kovacs, do you have an opinion on this?
    Mr. Kovacs. I mean, look. We have, you know, we have 
generally supported the advancement of technology at various 
stages. We for years have supported the advancement and the 
funding of all the technologies in the Energy Policy Act of 
2005, 2007. We believe that one of the ways to begin addressing 
some of the issues that we have in this country is through 
technology, and obviously funding is a part of it.
    You know, to that extent we have supported it, and I think 
in the end one of the things we are here today to talk about is 
to say, okay, it seems as though the climate has changed, we 
have borrowed a lot of money as a Nation, and we are here to 
try to give ideas as to how we might cooperate and do both 
energy efficiency, promote technology, and have it done through 
the private sector.
    So, but, yes, we have always supported the technology 
efforts.
    Mr. Miller. My time has expired, Mr. Chairman.
    Chairman Broun. Yes, it has, but if you would like to ask 
an economist, Dr. Montgomery, those economic questions you 
asked of the other witnesses, I will be glad to give you a few 
more minutes for Dr. Montgomery to answer.
    Mr. Miller. Which ones particularly do you want to----
    Chairman Broun. Well, you asked an economist whether they 
were--Dr. Montgomery is an economist if you want to ask him the 
question about investment.
    Mr. Miller. Well, certainly.
    Chairman Broun. I would be glad to give you extra----
    Mr. Miller. Dr. Montgomery, well, do you agree that 
government support, subsidies, whatever, distorts the 
marketplace, the decisions that we made in the marketplace or 
otherwise?
    Mr. Montgomery. Yes, I do, and in particular I think that 
the--yes, and that there is a difference between distorting the 
marketplace and intervening in order to deal with true 
externalities like environmental protection. And I was trying 
to make that distinction in my testimony and rapidly in my five 
minutes, that it is a perfectly legitimate role and something 
which we have done quite successfully in many areas to 
establish cost-effective regulations that deal directly with 
emissions.
    Like the Title IV Sulfur Program under the Clean Air Act. 
That is the right way to direct technology into cleaner energy 
because it deals with the emissions. Where the distortions come 
in is when the government picks the technologies by funding the 
technologies directly rather than concentrating on what the 
consequences of the technologies are and letting nuclear 
renewable energy, natural gas, and others fight it out on a 
level playing field to see which one has the best way of 
meeting the environmental goals.
    Mr. Miller. Okay. How about the ultra deep water and 
unconventional natural gas and other Petroleum Research Fund? 
Does that fall within that--that doesn't seem to have anything 
to do with the environment. It seems to be simply with doing 
the research to--how to drill down to two miles.
    Mr. Montgomery. I think the other part of my testimony was 
that there is a general market failure in R&D which leads to a 
lack of adequate investment across the board in the economy, 
including in the energy sector in the basic and applied 
research that provides new ideas on which innovations are 
built.
    Now, I don't know whether that particular fund is doing 
that kind of basic and applied research or is doing something 
that the oil industry could have done perfectly well all by 
itself without having that money put into it.
    But I would call that spending on technology development 
that may or may not be justified, depending on whether it is at 
the basic research end of the scale where government has an 
appropriate role.
    Chairman Broun. The gentleman's time has expired. Just in 
fairness.
    The gentlelady, Ms. Lofgren, you are recognized for five 
minutes.
    Ms. Lofgren. Thanks very much. You know, I come from 
Silicon Valley where the tech sector is very excited about 
clean energy. I mean, it is not just the government programs 
that has given a tiny leg up to the industry but also the 
venture capital world. That is the biggest area of new growth, 
and people believe in business and also in the academic world 
that this has a tremendous future, not only in energy 
production but clearly in terms of job creation, and it is the 
next big thing that we don't want to miss out on.
    And as I review the testimony today, I do have a concern. 
There seems to be a questioning of government investment in 
clean energy and green jobs. Now, Mr. Miller mentioned the 
disparity in terms of research dollars which the Congressional 
Research Service has advised us of with most of the money going 
into nuclear and the most of the rest going into fossil and 
really just a small percentage going into clean energy, but I 
think that is part of the story.
    We have, and I have heard no willingness on the other side 
of the aisle to take a look at the tax breaks that we are 
giving in the fossil fuel arena, especially to oil companies.
    Dr. Bivens, it seems to me if you add in the disparity in 
research funding with the tax breaks given to oil companies 
that nobody apparently is talking about repealing, you know, 
what does this do to the kind of a level playing field for the 
clean energy industry? Doesn't it make sense when we are 
subsidizing the oil industry and when we are disproportionately 
funding nuclear and fossil fuels to at least provide some 
assistance to this fledgling part of the energy economy, the 
high-tech sector?
    Mr. Bivens. Yeah. I mean, I would say I am not an expert on 
exactly how much in the way of benefits the fossil fuel 
industry gets, but I think your point is a good one, and I 
would add, you know, that besides the direct benefits, 
subsidies, tax breaks going to the fossil fuel sector, I think 
the single biggest subsidy is our failure to price emissions 
that are harmful to other economic stakeholders. That is a huge 
subsidy, and so I think until we correct that one, we are just 
not giving the private sector near enough incentive to do the 
green investment on its own, so I think public sector 
incentives to give that, give those incentives are a very good 
way to go.
    Ms. Lofgren. I was interested in Dr. Montgomery's comment 
in the exchange with Mr. Miller about the value of regulation 
to set standards that then people or industries will work to. I 
am wondering the Governor of California just upped the 
renewable energy portfolio requirement to a third today, and 
what I hear from industry is that if they know what it is they 
are supposed to do, they can do it. But what they need is some 
standards and what are the rules, and would you support, would 
you think that that would help? What California is doing?
    You know, our energy consumption has remained flat while 
the population has grown about 25, 30 percent.
    Mr. Montgomery. I have done a lot of work on California's 
AB-32 implementation, so I will resist the temptation to talk 
about all of it.
    Ms. Lofgren. Thank you.
    Mr. Montgomery. I think the clean energy standard is a good 
example of a program which actually increases the cost of 
achieving the actual environmental objectives, and this is 
something we discussed at great length with the Air Resources 
Board and with the Economic and Allocation Advisory Committee. 
Larry Gould who chairs it from Stanford. That a cap-and-trade 
program in California would have been sufficient to achieve the 
goals of AB-32.
    Adding the Clean Energy Standard to it serves only to limit 
the choices that utilities have for what kind of energy they 
are going to use to meet that standard, and it forces utilities 
to bear more of the burden.
    Ms. Lofgren. It is interesting, if I can, I have limited 
time, I don't want to be abrupt or rude, but the utilities 
certainly don't feel that way. In fact, PG&E which is the major 
utility and is the utility in my part of the State, pulled out 
of the Chamber of Commerce when they didn't support the cap-
and-trade bill that the Congress had.
    Dr. Bivens, do you share that point of view? I mean, not 
that California is so perfect, we have our challenges, but from 
an energy point of view we are making tremendous progress.
    Mr. Bivens. That general point of view that California has 
been a real leader in keeping energy consumption down relative 
to the rest of the country, absolutely, and I will say, you 
know, I bet I could construct an absolutely platonic, perfect 
energy policy that follows textbook economics and gets us to 
exactly where we need to go. That is not the world we live in. 
I mean, right now we have just got the market failing every day 
to put a price on emissions that harm other economic 
stakeholders, and so we should find a second best way to do the 
job until we get the platonic ideal.
    Ms. Lofgren. Well, I think that is correct, and certainly 
the State of California has set the standard in many ways by 
setting fuel efficiency standards when the Nation would not, 
and because it is such a large market, it actually did move 
fuel efficiency in the Nation, and we are doing the same thing 
with air quality, energy consumption, renewable uses, and the 
like.
    I want to just switch briefly because I am almost out of 
time to the role of basic science research, which there is no 
way industry has the funds to do that kind of pre-competitive 
pre-commercial research, and I have a very deep concern that if 
we don't do adequate investments in basic research, university-
based, or in the national labs, that we are going to have a big 
problem in the future and specifically some of the reductions 
that are being proposed, for example, the Stanford Linear 
Accelerator, which is doing X-ray photography in a way where 
they will actually be able to see at a molecular level 
photosynthesis, which has tremendous potential in terms of 
energy.
    What is your take on the budgets, budget discussions on 
basic research, Dr. Bivens? What would those cuts do for our 
future competitively from a jobs point of view and from an 
energy point of view?
    Mr. Bivens. Yeah. I pretty much totally agree with you. I 
think cutting investments in basic research and a rush to 
budget austerity is kind of the definition of penny wise, pound 
foolish. I just don't think we should do it.
    Ms. Lofgren. Dr. Montgomery, do you have a point of view on 
that?
    Mr. Montgomery. Yes, I absolutely agree. In fact, that was 
what I put into my opening statement to try to emphasize it 
more than my written testimony did. Absolutely that the 
highest--that as you look at cutting the budget, it is very 
important that you protect the level of funding that we are now 
putting into basic energy research, not let it get cut.
    The problem is that it has generally been starved by 
Congress in order to continue funding the subsidies and 
deployment of existing technologies, and that is because of the 
jobs that that creates. I think we have to----
    Ms. Lofgren. Well, there are jobs in basic science 
research, too.
    Mr. Montgomery. There are, and that is just fine, but don't 
lose sight--but don't concentrate so much on jobs that you put 
money into things instead of basic.
    Ms. Lofgren. I think we are the richest country in the 
world. We can do both, and I yield back.
    Chairman Broun. The gentlelady yields back.
    Now, the chairman recognizes Mr. Hultgren for five minutes.
    Mr. Hultgren. Thank you, Mr. Chairman. Just a couple of 
questions, and I am sorry, there is a couple different 
committees meeting the same time, and I wish I could have been 
here for the whole time, but we will spend more time going over 
your testimony and things, but I did want just some 
clarification if I could.
    And I guess I will, Dr. Montgomery, if I can address this 
to you at first, the Administration has made a high profile 
effort to invest a significant amount of taxpayer money on 
green jobs. How should Congress evaluate various job creation 
proposals? Any suggestions that you would have for us?
    Mr. Montgomery. Yeah. I would say ignore everything anybody 
says about jobs. You should be evaluating programs on their 
merits in terms of what do they cost, how do they address a 
specific externality or public policy problem, are they going 
to be increasing or reducing the cost of energy. The jobs 
calculation I think is--the jobs argument is pure smokescreen. 
Everybody can argue that they are going to be creating jobs if 
you give them money or losing jobs if you don't give them 
money. You have to actually look at the merits of what the 
money is doing.
    Mr. Hultgren. Mr. Kovacs, would you agree with that, and I 
guess just kind of a follow-up question. What is the 
appropriate cost that we should expect to pay? You know, is it 
$100,000 per job or $1 million per job or $10 million per job? 
Where do we start making a decision that this is too much, it 
is not being effective?
    Mr. Kovacs. Well, our research doesn't confirm or deny any 
of that, but what it does state factually was that at least in 
March of 2010, there were 351 developers around the United 
States who were willing to put in $570 billion in direct 
investment that would have created roughly about $1.1 trillion 
as you have the multiplier effects with about 1.9 million jobs.
    And what we are trying to say is the thing that held up 
that investment was the fact that departments were challenged 
and challenged and challenged, and if you--the goal isn't 
necessarily an environmental goal because every kind of 
facility was challenged, and 40 percent of the facilities that 
were challenged were all renewables. And there are 24 nuclear 
and I forget how many transmission, which would actually take 
the renewable power from the plains into Minnesota or Chicago.
    So you have a pot of money, and you have developers who are 
willing to risk their money to build these facilities. So the 
easier way to do it is to let the private sector do it, and the 
market will begin to sort itself out. Some will get permits, 
some won't, but even if you took just one facility per state, 
you still get to about $400 billion in direct investment. That 
is needed at this time.
    Mr. Hultgren. Thanks, Mr. Kovacs, and I agree. It 
frustrates me when I see sometimes we are picking winners and 
losers or pushing an agenda that the market just doesn't want, 
and you know, there are some issues there I think that--so I 
appreciate your input there.
    Dr. Green, if I could ask you, would you--are there other 
federal efforts that could be more efficient--that could just 
work more efficiently to help unemployed American and also 
stimulate the growth of the green economy? Are there things 
that you see that we could be focusing on that you would 
recommend?
    Mr. Green. I lack the hubris to make suggestions like that. 
That would be better asked of someone who was more focused on 
sort of how economic stimulus works. I can recommend any of our 
economists at AEI for that.
    Mr. Hultgren. Great. I will move right next door if I could 
with that question, Dr. Kreutzer. If you have any suggestions, 
are there things, you know, federal efforts that could be more 
efficiently used to help people who are unemployed other than 
some of these green jobs initiatives?
    Mr. Kreutzer. Yeah. Well, let's look at some of the things. 
First of all, we could have a separate discussion about the 
general benefit of federal funding of research, but the 
Stimulus Package doesn't fit that. We are trying to promote the 
economy. In the Stimulus Package they had a carve out of $140 
million for climate data modeling. I checked with 
climatologists. They didn't know any unemployed climate data 
modelers.
    We had a $5 billion program for weatherization. The state 
auditor in New Jersey, Stephen Eells, looked at the money that 
was being spent in New Jersey. Five percent of the funding was 
spent documented on nothing, close to ten percent they couldn't 
even tell where it had been spent, eight percent was overspent. 
They spent, you know, $22 on a light bulb that cost $1.50.
    In short, out of 5 billion if you use that ratio, 1 billion 
is wasted. So you could do a lot better stimulus with the 
economy by not wasting billions of dollars by not ramping up 
money for people that are already employed.
    When it comes to the impact, there was a debate earlier on 
whether we had the studies that Dr. Green cited were peer 
reviewed, as though they didn't matter if they weren't, but 
here is a statement from the Congressional Budget Office, okay, 
last year on the impact of policies to reduce greenhouse gas 
emissions on employment. This is a quote. ``In particular, job 
losses in the industries that shrink would lower unemployment, 
excuse me, would lower employment more than job gains in other 
industries would increase employment, thereby raising the 
overall unemployment rate.''
    So it is not fossil fuel funded researchers that are coming 
up with this. This is very general, consistent from economists. 
We had a panel at the Heritage Foundation in September of 2009. 
We had economists from the EIA, we had economists from the EPA, 
we had economists from the Congressional Budget Office, we had 
economists from the Brookings Institution. All of them 
analyzing the employment and the simulative impact of Waxman-
Markey. None of them found that it stimulated the economy.
    The debate was entirely over how much did it cost. Nobody 
found economic growth from that. The question is is it worth 
that? That is a reasonable debate to have, but you can't 
pretend that it is free.
    Mr. Hultgren. I am out of time. Thank you very much. I 
yield back.
    Chairman Broun. The gentleman's time has expired.
    I want to thank the witnesses for you all's valuable 
testimony here today. It has been very enlightening, and I 
thank the members for your questions.
    Members of the subcommittee have additional questions for 
the witnesses, and I will ask all of you all to respond to 
those questions in writing. The record will remain open for two 
weeks for additional comments from members, and if you would, 
please get those answers in writing back to us within that two-
week period.
    The witnesses are excused and----
    Ms. Edwards. Mr. Chairman, I just have a question. I would 
ask unanimous consent that we be allowed to include materials 
for the record that were shared with the majority staff prior 
to the hearing.
    Chairman Broun. Okay. I think that has been agreed to. So 
ordered.
    Ms. Edwards. Thank you.
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    Chairman Broun. Anything else? Okay. Witnesses excused. The 
hearing is now adjourned, and thank you all very much.
    [Whereupon, at 4:05 p.m., the Subcommittee was adjourned.]
                                Appendix

                              ----------                              


                   Answers to Post-Hearing Questions




                   Answers to Post-Hearing Questions
Responses by Dr. Kenneth Green, Resident Scholar at the American 
        Enterprise Institute

        
        
        
        
        
        
        
        
Responses by Dr. David Kreutzer, Research Fellow in Energy, Economics, 
        and Climate Change, The Heritage Foundation

        
        
        
        
Responses by Dr. David W. Montgomery, Vice President, NERA Economic 
        Consulting

        
        
        
        
        
        
Responses by Mr. William Kovacs, Senior Vice President, Environment, 
        Technology, & Regulatory Affairs, U.S. Chamber of Commerce

        
        
        
        
        
        
        
        
        
        
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