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



 
                         IMPACT OF TAX POLICIES
                     ON THE COMMERCIAL APPLICATION
                     OF RENEWABLE ENERGY TECHNOLOGY

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

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON INVESTIGATIONS AND
                               OVERSIGHT
                             JOINT WITH THE
                 SUBCOMMITTEE ON ENERGY AND ENVIRONMENT

              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                        THURSDAY, APRIL 19, 2012

                               __________

                           Serial No. 112-78

                               __________

 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         BRAD MILLER, North Carolina
FRANK D. LUCAS, Oklahoma             DANIEL LIPINSKI, Illinois
JUDY BIGGERT, Illinois               DONNA F. EDWARDS, Maryland
W. TODD AKIN, Missouri               BEN R. LUJAN, New Mexico
RANDY NEUGEBAUER, Texas              PAUL D. TONKO, New York
MICHAEL T. McCAUL, Texas             JERRY McNERNEY, California
PAUL C. BROUN, Georgia               TERRI A. SEWELL, Alabama
SANDY ADAMS, Florida                 FREDERICA S. WILSON, Florida
BENJAMIN QUAYLE, Arizona             HANSEN CLARKE, Michigan
CHARLES J. ``CHUCK'' FLEISCHMANN,    SUZANNE BONAMICI, Oregon
    Tennessee                        VACANCY
E. SCOTT RIGELL, Virginia            VACANCY
STEVEN M. PALAZZO, Mississippi       VACANCY
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.,         PAUL TONKO, New York
    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
                                 ------                                

                 Subcommittee on Energy and Environment

                   HON. ANDY HARRIS, Maryland, Chair
DANA ROHRABACHER, California         BRAD MILLER, North Carolina
ROSCOE G. BARTLETT, Maryland         LYNN C. WOOLSEY, California
FRANK D. LUCAS, Oklahoma             BEN R. LUJAN, New Mexico
JUDY BIGGERT, Illinois               PAUL D. TONKO, New York
W. TODD AKIN, Missouri               ZOE LOFGREN, California
RANDY NEUGEBAUER, Texas              JERRY McNERNEY, California
PAUL C. BROUN, Georgia                   
CHARLES J. ``CHUCK'' FLEISCHMANN,        
    Tennessee                            
RALPH M. HALL, Texas                 EDDIE BERNICE JOHNSON, Texas


                            C O N T E N T S

                        Thursday, April 19, 2012

                                                                   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..................    24
    Written Statement............................................    26

Statement by Representative Paul Tonko, Ranking Minority Member, 
  Subcommittee on Investigations and Oversight, Committee on 
  Science, Space, and Technology, U.S. House of Representatives..    28
    Written Statement............................................    30

Statement by Representative Andy Harris, Chairman, Subcommittee 
  on Energy and Environment, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................    33
    Written Statement............................................    35

Statement by Representative Brad Miller, Ranking Minority Member, 
  Subcommittee on Energy and Environment, Committee on Science, 
  Space, and Technology, U.S. House of Representatives...........    37
    Written Statement............................................    39

                               Witnesses:

Dr. Molly F. Sherlock, Specialist in Public Finance, 
  Congressional Research Service
    Oral Statement...............................................    41
    Written Statement............................................    44

Mr. John Parcell, Acting Deputy Tax Legislative Counsel U.S. 
  Department of the Treasury
    Oral Statement...............................................    57
    Written Statement............................................    59

Dr. Michael Pacheco, Vice President, Deployment and Industrial 
  Partnerships, National Renewable Energy Laboratory
    Oral Statement...............................................    74
    Written Statement............................................    77

Discussion                                                           83

Mr. Rhone Resch, President and CEO, Solar Energy Industries 
  Association
    Oral Statement...............................................    92
    Written Statement............................................    95

Mr. Terry Royer, CEO, Winergy Drive Systems Corporation, Elgin, 
  IL
    Oral Statement...............................................   107
    Written Statement............................................   109

Mr. Steven Erby, Vice President, Monolith Solar Associates, LLC, 
  Rensselaer, NY                                                       
    Oral Statement...............................................   111
    Written Statement............................................   113

Dr. Benjamin Zycher, Visiting Scholar, American Enterprise 
  Institute                                                            
    Oral Statement...............................................   115
    Written Statement............................................   117

Dr. Margo Thorning, Senior Vice President and Chief Economist, 
  American Council for Capital Formation                               
    Oral Statement...............................................   140
    Written Statement............................................   142

Ms. Lisa Linowes, Executive Director, Industrial Wind Action 
  Group, Lyman, NH                                                     
    Oral Statement...............................................   158
    Written Statement............................................   160

Discussion                                                          175

              Appendix: Answers to Post-Hearing Questions

Dr. Molly F. Sherlock, Specialist in Public Finance, 
  Congressional Research Service.................................   188

Mr. John Parcell, Acting Deputy Tax Legislative Counsel U.S. 
  Department of the Treasury.....................................   192

Dr. Michael Pacheco, Vice President, Deployment and Industrial 
  Partnerships, National Renewable Energy Laboratory.............   197

Mr. Rhone Resch, President and CEO, Solar Energy Industries 
  Association....................................................   232

Mr. Terry Royer, CEO, Winergy Drive Systems Corporation, Elgin, 
  IL.............................................................   253

Dr. Benjamin Zycher, Visiting Scholar, American Enterprise 
  Institute......................................................   256

Dr. Margo Thorning, Senior Vice President and Chief Economist, 
  American Council for Capital Formation.........................   258

Ms. Lisa Linowes, Executive Director, Industrial Wind Action 
  Group, Lyman, NH...............................................   260



                         IMPACT OF TAX POLICIES
                     ON THE COMMERCIAL APPLICATION
                     OF RENEWABLE ENERGY TECHNOLOGY

                              ----------                              


                        THURSDAY, APRIL 19, 2012

                  House of Representatives,
      Subcommittee on Investigations and Oversight,
                                     joint with the
            Subcommittee on Energy and Environment,
               Committee on Science, Space, and Technology,
                                                    Washington, DC.
    The Subcommittees met, pursuant to call, at 9:42 a.m., in 
Room 2318 of the Rayburn House Office Building, Hon. Paul Broun 
[Chairman of the Subcommittee on Investigations and Oversight] 
presiding.




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    Chairman Broun. Good morning. This is a joint hearing of 
the Subcommittee of Investigations and Oversight as well as the 
Subcommittee on Energy and Environment. I call this meeting to 
order.
    Good morning. Welcome to today's joint hearing entitled, 
``Impact of Tax Policies on the Commercial Application of 
Renewable Energy Technology.'' In front of you are packets 
containing the written testimony, biographies, and truth in 
testimony disclosures for today's witnesses.
    Before we get started, since this is a joint hearing 
involving two Subcommittees, I want to explain how we will 
operate procedurally so all Members will understand how the 
question-and-answer period will be handled. As always, we will 
alternate between the Majority and Minority Members to allow 
all Members an opportunity for questioning before recognizing a 
Member for a second round of questions. We will recognize those 
Members present in the gavel in order of seniority on the full 
Committee and those coming in after the gavel will be 
recognized in order of their arrival.
    And I recognize myself for five minutes for my opening 
statement.
    Taxes were due to the IRS two days ago. With this fresh on 
everyone's mind, it is timely for the Committee to fulfill its 
obligation under House Rule X Clause 2(c) to ``review and study 
on a continuing basis the impact or probable impact of tax 
policies affecting subjects within its jurisdiction.'' In this 
instance we are looking at an important piece of our 
Committee's jurisdiction, the commercialization of energy 
technology.
    As Congress debates extending renewable energy tax 
provisions, it is important for this Committee to evaluate the 
merits of these provisions as well as the President's overall 
request. At a fundamental level, we have to understand whether 
these subsidies have a positive net affect, not only on energy 
production but also on jobs and the economy as a whole.
    More specifically, we also need to evaluate whether the 
mechanisms previously employed, the tax credits and grants, are 
the most efficient ways to proceed.
    Until the passage of the stimulus bill, the primary tax 
mechanisms for incentivizing renewable energy were the 
Production Tax Credit and Investment Tax Credit. The passage of 
the Stimulus Bill brought about additional methods, including 
the Advanced Energy Manufacturing Tax Credit, also known as 
48C, and the 1603 Program, which provided cash grants in lieu 
of tax credits. Both of these are administered by the 
Department of Treasury with support from the Department of 
Energy and the National Renewable Energy Laboratory. Altogether 
the PTC, ITC, 1603, and the 48C and other renewable energy 
provisions are estimated to cost $43.1 billion between 2011 and 
2015.
    A lot of attention has been paid to the failures of 
Solyndra, Beacon Power, and Ecotality, which received 
questionable support from DOE, and rightfully so. What many 
don't realize, however, is that these direct expenditures from 
DOE are a mere drop in the bucket compared to what these 
technologies received from tax provisions. In 2011 alone, tax 
preferences for all energy technologies cost $20.5 billion, far 
exceeding the $3.2 billion in direct support from DOE. 
Unfortunately, these significantly greater expenditures have 
not shared the same level of oversight.
    Today's hearing will examine the efficacy of renewable 
energy tax policy, the Administration's 2013 renewable tax 
energy proposals, and the 1603 and 48C Programs in detail.
    Regarding the 1603 Program, it is important to understand 
just how many new jobs were actually observed as opposed to how 
many jobs a model predicts could have been created. It is also 
important to understand the net impact on jobs and energy 
production as a result of this specific provision, not simply 
what is happening on one side of the ledger. I also want to 
know how many of these jobs were actually created here in the 
United States as opposed to overseas.
    Ultimately, our goal should be to ensure an efficient, all-
of-the-above strategy with--that respects market decision and 
does not pile more debt on our children and grandchildren that 
they will have to pay in years to come. The current national 
debt is over $15.6 trillion. China currently holds 1.18 
trillion of our Nation's $5.1 trillion foreign-owned debt. It 
doesn't make any sense for us to borrow more money from China 
and then use it to buy foreign renewable energy components. 
These technologies, I might add, are unfortunately not cost 
competitive and will make our domestic energy more expensive.
    All of this, by the way, is done to reduce our own 
greenhouse gas emissions when China and the rest of the 
developing world account for most of the emissions growth.
    [The prepared statement of Mr. Broun follows:]
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    Chairman Broun. Now the Chair will recognize Mr. Miller, I 
guess, for his opening statement.
    Or Mr. Tonko. I didn't see you sitting over there, my 
friend. I will recognize Mr. Tonko, my counterpart on I & O.
    Mr. Tonko. Thank you, Chairman.
    To Chairs Broun and Harris, thank you for holding the 
hearing today on renewable energy tax credits. Although the 
legislation authorizing these incentive programs is not in our 
jurisdiction, it is good for this Committee, I believe, to 
examine the subsidies that can influence markets in those 
technology sectors where we authorize research.
    Here in the Science Committee we authorize the full suite 
of research, development, and technology demonstration programs 
that bring new ideas and new technologies forward. Many things 
fall by the wayside along that path, but even the most 
promising demonstrated technology still has to overcome many 
barriers to entry into the marketplace.
    We have a long tradition of government support for 
business, particularly for the energy business: government 
procurement, tax credits, government certification programs, 
patent and copyright laws, and public, private partnerships to 
name a few. All of these instruments and more have been used to 
help businesses get established and flourish.
    We have a pressing need for an affordable staple supply of 
energy. Renewable energy must move forward and become a larger 
share of our energy supply. The investment and production tax 
credits, the 1603 Program, and the depreciation benefits for 
renewable energy properties are all needed to accelerate the 
entry into the market of renewable energy technologies, grow 
the domestic market for these technologies, and certainly 
create jobs.
    I support these programs because they work. Some of them 
need to be expanded to promote wider applications of new energy 
technologies. A number of them need to be sustained for longer 
periods of time that are more appropriate to invest horizons, 
to investment horizons than the Congressional budget cycle.
    On April 15 of last year I introduced H.R. 1659, a bill to 
expand the existing credit for fuel cell motor vehicles to 
include industrial-use vehicles. The United States is currently 
the leader in the manufacture of fuel cell technologies. If we 
grow the domestic market, we will continue to lead in this 
area. But if we withdraw our support, as we did with solar in 
the 1980s, we risk losing this manufacturing edge.
    In my former position as president and CEO of the New York 
State Energy Research and Development Authority, I saw how 
effective and essential State and federal investment was to the 
development of these businesses. The partnership between the 
federal and State government, universities, and entrepreneurs 
in New York State is paying dividends in the form of jobs and 
energy.
    I am very pleased to have Mr. Steven Erby sit before the 
committee today. He is the vice president of Monolith Solar 
Associates, which is a solar energy company from my district. 
Mr. Erby and his associates know firsthand the value of these 
tax policies to entrepreneurs. Starting your own business is 
not a task for the faint of heart. Convincing customers to try 
something new is, indeed, difficult. But, Mr. Erby and his 
partner, Mark Fobare, have achieved success and continue to 
create jobs and hire residents in the Capital Region.
    This is an economic success story that I would like to see 
repeated throughout our country. The 1603 Program helped them 
to achieve success. It made the Federal Government a true 
partner in job creation and deployment of solar energy in the 
Northeast Region, and it put government on their side, not on 
their backs. We need to make a sustained commitment to expand 
alternative energy production and to improve energy efficiency, 
the two most reliable ways to reduce our dependence on foreign 
oil, insulate ourselves from volatile fuel prices, and maintain 
a clean environment.
    We have relied on fossil fuel since the start of the 
Industrial Revolution, and we have invested a tremendous amount 
of taxpayer funds to support the oil, gas, and coal industries. 
Nuclear energy, the newer kid on the block, has received 
federal support for over 70 years as we all know. The oil 
industry has been in business since 1918, and made profits of 
over $100 billion last year alone, and they will still receive 
over $4 billion in subsidies each year.
    It is impossible to make a case for the necessity of 
maintaining this level of support for such a mature industry. 
In fact, we might say it is mindless in terms of the handout of 
that benefit.
    Renewable energy technologies must compete against the 
existing energy sources with federal support that constantly 
threatens to pull the rug out from under their feet. A move to 
renewable energy sources requires a similar level of support 
and commitment to the one we offer to oil and gas and our 
nuclear industry.
    The renewable tax credits we are examining today are 
working. They are working and need to be continued. We talk a 
lot about supporting small business, having affordable 
domestically produced energy, and a healthy environment. It is 
meaningless if we do not back that rhetoric with real 
resources.
    I look forward to hearing from our witnesses today. It is 
unfortunate that we are only examining the tax provisions 
relevant to the renewable energy community. A fair evaluation 
of our tax policy requires a view of the entire energy tax 
landscape, including century-old oil and gas tax breaks. I hope 
our colleagues on Ways and Means will move forward with the 
renewal of these important clean energy tax provisions so that 
companies eager to provide the market with clean energy 
technologies will, indeed, have a fair chance, a fair chance to 
deliver them.
    With that I thank you and yield back, Mr. Chair.
    [The prepared statement of Mr. Tonko follows:]

    
    
    
    
    
    
    Chairman Broun. Thank you, Mr. Tonko. The Chair now 
recognizes the Chairman of the Subcommittee on Energy and 
Environment, Dr. Harris, for your opening statement. You have 
five minutes, sir.
    Dr. Harris. Thank you very much, Mr. Chairman. As you said, 
as millions of Americans filed their taxes this week, many 
surely stopped to ponder what happens to the thousands of 
dollars they send to Uncle Sam. A good chunk of that money, 
nearly $14 billion last year, according to CBO, is spent 
offsetting the cost of renewable energy tax credits. Despite 
their staggering price tag, which is more than five times 
greater than renewable energy research and development 
spending, these programs have operated in relative obscurity. 
Today's hearing is intended to examine the impact and 
effectiveness of these credits as Congress considers President 
Obama's call to extend funding them with taxes on hardworking 
American taxpayers.
    As we evaluate these subsidies, it is important to remember 
that the President promoted them as not only central to his 
effort to fight global warming but also as generating jobs that 
would drive America's economic recovery. By this metric, the 
results have been extremely disappointing.
    For example, a recent Wall Street Journal report found that 
the Section 1603 Program created in the Stimulus Bill to 
provide companies lump sum cash payments of up to 30 percent of 
a project's cost resulted in far fewer jobs than expected. The 
report noted that collectively applicants stated in program 
applications that their projects would create more than 100,000 
jobs. However, the Journal's analysis of $4.3 billion of those 
wind projects, representing about 40 percent of the total 
program funding, estimated that only 7,200 jobs were created at 
the peak of construction and that those projects now employ 
only 300 people.
    Similarly, Reuters reported last week that the wind 
industry has lost 10,000 jobs since 2009, while the oil and gas 
industry added 75,000 jobs during that time.
    In addition to concerns associated with the high cost and 
weak job creation resulting from these programs, the 
electricity produced by wind and solar represents less than 
three percent of current generation, can cost up to five times 
as much to produce per kilowatt hour, and must be backed by 
additional baseload capacity to take over when the wind doesn't 
blow and the sun doesn't shine.
    Perhaps most importantly even with generous government 
subsidies consumers are ultimately required to shoulder the 
costs of renewable electricity directly in the forms of higher 
electric bills and indirectly in the higher costs passed onto 
them by businesses that also pay more for electricity.
    This exact situation is currently under consideration in my 
home State of Maryland, where Governor O'Malley continues to 
push and mandate, push to mandate and subsidized with federal 
taxpayer dollars development of a $1.5 billion offshore wind 
farm. If adopted, his plan would increase significantly the 
electricity bills of nearly every resident in the State.
    I would note as an aside that this proposal has generated 
concerns of Solyndra-like cronyism, as the governor's former 
chief of staff is now managing partner at an offshore wind 
energy firm that could stand to benefit from passage of the 
plan.
    As this debate continues, the free market in energy is 
already providing a cost saving alternative in the form of a 
technology-driven revolution in natural gas production that can 
deliver clean, reliable, baseload electricity to consumers at 
lower prices.
    The contrast between these two paths is stark. The 
President's one is a centrally planned, politically driven path 
requiring taxpayers and ratepayers to pick up the tab for more 
expensive energy. The alternative would allow technology in the 
free market to determine the best and most affordable mix of 
electricity sources without burdening hardworking taxpayers and 
driving up already huge federal deficits.
    As Congress considers the President's call to extend these 
subsidies, I hope these choices are the subject of thorough and 
open debate, taking into account the hardworking American 
taxpayer and the hardworking American electricity rate payer.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Harris follows:]

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    Chairman Broun. Thank you, Dr. Harris.
    The Chair now recognizes Mr. Miller for your opening 
statement. You have five minutes, sir.
    Mr. Miller. Thank you, Mr. Chairman.
    It is funny to remember that when I was first elected to 
Congress, first entered Congress nine years ago, I found 
partisan warfare tedious and wanted to pick committee 
assignments that would not just put me in one litmus test 
battle after another. The issues I had worked on the state 
legislature would have been in the jurisdiction more of the 
Judiciary Committee or of the Education and Labor or Education 
and the Workforce Committee, but those Committees were just 
seen as partisan battlegrounds with one litmus test vote after 
another and no real opportunities for imaginative, constructive 
work by Members of Congress.
    I apologize to the Members of those Committees if they 
think that is an unfair characterization, but that was the 
impression of those Committees and why I did not particularly 
want to be on those Committees. I picked Committees that 
traditionally had not been divided along partisan lines--
Financial Services and Science and Technology--now two 
Committees that are one partisan litmus test after another, it 
appears.
    In the past, there seemed to be broad agreement about the 
importance of science, the importance of research for its own 
sake, to satisfy our curiosity--a deep human need--but also in 
recognition that our economy depended upon research, and it 
depended upon getting ideas from the laboratory to the 
marketplace; that we prospered because we were the most agile, 
innovative, energetic economy in the world.
    Within our lifetimes, we have seen our economy transformed 
by information technology, and that revolution, that 
technological revolution, like others, has not been the result 
just of an unfettered free market, but it has been the work of 
the whole Nation--the public sector and the private sector. The 
internet began as a DARPANET, created by government research, 
and it is very clear, or should be very clear, that our energy 
future is going to be different from our energy past, and we 
need to be in the forefront of developing those new 
technologies as well.
    But instead of having that broad agreement about the need 
to help emerging technologies that are obviously our future, it 
leaves--had one partisan litmus test, vote, or issue after 
another. There is doctrinaire opposition to clean energy as 
picking winners or losers or crowding out private investment, 
when in fact the conventional sources of energy have benefited 
spectacularly over the last century from hundreds of billions 
of dollars of taxpayer support. They have not been the result 
of a free market, whether it is from outright subsidies or tax 
breaks, limitations of liability. And if you wonder if the 
Price-Anderson Act really is a significant subsidy for the 
nuclear industry, look at what is happening right now in Japan.
    Yes, there has been a large government involvement in 
encouraging new energy sources. The ones that we have now had 
benefited from that, and the energy sources of our future need 
to as well.
    I think we all on this Committee sometimes covet the 
jurisdiction of other Committees, and we are frustrated at the 
limitations of our legislative authority, our legislative 
jurisdiction, and we take a more expansive view of our 
jurisdiction for hearings. I was guilty of that when I was 
Chairman of the Subcommittee, Oversight Subcommittee, this 
Committee, for four years. We certainly had hearings where if 
we had actually legislated, we probably would have been in a 
fistfight with the Energy and Commerce Committee or other 
Committees.
    But this hearing does not appear to be within hailing 
distance, within sight, of this Committee's jurisdiction if we 
actually try to legislate in this area. I think we are 
interested in how we need to help, or whether we should help 
emerging energy technologies, but this is a very imaginative 
reading of the Committee's jurisdiction.
    With that, I look forward to hearing the testimony of our 
witnesses today. Thank you.
    [The prepared statement of Mr. Miller follows:]

    
    
    
    
    Chairman Broun. Thank you, Mr. Miller. I would like to 
remind you that the hearing is conducted pursuant to Clause 1P6 
of House Rule X, which assigns the Committee on Science, Space, 
and Technology jurisdiction over the commercial application of 
energy technology, and Clause 2C of House Rule X, which 
requires each standing committee to review and study on a 
continuing basis the impact or probable impact of tax policies 
affecting subjects within its jurisdiction.
    So we do have jurisdiction over this subject today, and I 
am sure my good friend from North Carolina has probably just 
overlooked that.
    Going forward, I thank Mr. Miller for your opening 
statements and wish--if there are any other 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 first panel of 
witnesses. First is Dr. Molly Sherlock, a Specialist in Public 
Finance to the Congressional Research Service. Mr. John 
Parcell, the Acting Deputy Tax Legislative Counsel of the U.S. 
Department of Treasury, and Mr. Michael Pacheco, the Vice 
President of Deployment and Market Transformation at the 
National Renewable Energy Laboratory.
    As our witnesses know, I think you all know, spoken 
testimony is limited to five minutes each, after which Members 
of the Committee will have five minutes each to ask questions. 
Your written testimony will be included in the record of the 
hearing. It is the practice of the Subcommittee on 
Investigations and Oversight to receive testimony under oath. 
We will use that practice as well today.
    Do any of you have an objection of taking an oath?
    Let the record reflect that all witnesses shook their head 
from side to side in the common notion of no.
    You also may be represented by counsel. Do any of you have 
counsel here today with you?
    No. Okay. Let the record reflect also that the witnesses 
have indicated that none have counsel.
    If you would now please stand, raise your right hand.
    [Witnesses sworn.]
    Chairman Broun. Yes. Okay. Let the record reflect, you all 
may be seated, that all the witnesses have taken the oath of 
truth.
    We will now recognize our first witness from the first 
panel, Dr. Sherlock, with the Congressional Record Service. You 
have five minutes.

              STATEMENT OF DR. MOLLY F. SHERLOCK,

                 SPECIALIST IN PUBLIC FINANCE,

                 CONGRESSIONAL RESEARCH SERVICE

    Dr. Sherlock. Thank you. Mr. Chairman and Members of the 
Subcommittee, on behalf of the Congressional Research Service, 
I thank you for the opportunity to appear before you today.
    There are three main points I was asked to discuss in 
today's testimony. First, I will identify the primary tax 
incentives that support renewable energy. Second, I will 
briefly discuss renewable energy proposals in the President's 
fiscal year 2013 budget request. Finally, I will note the 
characteristics of an economically efficient energy tax policy. 
These comments summarize longer written testimony, which has 
been submitted for the record.
    Historically, the primary tax incentives for renewables 
have been the Renewable Energy Investment Tax Credit, or ITC, 
and the Renewable Energy Production Tax Credit, or PTC. The ITC 
was first introduced in 1978. Currently, a 30 percent tax 
credit is available for investments in solar energy property, 
fuel cells, and small wind systems. A 10 percent tax credit is 
available for geothermal systems, microturbines, and combined 
heat and power property. The ITC is scheduled to expire at the 
end of 2016, although there is a permanent 10 percent ITC for 
certain solar property. In fiscal year 2011, the renewable 
energy ITC cost $300 million in terms of foregone revenue.
    The PTC was first introduced in 1992. While the PTC was 
introduced as a temporary tax incentive, in the past it has 
regularly been extended. The PTC for wind is scheduled to 
expire at the end of 2012. The PTC for other eligible 
technologies, including biomass, geothermal, landfill gas, 
municipal solid waste, certain hydroelectric, and marine and 
hydrokinetic technologies, is scheduled to expire at the end of 
2013. In fiscal year 2011, the renewable energy PTC cost $1.4 
billion in terms of foregone revenue.
    The American Recovery and Reinvestment Act of 2009 
introduced two new tax-related provisions for renewable energy 
that have increased the overall cost of renewable energy tax 
incentives in recent years.
    First, investors eligible for the renewable energy ITC or 
PTC could elect to receive a one-time grant from the Treasury 
in lieu of these tax benefits. This provision, often referred 
to as the Section 1603 Grant, is only available to projects 
that were under construction before the end of 2011.
    As of March, more than $11 billion has been paid out under 
the Section 1603 Grant Program. Of this, $4.7 billion was paid 
out in 2011. Additional grants will be paid out as qualifying 
projects are completed. Through the end of 2017, it has been 
estimated that an additional $11.5 billion will be paid out in 
Section 1603 grants, bringing the total estimated cost of the 
program to $22.6 billion.
    Also established as part of the Recovery Act was the 
Advanced Energy Manufacturing Tax Credit. In January, 2010, 
$2.3 billion in tax credits were awarded to 183 advanced energy 
manufacturing projects. These tax credits were allocated 
through a competitive process, and a number of technically 
eligible projects were not awarded tax credits.
    The President's fiscal year 2013 budget contains a number 
of proposals that would extend and modify certain tax 
incentives for renewable energy. The Administration supports 
extending the PTC for wind, as well as an extension of the 
Section 1603 Grant Program. Under the Administration's 
proposal, the Section 1603 grant would be replaced with a 
refundable tax credit starting in 2013. The Joint Committee on 
Taxation has estimated that these proposals would cost $5.7 
billion. The Administration has also proposed an additional $5 
billion allocation for advanced energy manufacturing tax 
credits.
    I would like to conclude by noting some characteristics of 
an economically efficient energy tax policy.
    First, cost-effective incentives are those that encourage 
changes in behavior rather than those that reward current 
practices.
    Second, incentives made available to a broad range of 
technologies avoid picking winners.
    Third, if the goal is renewable energy production, 
incentives that reward production are preferred to those that 
reward investment.
    And finally, energy tax policy does not exist in a vacuum. 
Tax policies may interact with, or be redundant to, other 
policies supporting renewable energy.
    Thank you, again, for inviting me to appear today. I am 
happy to respond to your questions.
    [The prepared statement of Dr. Sherlock follows:]

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    Chairman Broun. Thank you, Doctor.
    Our next witness is John Parcell, Department of Treasury. 
You have five minutes, sir.

                 STATEMENT OF MR. JOHN PARCELL,

             ACTING DEPUTY TAX LEGISLATIVE COUNSEL,

                U.S. DEPARTMENT OF THE TREASURY

    Mr. Parcell. Good morning, Chairman Broun, Chairman Harris, 
Ranking Member Tonko, Ranking Member Miller, and Members of the 
Subcommittees. Thank you for inviting me to testify before your 
Subcommittees today. I appreciate this opportunity to discuss 
the energy proposals in the President's fiscal year 2013 
budget.
    By way of background, the Administration believes in an 
all-of-the-above energy strategy, a strategy that relies on 
producing more oil and gas here in America but also producing 
more wind power, more solar power, more fuel-efficient cars, 
and other renewable power and energy-efficiency improvements. 
The American Recovery and Reinvestment Act of 2009, or the 
Recovery Act, took an important step in that direction by 
providing more than $80 billion for investment in clean energy 
technologies, the largest investment in clean energy in 
history. As a result, the United States has nearly doubled 
renewable energy generation since 2008.
    With this as background, let me turn to the tax-related 
proposals in our budget relating to renewable energy and energy 
conservation.
    First, the budget proposes to expand the Recovery Act tax 
credit for investments in advanced energy manufacturing 
facilities. This credit, under Section 48C of the Code, was 
designed to help America take the lead in the manufacture of 
wind turbines, solar panels, electric vehicles, and other clean 
energy and energy conservation products.
    The Treasury Department and the Department of Energy have 
cooperated in awarding the $2.3 billion of credits authorized 
by the Recovery Act, awarding credits to 183 projects in 43 
States to support the development of a clean, of a domestic 
clean energy manufacturing base and the new clean energy jobs 
that entails.
    The $2.3 billion cap on the credit has resulted in the 
funding of less than one-half of the technically acceptable 
applications that have been received. The budget proposes an 
additional $5 billion in credits that would support at least 
$15 billion in total capital investment. Because there is 
already an existing pipeline of worthy projects and substantial 
interest, this additional credit could be deployed quickly to 
create jobs and support economic activity.
    Second, the budget proposes to extend the Production Tax 
Credit under Section 45 of the Code, and the Investment Tax 
Credit under Section 48 of the Code, for wind facilities for an 
additional year. Thus, the two credits would apply to wind 
facilities placed in service in 2013.
    In addition, the budget proposes to extend the Section 1603 
Program. This program, as Dr. Sherlock pointed out, allows 
taxpayers to receive a cash payment instead of the Section 45 
and Section 48 credits. The proposal would extend the Section 
1603 Program to all otherwise qualifying property placed in 
service in calendar year 2012.
    Under current law, property placed in service in 2012 would 
be eligible for a Section 1603 payment only if construction had 
begun before the end of 2011.
    For property placed in service after 2012, the budget 
proposes to replace Section 1603 Program with the Refundable 
Tax Credit. This refundable credit would apply to all property 
placed in service after 2012 that would be eligible for a 
Section 1603 payment under current law, as well as to otherwise 
eligible property that would not have been eligible under 
current law because construction on the property began in 2012 
or 2013.
    Next, I would like to briefly mention some other tax 
initiatives in the budget that will help spur the development 
of America's renewable energy potential.
    The budget proposes to focus the current nine percent 
credit for domestic production activities more narrowly on 
manufacturing and to increase the deduction for the manufacture 
of advanced technology property to approximately 18 percent.
    The budget also proposes to make permanent an expanded 
research and experimentation credit to expand the tax credit 
for advanced technology vehicles, provide a new credit for 
alternative fuel trucks, and to convert the existing deduction 
for energy-efficient commercial buildings into a more valuable 
tax credit.
    Finally, the budget proposes to extend through 2013 a 
number of expired or expiring energy-related tax provisions.
    The invitation to testify requested discussion of the 
implementation of the Section 1603 and 48C Programs. I will 
focus on the 48C Program and leave the Section 1603 Program to 
Dr. Pacheco.
    The 48C Program is administered by the Internal Revenue 
Service. As in the case of Section 1603, it requires energy 
and--engineering and scientific expertise from the Energy 
Department, and we have contracted with the Office of Energy 
Efficiency and Renewable Energy and DOE to assist in the review 
process, which is largely complete at this point.
    I see my time has expired. I thank you.
    [The prepared statement of Mr. Parcell follows:]

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    Chairman Broun. Thank you, Mr. Parcell, and I really 
appreciate your being here and the Department working with us, 
and thank you so much for working with us and giving us your 
expertise.
    Dr. Pacheco, you are recognized for five minutes. We are 
fixing to have some votes. They are scheduled right now. You 
will have time to finish, but we will not be able to get into 
questioning. We are going to have to rush off to vote, so what 
we will do is recess the Committee after Dr. Pacheco, so we 
will have about a 25- to 30-minute recess. We will resume 10 
minutes after the last vote begins, so if everybody would come 
on back quickly so we can get through the questioning of this 
panel and get to the second panel.

    Dr. Pacheco, you are recognized for five minutes.

               STATEMENT OF DR. MICHAEL PACHECO,

     VICE PRESIDENT, DEPLOYMENT AND MARKET TRANSFORMATION,

              NATIONAL RENEWABLE ENERGY LABORATORY

    Mr. Pacheco. Good morning, Chairman Broun, Chairman Harris, 
Ranking Members Miller, Tonko, and other Members of the 
Subcommittees. Thank you for this opportunity to discuss the 
technical role that the U.S. Department of Energy's National 
Renewable Energy Laboratory or NREL has played in designing, 
developing, and implementing and doing some preliminary 
analysis on the impact of 1603.
    Section 1603, the Grant Program, was created under the 
Recovery Act to support the deployment of renewable energy 
resources and to help address the financial crisis at a time 
when the lack of financing, coupled with a steep decline in tax 
equity investors, was severely limiting the ability of 
renewable energy developers to move forward with projects.
    1603 offered businesses the option of a one-time cash 
payment in lieu of the Production Tax Credit or the Investment 
Tax Credit found in Revenue Codes 45 and 48, respectively. To 
be eligible for the program, projects originally had to meet 
the requirements by the end of 2010, which was later extended 
to the end of 2011.
    NREL's involvement in 1603 began almost immediately after 
the President's signing of the Recovery Act in 2009. Treasury 
and Energy officials came to NREL requesting the lab's support 
in implementing the newly enacted 1603 provisions.
    Congress clearly intended, and economic conditions 
demanded, that a working 1603 Program be rolled out quickly. 
Pivoting from the existing tax credits to cash payments 
required very careful scrutiny and deliberate execution of the 
prior tax credit rules in the form of new cash payments, and 
the development of an application, review, and payment 
procedures. Working very closely, a group from NREL got 
together the Internal Revenue Service, Treasury, Department of 
Energy. This group worked for a period of several months early 
in 2009, to develop and put in place the 1603 Program.
    A key early task was developing the guidance document with 
explicit definitions of which technologies would met the 
requirements of the IRS Tax Code.
    We also had to assemble a team of skilled individuals in 
order to manage the application process and review the 
applications. While assembling the project team, we also worked 
on a daily basis with Treasury to design the most credible, 
effective, and transparent review program possible. Our work 
has also included the design, the development, and the 
maintenance of an effective and secure Web-based system for the 
applications in the data base for that information. This has 
become known as the external face of the program.
    We instituted a very rigorous review process to ensure 
careful technical scrutiny of every application, making certain 
the projects are eligible for the payment that they would 
receive from Treasury. Reviews of submitted applications are 
conducted in a systematic way by an interdisciplinary team with 
experts educated in, and very experienced in, engineering, 
accounting, legal, and a variety of other technical and 
business disciplines.
    The 1603 team also draws on the deep and broad expertise 
across all of NREL to provide whatever technical expertise is 
needed for the project.
    We developed a staffing strategy early in 2009 to ensure 
that the 1603 Project would have all the skills needed, and the 
capabilities, plus the flexibility to flex the staffing up or 
down as the applications increased or decreased, recognizing 
that the review process and the staffing strategy had to meet 
the statutory requirement to reply to applicants within 60 
days.
    Some of the applications are more, are much more complex by 
nature and require a back-and-forth communication with the 
applicant. All applications are rigorously evaluated against 
the criteria based on the tax codes. Every application goes 
through two reviews at NREL and then a third review at 
Treasury.
    On average, NREL completes our reviews in about 35 days. 
Once our reviews are complete, the applications, along with our 
recommendations, go to Treasury. Treasury officials conduct 
their own review and make the final decision on approving or 
denying the grants and fulfilling any payments that are 
forthcoming.
    To date, some 41,000 applications have been received, and 
approximately 35,000 have been reviewed. About 3,000 are 
awaiting completion to be processed and about another 3,000 
have been withdrawn or disqualified.
    Totally independent from our work for Treasury, the 
Department of Energy's Energy Efficiency and Renewable Energy 
Office asked NREL to conduct a study in late 2011, on the 
economic impact of 1603. The study, entitled ``A Preliminary 
Analysis of the Jobs and Economic Impacts of the Renewable 
Energy Projects Supported by Section 1603 of the Treasury Grant 
Program,'' found that as of November 10, 2011, up to 75,000 
direct and indirect jobs, and up to $44 billion in total 
economic output, were supported by just the PV and the large 
wind projects that received a cash grant under 1603.
    The same NREL study estimates that operation and 
maintenance of these facilities will support another $5,000--
5,000 jobs per year and up to $1.8 billion annually in economic 
output over the 20- to 30-year lifetime of these projects. If 
that study were completed again today with the up-to-date 
figures from 1603, the economic estimates and the jobs 
estimates would be significantly higher.
    Mr. Chairman, thank you for the opportunity to testify here 
today, and I would also like to thank my colleagues at U.S. 
Treasury and Department of Energy for calling on NREL to 
support them on the implementation and the analysis of 1603.
    I would welcome any questions after the break.
    [The prepared statement of Mr. Pacheco follows:]

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    Chairman Broun. Dr. Pacheco, thank you so much. You hear 
all these buzzers going off. That is the indication on our 
votes. What we will do is, if you all will just stand by, I am 
going to recess the Committee until 10 minutes after the 
beginning of the last recorded vote. We will hurry back so we 
can turn you all loose, and I thank you all for your patience.
    [Recess.]
    Chairman Broun. Committee comes back to order. I thank you 
all for your testimony. I want to remind Members that the 
Committee rules limit questioning to five minutes per Member, 
and at this point the Chair will open the first round of 
questions, and I will recognize myself for five minutes.
    Dr. Pacheco, a recent NREL study analyzing the jobs and 
economic impacts of the 1603 Program estimated that it 
supported between 50,000 to 75,000 jobs a year. Very quickly, I 
would like to clear up some confusion as to what this report 
does as well as what it does not say.
    Did NREL attempt to calculate how many jobs were actually 
created, or did it enter grant application data to calculate 
how many jobs could have been created?
    Dr. Pacheco. Congressman Broun, the NREL approach on that 
was what we did was took the total number of projects, the 
types of projects, and the size of those projects, and we used 
that information on the--at the time the study was done around 
23,000 projects as opposed to the current number. And from that 
we went ahead and calculated how many jobs were supported by 
those projects.
    Chairman Broun. So formally we don't really know.
    Dr. Pacheco. I wouldn't say that we don't really know. It 
is based on the models that----
    Chairman Broun. It was based on a model and not actual 
calculation of jobs. Correct?
    Dr. Pacheco. It is based on a calculation of jobs.
    Chairman Broun. How many of the projected jobs are direct 
jobs rather than indirect jobs, Dr. Pacheco?
    Dr. Pacheco. I have the detailed numbers, but the split is 
in favor of the direct jobs, and I would have to look at the 
numbers to give you the exact numbers, which I have right here.
    Chairman Broun. Could you do that quickly because----
    Dr. Pacheco. Yeah.
    Chairman Broun [continued]. My time is limited?
    Dr. Pacheco. Yes, I can.
    Chairman Broun. Okay.
    Dr. Pacheco. So of those numbers the--well, actually, I 
don't have the split that you are looking for.
    Chairman Broun. If you would get that for us----
    Dr. Pacheco. Sure. I will provide that.
    Chairman Broun. And, again, is this just calculated jobs, 
or is this actual--this is a calculation also?
    Dr. Pacheco. It is calculated. Yes.
    Chairman Broun. Okay. The study also estimated that only 
between 30 to 70 percent of the components of projects, which 
is a wide range of turbines, towers, et cetera, were 
manufactured in the U.S. but also that these estimates, 
``should not be construed as full bounding uncertainty.''
    Could these projects contain less than 30 percent of 
domestically produced components?
    Dr. Pacheco. Yes. It is possible.
    Chairman Broun. So we don't really know what it could be. 
It could be 10 percent, it could be 70 percent, it could be 
anything. Right?
    Dr. Pacheco. That is correct.
    Chairman Broun. Thank you. How many of these jobs and how 
much economic support went to China, Europe, and elsewhere as 
opposed to being here in the U.S.?
    Dr. Pacheco. This was a very preliminary report, and we did 
not have those details from this report.
    Chairman Broun. So, again, it is just an estimation. Is 
that correct?
    Dr. Pacheco. That is correct.
    Chairman Broun. Okay. The NREL study also indicated that 
job estimates cannot be attributed to the 1603 Program alone 
and that it does not calculate the net effects of displaced 
jobs from other industry sources. NREL was very specific 
characterizing what its report said, going to great lengths to 
caveat its findings. DOE, on the other hand, has indicated that 
the NREL study makes clear that projects receiving payments 
from the 1603 Program has supported tens of thousands of jobs 
``then.''
    This is at odds with the findings of the February 24 Wall 
Street Journal report that questions the actual job impact of 
the 1603 Program. Additionally, last November, CRS Report on 
the Section 1603 Program that Dr. Sherlock co-authored with 
Phillip Brown stated, ``Any job creation estimate'' attributed 
to the program ``be viewed with skepticism.''
    Can the panel help me understand how many jobs were 
actually created? Dr. Pacheco.
    Dr. Pacheco. Congressman, that is a very difficult number 
to actually calculate and estimate and really requires some 
intense study. What we did in our study was to use the models 
that we have and actually had to tailor those models slightly 
for this particular application.
    Chairman Broun. So we don't know. Anybody else? My time is 
about to run off. I apologize for cutting you off. Anybody 
else? Dr. Sherlock? Anybody?
    Okay. To Mr. Parcell, has Treasury assessed the annual 
reports from 1603 recipients to verify their projects are 
operating and employing workers?
    Mr. Parcell. Yes. Treasury requires annual reports from 
each project that has received an award on how much--whether it 
is generating energy and whether it continues to satisfy the 
conditions for award.
    Chairman Broun. Have you all audited assessments at all and 
verified anything? Yes or no, please. My time has run out.
    Mr. Parcell. Yes.
    Chairman Broun. You have audited?
    Mr. Parcell. The Inspector General has audited certain----
    Chairman Broun. Please provide that for us.
    My time has expired. Now I will recognize Mr. Tonko for 
five minutes.
    Mr. Tonko. Thank you, Mr. Chair. I am glad we are having 
this hearing, because I think it is important that we 
understand the role of subsidies in supporting our energy 
economy.
    I am a supporter of a broad array of tools to help this 
country transform our energy economy. We need to diversify our 
energy sources, and we need to reduce our dependence on foreign 
sources of energy. So we need to reduce our emission of 
greenhouse gases, also. We also need to change our energy 
economy to grow industries that will keep American jobs here 
and provide export opportunities for our products.
    I am pleased to learn about how successful, listening to 
the panelists, that the Section 1603 Program has been, and I 
would like to see us extend it. For those who think it is 
foolish to subsidize the renewable industry, I would like to 
point out that there is no sector of our energy economy that 
has ever developed without government subsidies and no sector 
today that doesn't receive a wide array of government support.
    I want to show just two charts to help illustrate my point. 
They are both from a report by a venture capital firm, DDL 
Investors, entitled, ``What would Jefferson do?'' The first 
chart shows the aggregate level of subsidies for our oil, gas, 
nuclear, biofuel, and renewable industries. The oil and gas 
industries dwarf, dwarf all others, receiving $447 billion in 
subsidies between 1918 and 2009. Nuclear ranks second with $185 
billion, biofuels ranked third with $32 billion, and our 
renewables are a distant fourth with just $5.93 billion between 
'94 and 2009.
    Now, we can quibble about what was included in this 
analyst's count and what was left out, but the scale of the 
subsidies would not change appreciably, even if we put in the 
Carter era, solar investments, for example.
    So when people say today that the government shouldn't pick 
winners and losers, I look at this chart and have to respond, 
it is a little late for that. The government has been 
supporting the growth of different energy sectors for 100 
years, longer if you look at early coal and timber support.
    I want to point the Subcommittee's attention to a second 
chart that shows the level of support for each of these four 
sectors on an annualized average over the life of their 
support. Again, oil and gas lead the pack with $4.9 billion in 
annual support, and renewables take up the rear with just $370 
million in average annual support.
    Now, in the last few years, at long last, subsidies to the 
renewable industry have passed those provided to fossil fuels, 
but the gravy train to the oil and gas industry continues 
nonetheless with annual tax supports of at least $4 billion a 
year. These subsidies to the oil and gas industry are going to 
an energy sector that is immensely profitable and immensely 
rich. The top oil companies made over $100 billion in profits 
in 2011, yet the subsidies continue. The subsidies to the 
industry just keep coming.
    Obviously, a permanent feature of the tax credit has meant 
a great deal to the industry. So if there is a statement from 
this hearing, I would think permanent relief for some of these 
industries to get them up and running has made a difference.
    Mr. Chair, that makes me question the seriousness of those 
who say we should not subsidize the renewable energy industry 
when oil and gas and nuclear sectors continue to benefit from a 
panoply of subsidies. Where is the outrage that almost a 
century after government subsidies to the oil and gas industry 
began, we still are cutting them checks? Where is the sense of 
fairness, Mr. Chair?
    I look forward, Mr. Chair, to the follow-on hearing by this 
Committee looking at the subsidies and their appropriateness 
for the oil and gas industries and the nuclear industry as 
well, the sectors that have received the lion's share of 
taxpayer dollars over the years. That would be fair, and that 
would be proper, and I certainly think that all Members would 
learn a lot from a series of hearings of that kind. Let us 
truly examine all of the tax subsidies over the years towards 
the various sectors of our energy supplies.
    I hope this is just the first hearing in that series of 
hearings that will serve us and the Committee well.
    With that, Mr. Chair, I yield back.
    Chairman Broun. Thank you, Mr. Tonko. I am not sure I heard 
a question in all that but anyway--okay.
    Well, now, Dr. Harris, you are recognized for five minutes, 
my fellow Subcommittee chair.
    Mr. Harris. Thank you very much, Mr. Chairman, and, you 
know, since this is all about the taxpayer and that is really 
the charge of this Committee is to see whether government 
monies are spent adequately, I would think that our taxpayers 
would want us to invest in companies that actually make a 
profit and pay taxes, and, you know, if we pay $4 billion in 
subsidies and get tens and tens of billions of dollars in taxes 
from oil and gas companies, I think our average taxpayer would 
say that is a pretty darn good investment, especially since the 
price of their energy is so low.
    Let me ask about some of the claims about jobs, though. Mr. 
Parcell, the--or actually, let me, Mr. Pacheco, let me ask you 
a question. The graph from the NREL study or the table says 
that there are supposed to be 4,500 to 4,900 operational jobs, 
so permanent jobs at these, but when the Wall Street Journal 
did--and they didn't use models. They actually called up 
companies and said, how many people do you have employed, which 
I think is the way we should be doing it, just the way we do, 
we sample unemployment and employment. The Labor Department 
doesn't make up their 8.2 percent. They actually call people. 
They actually survey people.
    They say there are only 300 people employed. Doesn't that 
devastate the model you use? Doesn't it completely invalidate 
the model you used that predicted there should be 5,000, 
whereas there are 300? You are aware of the Wall Street Journal 
article?
    Dr. Pacheco. I am very aware of the article that you are 
referring to----
    Mr. Harris. Okay.
    Dr. Pacheco [continuing], Congressman, and my recollection 
of that article is the author talked about four or five 
companies out of the 23,000 that were affected by 1603, and I 
can answer Congressman Broun's question now if you would like.
    Mr. Harris. Excuse me. Let me just--no. You got to answer 
my questions, my five minutes.
    Dr. Pacheco. Okay. Sorry.
    Mr. Harris. No. You are wrong. I mean, the article says 40 
percent of the funding, 4.3 billion went to 36 wind farms. 
These are the largest. During the peak of the construction, 
they employed about 72, they produced 7,200 jobs. But once the 
construction was done, they only employed 300 jobs. Forty 
percent of the funding from that program went to 36 wind farms. 
So I know you can say, look, you know, we--look. I wrote 
scientific papers. I know what you can do with statistics. 
Certainly you can say, yes, you know, they only looked at 36 
wind farms, you know, we looked at 2,500 or whatever. They 
looked at the biggest ones. They looked at the ones that are 
most likely to produce employment, so does that fact that they 
could only find 300 people working there whereas you would have 
proposed, I imagine, there should be thousands of people 
working there, completely invalidate the model you used?
    Dr. Pacheco. No, not at all, Congressman. So----
    Mr. Harris. How do you explain 300 people as opposed to 
thousands?
    Dr. Pacheco. I would be happy to do that if you give me a 
moment.
    Mr. Harris. Go for it. You got about 30 seconds, though, if 
you can--otherwise you will have to respond in writing because 
I have other questions.
    Dr. Pacheco. So--and this builds on the earlier question, 
and I have found the proper table, and I can make this 
available to the Committee, but the results of our modeling 
would have predicted, it did predict that as of the datas of 
November that we would be employing 770 people in the operation 
of all the wind facilities, all the large wind facilities that 
we were built with 1603 dollars.
    Mr. Harris. This chart that I am looking at, which is the 
estimate from the NREL report, says 4,500 to 4,900. Now, are 
there multiple tables?
    Dr. Pacheco. The number that you are looking at, sir, is a 
total of the direct jobs, the indirect jobs, and the induced 
jobs that would be involved in the operation of the facility. 
If you go to the top of the table, what it says is that the 
direct average jobs----
    Mr. Harris. What was your testimony as to ratio of direct 
to indirect jobs?
    Dr. Pacheco. I didn't have that number. I have it now.
    Mr. Harris. Your answer to the Chairman. What is the ratio?
    Dr. Pacheco. The total ratio, if you take that number that 
the estimate is 75,000----
    Mr. Harris. Yes.
    Dr. Pacheco [continuing]. Out of that total, and those are 
construction jobs, not operational jobs----
    Mr. Harris. Doctor, Doctor. I am talking only about the 
operational jobs.
    Dr. Pacheco. Okay.
    Mr. Harris. They say there are 300. You say there are 
5,000, and then you say, well, we are just going to account for 
the difference----
    Dr. Pacheco. No, I didn't say that.
    Mr. Harris [continuing]. In indirect jobs.
    Dr. Pacheco. I said that the 5,000 was the total of all the 
jobs involved in all of the facilities' operation. It turns out 
that for the operational jobs directly at the site----
    Mr. Harris. Yes.
    Dr. Pacheco [continuing]. Which are the ones that the----
    Mr. Harris. Right.
    Dr. Pacheco [continuing]. Article you are referring to----
    Mr. Harris. Right.
    Dr. Pacheco [continuing]. Our number in the table, I will 
make this available----
    Mr. Harris. Yes.
    Dr. Pacheco [continuing]. Was 770.
    Mr. Harris. Okay. So they called up the companies and said, 
it is 300. Okay. That is only off by a factor of over 100 
percent.
    Dr. Pacheco. Well----
    Mr. Harris. Let me tell you something. One hundred percent, 
if I did a model, and it was 100 percent off, I would go find a 
new model.
    Now, let me just ask, Dr. Sherlock, did you review the Wall 
Street Journal article or CRS, someone at CRS? Did they review 
it to see if this, in fact, is true, if, in fact, the model 
that NREL used is over, by the Doctor's testimony today, is 
over, is wrong by over 100 percent, it mispredicts by over 100 
percent.
    Dr. Sherlock. CRS has not done independent analysis of job 
creation of the 1603 Grant Program.
    Mr. Harris. I may ask you to do that at some point.
    Dr. Sherlock. Sure. Absolutely.
    Mr. Harris. Finally--oh, I am sorry. I am over.
    Thank you very much, Mr. Chairman, for--and I yield back.
    Chairman Broun. Thank you, Dr. Harris.
    I am going to keep a pretty tight time clock on everybody 
because we have got a whole other panel, and we are going to 
have some votes probably in about an hour or so.
    Now I recognize Mr. Miller for five minutes.
    Mr. Miller. Thank you, Mr. Chairman, and I don't want to 
quibble too much about our Committee's jurisdiction. We do 
disagree about the appropriateness of trying to encourage 
emerging technologies, and that would be, tax credits for that 
purpose would be within this committee's jurisdiction, but we 
are not talking about R & D tax credits here. We are talking 
about tax credits that were designed to create jobs, which is 
not within our Committee's jurisdiction, and I think the 
questions that this panel has gotten so far has made it very 
clear that this really is about how many jobs were created, not 
whether we have nurtured emerging technologies or the 
commercialization of research through the tax credits that we 
are talking about.
    In the second, on the second panel Ms. Thorning, who is one 
of the Republican witnesses, estimates that this has cost us 
about $80,000 per job, which I think the Republicans think is 
scandalously high, shows it is absolutely not worth it. But 
later today, we will be voting on a proposal from the majority 
party, from the Republicans, from Mr. Cantor, the Republican 
leader, to give a tax break for small business, not what you or 
I might think of as small, which would probably be more like a 
Mom and Pop operation, but companies up to 500 employees. Their 
own estimates are that that would be, that that would cost $46 
billion in tax revenues. As the Republicans have already 
pointed out that that really does, therefore, come out of the 
pockets of everyone else, and would create 40,000 jobs. That is 
their own estimate, which may be ambitious. That works out to 
more than $1 million a job.
    So the jobs created by this particular program actually 
appear to be a bargain by comparison to other proposals.
    Dr. Sherlock, you, can you tell us how the oil and gas 
industry has already benefited in the past from tax credits and 
other support from the Federal Government, and how emerging 
alternative, unconventional resources, oil and gas resources, 
also have tax credits and how they benefited from those, that 
support over the last century?
    Ds. Sherlock. Sure. So tax credits have been available to 
oil and gas since the 1910s, 1920s. Up until about 1978, the 
oil and gas sector was the primary beneficiary of targeted tax 
incentives for energy. Beginning in the late 1970s, early 
1980s, that is when tax credits that would have benefitted 
renewables were first put in the Code. There weren't really 
measureable revenue losses associated with those provisions 
until recent years. In recent years, primarily due to expansion 
in the wind industry and the PTC, as well as provisions enacted 
as part of the Recovery Act, we have seen a shift towards the 
total cost of energy-targeted tax provisions in that renewables 
now do receive a substantial share of the targeted tax 
incentives. But historically, oil and gas have received the 
bulk of tax incentives that are targeted to energy.
    Mr. Miller. Okay. You quoted President Reagan, well, you 
didn't quote President Reagan, but you said the purpose or the 
cited policy goal of the Reagan Administration to be more 
neutral and less distortionary in the tax policy towards 
energy. Do you think we have a free market, a perfectly free 
market, or does government policy and tax policy already 
distort energy policy, the energy market?
    Dr. Sherlock. There are distortions that are created 
through the tax code and even from an economic standpoint when 
you look at the market for energy, the market for energy may 
have certain market failures that may be a rationale for 
government intervention in the energy market.
    Mr. Miller. And how does that affect the entry into the 
market of alternative energy sources, the fact that there are 
already distortions based on government policy in the energy 
market?
    Dr. Sherlock. Since there are distortions based on 
government policy, it can put renewables at a disadvantage.
    Mr. Miller. All right. My time is not quite expired, but it 
is almost expired.
    Chairman Broun. Thank you, Mr. Miller. I appreciate and 
thank all of you all--oh, Mr. McNerney. I didn't see you. Okay. 
Mr. McNerney, you are recognized for five minutes.
    Mr. McNerney. Thank you, Mr. Chairman. Thanks to the panel 
for coming and testifying this morning. Although I don't 
believe that this hearing is going to lead to any meaningful 
legislation, it is more of a political sounding board for the 
majority party, but I do have some questions.
    Dr. Sherlock, what--I believe from your testimony that you 
indicated that the most effective way for the tax credits to be 
effective is to have a large number of people take advantage of 
the incentives.
    Do you have any suggestions for policymakers based on past 
experience to get the most number of people to participate in 
these programs?
    Dr. Sherlock. The incentives will be most efficient not 
necessarily based on participation, but when you have claims of 
tax credits of people that would not have engaged in the 
activity otherwise. So, you are actually causing people to 
invest in solar panels, or causing people to build wind farms, 
rather than rewarding those that would have built the wind farm 
or invested in solar panels anyway.
    One challenge with current policy is that with policy 
uncertainty and expiring provisions, many of the projects that 
take place are taking place in the face of that uncertainty and 
may have gone forward anyways without the tax incentives.
    So when the tax incentives are enacted temporarily, at the 
last minute, they may end up rewarding projects that would have 
gone forward anyways, diminishing the economic efficiency of 
the incentive.
    Mr. McNerney. So how can we best include the class of 
people of that--or class of businesses wouldn't participate 
without the incentives?
    Dr. Sherlock. One step would be to have additional 
certainty with the incentives and to either have long-term 
incentives or some sort of credible expiration or to, on the 
flip side, not have incentives and let the markets make 
decisions there.
    Mr. McNerney. Well, that is aligned with my experience in 
the industry in which even the--a one-year tax extension 
doesn't really help because it takes years to get projects 
approved and get investors lined up. So this uncertainty in the 
programs is most damaging. So I agree fully with that, Dr. 
Sherlock.
    Dr. Pacheco, just out of curiosity, how do the payments, 
how are payments made for the production tax credits? Are they 
adders to energy generation earnings, or are they something 
that comes along with an investment-type situation, or how are 
those payments made?
    Dr. Pacheco. If it is okay, Congressman, I would like to 
defer that question to my colleague on the right.
    Mr. McNerney. Okay.
    Mr. Parcell. Yes. The production tax credit is a credit 
under Section 45 of the Code. It is claimed on the income tax 
return of the person producing the electricity at the rate of 
2.2 cents per kilowatt hour.
    Mr. McNerney. Well, actually, I was referring to the 1603 
Program. How are the 1603 Program payments made? Are they based 
on energy production or some other means?
    Mr. Parcell. No. The 1603 payments are based on investment 
in the--it is based on the cost of the facility.
    Mr. McNerney. Okay.
    Mr. Parcell. It is really a substitute for the investment 
tax credit under the Internal Revenue Code.
    Mr. McNerney. Dr. Pacheco, can you provide an estimate of 
how many jobs in both the solar and the broader renewable 
energy sector have been impacted by the expiration of the 1603 
Program, and what impacts we can expect over the next few years 
if the program is not renewed?
    Dr. Pacheco. I can certainly speak to our estimate of how 
many jobs had been supported during the course of the program, 
and that as of the November date when we did our study, the 
jobs estimate at that time was up to the 75,000 total in 
construction and up to the numbers I discussed earlier on the 
operational phase.
    I can also come back if you are willing to allow me to 
clarify the earlier comment. I have the New York Times article 
in front of me, and I would very much like to respond to the 
earlier question, if that is okay.
    Mr. McNerney. You got about 45 seconds.
    Dr. Pacheco. I can do it in much less than that.
    As I read the article that was referred to earlier, the 
author cites that 40 percent of the funding went to 36 wind 
farms and that those wind farms that were surveyed can account 
for 300 employed people today. So if you were to extrapolate, 
sir, that 40 percent up to our earlier estimate of the 770, I 
think you would conclude that our models that are actually 
quite accurate.
    Mr. McNerney. Thank you for that comment----
    Dr. Pacheco. You are welcome.
    Mr. McNerney [continuing]. Dr. Pacheco. I yield back.
    Chairman Broun. Thank you, Mr. McNerney.
    I would like to state that this is the Oversight Committee, 
so we do have a responsibility to have oversight as to the 
rules of the Committee demand.
    I thank you for your all's testimony. It has been valuable 
time spent, and I appreciate all you all, in particular, Mr. 
Parcell. I know, again, I want to thank you.
    The Members of the Subcommittee may have additional 
questions for all of you all, and we will ask for you to 
respond to those in writing, and if you would do that 
expeditiously, we would greatly appreciate it.
    The first panel of witnesses is excused, and we will now 
turn to the second panel. So thank you all very much for 
coming.
    And if the second panel will take their seats quickly 
because we have got votes in about an hour, and we have got a 
big panel and a lot of questions. So we appreciate it.
    Okay. At this time I would like to introduce our second 
panel of witnesses, and I appreciate you all's patience through 
the interruption.
    Mr. Rhone Resch, the President and CEO of Solar Energy 
Industries Association; Mr. Terry Royer, the CEO, Winergy Drive 
Systems Corporation; Mr. Steven Erby, the Vice President of 
Monolith Solar Associates; Dr. Benjamin Zycher, a Visiting 
Scholar of the American Enterprise Institute; Dr. Margo 
Thorning, the Senior Vice President and Chief Economist of the 
American Council for Capital Formation; and Ms. Lisa Linowes, 
Executive Director of Industrial Wind. I thank you all for 
being here.
    As I noted before, it is the practice of this Subcommittee 
to receive testimony under oath, and we will use that practice 
with you as well.
    Do any of you have any objection to taking an oath?
    Let the record reflect that all witnesses are willing to 
take an oath.
    And you also may be represented by counsel. Do any of you 
have counsel here today?
    Let the record reflect that none of the witnesses has 
counsel.
    Now, if you would please stand and raise your right hand.
    [Witnesses sworn.]
    Chairman Broun. Let the record reflect--you may be seated. 
Let the record reflect that all the witnesses have taken the 
oath.
    And I recognize our first witness from the second panel, 
Mr. Rhone Resch, Solar Energy Industries Association. Mr. 
Resch, before you start, we are going to have votes in about an 
hour, so if you all would please try to limit your testimony. I 
don't want to cut you short. I want to hear what each of you 
have to say, but we also have questions, and we would like to 
try to get through the line of questions before we have our 
next vote.
    So Mr. Resch, you have five minutes.

                 STATEMENT OF MR. RHONE RESCH,

                       PRESIDENT AND CEO,

              SOLAR ENERGY INDUSTRIES ASSOCIATION

    Mr. Resch. Thank you very much, Chairman Broun. Good 
morning, Chairman Harris, Ranking Member Tonko, Ranking Member 
Miller, and Members of the Subcommittee. I appreciate having 
the opportunity to testify this morning.
    My name is Rhone Resch, and I am President and CEO of the 
Solar Energy Industries Association. There are more than 5,600 
companies, the vast majority of which are small businesses that 
make up America's solar industry today. SEIA is proud to 
represent all of these domestic companies in the entire solar 
value chain, from small installers to manufacturers to project 
developers.
    Access to a diverse, abundant, reliable, and affordable 
supply of energy is in the national interest. Accordingly, 
federal policy has for decades provided a framework that has 
helped every major source of energy utilized in the United 
States today reach commercial scale. The recognition that smart 
policy is vital to developing our domestic energy resources has 
contributed significantly to America's long-term economic 
prosperity.
    History has also shown that well-crafted federal tax 
incentives can effectively leverage private sector investment 
in new energy resources. This is clearly the case with federal 
incentives such as the Solar Investment Tax Credit and the 1603 
Treasury Program that are designed to promote and expand 
deployment and use for solar energy.
    Congress first enacted the 30 percent Investment Tax Credit 
as part of the Energy Policy Act of 2005, and subsequently 
extended the incentive through 2016. Here is what has happened 
as a result.
    There has been a sevenfold increase in solar generating 
capacity and a 17-fold increase in photovoltaic or PV capacity 
in the United States. Last year alone, PV installations 
increased by 109 percent and were one of the fastest-growing 
industries in the United States.
    The solar industry now employs more than 100,000 Americans, 
more than double the amount from just two years ago. The U.S. 
PV panel manufacturing increased from 134 megawatts in 2005 to 
865 megawatts in 2011, and today there are over 600 
manufacturing facilities in the domestic value chain in the 
United States.
    Technological advances and innovative financing options 
have driven down the cost for consumers. In 2011 alone, the 
price of solar panels dropped by 50 percent. Businesses and 
homeowners across the country are choosing solar because it 
makes economic sense.
    For example, Chairman Broun, there are more than 1,700 
solar jobs in Georgia, six solar companies in your district, 
and the largest ground-mounted solar project in the State is in 
the Blairsville area, and that project came to fruition with 
the help of the 1603 Program.
    And Chairman Harris, in your district there are 12 solar 
companies and more than 500 solar PV installations. This 
represents $25 million in solar investment in your district 
alone. In fact, there are more than five solar companies in 
every district of the Members represented on these two 
Subcommittees.
    By any objective measure, the Solar Investment Tax Credit 
is doing exactly what it was meant to do. Since the incentive 
went into effect in 2006, the industry has made significant 
strides towards grid parity. If current trends continue, and 
costs continue to come down on account of economies of scale, 
improved technologies, and enhanced efficiencies, need for 
federal policy support for solar will be relatively brief when 
compared to other conventional and renewable energy sources.
    Let me also touch on the 1603 Treasury Program. Renewable 
Project developers typically partner with investors who have 
federal tax liability as a way to monetize energy tax 
incentives.
    Access to this tax equity provides a portion of the capital 
needed to finance renewable energy projects. The 2008 economic 
crisis and the ensuing recession have severely restricted 
access to tax equity. The 1603 Program addresses this problem 
by allowing companies to receive a grant in lieu of the 
existing tax credit that they were eligible to claim. This 
creates flexibility in how you finance these solar projects.
    And I want to address three common misperceptions about the 
1603 Program. First, under the 1603 Program, the government 
does not pick winners or losers. It is the market that chooses 
which projects go forward.
    Second, the grant is not an upfront payment. Rather, it can 
only be claimed when the project is completed, and it must go 
through a thorough Treasury audit and an NREL audit, as we 
heard earlier.
    And third, I would urge you not to judge this program by 
the legislation on which it was introduced but on the merits of 
the results. The program has supported 22,000 solar projects 
with an average size of $150,000. These are not huge projects. 
These are projects developed by small businesses that are going 
on schools and churches and community buildings in communities 
around the entire country.
    The 1603 Program lapsed at the end of 2011, and although 
there has been a modest recovery in tax equity markets, there 
remains a temporary need for the program. Absent the 1603 
Program, financing available for domestic renewable projects 
will be reduced by more than 50 percent. A reduction of this 
magnitude will disproportionately impact small businesses, like 
Steve's company, that lack the resources and scale to enter 
into complicated tax equity transactions under these market 
conditions.
    Today, the solar industry is one of the most 
entrepreneurial segments of our economy, and ultimately, it is 
these entrepreneurs from the scientists developing more 
efficient and cost-effective solar technologies to the small 
business leaders making solar more affordable for consumers 
that are responsible for the rapid growth and reduced costs 
that are the hallmark of America's solar industry today. 
Stable, reliable, and well-structured tax policy provides the 
framework that allows for this market-driven innovation.
    Chairman Broun. Mr. Resch, if you can go ahead and finish 
up your testimony. You are over the time already, sir.
    Mr. Resch. Thank you. If policymakers have the foresight to 
retain these highly effective tax policies, the short-term 
investment will yield significant long-term results.
    Thank you for having me here today. I am happy to answer 
any questions that you have.
    [The prepared statement of Mr. Resch follows:]

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    Chairman Broun. Thank you, Mr. Resch.
    Mr. Royer, you are recognized for five minutes.

               STATEMENT OF MR. TERRY ROYER, CEO,

               WINERGY DRIVE SYSTEMS CORPORATION

    Mr. Royer. Yes, thank you. Thank you, Chairman Broun, 
Chairman Harris, and Ranking Members and Subcommittee Members. 
I appreciate the opportunity to speak to--with you today about 
the impact that tax policies have on the commercialization of 
renewable energy, in particular, wind energy. I want to focus 
my testimony today on one particular tax policy--the Production 
Tax Credit.
    While the wind industry has utilized other tax incentives 
to gain a foothold in the U.S. energy marketplace, the 
underlying PTC has, by far, been the most effective at 
generating the private capital and investment certainty that 
any industry needs to grow and prosper. Let me back up for a 
moment to give you a little background on Winergy and where it 
fits in this conversation.
    Winergy Drive Systems Corporation, located in Elgin, 
Illinois, was incorporated in 2001. Winergy is the world leader 
of gearboxes for wind turbines. The gearbox is the key 
component inside the wind turbine. We operate two factories in 
Elgin, Illinois, just outside Chicago, and supply gearboxes to 
the top wind turbine manufacturers and producers, who are all 
located here in the United States.
    Winergy started here in the United States assembling and 
testing of these components in 2001 with 11 employees. In the 
past six years, when the PTC has not been allowed to expire, 
the demand it created has contributed to the expansion of our 
company and has helped us weather the recent economic downturn. 
In 2009, we were afforded the opportunity because of this 
growth to build a new facility in Elgin. Today, we have 380 
employees supporting our customers with the building of our 
products. Revenue from the wind industry accounts for 100 
percent of my company's total income.
    As one of the nearly 500 companies that manufacture 
components for the wind industry in the United States, we are 
just one example of the critical role the PTC has played in the 
growth of this sector. The access to financing, the overall 
market certainty, and the PTC has provided to investors has led 
to the accelerated growth of wind farms projects in the United 
States. In fact, in just the last six years, 38,000 megawatts 
of wind have been constructed under a PTC--under a consistent 
PTC policy. This is over 80 percent of the total megawatt 
installed in the United States, which started back prior to 
1980.
    These projects demand huge pieces of equipment, complicated 
engineering, and a skilled workforce to construct. Due to the 
economics of logistics and transportation costs, the wind 
industry has quickly realized that making these parts in the 
United States actually leads to lower cost and more efficiency. 
So the growing demand for the construction of wind projects, 
brought on by the investor response to the PTC, has led to a 
rapid growth of U.S. wind manufacturing. Indeed, in 2005 only 
25 percent of the products and components were produced in the 
United States. Today, nearly--over 60 percent of the components 
are now made on domestic soil. This trend must continue. Over 
75,000 jobs exist in the industry and depend on it, not to 
mention tens of thousands of potential jobs if we can contain 
this growth.
    In addition to this growing domestic supply chain, 
technology innovations have also continued to push wind energy 
further down the cost curve. The cost of wind energy has come 
down 90 percent since 1980 and capital costs have dropped 33 
percent since 2008. Companies like my own contributed to these 
technological innovations and increased efficiencies and driven 
down cost. Innovations in gearbox technologies that Winergy has 
led are a key part to the cost reductions we have seen in the 
overall last four years. Wind energy technology continues to 
improve as the industry scales up.
    The PTC has not just the--has not just benefited the 
manufacturers and developers but the American electricity 
consumers and the U.S. economy as a whole. Wind energy provides 
nearly three percent of America's electricity today, with that 
number surpassing 20 percent in the States of Iowa and South 
Dakota. Overall, wind energy has accounted for 35 percent of 
all new electric generating capacity that has been put online 
in the last five years. Increasing the diversity and energy 
security of our country, the wind industry has generated 
investment upward of $20 billion annually, which is greater 
than the economic impact on U.S. GDP from Colombia, Panama, and 
South Korea free trade agreements combined.
    It is imperative that the PTC in place for the near future, 
so that private investment continue to grow this market and so 
that U.S. manufacturing jobs continue to be created. The PTC is 
not a handout. It is a business tax credit with funding based 
solely on project performance, not evaluation by any 
governmental official. Without a mechanism with which to fund 
wind projects past 2012, manufacturers like Winergy are already 
losing business.
    Chairman Broun. Mr. Royer, if you could go ahead and wrap 
up your testimony. You passed the five minutes already.
    Mr. Royer. I expect Winergy orders for 2013 to fall by at 
least 60 percent, which will lead to substantial job losses. 
Industrywide, 37,000 jobs will be lost if the PTC is not 
extended.
    Again, thank you for hearing my testimony.
    [The prepared statement of Mr. Royer follows:]

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    Chairman Broun. Mr. Erby, you are recognized for five 
minutes.

                 STATEMENT OF MR. STEVEN ERBY,

                        VICE PRESIDENT,

                 MONOLITH SOLAR ASSOCIATES, LLC

    Mr. Erby. Thank you, sir.
    My name is Steve Erby, Vice President, Monolith Solar 
Associates, and I would like to thank Chairman Broun and Mr. 
Harris and Congressman Tonko for having us here today.
    We are a veteran-owned company based out of Rensselaer, New 
York. We install and lease small commercial solar systems 
ranging in size from 25,000 watts to 150,000 watts. We install 
in schools, churches, community centers, fire stations, and 
small businesses. My business partner, Mark Fobare, and I 
started this adventure in my den in 2009. We quickly grew to 
the kitchen; we gained a secretary and were promptly thrown out 
of the house by my wife. We expanded into the garage. Today, we 
just recently moved into a completely refurbished 9,000-square-
foot warehouse with over 21 employees. We have installed 37 
systems since August of 2010 and have contracted pipeline of 
127 systems, roughly nine megawatts of product. We are proof 
that the 1603 Program works.
    Without the 1603 Program, none of this would have happened 
and would have not been able to continue. Monolith applies for 
the 1603 grant for each system. As a startup business, we do 
not qualify for the ITC. We do not have the passive income to 
offset the investment of the tax credit. Most of our potential 
prospective customers do not qualify either. Some of the 
benefits derived from the program: our small business has grown 
from two employees to 21 employees in a very short time, 18 
months, and we stand to double that size with the current 
number of contracts that are signed. We established our 
business in a designated economic development zone in the city 
of Rensselaer. We have created additional jobs employing 
contractors, subcontractors, electricians, engineers, 
accountants, and professionals. And most importantly, I think 
we are driving down the cost of doing business for the small 
business.
    One of our recent installations was a sale to a small TV 
appliance store, Towne TV in Schenectady. Despite being a 56-
year-old business, due to the current economy, they were unable 
to take advantage of the ITC. The 1603 Program allowed them to 
install solar, lowering their operating cost, generating cash 
flow for other uses, and generally spinning up the economic 
machine for them and the solar industry.
    We have generated quite a buzz attending many community 
functions, educating students, businesses, customers about 
solar and the energy economy. Municipal leaders have embraced 
solar as a way of reducing taxpayer burden and providing 
leadership to their communities. Mechanicville, East Greenbush, 
Sand Lake, Niskayuna, Schenectady, and Rensselaer are just a 
few of the communities that have put solar on top of every one 
of their municipal structures.
    The industry needs the 1603 Program, and preferably the 
reintroduction of the 1603 rebate, to create jobs, foster a 
strong value chain, and grow our business. There are too many 
small businesses and organizations who are unavailable to take 
advantage of the ITC as a credit.
    We are not an isolated success. As Mr. Rush has explained, 
there are hundreds of companies across the United States that 
are benefitting from the 1603 Program. The engine of growth in 
this economy is small business supporting a strong middle 
class.
    As we work to create these opportunities in our local 
community, we met John, the father of eight children. He was 
obligated to leave his job to temporarily care for a premature 
baby. His wife kept the better-paying job. The baby improved, 
but the family income suffered. John looked for work for a year 
but could not find gainful employment in the difficult economy 
until he joined Monolith. He is now one of our best employees, 
and we are very fortunate to have him.
    We believe that solar can be the engine for the middle 
class and small community growth and economic security. Growth 
must be nurtured by incentives such as the 1603 Program that 
allows the industry and the market to mature.
    On behalf of all the employees at Monolith Solar, I want to 
thank you for having us here. Thank you.
    [The prepared statement of Mr. Erby follows:]

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    Chairman Broun. Thank you, Mr. Erby.
    Dr. Zycher, you are recognized for five minutes.

               STATEMENT OF DR. BENJAMIN ZYCHER,

                       VISITING SCHOLAR,

                 AMERICAN ENTERPRISE INSTITUTE

    Dr. Zycher. Thank you very much, Mr. Chairman. I am very 
pleased to have this opportunity to offer my views today on why 
renewable energy subsidies should be abandoned. At the end, I 
will be more than happy to address any questions that may 
arise.
    Despite very substantial policy support in the form of 
direct and indirect subsidies at the federal and state levels, 
renewable electricity has only a small share of the market with 
poor prospects for growth. This is due to three inherent 
problems that public policies can overcome only at very 
substantial cost: first, the unconcentrated energy content of 
wind flows and sunlight; second, siting constraints and the 
higher transmission costs that result; and third, the 
intermittency unreliability problem which yields very large 
additional cost for backup generation.
    Each of these problems is discussed in detail in the 
testimony that I have submitted for the record, but the central 
effect could be stated quite simply. We have achieved the 
perfect green trifecta--higher costs, less reliability, and 
more pollution. The five central rationales that usually are 
offered in defense of policy support for renewable are deeply 
problematic.
    First, the ``infant industry'' rationale is inconsistent 
with the existence of the international capital market and with 
the cost evidence published by the Energy Information 
Administration.
    Second, the ``level playing field'' rationale simply is 
incorrect. The subsidies enjoyed by renewable power are far 
greater than those received by conventional electricity both on 
average and on the margin.
    Third, the pollution or ``externality'' rationale ignores 
the large effects of our environmental policies and ignores 
also the cost of backup generation imposed by renewable power 
upon the electricity market, an adverse effect far greater than 
even the highest estimates of the environmental costs of 
conventional generation reported in the peer-reviewed 
literature.
    Fourth, the resource depletion or ``sustainability'' 
rationale is incorrect simply as a matter of basic economics 
and is inconsistent with the historical evidence in any event.
    And then, finally, the ``green jobs'' rationale borders on 
the preposterous. It confuses benefits for particular interest 
groups with costs imposed upon the economy as a whole. It 
ignores the adverse employment effects in the industries that 
lose when government attempts to pick winners. It ignores the 
adverse employment effects of increases in electricity costs 
and the adverse employment effects of the taxes needed to 
finance current and future subsidies. And it ignores the 
starkly adverse experience in Europe, which also is mesmerized 
by the ``green jobs'' mirage.
    Under the green jobs analytic framework, we could create a 
lot of employment if we outlaw the use of heavy equipment for 
digging ditches and mandated instead the use of shovels. That 
sounds pretty ridiculous, doesn't it? Well, there is no 
analytic difference between inefficient ditch-digging and 
inefficient power generation as tools with which to pursue 
increased employment--none.
    Ongoing perspective developments in the market for natural 
gas will worsen the already poor competitive position of 
renewable electricity because of the dramatic increase in 
natural gas supply is attendant upon the application of 
hydraulic fracturing technology. The EIA projection of gas 
prices over the next 20 years has declined about 20 percent and 
the EIA projection of non-hydroelectric renewable generating 
capacity also has declined by about 20 percent specifically 
because of reduced competitiveness.
    There was a headline in the Wall Street Journal dated 
August 22, 1978, that read ``Solar Power Seen Meeting 20 
Percent of Needs by 2000; Carter May Seek Outlay Boost.'' That 
forecast has a lot of company. In 1971, the National Academy of 
Sciences argued that it will take only another 50 years to use 
up the great bulk of the world's supply of recoverable 
petroleum liquids and natural gas. In 1977, the Executive 
Office of the President argued that supplies of oil are 
diminishing, and world oil will become very scarce and very 
expensive in the 1980s. In 1978, the Executive Director of the 
International Energy Agency argued that all available evidence 
points to a serious energy crisis in the middle or late 1980s. 
In 1979, the Central Intelligence Agency argued that the world 
can no longer count on increases in oil production to meet its 
energy needs. In 1980, the Secretary of Energy argued that oil 
supplies will be running out in a couple of decades. In 1979, 
the Chairman of Exxon argued that we are going to be facing 
shortages and higher prices for years.
    There is a dual theme common to all such predictions. 
First, the substitution--the musings of experts, policymakers, 
and commentators in place of market forces; and second, a 
batting average of zero. As we look back--I am not going to go 
through the list today; there is no time--there is a long list 
of legislation similar to the ones that we are talking about 
today in pursuit of energy independence and all the rest. None 
of them have worked. The eternal truth is that government 
subsidies for renewable energy are swimming against the strong 
tide of market forces and are doomed to the same failures that 
we have experienced time and again. Moreover, such policies 
have the more subtle effect of inducing evermore interest 
groups to seek favors from government, not a salutary outcome.
    Thank you again and I will be pleased to answer any 
questions.
    [The prepared statement of Dr. Zycher follows:]

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    Chairman Broun. Thanks, Doctor. Thank you.
    Dr. Thorning, you are recognized for five minutes.

                STATEMENT OF DR. MARGO THORNING,

           SENIOR VICE PRESIDENT AND CHIEF ECONOMIST,

             AMERICAN COUNCIL FOR CAPITAL FORMATION

    Dr. Thorning. Thank you, Chairman Broun, Chairman Harris, 
Ranking Member Tonko. I appreciate the chance to appear before 
you. The American Council for Capital Formation represents a 
cross-section of U.S. industry, and we are happy to say that 
our Board of Advisors contains prior Democrat and Republican 
administration officials. I would like to just make a few 
points to summarize my testimony.
    First, renewable energy industry simply don't meet the test 
for subsidy, as Dr. Zycher mentioned. Just to add a little 
flavor to that, we have had windmills for--since about 7 A.D. 
The Persians used them to grind grain. We have had solar power 
since the Romans used it 2,000 years ago to heat rooms. So the 
renewable sector just doesn't meet the criteria of an infant 
industry. And there is--according to the Commerce Department, 
it is not expected to be a major factor in job creation in the 
future and there is virtually no impact on the growth of global 
greenhouse gas emissions from a slight increase in the use of 
renewable energy or even a large increase in renewable energy 
here in the United States.
    Second, renewable energy costs are quite high. Each one 
percent of GDP in the United States is accompanied by a .2 
percent increase in energy use. So to the extent we substitute 
more expensive renewable energy for a less expensive 
conventional energy, we will retard economic growth.
    Second, data from EIA show that the cost of renewable 
energy generation equipment is substantially more expensive 
than that of conventional energy and the Treasury Department 
data on the American Recovery and Reinvestment Act show that 
the cost of new generation created by the 1603 Program is 14 
times higher than an advanced natural gas generation per 
megawatt hour.
    Additionally, if you look at States that have renewable 
portfolio standards, the average--on average, households by 28 
percent--excuse me, allergy--on average, households pay 28 
percent more for electricity and industry pays 23 percent more 
than States that don't have RPS.
    Third, green jobs are few and costly, as has been discussed 
already. Anecdotal estimates suggest that the creation of--the 
government's projections are likely to be significantly 
overstated, and furthermore, the cost per job is quite high. 
The NERL report shows that the jobs--the temporary jobs cost 
between 63,000 to 91,000 and the 5,000 permanent jobs expected 
to be created cost $81,000 to $88,000 as opposed to the average 
wage in the United States, which last year was $43,000.
    Another point is that the federal tax code should be 
neutral. Accelerated depreciation, Section 199, Farm Tax 
Credit, and LIFO are provisions in the code available to every 
industry. Taking a look at the incentives, loans and tax 
credits available to the renewable sector, CRS reports shows--
sorry, Metcalf report shows that the tax rate is a negative 244 
percent for solar thermal, for example.
    Fifth, fossil fuel expansion is likely to be a much greater 
source of job growth and economic and energy security according 
to a host of recent reports. Furthermore, they don't have to be 
provided--they don't have to be generated with taxpayer 
dollars.
    Finally, just to quickly--to wrap it up, yesterday, the 
Ford Chief Executive noted that the cost of each battery for 
the Ford Focus is $12,000 to $15,000. Now, of course, the cars 
sell for $35,000 to $40,000, so the fact that we have had years 
and years of work and a lot of government money going into 
increase the likelihood that electric vehicles would be 
commercially viable, you know, we have had plug-in electric 
vehicles since 1832. That is 180 years. How much longer is it 
going to take before batteries have the range and the quick-
charging facilities to make them commercially viable? So that 
is just an example of where government has tried, through the 
American Recovery and Reinvestment Act, to deploy new 
technologies which simply are not ready for primetime.
    So, in conclusion, high levels of support for renewable 
energy are probably not a good use of taxpayer dollars. 
Instead, those taxpayer dollars might be directed toward R&D 
for new technologies and for energy efficiency. Thank you.
    [The prepared statement of Dr. Thorning follows:]

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    Chairman Broun. Thank you, Dr. Thorning.
    Now, Ms. Linowes, you are recognized for five minutes.

                 STATEMENT OF MS. LISA LINOWES,

                      EXECUTIVE DIRECTOR,

                  INDUSTRIAL WIND ACTION GROUP

    Ms. Linowes. Thank you, Mr. Chairman, and Chairman Broun, 
Chairman Harris, Members of the Committee, I appreciate the 
opportunity to be here and to speak with you. And Congressman 
McNerney, I am sorry that you think this is a sounding board 
for the leadership. I hope that you will listen to the comments 
that are made today.
    I would like to start with a quick comment that places wind 
energy in its proper context. In 2008 the DOE published ``20 
Percent Wind Energy by 2030,'' a report which examined the 
feasibility of using wind to produce 20 percent of the Nation's 
electricity. A 20 percent scenario means transforming the 
midsection of the country, as well as our coastal waters into a 
massive wind generating facility connected together by 
thousands of miles of new 765 kV lines. Those green lines you 
see on the map, those are all new transmission lines that stand 
200 feet tall.
    But what do we get in return? According to the DOE, we get 
generation that cannot replace our capacity resources, those 
generators we rely on day to day and hour by hour to meet our 
energy needs. Most people do not understand this point, and 
when I have spoken to people in the past, including energy 
executives in a room, they are not aware that this statement; 
these comments are in the 20 percent by 2030 report.
    For the authors of this study, which included AWEA, the 
American Wind Energy Association, and NREL, satisfying the 20 
percent wind goal is entirely independent of our need for 
reliable power. Claims by industry proponents that wind can 
power over 12 million American homes or is the reason for coal 
plants retiring grossly overstates wind energy's purpose and 
its limited contribution to our energy portfolio.
    So why build wind at all? Two words: low emissions. This 
fact is validated by the ISO New England's Wind Integration 
Study, which concluded that New England could achieve 20 
percent wind, but doing so requires existing fleet of power 
plants to remain online and any new capacity resources proposed 
to be built also brought online. Bottom line: wind can displace 
fossil fuel; it cannot replace it.
    Switching to my next slide, this shows wind growth from 
1992 through until, I believe, 2009. The wind industry has 
complained over 10 years that each time the Production Tax 
Credit was allowed to expire, new wind installations stalled. 
And here we are again. But attributing wind activity to the--
wind market activity to the PTC is overly simplistic and fails 
to consider other more significant factors that impact growth 
like energy prices and the availability of State mandates. In 
fact, these factors are likely the primary impetus for wind 
growth or decline.
    The PTC is an overly generous, highly inefficient policy, 
and at 2.2 cents a kilowatt hour, this open-ended subsidy has a 
pretax value of about 3.7 cents a kilowatt hour, more than the 
price of wholesale electricity in most parts of the country 
today.
    Quick point about 6 and 1603: there is a claim that 1603 
and PTC are somehow monetarily equivalent, that the cash paid 
up front is equivalent to the PTC Tax Credit spanned over 10 
years. In fact, that is not the case. Aside from the intrinsic 
value of cash in hand being more valuable than a tax credit 
spanned over a period of time, I looked at 12 projects, 10 wind 
projects in particular, that received 1603 or will receive 1603 
in lieu of PTC, and what I found was that the Section 1603 more 
than not, in all of my cases, exceeded the amount of money the 
project would receive under PTC.
    The last point I want to make is about the hidden subsidies 
that wind energy receives. I want to mention one case where the 
Federal Government is paying money to the Production Tax Credit 
1603 and is also paying money to fund the development of our--
the highest quality RADAR systems in our country. The bottom 
line is wind energy and wind turbines interfere with our 
national radar systems, and the Federal Government is paying 
millions of dollars today to try to mitigate for that problem 
and it hasn't been mitigated. I cite two examples in my 
testimony. I hope you will look at that. There is a problem 
with radar and turbines, and we are paying the cost of it.
    Thank you.
    [The prepared statement of Ms. Linowes follows:]

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    Chairman Broun. Thank you, Ms. Linowes. I appreciate it 
very much. I appreciate your testimony.
    I want to remind Members that Committee rules limit 
questioning to five minutes per Member. And the Chair at this 
point will open the first round of questions. And I will 
recognize myself for five minutes.
    Dr. Thorning, how have U.S. household electricity bills 
changed in the recent years?
    Dr. Thorning. They have gone up substantially. In fact, the 
average household bill has gone up by almost $1,420 a year in 
2010 compared to earlier years. The last eight or so years they 
have gone up--the last five years they have gone up about 30 
percent. And last year, they increased even more in spite of 
the fact that there is increased natural gas electric 
generation going on. So household electricity prices have risen 
sharply, especially in States that have implemented a renewable 
portfolio mandate.
    Chairman Broun. Thank you, ma'am.
    To me, this is not fair. It is not fair to the poorest 
people in this country and senior citizens on limited incomes 
that we are forcing their electric bills to go up because of us 
forcing the renewable energy when we have lots of natural gas.
    Also to Dr. Thorning, how does the cost of electricity 
generated by wind and solar in 1603 grants compare to 
conventional electricity costs?
    Dr. Thorning. According to the Treasury's data, it is 14 
times more expensive than the generation cost for, say, 
advanced coal--advanced natural gas powered plants. In fact, 
the EIA data show that advanced natural gas plant is $62 per 
megawatt hour for the generating capacity; it is $880 for the 
wind and solar generating capacity financed through the 1603(b) 
programs.
    Chairman Broun. Dr. Zycher, the nonpartisan Congressional 
Budget Office recently issued a report which stated tax 
incentives are ``generally an effective way to reduce 
environmental and other external costs of energy.'' And ``they 
often reward businesses for investments and actions they 
intended to take anyway.'' How can the government guarantee 
that taxpayer money is actually incentivizing the private 
sector rather than just lining the coffers of preferred 
companies?
    Dr. Zycher. Well, you can always structure an incentive to 
induce a firm to do something you want it to do. Just to pick 
one obvious example that we have already discussed here, the 
PTC provides an incentive to produce electricity. The Section 
1603 grant provides an incentive to build facilities, 
independent of whether any electricity is produced at all.
    On the environmental front, I really would make a different 
point, if I may. The argument that wind and solar power reduce 
pollution is simply wrong because they are so unreliable that 
they require the installation of backup capacity power, either 
by coal or natural gas, and so there was a BENTEK engineering 
study of Colorado and Texas which found that pollution 
problems--or effluence actually went up because of the 
inefficient operation of the backup capacity, which had to be 
fired up and down depending whether the wind was blowing that 
day or not. And so I think that the argument that there is some 
sort of environmental advantage to renewable sources of 
electricity is sort of based on people ignoring the 
environmental problems caused by renewable electricity.
    Chairman Broun. Very good. Mr. Resch, last month, the U.S. 
Department of Commerce made a preliminary determination in 
response to a case brought by SolarWorld Industries America 
Inc. that China's subsidization of solar exports in the U.S. 
market is illegal and warrants trade remedies. How might the 
imposition of tariffs aid domestic manufacturers?
    Mr. Resch. Thank you, Chairman. What we see in the solar 
industry today is a global industry and that we are exporting 
products from the United States to China, we are importing 
products from China to the United States, Europe, around the 
world, and so ultimately the tariff will not have an impact. 
There is a global oversupply of PV products on the market 
today, about twice as much PV is manufactured as consumed that 
has led to the lower costs. But the tariffs will not have a 
substantial impact on the price of solar, but it will encourage 
companies to invest in new manufacturing in the United States.
    Chairman Broun. Mr. Erby, how would impositions of tariffs 
impact your cost in your business outlook?
    Mr. Erby. Not terribly, sir. Most of the companies since 
the ARRA program are built here in the United States, a lot of 
the panels are. They may be an Italian manufacturer, but they 
are built here in New Jersey so----
    Chairman Broun. Okay. My time is expired.
    I now recognize Mr. Tonko for five minutes.
    Mr. Tonko. Thank you, Mr. Chair. While you chided me for 
not asking any questions of the first panel, I promise you I 
will ask questions of this panel. And I promise also to even 
let the witnesses answer the question.
    So, Mr. Erby----
    Mr. Erby. Yes?
    Mr. Tonko. You have succeeded in growing a business with 
the support of Section 1603 funds. Something we hear a lot is 
that the government doesn't need to support solar companies 
because venture capital firms will step in to do that. You are 
in the market. What is your reaction to that?
    Mr. Erby. Unfortunately, the size systems that we build, 
Congressman, are 50 to 150,000 watts. It is not desirable for a 
venture capitalist to come in on a project this small. 
Everything we have done has been self-financed through credit 
cards, bank home equity loans, things of that nature. Even 
today, with the sales volume that we have, getting a venture 
capitalist to step in without wanting to take over a 50 percent 
share is almost impossible. Even being a veteran with the 
Patriot loans, banks are not extending credit for these 
products. So without the 1603, we would not exist.
    Mr. Tonko. Thank you. And Mr. Resch, we are told that 
government subsidies to renewables are a waste of money, that 
we should let the market pick winners and losers. But as I said 
earlier, every source of energy receives subsidies. Some 
sources have received them for almost a century. Is it fair to 
expect renewable sources of energy to succeed in the market 
without the kind of support existing sources received and still 
receive?
    Mr. Resch. You know, we built this industry in solar really 
since 2006, and so just in a six-year time frame, we have seen 
the industry go from about 50 megawatts this last year, nearly 
2,000 megawatts installed. It proves that this type of program 
works.
    Now, when you look across the board at all of the various 
energy technologies, we as a country have made strategic 
investments in these industries in order to grow our economy--
oil since 1916, coal since the '30s, nukes since the '50s. They 
have received permanent tax credits in all of those cases. Now, 
when we got our tax credit, we got a tax credit in the 2005 
energy bill for two years and it was capped at $2,000. You 
can't build an industry like that. So without some kind of 
long-term policy that gives us enough of a vision to be able to 
attract investment and lower our costs, it is going to be 
difficult. It is absolutely critical we keep these programs in 
place.
    Mr. Tonko. And to you also, Mr. Resch, what are the 
international consequences of not supporting our wind and solar 
industries? If we don't have a domestic market for these 
products, are we likely to hold on to a manufacturing base for 
them?
    Mr. Resch. No, absolutely not. The manufacturing jobs will 
go overseas in a heartbeat. I mean these are industries that 
were invented in the United States but are rapidly being 
commercialized by the Germans, the Japanese, and the Chinese. 
And you tend to build your factories where your markets are. 
That is exactly what we have seen in the United States. That is 
why we have 600 manufacturing facilities that support the solar 
industry, because we have a rapidly growing solar market. You 
kill the market for solar or wind in this country, those 
factories will go out of business and they will go to China, 
they will go to other countries. And they will own not only the 
manufacturing jobs but also the intellectual property and all 
the growth of these industries in the future.
    Mr. Tonko. Um-hum. And Mr. Erby, you are out in schools and 
businesses and municipal offices all the time. You indicated 
the growing number of customers that your company has secured. 
Describe the receptivity, if you will, of the community to 
solar energy.
    Mr. Erby. They have been overwhelmingly positive. In fact, 
this month, we have a sales quota internally of 300,000 watts 
per month. We achieved that on the third day of the month--we 
hit our sales quota for the month. So the communities are 
embracing it. We had a system we turned down at a school the 
other day, and the Superintendent, Bob Peron, was supposed to 
throw the switches and turn it on. He actually, just before we 
were going to do it, he goes hold it, hold it. Wait. And he ran 
in the school and he come back out a few minutes later with a 
young girl he wanted to turn the system on because she wants to 
study the renewable energy and she is applying to colleges. 
That excitement was--just made me smile ear to ear. I mean he 
went running into that school and pulled her right out of class 
and that is what we see. We just cannot answer the phone quick 
enough. The community wants this and that is prevalent, or 
relevant, in the number of sales that we have achieved.
    Mr. Tonko. And thank you.
    And Mr. Royer, in terms of the support for our wind and 
solar industries, and the whole question about the 
manufacturing of those systems here, if we don't have a 
domestic market, your response to that?
    Mr. Royer. Yeah, exactly as what we have already heard. In 
fact, you know, we have scaled this industry up to 400 
companies like my company, nearly 500 companies now in the last 
four years. I went from 11 employees to 380 employees. So 
without continuation of this industry, these jobs are going to 
be lost. The numbers I said are very reflective of my company 
starting in the fall of this year without the PTC.
    Mr. Tonko. Thank you so much, sir.
    Thank you, gentlemen.
    Chairman Broun. Thank you, Mr. Tonko.
    And I recognize Dr. Harris for five minutes.
    Mr. Harris. Thank you very much, Mr. Chairman. And I want 
to thank you again for holding the hearing.
    And I am going to apologize to Mr. Royer and Mr. Erby right 
up front for the false promise that the American government has 
made to your companies. It basically has created a program that 
means that you got to come and beg to the government for the 
continuation of your livelihoods. And so I am going to 
apologize up front for that. That is terrible public policy, 
but that is what we live with.
    Now, Mr. Resch--and I am going to apologize to Dr. Thorning 
because my numbers I am going to use are a little lower, 
because I am going to use the EIA numbers. Do you argue against 
the--this is the levelized cost of electricity generating 
technologies--in 2016--that is their estimate--that solar PV 
will be over 20 cents a kilowatt hour. Is that the levelized 
cost?
    Mr. Resch. No, it is not.
    Mr. Harris. And so have you written----
    Mr. Resch. It is not that high.
    Mr. Harris [continuing]. To the EIA and complained about 
this?
    Mr. Resch. We do on a regular basis----
    Mr. Harris. Okay.
    Mr. Resch [continuing]. With EIA and try to get----
    Mr. Harris. What do you think it is, the levelized cost 
without subsidies, levelized cost, what are you thinking?
    Mr. Resch. The levelized cost today is below 15 cents.
    Mr. Harris. Okay. And what do you think it is for natural 
gas at $1.95 a million BTU in an advanced combined cycle 
natural gas facility?
    Mr. Resch. Chairman Harris----
    Mr. Harris. What do you think it is?
    Mr. Resch [continuing]. I have worked in this----
    Mr. Harris. Mr. Resch, what do you think it is?
    Mr. Resch. I worked in the natural gas industry before I 
came to----
    Mr. Harris. What do you think it is?
    Mr. Resch [continuing]. Solar and I can tell you one thing 
about natural gas----
    Mr. Harris. Mr. Resch, do you know what it is? It was 6 
cents when natural gas was over $5 a million BTU. What do you 
think it is at $1.95 a million BTU? Don't beat around the bush. 
You worked in the industry. It is under 5 cents.
    Mr. Resch. What it should be is about----
    Mr. Harris. It is 1/3 the cost.
    Mr. Resch [continuing]. Four cents per kilowatt hour.
    Mr. Harris. Four cents?
    Mr. Resch. That is right.
    Mr. Harris. One-fourth. Now, Mr. Resch, who is going to pay 
that difference? My ratepayer and my taxpayer in my district? 
Who is going to pay that difference for an inefficient delivery 
of an electric--of electric generation to my seniors and my 
veterans and my schools because my school system has got to pay 
three times as much for their power they don't have as much for 
books and they don't have as much for teachers? Who is going to 
pay it? We have a $1.3 trillion deficit. We have to borrow that 
1603 money from China. Mr. Resch, you are smiling there----
    Mr. Resch. Because your numbers are wrong.
    Mr. Harris. Why are you smiling?
    Mr. Resch. Mr. Chairman, with all due respect----
    Mr. Harris. Mr. Resch, we have a $1.3----
    Mr. Resch [continuing]. You are speaking about natural 
gas----
    Mr. Harris. Mr. Resch, excuse me.
    Mr. Resch [continuing]. Which is wholesale generation----
    Mr. Harris. It is my time----
    Mr. Resch [continuing]. And solar electricity----
    Mr. Harris. Mr. Chairman----
    Mr. Resch [continuing]. Is generated----
    Mr. Harris [continuing]. Would you remind the witness----
    Mr. Resch [continuing]. Distributed generation.
    Mr. Harris [continuing]. It is my time, not his. Mr. Resch, 
you had your five minutes; now I get mine. Now, you are sitting 
there smiling because we have a $1.3 trillion deficit. You are 
coming to ask us to borrow money from China to pay for----
    Mr. Resch. Not at all. That is not what we are asking at 
all.
    Mr. Harris. Where do you think we are going to get this 
money? Do we just print it over at the Treasury? Oh, actually, 
we might. Mr. Resch, and you are sitting and grinning again, 
but people in my district don't grin about a $1.3 trillion 
deficit. They don't grin about paying three times as much for 
energy that you want to force them to pay in higher taxes and 
higher rates. Now, you might think that is funny----
    Mr. Resch. It is not.
    Mr. Harris [continuing). But the taxpayers and ratepayers 
in my district don't.
    Mr. Resch. It is not accurate.
    Mr. Harris. What is disturbing is you sit there----
    Mr. Resch. What you are saying is not accurate, Chairman. 
It is not accurate.
    Chairman Broun. Mr. Resch, Mr. Resch----
    Mr. Harris. You can reply in writing.
    Chairman Broun. Mr. Resch, would you just----
    Mr. Harris. Dr. Thorning----
    Chairman Broun. Dr. Harris, suspend just for a moment. I 
know you feel a little attacked, but please allow the gentleman 
to ask questions and please answer the questions.
    Mr. Resch. If I am asked a question, I am happy to answer 
it.
    Chairman Broun. Well----
    Mr. Tonko. Mr. Chairman, if I might, I think there should 
be a decorum here that at least shows respect to our witnesses. 
They have come--traveled the long miles to be here and there 
should be a sign of respect for the witnesses that are here.
    Chairman Broun. Well, thank you, Mr. Tonko.
    Mr. Tonko. We are here to glean information, and I would 
think if they are asked a question, they should respond.
    Chairman Broun. Well, I think Dr. Harris is trying to get 
some information and the witness----
    Mr. Tonko. Harassing the witness is not asking a question.
    Chairman Broun. Okay. Thank you, Mr. Tonko.
    Dr. Harris, you may continue.
    Mr. Harris. Thank you very, very much.
    Dr. Zycher, are my figures wrong? Is in fact this an 
incredible economic inefficiency to force Americans to pay--and 
I will tell you, Mr. Resch, I am going to go with the EIA 
numbers more than four times as much for their energy to 
subsidize an inefficient industry. Am I wrong somewhere here? 
Can we compete in a world economy paying four times as much for 
energy?
    Dr. Zycher. I--well, no. I would say--you are absolutely 
right, but I would say it a bit differently. The rationales 
have been offered in support of subsidies for very expensive 
power are uniformly wrong. The green jobs argument, the 
sustainability are all the ones I talked about in my oral 
testimony here today in the testimony for the record. There is 
simply no--and all the hand waving in the world cannot erase 
the fact renewable power is very, very expensive. It is not 
cleaner. That is simply a myth. And somebody has to pay for it, 
ultimately, either taxpayers or ratepayers.
    Mr. Harris. Sure. Doctor, do you think that the student who 
is just running up to pull that switch was told that that power 
was at least four or five, six, seven times more expensive than 
the power and was taking money from taxpayer and ratepayer 
dollars that could be used for something else in the economy? 
Do you think Americans understand that without a subsidy and 
even with a subsidy how expensive this power is?
    Dr. Zycher. Well, I don't know. The surveys of taxpayer 
attitudes on this are varied. It is certainly--I would be 
rather surprised if that student were informed of the realities 
of the relative cost. At a more general level, it is certainly 
true that there has been a decades-long effort to propagandize 
students on green politics, which I think has been quite 
destructive.
    Mr. Harris. I couldn't agree with you more and I see it in 
my children's textbooks that they bring home.
    Thank you, Mr. Chairman.
    Chairman Broun. Thank you, Dr. Harris.
    I recognize Mr. McNerney for five minutes.
    Mr. McNerney. Thank you, Mr. Chairman.
    Mr. Resch, I apologize for the attempt at intimidation that 
we just witnessed.
    Mr. Royer, you seemed to address the domestic production 
issues, but wouldn't it be true to say that developing superior 
technology here in the United States will open up significant 
opportunities for U.S. export and manufacturing?
    Mr. Royer. Yes, and actually it already has. In fact, I am 
entertaining an order of my business right now that will result 
in a project that is going to Uruguay, for example. Many of my 
customers are not only looking at sales of equipment in the 
United States but the rest of the Americas as we speak. Exactly 
the project I just mentioned, for example.
    Mr. McNerney. Thank you.
    Mr. Erby.
    Mr. Erby. Yes, sir.
    Mr. McNerney. In your testimony, you concluded--I concluded 
from your testimony that the 1603 Program has been very helpful 
in helping startups getting established.
    Mr. Erby. Correct.
    Mr. McNerney. Could you comment on that?
    Mr. Erby. Correct. It has made a level playing field, if 
you will. We cannot compete with the national companies. With a 
startup industry, we need this leg up, if you will, to get 
started in this industry. And the overall response that we are 
finding is the American people want this, and that is proven in 
our sales.
    Mr. McNerney. And both--as a comment, both Democratic and 
Republican politicians point to small businesses as the job 
creators of this country, so thank you for what you are doing, 
and I hope that we can continue that sort of program.
    Ms. Linowes, I hope I am not mispronouncing your name.
    Ms. Linowes. It is Linowes.
    Mr. McNerney. Linowes, thank you for your thoughtful 
testimony and also for recognizing my concern about the 
political nature of this hearing. I do have a question, though, 
that concerns me about your organization--the Industrial Wind 
Action Group. Does that group, IWAG, receive any money from oil 
companies or gas companies or coal companies?
    Ms. Linowes. We do not. I am probably the only person in 
the room not being paid to be here. I don't represent anyone. 
The organization does not pay to present anyone else's views. 
My views and--represent tens of thousands of people who have 
been negatively impacted by Section 1603 because----
    Mr. McNerney. In your opinion, that is. You said tens of 
thousands of people that are negatively impacted. That is, in 
your opinion, they are being natively impacted.
    Ms. Linowes. It is not my opinion. I have worked directly 
with these people. We have----
    Mr. McNerney. Tens of thousands of people?
    Ms. Linowes. Yes, I have a network of organization by--that 
is networked across the country. Each State has key people that 
have their own people that have contacts with people that live 
within the vicinity of wind energy facilities, and we have 
easily collected names from tens of thousands of people. I am 
not making that number up.
    Mr. McNerney. Well, I would like to see a little more 
transparency in your organization's funding if you are going to 
be making those kinds of claims.
    Ms. Linowes. We are not funded----
    Mr. McNerney. You also claim----
    Ms. Linowes. I have no money.
    Mr. McNerney. You also claim that the Production Tax Credit 
will--that allowing the Production Tax Credit to expire will 
lead to significant--will not lead to significant economic 
damages, but I strongly disagree. I think it is, during a time 
of economic difficulty, to pull the rug out from any number of 
people in the clean energy sector is a travesty. And I think 
that is going to be the impact of this expiration.
    Ms. Linowes. May I clarify my point on that?
    Mr. McNerney. Sure.
    Ms. Linowes. It is not the Production Tax Credit that is 
driving wind energy development. What is driving wind energy 
development are natural gas prices and the mandates, the State 
mandates, the RPS policies. And the--each case--in each 
situation where the Production Tax Credit was allowed to 
expire, at those same instances we also had extremely low gas 
prices, and we also had--we didn't have that many RPS policies 
in place. So the demand for wind wasn't there and the gas 
prices were too low to justify anyone going out and building 
wind. The only time that we saw wind energy actually going up 
when there was a threat of PTC was back in 2008, when we had 
gas prices, again, up--and these are transportation gas 
prices--up around $4 a gallon. And at that time, there is a 
connection between gas and natural gas and when the 
transportation prices were up, so was gas prices. But----
    Mr. McNerney. All right. I just want to move on to Mr. 
Zycher.
    And you argued that renewable energy is flawed because it 
is intermittent and a few other reasons. But I would say with 
complete confidence that any energy source has its problems and 
difficulties. Some of us are concerned about global warming, 
about groundwater pollution. It is very appropriate that we 
look at these energy sources on a level playing field and 
decide on economic and environmental basis what is the best 
long-term vision for our country.
    You had a fairly impressive list of economic erroneous 
projections, and I applaud you for that----
    Chairman Broun. The gentleman's time is expired. I am 
sorry.
    Mr. McNerney. All right.
    Chairman Broun. If you have----
    Dr. Zycher. I would be happy----
    Chairman Broun. Dr. Zycher, you could very quickly answer 
the question, please do.
    Dr. Zycher. Which erroneous projections are you talking 
about, if I may ask?
    Mr. McNerney. Oh, you had a whole list of erroneous 
projections----
    Dr. Zycher. Well, could you name one for me?
    Mr. McNerney. That you--well, the projections of running 
out of oil and so on that you had a whole list of projections 
that showed that----
    Dr. Zycher. No, I said that the argument that the world is 
going to run out of oil and that justifies----
    Mr. McNerney. Right.
    Dr. Zycher [continuing]. Is itself incorrect.
    Mr. McNerney. But my comment is that it is a lot easier to 
project the present than the future. Everyone makes mistakes 
when they project the future, and we should be very much on 
guard about these kinds of projections.
    Chairman Broun. The gentleman's time is expired.
    Mrs. Adams, you are recognized for five minutes.
    Mrs. Adams. Thank you, Mr. Chairman. And I have just been 
sitting here listening.
    And Mr. Resch, it is interesting; facts are stubborn 
things, you know. You have heard that old saying, but can you 
tell me 4 cents versus approximately 96 cents a kilowatt? What 
is the better value for the American people?
    Mr. Resch. Well, if those were the facts, then I would say 
4 cents is but that is not the fact. Remember, solar is 
distributed generation. It generates at the point----
    Mrs. Adams. Mr. Resch----
    Mr. Resch [continuing]. Of consumption so you are 
continually retailing----
    Mrs. Adams [continuing]. This is the time I have, okay?
    Mr. Resch. Okay. I am answering----
    Mrs. Adams. And I am not going----
    Mr. Resch [continuing]. Your question.
    Mrs. Adams [continuing] To be filibustered. I just asked 
you one simple question and then you said those are not the 
facts. But I was sitting here when you said you thought it was 
about 4 cents. Are you changing that cost analysis now?
    Mr. Resch. Four cents is for wholesale----
    Mrs. Adams. Thank you----
    Mr. Resch [continuing]. Generation----
    Mrs. Adams. Thank you----
    Mr. Resch [continuing]. Solar is retail generation. You 
cannot compare the two.
    Mrs. Adams. So what would wholesale----
    Mr. Resch. You don't pay 4 cents at your house. You pay 16 
cents at your house because it is generated at power plant, it 
goes through----
    Mrs. Adams. So 16 cents versus----
    Mr. Resch [continuing]. Transmission lines through 
utilities and taxes----
    Mrs. Adams [continuing]. Ninety six cents, tell me that?
    Mr. Resch. Solar today is less than that. Solar today, as I 
pointed out before, is about 20 cents or less per kilowatt hour 
distributed generation. It is not 96.
    Mrs. Adams. Well, the--Dr. Harris has the research and the 
information, and apparently you disagree with the companies so 
we will move on. But I, you know, this----
    Mr. Resch. I represent the industry. These are the facts--
--
    Mrs. Adams. Mr. Resch----
    Mr. Resch [continuing]. Of the industry.
    Mrs. Adams. --I currently hold the time.
    Mr. Resch. Fine.
    Mrs. Adams. And I have five minutes and I plan on getting 
my questions answered.
    Dr. Thorning or Dr. Zycher, Dr. Sherlock's testimony 
earlier said, ``for renewable energy projects with longer 
planning horizons tax uncertainty might prevent marginal 
projects from moving forward''--marginal projects. Can you 
speak to how the possibility of increased capital gains and 
dividend tax rates and marginal income tax rates impact the 
perception of the tax certainty for energy firms?
    Dr. Thorning. Yeah, I will take a shot at that. Increasing 
the capital gains tax rate from the current 15 percent to 20 
percent and dividends up to 39.8, which is what is going to 
happen at the beginning of 2013 will certainly raise the cost 
of capital and the hurdle rate for new energy investments but 
for all investments and is likely to have a negative impact on 
overall investment.
    Mrs. Adams. And would likely cause utility bills to do 
what?
    Dr. Thorning. Well, it will certainly mean that any new 
utility project is going to have to earn a larger rate of 
return, so that will have to be passed on to utility customers, 
households, and industries.
    Mrs. Adams. Well, I can tell you, in our district I think 
my constituents believe that utility bills are high enough but 
not too high. So Dr. Thorning, how would you reduce--how would 
reducing the overall corporate tax rate influence the global 
competitiveness of American energy firms?
    Dr. Thorning. I think it would be helpful. Lowering the 
corporate tax rate would certainly tend to reduce the cost of 
capital. Each new investment would have a lower hurdle rate so 
more investments would occur. However, if at the same time you 
reduce the corporate tax rate and eliminate accelerated 
depreciation deferral, LIFO, other provisions that are 
currently in the code, those have an offsetting impact. As you 
know, the Bowles-Simpson plan proposed to eliminate most 
deductions that companies use. So those--it is going to be a 
tradeoff and, you know, one would have to look carefully at 
what the cost of--what you have to give up to lower the 
corporate tax rate.
    Mrs. Adams. So Dr. Sherlock's testimony states, ``ideally, 
the energy tax policy should be designed to allow markets to 
choose which technologies best meet energy policy objectives.'' 
If America's energy policy objective were to provide the 
cheapest form of energy, what would such an energy tax policy 
look like?
    Dr. Thorning. Well, there should be neutrality in the tax 
code, provisions that are available like accelerated 
depreciation, LIFO, Section 199 should be available to all 
types of energy investments. We need a level playing field.
    Mrs. Adams. And Dr. Zycher, presumably the reason for tax 
subsidies for projects to reduce carbon dioxide emissions is to 
reduce possible impacts from global warming. Has anyone 
calculated what lower baseline carbon emissions specifically 
from these projects would mean to global warming?
    Dr. Zycher. Yeah, there are a number of projections. Pat 
Michaels at Cato has done that, Chip Knappenberger at--I forget 
the name of his institution--has done that. There have been 
various--essentially, the policies being proposed by the IPCC 
audience for want of a better term if implemented by the entire 
industrialized world, including China and India, would have the 
effect of reducing global temperatures if you believe the IPCC 
models--which I don't, by the way, but if you do believe them--
by an amount that is imperceptible over the next century. It is 
all cost and no benefit even under the terms of the IPCC 
models.
    Mrs. Adams. All cost, no benefit.
    Dr. Zycher. Right.
    Mrs. Adams. My time is expired. I yield back.
    Chairman Broun. Thank you, Mrs. Adams.
    I want to thank the witnesses for your valuable testimony 
and the Members for their questions. The Members of either 
Subcommittee may have additional questions for you all, for the 
witnesses and we will ask you to respond to those in writing. 
The record will remain open for two weeks for additional 
comments from Members.
    The witnesses are excused and the hearing is now adjourned. 
And I thank you.
    [Whereupon, at 12:33 p.m., the Subcommittees were 
adjourned.]

                   Answers to Post-Hearing Questions




                   Answers to Post-Hearing Questions

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