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



 
                    ENERGY TAX POLICY AND TAX REFORM

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

                             JOINT HEARING

                               before the

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                  and

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 22, 2011

                               __________

                          Serial No. 112-SRM04

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS
                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                   PATRICK J. TIBERI, Ohio, Chairman

PETER J. ROSKAM, Illinois            RICHARD E. NEAL, Massachusetts
ERIK PAULSEN, Minnesota              MIKE THOMPSON, California
RICK BERG, North Dakota              JOHN B. LARSON, Connecticut
CHARLES W. BOUSTANY, JR., Louisiana  SHELLEY BERKLEY, Nevada
KENNY MARCHANT, Texas
JIM GERLACH, Pennsylvania

                                 ______

                      COMMITTEE ON WAYS AND MEANS
                       SUBCOMMITTEE ON OVERSIGHT

             CHARLES W. BOUSTANY, JR., Louisiana, Chairman

DIANE BLACK, Tennessee               JOHN LEWIS, Georgia
AARON SCHOCK, Illinois               XAVIER BECERRA, California
LYNN JENKINS, Kansas                 RON KIND, Wisconsin
KENNY MARCHANT, Texas                JIM MCDERMOTT, Washington
TOM REED, New York
ERIK PAULSEN, Minnesota

                       Jon Traub, Staff Director

                  Janice Mays, Minority Staff Director


                            C O N T E N T S

                               __________
                                                                   Page

Advisory of September 22, 2011 announcing the hearing............     2

                               WITNESSES

PANEL 1:

The Honorable J. Russell George, Inspector General, Treasury 
  Inspector General for Tax Administration, Washington, DC.......     7
    Testimony....................................................     9
Mr. Richard E. Byrd, Jr., Commissioner, Wage and Investment 
  Division, Internal Revenue Service, Washington, DC.............    17
    Testimony....................................................    19

PANEL 2:

Dr. Donald B. Marron, Director, Tax Policy Center, The Urban 
  Institute, Washington, DC......................................    36
    Testimony....................................................    39
      Truth in Testimony.........................................    51
Mr. Kevin Book, Managing Director, Research, Clearview Energy 
  Partners, LLC, Washington, DC..................................    52
    Testimony....................................................    54
      Truth in Testimony.........................................    64
Mr. Neil Z. Auerbach, Founder and Managing Partner, Hudson Clean 
  Energy Partners, L.P., Teaneck, NJ.............................    65
    Testimony....................................................    67
      Truth in Testimony.........................................    97
Mr. Will Coleman, Partner, Mohr Davidow Ventures, Menlo Park, CA.    98
    Testimony....................................................   100
      Truth in Testimony.........................................   111
Mr. Tim Greeff, Political Director, Clean Economy Network, 
  Washington, DC.................................................   111
    Testimony....................................................   114
      Truth in Testimony.........................................   118

PANEL 3:

Mr. Andrew J. Littlefair, President and Chief Executive Officer, 
  Clean Energy Fuels, Seal Beach, CA.............................   156
    Testimony....................................................   158
      Truth in Testimony.........................................   163
Dr. Lawrence B. Lindsey, President and Chief Executive Officer, 
  The Lindsey Group, Fairfax, VA.................................   119
    Testimony....................................................   121
      Truth in Testimony.........................................   129
The Honorable Calvin Dooley, President and Chief Executive 
  Officer, American Chemistry Council, Washington, DC............   164
    Testimony....................................................   166
      Truth in Testimony.........................................   171
Dr. David W. Kreutzer, Research Fellow in Energy Economics and 
  Climate Change, The Heritage Foundation, Washington, DC........   172
    Testimony....................................................   174
      Truth in Testimony.........................................   184
Mr. Hank Ziomek, Director of Sales, Titeflex Corporation, 
  Springfield, MA................................................   185
    Testimony....................................................   187
      Truth in Testimony.........................................   191

                     MEMBER QUESTION FOR THE RECORD

The Honorable Peter Roskam.......................................   206

                   PUBLIC SUBMISSIONS FOR THE RECORD

A Royal Flush Inc................................................   207
ACAA AHRI HARDI..................................................   209
American Gas Association.........................................   216
AGC Flat Glass...................................................   219
Algal Biomass....................................................   223
American 99ers...................................................   231
American Biogas Council..........................................   234
American Public Power Association................................   238
Bridgeport Biodiesel.............................................   240
Biomass Thermal Energy Council...................................   242
CALSTART.........................................................   246
Center for Fiscal Equality.......................................   252
Council of the North American Insulation Manufacturers 
  Association....................................................   258
Cummins Westport Inc.............................................   260
Delta Bulk Transport.............................................   261
Edison Electric Institute........................................   263
Element Partners.................................................   272
Enviro Express...................................................   279
Environmental Working Group......................................   281
Fox NAT GAS......................................................   286
Geothermal Energy Association....................................   288
Hoopes Turf Farming..............................................   292
Infinia Corp.....................................................   294
JP Noonan Transportation.........................................   297
National Association of Home Builders............................   299
National Association of the Remolding Industry...................   309
National Rural Electric Cooperative Association..................   311
National Biodiesel Board.........................................   318
National Propane Gas Association.................................   322
Natural Gas Vehicles for America.................................   325
National Hydropower Association..................................   336
Propel Fuels.....................................................   341
Public Power Council.............................................   344
Rep. Sullivan....................................................   347
Earth Power Solutions............................................   350
Solar Energy Industries Association..............................   351
Solid Waste Authority of Central Ohio............................   358
South Jersey Industries..........................................   363
The American Institute of Architects.............................   364
VAT Info.org.....................................................   369
Window and Door Manufacturers Association........................   372
Industrial Energy Consumers of America...........................   377


                    ENERGY TAX POLICY AND TAX REFORM

                              ----------                              


                      THURSDAY, SEPTEMBER 22, 2011

         U.S. House of Representatives,    
                   Committee on Ways and Means,    
               Subcommittee on Select Revenue Measures,    
                                  Subcommittee on Oversight
                                                    Washington, DC.
    The subcommittees met, pursuant to notice, at 9:34 a.m., in 
Room 1100, Longworth House Office Building, the Honorable 
Patrick Tiberi [chairman of the Subcommittee on Select Revenue 
Measures] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                 Chairman Tiberi and Chairman Boustany

       Announce Joint Hearing on Energy Tax Policy and Tax Reform

September 22, 2011

    Congressman Pat Tiberi (R-OH), Chairman of the Subcommittee on 
Select Revenue Measures, and Congressman Charles Boustany (R-LA), 
Chairman of the Subcommittee on Oversight, both of the Committee on 
Ways and Means, today announced that the two Subcommittees will hold a 
joint hearing on the intersection of energy policy and tax policy, with 
a focus on the dual priorities of comprehensive tax reform and a 
sustainable energy policy that addresses our economic, security, and 
environmental needs. The hearing will take place on Thursday, September 
22, 2011, in Room 1100 of the Longworth House Office Building at 9:30 
A.M.
      
    The hearing was originally scheduled for 10:00 A.M. on Wednesday, 
August 3, 2011, in Room 1100 of the Longworth House Office Building, 
but was postponed.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing. A list of invited 
witnesses will follow.
      

BACKGROUND:

      
    As part of the Ways and Means Committee's tax reform agenda, the 
Committee and its Subcommittees intend to hold hearings on how 
comprehensive tax reform would affect particular sectors of the 
economy. Given the critical economic, security, and environmental 
considerations surrounding the energy sector, Chairman Camp requested 
that Chairmen Tiberi and Boustany begin with an inquiry into energy tax 
policy. The current Tax Code includes numerous provisions intended to 
advance various energy policy goals, including provisions dealing with 
production, efficiency, and conservation, and ranging from 
transportation fuels to electricity generation.
      
    There are three general views regarding energy tax policy. Some 
believe that many of these energy tax provisions are an effective and 
efficient way to advance important public policy goals. Others suggest 
that the current structure of energy tax incentives picks winners and 
losers, rather than applying technology-neutral tests that would 
encourage investment in the most promising technologies. Still others 
believe that the Tax Code should not subsidize energy at all, because 
doing so interferes with the free market and violates tax reform 
principles such as simplicity, fairness, and economic growth.
      
    The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) 
included several provisions intended to promote so-called ``green'' 
energy. Among these were the Nonbusiness Energy Property Credit, the 
Residential Energy Efficient Property Credit, and various Plug-in 
Electric and Alternative Motor Vehicle Credits. The Treasury Inspector 
General for Tax Administration (TIGTA) subsequently reviewed IRS's 
effectiveness in identifying and preventing erroneous claims for these 
credits during the 2010 tax return filing season. TIGTA issued two 
reports on its findings, which included millions of dollars in 
erroneously claimed credits and a lax review process that resulted in 
credits successfully claimed by children, prisoners, and others who did 
not qualify.
      
    On April 6, 2011, Rep. John Sullivan (R-OK) introduced H.R. 1380, 
the New Alternative Transportation to Give Americans Solutions (NAT 
GAS) Act of 2011. The bill currently has 184 bipartisan cosponsors, 
although a number of Members of Congress have removed their names as 
cosponsors. Referred primarily to the Ways and Means Committee, H.R. 
1380 includes tax credits related to compressed and liquefied natural 
gas (CNG and LNG), including credits for the fuels themselves, credits 
for the purchase and production of vehicles powered by CNG and LNG, and 
credits for refueling property related to CNG and LNG. Whether such 
credits represent good energy policy or an intrusion into the free 
market has been the subject of vigorous debate.
      
    In announcing the hearing, Chairman Tiberi said, ``Energy security 
and comprehensive tax reform are two of the most important priorities 
we can pursue to create jobs and ensure the long-term strength of the 
U.S. economy. As the committee with jurisdiction over energy tax 
policy, the Ways and Means Committee should examine whether there 
sometimes can be tension between these priorities, and how this 
Committee can design tax policies that achieve our energy security 
goals while also staying true to the principles of simplicity, 
fairness, and growth that drive the Committee's tax reform agenda.''
      
    Chairman Boustany said, ``With so much of our energy policy driven 
by the Tax Code, comprehensive tax reform needs to consider whether 
these tax incentives promote a sound energy strategy. This hearing will 
examine how IRS implements and enforces rules on energy credits, and it 
will explore the role of the Tax Code in energy policy.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the questions of whether energy policy 
should be conducted through the Tax Code, and if so, how best to design 
provisions that advance the principles of both sustainable energy 
policy and tax reform. In asking these questions, the hearing will 
conduct oversight of the administration of certain existing energy tax 
provisions to determine whether they have been implemented efficiently 
and effectively. It also will consider how the specific case of H.R. 
1380, the NAT GAS Act, stacks up against the principles of tax reform 
and sustainable energy policy.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
written comments for the hearing record must follow the appropriate 
link on the hearing page of the Committee website and complete the 
informational forms. From the Committee homepage, http://
waysandmeans.house.gov, select ``Hearings.'' Select the hearing for 
which you would like to submit, and click on the link entitled, ``Click 
here to provide a submission for the record.'' Once you have followed 
the online instructions, submit all requested information. ATTACH your 
submission as a Word document, in compliance with the formatting 
requirements listed below, by the close of business on Thursday, 
October 6, 2011. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. For questions, or if you 
encounter technical problems, please call (202) 225-3625 or (202) 225-
2610.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word format and MUST NOT exceed a total of 10 pages, including 
attachments. Witnesses and submitters are advised that the Committee 
relies on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman TIBERI. The hearing will come to order, a series 
of hearings on comprehensive tax reform. Today we will begin an 
examination of the energy tax policy and tax reform. I am glad 
this hearing will be a joint effort between the Select Revenue 
Measures Subcommittee and the Oversight Subcommittee. Both 
subcommittees play an important role in reviewing energy tax 
issues, the Oversight Subcommittee by examining the IRS's 
administration of existing energy tax provisions, and the 
Select Revenue Measures Subcommittee by examining energy tax 
policies.
    Today's hearing will feature three panels of witnesses. The 
first panel will examine the IRS's administration of so-called 
energy green tax credits included in the American Recovery and 
Reinvestment Act of 2009. The second panel will examine 
different viewpoints on the proper role of the Tax Code in 
promoting energy policies. And finally, the third panel will 
examine H.R. 1380, the New Alternative Transportation to Give 
Americans Solution Act of 2011, introduced by Representative 
John Sullivan of Oklahoma, and fellow member of the Select 
Revenue Subcommittee, Representative John Larson of 
Connecticut.
    I look forward to hearing from all three panels, so I will 
be brief and now yield to the ranking member of Select Revenue, 
Mr. Neal.
    Mr. NEAL. Thank you, Mr. Chairman, and thank you for 
conducting this hearing.
    Some may be surprised by how much the United States 
Government spends on energy policy through our Tax Code. 
According to the Energy Information Administration, for 2010 
the value of direct federal financial interventions and 
subsidies in energy markets was estimated at about $37 billion. 
Of this total, about $16 billion, or approximately 44 percent, 
can be attributed to tax incentives.
    In calling this hearing today, the chairman is raising an 
important point that warrants consideration: Should we be 
pursuing energy policy through the Tax Code? And if so, how do 
we do so in the most effective manner?
    Over the years, Congress has enacted a number of energy tax 
incentives that have been quite successful. For example, the 
Recovery Act included the 48 clean 
energy manufacturing tax credit, providing a 30 percent credit 
for investments in facilities that manufacture clean energy 
products. According to the Department of Energy, the $2.3 
billion allocation of tax credits will result in more than 
17,000 jobs. This investment will be matched by as much as $5.4 
billion in private sector funding, likely supporting up to 
41,000 additional jobs.
    On the other hand, when I read in late July that the 
largest oil companies reported another quarter of 
profitability, with one company reporting a 97 percent increase 
in profits, I had to once again question whether some 
profitable companies really need taxpayer subsidies. We spent 
about $2 billion each year on subsidies for the largest oil 
companies. In this time of record deficits, do we really see 
this as a smart investment by the government?
    In focusing on oil production today, an interesting point 
to note is the emerging oil boom right here in the Americas. 
From Brazil to Argentina to Canada, even North Dakota, the 
Western Hemisphere is seeing an increase in oil discovery and 
production. This is a significant development that may ease our 
country's dependence on Middle Eastern oil.
    So, I am glad we are having this conversation--and I 
emphasize the word ``conversation,'' Congress once worked upon 
the basis of a conversation--examining our energy tax 
provisions. And I look forward to the testimony of all our 
witnesses today.
    But I am also particularly pleased that we will be joined 
by one of my constituents, Hank Ziomek, who is the director of 
sales at Titeflex company in Springfield, a terrific success 
story. And Hank will be discussing how this formerly old-line 
manufacturer has benefitted from and become more dependent on 
growth of the natural gas vehicle market.
    Thanks, Mr. Chairman.
    Chairman TIBERI. Thank you, Mr. Neal. I am going to yield 
now to my good friend, the chairman of the Oversight Committee, 
Dr. Charles Boustany, for an opening statement.
    Chairman BOUSTANY. Thank you, Chairman Tiberi, for holding 
this hearing. I would also like to welcome everybody to this 
morning's hearing on energy tax policy and administration.
    Let there be no doubt. This country lacks a comprehensive 
energy strategy to achieve energy security and create good-
paying American jobs.
    Louisianans know natural gas will be an important part of 
our transition to new fuel sources for the 21st century. In 
addition to natural gas, we must ensure that traditional energy 
sources are affordable, and innovative technologies are allowed 
to flourish. Yet the Administration continues to advocate for 
job-killing tax hikes on American energy producers. And these 
tax hikes will hit small, independent oil and gas companies, 
hurting job growth in this country, and really hurting our 
energy security.
    At today's hearing, we will consider the role of the Tax 
Code in our country's energy policy, as well as IRS's 
effectiveness in implementing existing tax incentives. In 
recent years, Congress has sought to promote the development 
and use of renewable energy by offering tax credits to 
businesses and individuals. Whether tax credits are an 
effective way of pursuing this policy, and whether the Tax Code 
is the appropriate way to do so are questions up for debate. 
And that's why we're having this conversation.
    Critics have argued that incentives included in the 
Recovery Act, such as the non-business energy property credit, 
the residential energy efficient property credit, and numerous 
plug-in, electric, and alternative motor vehicle credits have 
not only failed to stimulate the use of alternative energy, but 
have also become a target of fraudulent claims, leading to 
billions of dollars a year in improperly claimed credits.
    There is the case of the residential energy efficient 
property credit meant to promote energy-saving home 
improvements. And the Treasury inspector general for tax 
administration found that hundreds of thousands of dollars of 
the credit went to prisoners and children, and nearly a third 
went to individuals with no proof of home ownership. The IRS 
was unable to verify whether tax payers that claimed these 
credits were indeed eligible to receive the credits, costing 
taxpayers hundreds of millions of dollars in 2009 alone.
    Plug-in, electric, and alternative motor vehicle credits 
have similarly suffered from poor administration and fraud. 
According to a recent report, although these credits were 
intended to promote the purchase of hybrid and electric 
vehicles, a lax eligibility review resulted in millions of 
improper payments.
    For instance, even though the credit only applied to new 
vehicles, IRS allowed credits when returns listed years such as 
1991, 1979, and, strangely enough, the year 1300. And they even 
allowed plug-in and hybrid credits for vehicles such as 
Cadillac Escalade, Hummer H-3, and the Harley Classic. One 
taxpayer successfully claimed a bicycle.
    Given these problems, this morning's hearing will examine 
whether these credits have served their intended energy policy 
goals, or whether these goals have been overshadowed by waste, 
fraud, and abuse of these credits. Further, it is our duty to 
ask the IRS what is it doing to detect these fraudulent claims, 
to ensure that taxpayer dollars spent on economic recovery are 
safeguarded from abuse. I look forward to hearing testimony 
today to help us craft responsible energy policy to unleash 
America's energy potential.
    Thank you, Mr. Chairman, I yield back.
    Chairman TIBERI. Thank you. I now yield to the ranking 
member of the Oversight Committee, my friend from Georgia, Mr. 
Lewis.
    Mr. LEWIS. Well, thank you very much. I want to thank you, 
Chairman Tiberi and Chairman Boustany, for holding this 
hearing. Energy tax policy is an important topic as we work 
toward a greener America and the creation of jobs in the United 
States.
    I am pleased that we will start this hearing by reviewing 
the administration of energy tax credits. In this context, it 
is important that we discuss the proper funding of the Internal 
Revenue Service. We need to examine whether the agency has the 
resources it needs to ensure compliance with these provisions. 
Simply put, agency funding impacts tax administration.
    The testimony clearly states that the agency has limited 
resources to examine claims after the credits have been paid. I 
have serious concern that the Republican plan to cut $600 
million from the agency's budget will further damage its 
ability to administer energy and other tax credits.
    The Republican budget will result in the furlough of over 
4,000 employees. This furlough will harm administration and 
hurt the agency's ability to detect and fight fraud. This cut 
will also increase the deficit and widen the tax gap. The 
agency collects between $4 and $7 for every $1 of funding. The 
Republicans' attempt to save $600 million actually will cost 
taxpayers more than $4 billion each year.
    Any serious discussion of energy policy and tax reform must 
begin with fully funding the agency.
    Investment in agency funding and tax incentives are 
critical to energy policy. They result in more choices for 
consumers and increased competition. Most importantly, they 
create jobs in the United States.
    I want to thank the witnesses for being here today. I would 
like to extend a special welcome to the gentleman from the 
great city of Atlanta, Commissioner Byrd. Welcome. Thank you.
    Chairman TIBERI. Thank you, Mr. Chairman. Before I 
introduce the witnesses for the first panel, I ask unanimous 
consent that all Members' written statements be included in the 
record.
    [No response.]
    Chairman TIBERI. Without objection, so ordered. We will now 
turn to our first panel of witnesses, and I welcome the 
Honorable Russell George, Treasury inspector general for tax 
administration. And I also welcome Mr. Richard Byrd, Jr., 
commissioner, wage and investment division, Internal Revenue 
Service. Thank you both for joining us today. You will have--
you each have five minutes to present your testimony. And, 
obviously, your full written testimony will be submitted for 
the record.
    General George, you can begin.

  STATEMENT OF J. RUSSELL GEORGE, INSPECTOR GENERAL, TREASURY 
   INSPECTOR GENERAL FOR TAX ADMINISTRATION, WASHINGTON, D.C.

    Mr. GEORGE. Thank you, Chairman Tiberi. Good morning, 
Chairman Boustany, Ranking Member Lewis, Ranking Member Neal, 
Members of the Subcommittee. Thank you for the opportunity to 
testify on the Internal Revenue Service's administration of 
energy-related tax credits.
    The Recovery Act of 2009 contained 20 provisions, 
applicable to individual taxpayers, including a number of tax 
credits and deductions. The energy and motor vehicle provisions 
of the Recovery Act were non-refundable credits and deductions.
    The Plug-in Electric and Alternative Motor Vehicle Credits 
provide taxpayers with a credit for the purchase or conversion 
to motor vehicles that operate on clean, renewable energy 
sources. During the period of January 1st through July 24, 
2010, approximately 69,000 individuals--who electronically 
filed tax returns--claimed $164 million worth of those credits.
    The Act provided two types of Residential Energy Credits to 
individuals to install energy efficient products in their 
principal residence, or install alternative energy equipment in 
their principal or secondary residences. Approximately 6.8 
million individuals claimed $5.8 billion in Residential Energy 
Credits on their tax year 2009 returns.
    The Qualified Motor Vehicle Deduction provided individuals 
with an additional deduction for State sales taxes and excise 
taxes on the purchase of certain motor vehicles for tax year 
2009. Approximately 4.3 million individuals claimed $7.2 
billion in Qualified Motor Vehicle Deductions.
    Our reviews of the effectiveness of IRS processes to 
identify and prevent wrongful claims for these energy-related 
credits and deductions identified erroneous claims for millions 
of dollars in these credits and deductions. It must be stressed 
that these claims could have been minimized if the IRS had 
taken the actions I am about to describe. Importantly, these 
changes would also help minimize erroneous claims for other tax 
credits as well.
    First, the IRS must establish effective processes to verify 
eligibility for these credits at the time tax returns are 
processed. Second, it needs to design the tax forms used to 
claim the credits and deductions in such a way as to request 
key information that can be used to verify eligibility. And, 
third, the Service must use the data it already possesses to 
identify non-qualifying claims.
    In January, we reported that for paper-filed returns with 
plug-in and alternative vehicle claims, the IRS did not 
establish processes to record data from tax forms for the 
credits. This prevented the IRS from accounting for these 
claims, and also identifying potentially false ones. 
Furthermore, we identified 12,920 individuals who 
electronically filed their tax returns and erroneously claimed 
$33 million in Plug-in Electric and Alternative Motor Vehicle 
Credits.
    The processes used by the IRS did not ensure the plug-in 
electric and alternative vehicles claimed met the requirements 
to receive the credit. There was information on these tax forms 
that the IRS could have used to identify and stop these credits 
at the time tax returns were processed. We recommended that the 
IRS develop procedures to disallow credits for vehicles with 
non-qualifying years; initiate actions to recover faulty 
credits; and either develop a coding system to identify 
vehicles, or require the Vehicle Identification Number on the 
forms used to claim these credits.
    Concerning the Residential Energy Credits, we reported that 
the IRS could not verify whether individuals claiming these 
credits are entitled to the credit at the time their tax 
returns are processed. The form used to claim these credits 
does not request specific information that could be used to 
verify the requirements of the law.
    Furthermore, using data the IRS already has, we identified 
362 ineligible individuals who were allowed to wrongly claim 
over $400,000 in Residential Energy Credits on their tax 
returns. These individuals were either prisoners, or were under 
the age needed to enter into a contract to purchase a 
residence. The IRS does not have a process in place to use its 
data to identify these cases. We recommended that the IRS 
revise the form used to claim Residential Energy Credits to 
request specific information supporting eligibility 
requirements; examine the returns of the 362 individuals who 
appear to be ineligible to claim it; and implement processes to 
identify and review returns filed by prisoners or underage 
individuals, to verify whether they qualify for the credit.
    We also identified similar issues with the Qualified Motor 
Vehicle Deduction. This deduction expired on December 31, 2009, 
and has not been extended by law.
    I am pleased to report that the IRS agreed to all of our 
recommendations.
    Mr. Chairman, we at TIGTA appreciate the opportunity to 
assist you in your oversight of the IRS.
    [The prepared statement of Mr. George follows:]

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    Chairman TIBERI. Thank you so much, General George.
    Mr. Byrd, you may proceed with your testimony.

   STATEMENT OF RICHARD E. BYRD, JR., COMMISSIONER, WAGE AND 
INVESTMENT DIVISION, INTERNAL REVENUE SERVICE, WASHINGTON, D.C.

    Mr. BYRD. Thank you, and good morning. Chairman Tiberi, 
Ranking Member Neal, Chairman Boustany, and Ranking Member 
Lewis, my name is Richard Byrd, and I am Commissioner of the 
Wage and Investment Division at the Internal Revenue Service.
    I appreciate the opportunity to testify before the 
subcommittees on the residential energy property tax credits 
and plug-in electric and alternative motor vehicle tax credits, 
and the ongoing efforts by the IRS to ensure proper 
administration of the laws relating to them.
    The number of tax credits affecting individuals and 
businesses has grown in recent years. For example, the Recovery 
Act contained more than 50 tax provisions, including tax 
credits, which cover a broad spectrum of tax relief. However, 
it is important to note that the tax credits being discussed 
today are not refundable tax credits.
    The residential energy property tax credits and the plug-in 
electric and alternative motor vehicle tax credits reduce, 
dollar for dollar, a person's tax liability. While such credits 
could not reduce a person's tax bill to less than zero, they 
can increase a taxpayer's refund if he or she paid too much in 
estimated tax, or had too much tax withheld over the year, as 
many people do.
    In administering tax credits, the IRS must deliver the 
benefits that the legislation provides in the intended time 
frame, while ensuring that appropriate and prudent controls and 
filters are in place to minimize errors and fraud. This is not 
an either/or proposition. We must do both well.
    During 2010, the residential energy property credit and the 
resident energy efficient property credit provided nearly $6 
billion to 6.7 million homeowners who weatherized their homes 
and made them more energy efficient. Both credits include 
multiple types of eligible expenditures with differing 
restrictions and unique criteria.
    Over the same time period, 34,724 individual taxpayers took 
advantage of the plug-in vehicle tax credits for personal and 
business use, for a total of $150 million, with each credit 
subject to different and complex eligibility requirements.
    As with any new tax provision, we continually adapt our 
programs to improve the screening process as we gain experience 
with them. Over the course of administering these energy 
credits, a number of compliance concerns were identified. The 
IRS took quick action to correct these issues, and continues to 
make additional improvements for the future. We have put in 
place procedures to prevent taxpayers from receiving credits in 
excess of the limitations, and are revising forms to request 
more specific information. We have also worked with the 
software providers to better improve information related to 
these credits.
    As part of our ongoing examination program, we are 
reviewing the energy credit claims, including returns of 
prisoners and under-age taxpayers to ensure that their credit 
claims are proper. The IRS also continues to audit claims as we 
need to. The IRS continually assesses and evaluates present and 
emerging compliance risk across all taxpayer segments.
    And as part of the IRS's ongoing research and its 2011 
examination plan, we will review a sample of residential energy 
credit cases in a post-refund environment. Those that warrant 
examination will be selected for audit, and the results will be 
factored in to future examination plans.
    In conclusion, tax credits such as the residential energy 
and plug-in vehicle tax credits play an important role in 
fulfilling congressional energy policies and intent, but are 
inherently subject to a number of administrative challenges. As 
with all aspects of tax administration, the IRS must determine 
the proper balance of taxpayer service and enforcement to 
ensure that the benefit is afforded only to those taxpayers who 
are eligible. We are committed to that goal.
    That concludes my testimony. I would be happy to take your 
questions.
    [The prepared statement of Mr. Byrd follows:]

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    Chairman TIBERI. Eight seconds to spare. Thank you, 
Commissioner, for your testimony today.
    I am going to now yield to Dr. Boustany and Mr. Lewis for 
questions.
    Dr. Boustany.
    Chairman BOUSTANY. Thank you, Chairman Tiberi. Gentlemen, 
thank you for being here today, and for your testimony. And, 
Mr. Byrd, it is encouraging that steps are now being taken to 
remedy some of these problems. And I am certainly cognizant of 
the fact that a lot of complexity was added to the Tax Code in 
a very quick way, which makes your job very difficult. And as 
we work on policy, we clearly have to understand that this 
growing complexity in the Tax Code is a problem we have to 
address, because it certainly creates problems from the 
administrative standpoint, as well.
    But, you know, as we have tried to conduct aggressive 
oversight over the course of this year, there has been a common 
theme running through many of our hearings. And whether the 
subject has been Medicare fraud, or earned income tax credit 
problems, energy tax credit fraud, we often have, as a 
government, have approached this sort of a pay-and-chase 
strategy for improper payments. And what concerns me is if that 
is where we are, what are we doing on the chase side? Are we 
actually recouping some of this money that was improperly paid 
out?
    Mr. BYRD. Yes, sir. We have what we call a pre-refund 
strategy, where our goal is to block the bad refund before it 
goes out, and we've been very successful there.
    And then, of course, we have a variety of tools if we 
subsequently determine that we sent the wrong amount our--we 
have what we call a post-refund strategy, and there are a 
number of things that we can do. The most successful tool we 
have, of course, is examination. We communicate and/or meet 
with the taxpayer, and allow them to share with us their 
documentation to support their claim.
    Chairman BOUSTANY. General George, are you satisfied that 
the IRS has followed the recommendations that you all have 
made?
    Mr. GEORGE. I am satisfied that they are committed to doing 
so. But have they done so completely? Not yet. I don't disagree 
at all with what Mr. Byrd stated, but what he neglected to 
point out is that once the money is out the door, it is 
extraordinarily expensive and difficult to recoup it.
    And so, if they could do so at the outset more effectively, 
they would be much more successful, in terms of recouping or 
stopping the improper payments of----
    Chairman BOUSTANY. Thank you. If I'm an individual intent 
on defrauding the tax system with these credits, what 
disincentive do I have from claiming, for example, a vehicle 
credit on a bicycle, or something of that nature? What are the 
disincentives?
    I would like both of you to comment on it, if you don't 
mind.
    Mr. BYRD. TIGTA recommended to us that we put some controls 
and request additional information from the taxpayer, which we 
have done for this past filing season. And we found that quite 
helpful in enabling us to ID and block those claims that are 
improper.
    The suggestions that they made were good suggestions, and 
we have implemented them. If a person claims a plug-in car that 
is not in a qualifying year, then we can take that credit out 
of the return before we send them the rest of their refund.
    Chairman BOUSTANY. Can you give us an indication of the 
kinds of resources that are required in chasing money after the 
fact, as opposed to working on the front end to have the proper 
filters and controls in place?
    Mr. BYRD. When a tax return comes in, if it comes in 
electronically, then it will be matched up against the filters. 
That is the way that we prefer the tax returns come in. If it 
comes in on paper, then it has to be touched by a person, which 
makes it more expensive and more time-consuming.
    So if we send out an erroneous refund, then normally what 
happens is we have to examine that tax return, which requires 
some correspondence, and in this case it would probably be an 
examination through correspondence. So it is an examiner who is 
communicating with the taxpayer, and then the taxpayer would 
send in their documents, and we would review them and make a 
decision.
    Chairman BOUSTANY. In other words, it is more labor-
intensive, and ultimately more costly to the agency to have to 
go in after the fact.
    Mr. BYRD. Yes, sir. The least expensive way is for the 
taxpayer to file electronically. Then the next way would be if 
they file on paper. And then the most expensive, of course, is 
if we have to do an examination.
    Chairman BOUSTANY. Thank you, sir. I yield back.
    Chairman TIBERI. Thank you, Doctor. Mr. Lewis is recognized 
for five minutes.
    Mr. LEWIS. Thank you very much, Chairman Tiberi. Now, 
Commissioner Byrd, in the report on the administration of 
vehicle credits, TIGTA made eight recommendations to improve 
compliance and the IRS accepted all of them. Now, how long does 
it generally take to implement recommendations received from 
TIGTA?
    Mr. BYRD. Well, if it is a recommendation that we change 
the way we electronically review or filter the tax returns, it 
could take us months and months, just because of the workload 
and the complexity of our computer systems. There are often 
things that TIGTA recommend that we implement in a short time 
period.
    Mr. LEWIS. Now, one recommendation was to establish a 
system to track credits claimed on paper-filed tax returns. Why 
do you need to establish a separate system for paper returns? 
Is there a reason that the IRS does not convert all paper 
returns to the electronic version during processing?
    Mr. BYRD. Well, we would like to be able to convert all the 
paper returns to electronic returns, but that would cost a lot 
to make that conversion. When you have to track claims, or 
track information from the tax return, you have to transcribe 
the information. You have a person who has to transcribe the 
information from the tax return.
    So, again, it adds cost. It adds time to the processing of 
that tax return.
    Mr. LEWIS. Do you have some idea how much the cost would 
be?
    Mr. BYRD. Right now, it costs about $.17 to process an 
electronic return. And it costs about $3.66 to process a paper 
return. And since we received about 124 million electronic 
returns, you can see the savings that we have if we can get the 
taxpayers to come in electronically.
    Mr. LEWIS. Commissioner Byrd, in your written testimony you 
stated that hard-to-detect fraud presents a challenge to your 
compliance efforts for energy tax credits.
    Now, the Republican budget proposal for the IRS, as passed 
by the House Appropriation Committee would cut $600 million 
from the agency. The Appropriation Committee report notes that 
the cut will have a significant impact on the ability of the 
IRS to find tax cheats. The report states that the agency will 
be forced to furlough between 4,100 and 5,000 employees. Is 
this estimate correct?
    Mr. BYRD. Sir, we, of course, don't have our funding yet 
for this coming year. But we can imagine, with that type of 
dollar cut, we are going to have to dramatically reduce our 
staffing in a number of places. So that would be information 
technology, that would be how we serve the taxpayers, how we 
answer the phones, how we look for fraud, how we examine the 
tax returns.
    We cannot absorb that type of cut without it having an 
impact on the service we provide taxpayers, and the enforcement 
of the IRS code.
    Mr. LEWIS. So you are suggesting that these employees 
mainly would be enforcement agents? Are you stating this?
    Mr. BYRD. Well, sir, what we need to have is exactly what 
it is that our funding will be for this year. But that is why 
we are saying that we imagine that it would be across the board 
that we would have to take some action.
    Enforcement people would be included in those cuts that we 
would have to take. And enforcement people are the people who 
examine the tax returns.
    Mr. LEWIS. The enforcement agents are the people that help 
the IRS detect fraud, right?
    Mr. BYRD. Yes, sir.
    Mr. LEWIS. Okay. So the Republican budget would hurt 
enforcement compliance efforts and the administration of energy 
and other tax credits
    So, Mr. Chairman, without objection, I would like to enter 
to the record an excerpt from the House committee report on IRS 
funding.
    Chairman TIBERI. Without objection, so moved.
    **INFORMATION NOT PROVIDED**
    Mr. LEWIS. Mr. Inspector General, we appreciate your 
recommendation to improve the administration of the energy-
related tax credit. In your written testimony, you stated that 
the IRS has little resources to examine claims after the 
credits have been paid. If the IRS had more resources, would it 
be better able to perform its duties?
    Mr. GEORGE. There is no question that----
    Chairman TIBERI. The gentleman's time has expired, but you 
may answer----
    Mr. GEORGE. Thank you, Mr. Chairman.
    Chairman TIBERI [continuing]. The question. Thank you.
    Mr. GEORGE. Yes. I believe that it is the case. If they had 
additional resources, they would be able to do more. It is a 
zero sum game, as Mr. Byrd noted. If they have to take money 
away from compliance to support customer service or vice versa, 
it ultimately impacts the taxpayer, in terms of whether or not 
they are having a more friendly interaction with the IRS--that 
is, the ability to walk into a taxpayer assistance center, or 
to call the 800 number and get a quick response, as opposed to 
having letters sent to them or, even a worse case, people visit 
them in their homes or businesses.
    Mr. LEWIS. Thank you, sir. Thank you, Mr. Chairman.
    Chairman TIBERI. Thank you. I will now recognize the 
ranking member from Massachusetts, Mr. Neal.
    Mr. NEAL. Thank you, Mr. Chairman. To our witnesses, 
actually a threefold question.
    First, I am pleased with the efforts that the IRS has made, 
based upon bank secrecy. And I think the effort that's been 
made in Switzerland is a good example of what can be done when 
enforcement techniques that utilize the computer are applied. 
That is a good story. I can't imagine that there is anybody in 
America who would object to the efforts that the IRS has made 
in trying to sift through these offshore accounts.
    But the second part of the question--and it is a follow-up, 
actually, to what Mr. Lewis said--some of the errors that you 
have identified today, some are, I assume, mistakes that have 
been made by the filer. And, as Mr. Lewis pointed out, I think 
correctly, the proposed cuts in the agency are going to make it 
more difficult for you to assist an honest mistake that has 
been made by the filer.
    And with respect to the audits that you have cited, there 
are taxpayers who erroneously claim tax credits, but they did 
it by mistake. And if there is no fraudulent intent, if some of 
these errors indeed were mistakes, do you have suggestions on 
how we might help the taxpayer, the citizen, better comply with 
these rules?
    And in addition, if you could, speak to another issue that 
tends to draw attention here, and that is some of the prisoners 
across the country who erroneously received credits, and what 
the IRS can do in these arenas to make sure that this doesn't 
happen again.
    Mr. BYRD. Yes. Thank you, sir, for that question. Our 
experience has been that taxpayers, normally make mistakes, as 
opposed to fraud. That is primarily around the point of the 
complexity of the law.
    And for a--for those of us who like the Tax Code, and read 
it, and enjoy it--the majority of Americans don't----
    Mr. NEAL. Who are they?
    [Laughter.]
    Mr. BYRD. Me. So just those of us at the IRS. But I think 
your average taxpayer finds, often times, the law is very 
complex. And I think the software folks have done a great job 
to help.
    In answer to your question, I think simplification of the 
Tax Code would be key to help taxpayers not make the mistakes 
that they make to date. The majority of taxpayers make 
mistakes, and then I think there is a small part that is 
involved with fraud.
    As it concerns the prisoners, we have stepped it up. We 
have blocked an increase of 250 percent of the fraudulent 
returns filed by prisoners. We actually have a strategy where 
we have dramatically improved the data that we receive from the 
prisons. A key piece when a tax return comes in is we match it 
up against this information we get from the prisons, so that we 
could see who is in jail. We have refined that criteria so it 
is much more improved.
    We have started to work with each prison to allow us to 
share information with them. When a prisoner files a fraudulent 
return, we can now share information with the prison, so that 
they can take action against that prisoner. We have also worked 
with all of them so that if a check does go to a prison, that 
we have streamlined and improved the processes for the prison 
officials to return those checks to us.
    And, of course, we would like to encourage you all to 
strengthen the legislation that is out there in regards to how 
we can share, and what we can share with the prison officials 
about these fraudulent tax returns.
    Mr. NEAL. That is consistent with Mr. Lewis's testimony. 
Mr. George?
    Mr. GEORGE. Yes, Mr. Neal. I have testified on this issue a 
number of times before this committee, as long ago as five 
years. And while Mr. Byrd is accurate that they have these 
procedures and policies in place, we have found that they have 
not effectively implemented them.
    There is no question that you have a defined population of 
people incarcerated. And after my initial testimony, Congress 
enacted legislation that helped facilitate this exchange of 
information. But we recently reported that they did not do so 
effectively, and they were still in the process of doing so 
many, many years later. So, we are troubled by the delay that 
the IRS took in terms of implementing this, and they still have 
a ways to go in that regard.
    There is no question that if people are given the 
opportunity to readily file their taxes in an understandable 
way--going back to what Mr. Byrd said--that is something quite 
appropriate. But we have found that, in many instances, the IRS 
has made it cumbersome, both in terms of the language within 
the tax form and the accompanying materials, among other 
factors.
    Mr. NEAL. Thank the witnesses.
    Chairman TIBERI. Thank you, Mr. Neal. Ms. Jenkins is 
recognized for five minutes.
    Ms. JENKINS. Thank you, Mr. Chair, thank you for holding 
this hearing. Thank you, Gentlemen, for joining us.
    In recent decades, Congress has increasingly tasked the IRS 
with administering programs that aren't focused on revenue 
collection. For example, through the earned income tax credit, 
the IRS administers one of the nation's largest welfare 
programs. The Taxpayer Advocate has warned that the IRS's 
increasingly dual mission of revenue collector and program 
administer diverts IRS resources away from the agency's core 
revenue collection function, and can diminish taxpayer service.
    So, for the both of you, as Congress through the years has 
sought to implement more and more public policy through the Tax 
Code, could you both just describe to us what effects this has 
had on tax administration?
    Mr. GEORGE. Congresswoman, you have hit an important point 
here. The Earned Income Tax Credit still, as estimated by the 
IRS, has improper payments in the $10 billion to $12 billion a 
year range. The Additional Child Tax Credit, it is in the 
billions, in terms of improper payments. The First-Time 
Homebuyers Credit we found millions, hundreds of millions of 
dollars which were improperly paid.
    We just recently completed a review on the implementation 
of the Affordable Care Act. And while we will conclude that the 
IRS is being effective in planning on how to implement portions 
of that legislation, it is taking away from their traditional 
role of collecting revenue and assisting taxpayers in paying 
their taxes.
    So, unless the IRS is able to more effectively allocate its 
resources, it is going to make its primary mission--that is, 
again, collecting revenue--much more difficult.
    Ms. JENKINS. Thank you. Commissioner.
    Mr. BYRD. Yes. I have been here a long time, and I don't 
know that I would ever say we have had sufficient resources to 
do our job, because I understand that there are competing 
priorities that our country has. But I wanted to assure you 
that when Congress decides to write a law, and they send it to 
us to implement, that we are trying to do it in the most cost-
efficient way possible through innovation, through the use of 
technology, through the use of all the enforcement tools that 
we have.
    We believe that the majority of our taxpayers want to and 
do file an accurate tax return. When the IG discusses these or 
shares these numbers, one could get the impression that our 
taxpayers are not honest, and I don't believe that's true. I 
believe that you have an area of fraud that we have to always 
deal with, and we had it before we had the credits, and we have 
it today. But what I want to assure you is that we, in the IRS, 
are going to use the resources that you all provide as 
efficiently as possible to deal with the priorities that you 
all send our way.
    Ms. JENKINS. Okay, thank you. I would yield back.
    Chairman TIBERI. Thank you. Mr. Paulsen is recognized for 
five minutes.
    Mr. PAULSEN. Thank you, Mr. Chairman. Also, thanks for 
joining us here as a part of this testimony today.
    Let me ask this question, because we have talked a little 
bit about some erroneous payments and duplicative credits that 
get paid out as a part of these credits.
    I am just curious, because it seems like every time 
Congress creates one of these new energy credits or this green 
energy or other areas, we end up creating new tax shelters and 
issues like that that have applied to synthetic fuels and 
biodiesel and alternative fuels, et cetera. And, you know, the 
abuses end up costing taxpayers millions of dollars, billions 
of dollars, and the fraud and the abuse is a part of it.
    What is it about these credits, in general, that make them 
so susceptible to this kind of fraud, overall? Mr. Byrd.
    Mr. BYRD. Well, I am not sure, sir, that we are here today 
to talk about credits. You know, our examination program is 
designed to look at a wide range of issues and concerns that we 
see as taxpayers file their returns. So our experience has been 
that in all parts of the code, that taxpayers sometimes take 
liberties with the rules.
    So, sir, I am not sure that I would say that because it is 
a credit it is susceptible to more fraud.
    Mr. PAULSEN. Mr. George.
    Mr. GEORGE. Yes. I would just say, sir, that they do not 
utilize the information effectively that they have.
    I am not going to necessarily argue with Mr. Byrd about 
whether or not there are more instances of fraud or whatever 
the case may be there. But there is no question that if the IRS 
were to use the information that the taxpayer provides and, 
more importantly, gain access to third-party information, 
which--again, at various settings I cite this information, sir, 
and I beg your indulgence here.
    The IRS itself estimates that individuals whose wages are 
subject to withholding report 99 percent of their wages for tax 
purposes. Self-employed individuals who operate non-farm 
businesses are estimated to report only 68 percent of their 
income for tax purposes. And the shocking number is self-
employed individuals operating businesses on a cash basis 
report only 19 percent of their income.
    So, the bottom line is if the IRS were to require 
additional information from third parties, by their own 
estimates, they would gain much more revenue. If they used the 
information that was supplied by the taxpayers on their tax 
forms, either electronically or in paper form, they would also 
have more information that they could use.
    So, again, it's a question of how the IRS allocates its 
resources to determine whether or not a taxpayer is complying 
with their tax obligation.
    Mr. PAULSEN. Well, and Mr. Chairman, this is an interesting 
point, because we have had hearings, actually, in the human 
resources subcommittee and talked about other government 
programs that are used to provide benefits to certain folks 
that--of modest means--that use government programs, and there 
is not an access, or there is more of an increased need to use 
an access to third-party information to weed out some of the 
fraud and abuse that is out there. That is a good point.
    Now, someone, I think, had mentioned earlier--and I cannot 
remember who testified--in terms of the cost filing 
electronically versus mail-in. And it's like 124 million that 
use electronic. What can be done to encourage more use of 
electronic filing? Because ultimately, electronic information 
and using third-party matches, et cetera, is going to help weed 
out some of these issues, and save taxpayers money. What can be 
done to promote that?
    Mr. BYRD. First, I did want to assure you that we are 
expanding our systems to use more third-party information, 
merchant cards, those types of things. I think part of the 
challenge around third-party information is that sometimes it 
is not completely accurate. And so, you don't want to deny a 
taxpayer a refund based on information that might not be 
complete.
    In specific response to your question, sir, we have seen a 
dramatic increase in the number of returns that have been filed 
electronically. We have got the eFile mandate, where preparers 
that prepare more than 10 returns have to send them in 
electronically. That is being phased in through last year and 
this year. We are seeing a dramatic increase in the number of 
taxpayers who are going to file electronically.
    The other thing that has happened is the software 
providers, for the most part, no longer charge taxpayers to 
electronically file their return. Those things together have 
allowed us to see a large increase.
    Mr. PAULSEN. Thank you, Mr. Chairman. I yield back.
    Chairman TIBERI. Thank you. Mr. Marchant is recognized for 
five minutes.
    Mr. MARCHANT. Thank you, Mr. Chairman. I would like to 
focus for just a moment on the--it looks like it is 100,000 
individuals who claimed energy credits that did not own a home. 
Was the law, as it was passed, did it require that an 
individual own a home to seek the credit?
    Mr. GEORGE. Well, they needed to own it at the time of--
yes. The short answer is yes.
    Mr. BYRD. It is their primary. Yes, sir.
    Mr. GEORGE. Yes.
    Mr. MARCHANT. So it couldn't be their second home, it 
couldn't be their vacation home. It had to be their primary 
home.
    Mr. GEORGE. Yes.
    Mr. MARCHANT. So, a very common-sense thing. But 100,000 
people felt like they could take the credit without very 
clearly meeting the criteria of the law.
    What percentage of those that claimed that credit does the 
100,000 represent?
    Mr. BYRD. I actually don't know, sir. I would have to get 
back to you on that.
    Mr. MARCHANT. Do you think the 100,000 would represent 10 
percent of those that claimed that credit?
    Mr. BYRD. You know, I did not bring the numbers of 
taxpayers that claimed that particular credit.
    Mr. MARCHANT. I would appreciate it if we could find out 
what percentage of those that claimed clearly made a fraudulent 
claim, right up front.
    Mr. BYRD. It is important to note, sir, that I think when 
TIGTA made that recommendation it was based on information from 
a third party. And so, part of the struggle for us is around 
trying to have information that we can rely on to make sure 
that it is accurate.
    As I said before, we don't want to deny somebody a credit. 
We don't want to deny them a credit without us being sure.
    Mr. MARCHANT. But if----
    Mr. BYRD. We have learned in other places--the adoption 
credit, the first-time home-buyer's credit--that what you see 
on the face of the return appears that it is fraudulent. But 
when you communicate, and ask that taxpayer for documentation 
or information, they are able to provide it.
    Mr. GEORGE. But that, Mr. Marchant, is part of the problem. 
The IRS, as Mr. Byrd noted, does not have the ability to give 
the type of information that you just sought. And it is not 
necessarily their fault.
    They are in the process now, with a National Performance 
Review--I believe you call it the NPR--and they are in the 
process now of helping to determine what the ultimate tax gap 
is in various areas. And once that is completed, that will 
provide them additional information so that they are in a 
position to respond precisely to your question.
    Mr. MARCHANT. Okay. Thank you, Mr. Chairman. I yield back.
    Chairman TIBERI. Thank you. The gentleman from Washington 
State, Mr. McDermott, is recognized for five minutes.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. Commissioner Byrd, 
I understand that the taxpayer service is part of the IRS 
strategy for tax compliance. The Republican budget would cut 
over $105 million from taxpayer service. Now, we understand 
this cut would result in fewer calls being answered and fewer 
taxpayers receiving in-person service. I mean that seems like 
that would be the result, if you have less people.
    A statement of Administration policy was issued in response 
to the budget. The policy states that this level of funding 
provided would seriously degrade the quality of services to 
taxpayers, to the extent that only one out of every two 
taxpayers would be able to reach the IRS customer service 
representative.
    Do IRS customer service representatives answer questions 
about energy tax credits?
    Mr. BYRD. Yes, sir. And so this year we are on track to 
take 32 million calls from taxpayers. And we are going to see 
about six million taxpayers come into our taxpayer assistance 
centers. And so there we provide a wide array of services and 
information, including answering questions about tax concerns. 
But then we also enable the taxpayers to pay us, to set up 
installment agreements, and, in essence, to deal with 
compliance things on the phone or in person.
    Mr. MCDERMOTT. So, if I could restate what you said, the 
Republican budget would hurt taxpayer service and 
administration of energy and other tax credits. That is 
correct?
    Mr. BYRD. If our funding is not the same, then we would not 
be able to serve the numbers of taxpayers that I just 
described, sir.
    Mr. MCDERMOTT. So, without objection, I would like to 
submit into the record the statement of the administration of 
policy--of H.R. 2434. And I ask the chairman to put it into the 
record.
    Chairman TIBERI. Without objection.
    **INFORMATION NOT PROVIDED**
    Mr. MCDERMOTT. I understand, Mr. Byrd, that the IRS does 
not have a dedicated funding source to invest in its program 
integrated effort--integrity efforts. I understand that funding 
for enforcement and compliance must come out of the current IRS 
budget. Is that correct?
    Mr. BYRD. Yes, sir.
    Mr. MCDERMOTT. So, the Republican budget would cut $600 
million of the IRS. This would hurt the program's integrity 
efforts. Right?
    Mr. BYRD. Yes, because, you know, if we have less people 
and less funds to examine, filter, follow up with the returns, 
that means we can get--we will be able to accomplish less work, 
because we have less employees--fewer employees.
    Mr. MCDERMOTT. As you know, the President set forth a plan 
that would provide dedicated funding for the IRS for program 
integrity efforts. The plan states that ``tax enforcement and 
compliance activities are critical to the fairness and 
integrity of the U.S. tax system, and also generate a return on 
investment for taxpayers of roughly $7 for every $1 invested.'' 
You are aware of that, is that correct?
    Mr. BYRD. Yes, sir.
    Mr. MCDERMOTT. I would like to enter that into the record 
for the future record of the committee, and I yield back the 
balance of my time.
    Chairman TIBERI. Thank you. Mr. Berg is recognized for five 
minutes.
    Mr. BERG. Thank you, Mr. Chairman. I guess my first 
question goes back to the residential energy tax credit. What 
is the total number of people that received or made a claim?
    Mr. BYRD. I am sorry, sir, I did not bring those stats, but 
I will be glad to get those back to you.
    Mr. BERG. Okay. Mr. George.
    Mr. GEORGE. Yes. Well, for tax year 2009, there were 6.8 
million claims equaling $5.8 billion.
    Mr. BERG. Okay. And in the earlier testimony it was 
mentioned there is about 100,000 of those that you identified 
or thought didn't own a home. That correct?
    Mr. GEORGE. Correct.
    Mr. BERG. Mr. Byrd, in the testimony you kind of say the 
IRS has adopted programs to kind of improve this process and 
really keep up with compliance issues. But as has been 
reported, obviously it is kind of ineffective at that.
    And my question is--in part, because of maybe a lax 
process--I guess my question is, what is being done, really, to 
improve the administration of these tax credits right now, 
specifically?
    Mr. BYRD. So, as you probably saw in the TIGTA report, they 
made a number of recommendations to us. For example, on the 
plug-in car, they suggested that we ask the taxpayer to put the 
VIN on the form. We have put things in place so that we will 
manually check to make sure that the qualifying year of the car 
is correct.
    So, what I am sharing with you, sir, is that those things 
that TIGTA suggested that we put in place, we have. And we feel 
confident that those things will help us to reduce the number 
of fraudulent claims.
    Mr. BERG. Mr. Chairman, I wonder if it is possible if we--
if I could ask that again we get those recommendations.
    I understand you said that you have agreed with all of 
those recommendations, but if you could, again, just have a 
short summary of, ``Here is the recommendations,'' and then you 
say, ``We agree with these recommendations,'' and when the 
timetable is to fully implement those recommendations, would 
that be possible for you to share that with the committee?
    Mr. BYRD. Yes, sir, because what we do, in terms of how we 
track the recommendations and our implementation, we have a 
process in place. So that will be easy for me to provide you.
    Mr. BERG. Okay, thank you. I yield back.
    Chairman TIBERI. Thank you. Apparently that is all the 
questions that we have of this panel. We do appreciate both of 
you coming forward, giving your input, General George, on how 
we can improve efficiency and, Mr. Byrd, Commissioner Byrd, 
thank you for your thoughts about how we can simplify the Tax 
Code and make your life easier. We do appreciate both of your 
testimony today. Thank you for taking the time out. That 
concludes our first panel.
    We are going to now move to the second panel of testimony, 
and we are going to have a bit of a change to the second panel.
    Without objection, I would like to move that we add Mr. 
Lindsey from the Lindsey Group to the second panel. There was 
some miscommunication, and Mr. Lindsey has a conflict, and will 
not be able to stay for the third panel. So, without objection, 
Mr. Lindsey will be added to the second panel.
    Mr. Lindsey, you will be added at the end of the second 
panel--so on the far left, or my far right--and you will be the 
last person to testify on the second panel.
    So, as the second panel gets seated, I would just like to 
welcome all of them. And I am going to ask Ranking Member Neal 
in a moment--no, you have got the third panel, right?
    Mr. NEAL. Yes.
    Chairman TIBERI. Okay. I will go ahead and introduce our--
generally introduce our panelists, and welcome them to the 
second panel.
    Dr. Donald Marron, director of Tax Policy Center, The Urban 
Institute; Mr. Kevin Book, managing director of research, 
Clearview Energy Partners, LLC; Mr. Neil Auerbach, founder and 
managing partner of Hudson Clean Energy Partners, L.P.; Mr. 
Will Coleman, partner, Mohr Davidow Ventures; Mr. Greeff, 
political director, the Clean Economy Network; and, as I said, 
from the third panel who will now be part of the second panel, 
Mr. Lawrence B. Lindsey--Dr. Lawrence B. Lindsey, president, 
chief executive officer of The Lindsey Group.
    And with that, thank you all for coming, taking time out of 
your busy schedules to be here with us today. Dr. Marron, you 
are recognized for five minutes.

STATEMENT OF DONALD B. MARRON, DIRECTOR, TAX POLICY CENTER, THE 
               URBAN INSTITUTE, WASHINGTON, D.C.

    Mr. MARRON. Great, thank you very much. Chairman Tiberi, 
Chairman Boustany, Ranking Member Neal, Ranking Member Lewis, 
Members of the Subcommittees, thank you for inviting me to 
appear today to discuss energy policy and tax reform.
    As you know, our tax system is desperately in need of 
reform. It is needlessly complex, economically harmful, and 
often unfair. Because of a plethora of temporary tax cuts, it 
is also increasingly unpredictable. We can and should do 
better.
    The most promising path to reform is to re-examine the many 
tax preferences in our code. For decades, lawmakers have used 
the tax system not only to raise revenues to pay for government 
activities, but also to pursue a broad range of social and 
economic policies. Those policies touch many aspects of life, 
including health insurance, home ownership, retirement saving, 
and the topic of today's hearing, energy production and use.
    Those preferences often support important policy goals, but 
they have a down side. They narrow the tax base, reduce 
revenues, distort economic activity, complicate the tax system, 
force tax rates to be higher than they otherwise would be, and 
are often unfair. Those concerns have prompted policy-makers 
and analysts across the political spectrum--including, most 
notably, the Bowles-Simpson Commission--to recommend that tax 
preferences be cut back. The resulting revenue could then be 
used to lower tax rates, reduce future deficits, or some 
combination of the two.
    In considering such proposals, law-makers should consider 
how tax reform, fiscal concerns, and energy policy interact. 
Six factors are particularly important.
    First, as I just mentioned, our tax system needs a 
fundamental overhaul. Every tax provision, including those 
related to energy, deserves close scrutiny to determine whether 
its benefits exceed its cost. Such a review will reveal that 
some tax preferences do make sense, but many others should be 
reduced, redesigned, or eliminated.
    Second, the code includes numerous energy tax preferences. 
The Treasury Department, for example, recently identified 25 
broad categories of energy preferences worth about $16 billion 
in 2011. These include incentives for renewable energy sources, 
traditional fossil fuel sources, and energy efficiency. In 
addition, energy companies are also eligible for several tax 
preferences that are available more broadly, such as the 
domestic production credit.
    Third, tax subsidies are an imperfect way of addressing 
concerns about energy production and use. Such subsidies do 
encourage greater use of targeted energy resources, but, as I 
discuss in greater detail in my written testimony, they do so 
in an economically inefficient manner.
    Subsidies require, for example, that the government play a 
substantial role in picking winners and losers among energy 
technologies. The associated revenue losses also require higher 
taxes or larger deficits. That doesn't necessarily mean that 
they are bad policy, but it does raise the hurdle for them to 
satisfy in order to be counted as good policy.
    Fourth, a key political challenge for reform is that energy 
tax subsidies are often viewed as tax cuts. It makes more 
sense, however, to view them as spending that is run through 
the Tax Code. Reducing such subsidies would make the government 
smaller, even though tax revenues, as conventionally measured, 
would increase. Similarly, introducing new tax preferences 
would expand the scope of government, even though technically, 
in budget accounting, they would be scored as reducing future 
revenue.
    Fifth, tax subsidies are not created equal. Some are more 
efficient than others. In particular, production incentives 
tend to be a more efficient way of accomplishing energy policy 
goals than are investment incentives.
    Finally, well-designed taxes can typically address the 
negative effects of energy use more effectively and at lower 
cost than can tax subsidies. I understand that higher gasoline 
taxes or a new carbon tax are not popular ideas in many 
circles, but please bear with me. As I explain in greater 
length in my written testimony, well-designed energy taxes are 
a much more pro-market way of addressing concerns about the 
production and use of energy. Taxes can take full advantage of 
all market forces on the demand side and the supply side, and 
in so doing can accomplish many policy goals at least cost and 
with minimal government intervention in the economy.
    Subsidies, in contrast, make much less use of market 
forces, and inevitably require the government to pick winners 
and losers. Energy taxes also generate revenue that law-makers 
can use to cut other taxes or to reduce deficits.
    Thank you. I look forward to your questions.
    [The prepared statement of Mr. Marron follows:]

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    Chairman TIBERI. Thank you.
    Mr. Book is recognized for five minutes.

STATEMENT OF KEVIN BOOK, MANAGING DIRECTOR, RESEARCH, CLEARVIEW 
             ENERGY PARTNERS, LLC, WASHINGTON, D.C.

    Mr. BOOK. Good morning, Chairman Tiberi, Chairman Boustany, 
Ranking Member Neal, Ranking Member Lewis, and distinguished 
committee members. My name is Kevin Book, and I head the 
research team at Clearview Energy Partners. Thank you for 
inviting me to contribute to your discussion today regarding 
energy tax policy.
    Economic weakness has compressed energy demand. Since the 
employment trough of the Great Recession, the nation has 
consumed only about one-third as much energy per job recovered 
as it did during the 2001/2002 recovery. That would be good 
news if efficiency explained the change. But data show, for 
example, that we are driving older cars and driving them less, 
rather than purchasing new, higher-efficiency vehicles.
    Because demand can move faster than supply, stable energy 
production incentives are important. Stable policies may not 
encourage new supply side investments when market conditions do 
not warrant it, but inconstant policies may discourage supply 
side investment when it is needed.
    So, what works best? And how do you know? Investors judge 
investments against benchmarks. Similar analysis could guide 
energy policy, too. Evaluating incentive costs per million 
British thermal units measures how many bucks the U.S. 
Government directs, simply put, at the energy bang the nation 
receives. The note published by the committee staff in 
preparation of this hearing addresses this calculation.
    Between 2006 and 2010, my analysis suggests that incentive 
costs for renewable sources were considerably higher than 
conventional sources. For green power, incentive costs averaged 
about $6 per million Btu. Biofuels, about $5.50. Conventional 
power, about $.19. Coal production, excluding programmatic 
spending, about $.07. And a broadly inclusive rack-up of oil, 
natural gas, and refined products incentives, including some 
line items that are generally regarded as ordinary tax 
treatment, averaged about $.26 per million Btu.
    Implied abatement costs quantify the emissions reduction 
benefits of federal spending on lower-emitting fuels, even if 
spending wasn't aimed at reducing greenhouse gases. Two sources 
came in at or below the current price of emissions allowances 
trading in Europe: wind, at about $4 to $20 per metric ton, 
depending on your assumptions; ethanol, at about $16, if you 
count only the VEETC; solar, at about $62 to $200 per metric 
ton, was above the current trading market in Europe; cash for 
clunkers was about $263 per metric ton. And if the Nat Gas Act 
were to cost $5 billion over 5 years for 140,000 heavy haulers, 
the resulting gas emissions reductions, greenhouse gas 
emissions reductions, would be about $120 per metric ton.
    Displacement costs quantify the extent to which federal 
energy incentives reduce our reliance on imported petroleum. As 
a benchmark, the strategic petroleum reserve through the end of 
last year had a displacement cost of about $67 per barrel, or 
$11.50 per million Btu. The real dollar value of ethanol 
capacity historically subsidized by the VEETC through its 
scheduled expiration at the end of this year implies about $148 
per barrel or $42 per million Btu. But evaluated over a 15-year 
finance life, that's about $10 per barrel, and $3 per million 
Btu. Again, assumptions are important.
    The displacement cost from nat gas, based on those prior 
assumptions, the Nat Gas Act, would be $118 per barrel, or 
about $20 per million Btu if you looked at it as a one-time 
deal. But amortized over 5 years, it would be about $23.50 per 
barrel, or about $4 per million Btu.
    A couple of caveats before I finish up. First, comparing 
alternative fuels to the strategic reserve is not an apples-to-
apples comparison. The strategic reserve is surge capacity. 
Alternative transportation fuels replace petroleum imports, and 
they are already in use.
    Second, none of these metrics captures the total cost of 
delivered energy, just the part the U.S. Government covers. 
Consumers and producers pay the rest. Trying to change their 
decisions in defiance of economic reality may prove both 
difficult and expensive.
    There are also metrics you can apply to look at the 
efficiency of financial incentives. My testimony provides an 
example of something I call return on tax to describe 
simplified wind farm financing. That example shows that 
production tax credits are the least efficient, in terms of 
delivering both internal rate of return and a return on each 
taxpayer dollar, in terms of lower generation cost. Incentives 
like investment tax credits and grants become more efficient in 
both regards, but the best balance turns out to actually be 
loan guarantees. Now, loan guarantees, obviously, will not be 
more efficient without adequate due diligence.
    In conclusion, in thinking of all of these incentives, they 
should be thought of, probably, as a portfolio. It allows one 
to balance innovation with environmental and security benefits. 
Balancing moonshot technologies with lower risk reward profiles 
may preserve financial stability. And it may be worth 
revisiting whether the current Title XVII appropriations-backed 
solicitation-driven debt financing program has the autonomy to 
structure an appropriately balanced portfolio.
    One final point. Tax policy is not always the fastest 
energy policy tool. But the high cost and long life of energy 
investments means that fast can sometimes translate to 
expensive. Prescriptive environmental and fuel standards do 
deliver rapid results. But non-economic shut-downs can lead to 
wealth destruction and job losses.
    This concludes my testimony; I will look forward to any 
questions.
    [The prepared statement of Mr. Book follows:]

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    Chairman TIBERI. Thank you, Mr. Book.
    Mr. Auerbach, you are recognized for five minutes.

 STATEMENT OF NEIL Z. AUERBACH, FOUNDER AND MANAGING PARTNER, 
        HUDSON CLEAN ENERGY PARTNERS, L.P., TEANECK, NJ

    Mr. AUERBACH. Chairmen Tiberi and Boustany, Ranking Members 
Neal and Lewis, and the rest of the subcommittee, thank you for 
the opportunity to testify today. My name is Neil Auerbach, and 
I am the founder and co-managing partner of Hudson Clean Energy 
Partners, a leading private equity firm exclusively dedicated 
to investing in the clean energy sector, globally.
    Although the firm is only four years old, I have been an 
active investor in this sector since 2002, and have been 
fortunate to have generated substantial investment gains in 
this sector, investing in this sector over the course of my 
career as an investor. And, therefore, I am offering you an 
investment perspective on how government energy policy 
influences investment activity.
    I also happen to be a conservative, and I believe in 
limited government, because experience tells me that the 
private sector does most things better than government. When 
government does act, it needs to search for least cost, highest 
impact ways to achieve its goals.
    This committee has been charged with the task of examining 
energy tax incentives, and I applaud that effort. My written 
testimony contains a lengthy review and analysis of energy tax 
incentives, and includes a strong endorsement of the use of 
reverse auctions to support renewable energy deployment such as 
that found in H.R. 909.
    To explain why I draw that conclusion, I want to articulate 
several core principles underlying my thinking. First of all, I 
think that three policy drivers are behind smart energy policy: 
supporting economic growth, fostering energy security, and also 
fostering environmental security. I support portfolio 
diversity. The approach is very instructive to getting us 
there. When markets function properly, we can allocate capital 
rationally in the private markets.
    Another aspect of my view of energy policy reflects that 
energy is a commodity, not a product. It is the backbone of our 
economy, and it needs to be there when we need it, and it needs 
to be as cheap as possible.
    Scale is everything in driving down cost. Consumers 
generally don't drive innovation in the energy sector. During 
the 20th century we scaled successfully fossil fuels first. 
They were expensive at first, and only with scale do they get 
cheaper. Renewable energy scaled later in time, and government 
support has been essential in helping renewables overcome a 
late start.
    Tax credits have been very helpful incentivizing investment 
and production of energy from renewables, and they played a 
vital role in moving capital into the sector. And, therefore, 
have contributed to dramatic reductions in the cost of these 
power sources. In the two slides that I show on the screen, I 
show just how impactful this scale-up of renewable energy has 
been in driving down the cost, and in this slide show our 
forecast, proprietary forecast, of continuing dramatic 
reductions in the cost of renewables.
    But I am here today to suggest that it is time to re-
examine the way the Federal Government supports clean energy 
investment. Specifically, I support adoption of a very 
different approach to federal support of our sector, and it is 
the use of reverse auction mechanisms, such as that advocated 
by Congressman Nunes and over 70 congressmen in H.R. 909. The 
reverse auction principle is simply a market-making technique 
where buyers invite sellers to transact at the lowest possible 
price. It encourages competition among sellers.
    Now, H.R. 909 has 3 important aspects that merit attention. 
First of all, the market sets the price for government support 
payments, not a government-mandated view of what that price 
should be. The mechanism ultimately weans the industry off 
support payments all together over the course of time.
    Number two, it draws revenue from expanded access to 
domestic energy such as oil and gas leases to support the 
scale-up of new energy resources.
    And then, third, it uses cash as a currency for providing 
support to industry, rather than a tax credit which, from 
experience, is way too complex for most renewable energy 
developers to access without incurring enormous friction costs. 
My testimony explains that this friction cost can be as high as 
$.30 to $.40 for every tax credit dollar expended.
    And for that reason, I am also an advocate on fiscal 
efficiency grounds of extending the 1603 cash grant until the 
more modern reverse auction system can be implemented. Because 
what we want to do is have $1 of taxpayer money buying $1 of 
renewable energy development, rather than only $.60 to $.70 
with the friction-laden tax credit system.
    In conclusion, I believe that it is time to phase out the 
Tax Code and phase in more efficient support mechanisms for 
renewable energy, and I encourage this committee to signal that 
the--to the industry that it is serious about energy tax 
reform, and finds merit in H.R. 909 as a better way to support 
renewable energy in the future. Thank you.
    [The prepared statement of Mr. Auerbach follows:]

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    Chairman TIBERI. Thank you, sir.
    Mr. Coleman, you are recognized for five minutes.

  STATEMENT OF WILL COLEMAN, PARTNER, MOHR DAVIDOW VENTURES, 
                     MENLO PARK, CALIFORNIA

    Mr. COLEMAN. Thank you, Mr. Chairman and distinguished 
Members of the Committee. I appreciate the opportunity to 
testify here today. My name is Will Coleman, I am a partner at 
the venture capital firm Mohr Davidow Ventures. Since 1983 we 
have been investing in early stage technology, and we were one 
of the first mainline funds to move into the energy space. We 
have seen firsthand the challenges of building new companies in 
energy, and are quite aware of how public policy impacts these 
markets and investing decisions.
    As venture investors, we invest in innovation. Energy 
represents one of the largest opportunities of our time, but 
the market conditions here in the U.S. are difficult to 
penetrate, and our policies still perpetuate the status quo. I 
am here to suggest that there is an opportunity to reform our 
energy tax policies, and to focus on innovation in a way that 
activates the private market and fosters real growth.
    Globally we are undergoing a transition to the next 
generation of energy technologies. Our ability to lead in that 
transition is essential to our ongoing economic 
competitiveness. In prior energy transitions, the government 
has always played an active role. In fact, the Federal 
Government spent 5 times as much per year supporting the early 
growth of oil, and 10 times as much supporting nuclear as we 
have renewables. Even today, layers of tax credits are woven 
into the investment and operating decisions of the energy 
industry, and the vast majority are focused on sustaining 
incumbent technologies.
    My point is not to question the appropriateness of these 
credits. But I am questioning whether the current approach is 
conducive to growth. According to the Department of Commerce, 
we owe three-quarters of our growth since World War II to 
technology innovation. But in energy, the top five oil 
companies spend almost nothing on R&D. The challenge we see to 
investing in new energy technologies has not been a lack of 
technology solutions or the underlying economics. It has been 
overcoming the market resistance to adoption of new technology 
and investment in innovation.
    The current tax approach compounds the problem in two ways. 
First, it biases investment decisions towards tax advantage 
primary extraction, rather than the kind of innovation that can 
create a step change in cost and performance over time. And 
second, it makes it more difficult for new entrants to compete.
    Our premise in our requirement as investors has always been 
that we invest in technologies and companies that, regardless 
of political regulation or subsidy, will be able to stand on 
their own two feet and compete on a level playing field within 
the life span of our investment. The problem in energy is that 
we don't have a level playing field, and we don't have a tax 
policy that encourages continuous innovation.
    Today's technology-specific approach forces government to 
pick winners and losers. The semi-annual debate over whether 
certain credits are still needed causes uncertainty in the 
market, and it misses the fact that each sector includes a 
range of companies at very different stages of development, 
scale, and cost reduction.
    We need a new approach. It needs to be simple, transparent, 
technology-neutral, accessible to large and small companies, 
enduring, and fundamentally focused on stimulating innovation 
and growth. I would like to suggest that this committee 
considers an approach that would create a simple, volume-based 
production tax incentive designed to support technologies as 
they scale, and roll off as they hit maturity.
    In the same way that an infant needs more support than a 
teenager, innovative technologies require more support than 
mature technologies. At some point, established technologies 
must be able to compete on their merits. A credit would be 
specific to individual companies, but available across a broad 
array of technologies.
    For example, I know of American solar companies that have 
very reasonable paths to produce modules for under $.50 a watt. 
This would be well below the projected cost of Chinese silicon 
manufacturers who are at $1 a watt today. However, these 
companies are still in early stages of production, and their 
costs are over $1.30 a watt per day, which is not competitive. 
They will need to ramp to 250 megawatts before they drop below 
a dollar, and 750 megawatts in order to hit $.50. These 
technologies could be highly profitable, but they need to get 
to scale. Once it is scaled, their incentives could roll off.
    This is a common story. While different technology 
categories each have different measures for maturity, a volume-
based approach would be based on generalizable metrics such as 
megawatts generated, gallons produced, or units sold. 
Eligibility criteria could be defined by whether a solution 
servers agreed-upon policy objectives. This approach would 
provide transparency and certainty to investors, and draw 
investment to those technologies that can ultimately compete 
without government support.
    A shift in tax policy to such a structure would, one, end 
the current practice of picking long-term technology winners; 
two, refocus federal support on early technology deployment, 
where it is needed most; three, eliminating the sun-setting 
challenges associated with current policy; and four, encourage 
private investment and innovation, which is critical to new 
economic growth.
    In closing, I recognize that tax breaks are ensconced--once 
tax breaks are ensconced in the code they are incredibly hard 
to change. But I believe we have a rare opportunity to reassess 
whether the existing credits accomplish the goals that they 
were created to serve, or the priorities we now need to meet. 
In today's fiscal environment we need to make every dollar work 
towards stimulating growth. I am not saying that we should cut 
all energy credits, but I am saying that we need to simplify 
and refocus them when encouraging the next generation of energy 
solutions.
    Thank you for the opportunity to testify. I look forward to 
your questions.
    [The prepared statement of Mr. Coleman follows:]

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    Chairman TIBERI. Thank you, Mr. Coleman.
    Mr. Greeff.

  STATEMENT OF TIM GREEFF, POLITICAL DIRECTOR, CLEAN ECONOMY 
                   NETWORK, WASHINGTON, D.C.

    Mr. GREEFF. Thank you, Chairmen Tiberi and Boustany, 
Ranking Members Neal and Lewis, and subcommittee members. Thank 
you all for affording me the opportunity to testify today. My 
name is Tim Greeff, and I am the political and policy director 
for the Clean Economy Network. CEN is the largest national 
networking advocacy and educational organization representing 
clean economy companies. We have over 12,000 members 
nationwide, as well as 17 affiliate chapters across the 
country. Our members include venture capitalists and project 
financiers, as well as businesses that manufacture, assemble, 
and install energy and efficiency capacity at home and abroad. 
I am appearing today before the subcommittees in my personal 
capacity, and my remarks represent my personal opinions.
    Tax policy has long been an essential component of the 
effort to shape and influence our energy policy. The two are so 
closely linked, in fact, that it is difficult to imagine a 
material separation. Further, we must recognize that the U.S. 
economy does not exist in a vacuum. Our competitors, such as 
China and Malaysia, use tax policy to invite investment and 
build domestic champions in this sector, with a strategic eye 
towards capturing manufacturing capacity.
    Thus, rather than focusing on whether energy policy should 
be conducted through the Tax Code, it is important to focus on 
when and how the Tax Code should and should not be used in 
relation to energy policy.
    It is necessary to mention that market signals, economic 
growth, and the competitiveness of the U.S. economy can not be 
fixed solely through the Tax Code. Ultimately, the long-term 
market signals that will drive the advanced energy economy 
require a more robust and comprehensive energy policy vision. 
Tax policy that is not a coordinated part of this larger vision 
runs the risk of leading us down the same path that we are 
currently on.
    Historically, tax policy has taken a piecemeal, technology-
specific approach. Decades of tailoring the Tax Code to fit 
needs of discreet technologies at specific points in time has 
created a patchwork of inconsistent policy that too often 
necessitates equally piecemeal fixes. In order to change 
course, we must begin to rethink the use of energy-related tax 
policy to fit the realities of today's energy economy.
    Moving forward, there are several criteria that should be 
considered to increase the efficacy of energy tax policies. 
Very simply put, tax policy, to the extent possible, should be 
technology agnostic, predictable, and finite. I would like to 
go into each of these in a little more detail.
    First, tax policy should aim to be technology agnostic, and 
avoid picking winners. Tax policies are sometimes written with 
one technology or domain in mind. This approach mutes market 
signals and puts the government into the driver's seat of 
determining where investment dollars should go. Further, such 
an approach can unknowingly freeze out next-generation 
technologies. The innovation cycle is dynamic, and the best 
available technologies today will almost assuredly not be the 
best several years down the line.
    Second, tax policies should be predictable, and provide 
certainty. Most clean energy credits and programs are very 
short-term, whereas energy investments are typically long-term. 
Investors in businesses need certainty in order to make the 
investments and set their plans necessary to grow. If the 
credit is too short in duration, it can harm the innovation 
cycle, and drive money only towards technologies that are 
current in market scale.
    Finally, tax policy should not attempt to set or replace 
the market. If left in the code too long, the incentives can 
distort the marketplace and chase off private capital in the 
long term from new and emerging technologies. Tax incentives 
should strike the balance of being long enough to send a market 
signal, but sunset predictably and appropriately to avoid 
market distortion.
    Using performance metrics to determine the duration of a 
particular tax policy is one alternative that can more 
accurately reflect and absorb market variables, while also 
including a predictable cut-off.
    Tax policy does hold a couple of advantages over other 
mechanisms to incentivize advanced energy. First, tax credits 
are fairly transparent. They are relatively easy to understand 
and apply for, thus requiring businesses to spend little on 
overhead. Second, tax policy is also relatively size and 
technology agnostic. In other words, almost any company can 
access a given credit by meeting the baseline criteria, and the 
value of the tax credit can be distributed efficiently, 
relative to the size, need, and performance of the individual 
company.
    When it comes to energy, tax policy should serve two 
fundamental purposes. One, tax provisions play an important and 
constructive role in the innovation cycle to drive new 
technologies to market. Innovation in the energy sector is very 
capital-intensive, and current economic realities make private 
investment dollars hard to come by. Furthermore, there are 
various points in the life cycle of a business that the private 
sector is sometimes unwilling to fund. Tax policy can provide 
small businesses with one more option to make it through this 
period.
    Two, tax policy can help nascent technologies and 
industries achieve competitive scale so they can stand on their 
own two feet. Cost competitiveness if fundamentally achieved 
through market scale. With increased production insulation 
comes lower cost and higher quality products. Normally, market 
demand will drive scale up, but in a globally competitive 
marketplace, sometimes scale must occur before demand alone can 
drive it in order to be competitive, especially in capturing 
manufacturing capacity.
    As discussions about comprehensive tax reform begin, 
Congress has the unique opportunity to create more consistent 
and streamlined tax policies for the energy sector that provide 
the accessibility, transparency, and certainty that investors 
need to invest, that entrepreneurs need to innovate, and that 
businesses need to grow and compete.
    I look forward to working with the committee in the future 
to achieve this goal. Thank you for your time.
    [The prepared statement of Mr. Greeff follows:]

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    Chairman TIBERI. Thank you, sir.
    Mr. Lindsey, you are recognized for five minutes.

STATEMENT OF LAWRENCE B. LINDSEY, PRESIDENT AND CHIEF EXECUTIVE 
         OFFICER, THE LINDSEY GROUP, FAIRFAX, VIRGINIA

    Mr. LINDSEY. Thank you very much, Mr. Chairman, Members of 
the Committee. Thank you very much for inviting me, and for 
your forbearance, having me on this panel.
    I am not normally a supporter of legislation to steer 
private decision-making through government incentives, 
including the Tax Code. My testimony today is going to focus on 
an example that is in the Natural Gas Act, but it is more 
generic, in that it reflects the kind of standards that I think 
the committee should apply in cost benefit analysis.
    First, I think that any such legislation has to be held to 
a very high cost benefit standard. And I have three basic tests 
that: first, any government incentives that affect private 
decision-making should be tied to a clearly-defined reason why 
the market would not correct on its own; second, that there be 
an externality at the national level which would justify that 
such change in private sector behavior is in the national 
interest; and third, that the subsidy be done in a rigorous 
cost benefit analysis way, and that that cost benefit analysis 
be clearly in the direction that the benefits exceed the costs.
    I think an example in the Natural Gas Act shows how one 
might do this. Let me begin with why the market might not 
correct on its own.
    Right now we have a very unusual disparity in the pricing 
of natural gas versus oil. The--on a normal Btu basis, one 
would expect that a barrel of oil would sell for about 8 times 
that of 1,000 cubic feet of natural gas. But currently, oil is 
around 80, natural gas is around 4, so you have a ratio of 20 
to 1. So the question comes up: Why isn't the market 
correcting? In particular, why aren't we converting motor fuels 
in that direction?
    I think that the answer is a pretty standard one in 
economic thought, and that is that what you have is a 
technology in place. And once you have a technology in place, 
it is very hard to make the transition. The example that I 
think of every time--and I am sure it applies to all of us--is 
the keyboard on a typewriter. We call it the QWERTY system, Q-
U-E-R-T-Y [sic].
    Now, that was put in place when we did some tests about 100 
years ago on how people typed, and they figured that worked. 
Well, we have now done a lot more tests. And, believe it or 
not, there would be another keyboard design that would actually 
about double all of our typing speeds. Here is the problem. We 
would all have to relearn all the new typing speed. And 
frankly, sir, at my age I am too old to learn stuff like that. 
So that is why we are stuck with QWERTY.
    Well, the same thing is true in the case of oil and natural 
gas. In the case of 18-wheel truckers, for example, we have a 
diesel-based system. It was put in place a long time ago. It 
made sense back then. Although now, with the ratios I was 
talking about in cost, it would make a lot of sense to actually 
do the conversion.
    Well, the problem, and the reason we have a QWERTY problem, 
is that you cannot just develop a natural gas truck unless you 
have a way of refueling it. So, even though the cost incentives 
of running a natural gas truck make it highly, highly 
competitive--the cost is about one-sixth that of diesel--you 
don't have a place to refuel it. It doesn't do you any good.
    On the other hand, if you run refueling stations, it 
doesn't make a lot of sense to add natural gas to your product 
line unless you have a lot of trucks who are going to use it. 
And so, what we have to do--and here is why I think that there 
is a reasonable case for incentives on natural gas trucking. We 
have to break that QWERTY problem.
    When I look at the analysis, the second question is: Would 
it be in the national interest? And here, the intent is largely 
one of energy independence. And if you compare it to other tax 
provisions to encourage us to use less oil--in fact, as my 
testimony shows, it would be quite advantageous relative to 
things like the renewable fuels credits, and it would be many 
times more advantageous relative to the electric vehicle plug-
in credit: $7,500 per car. So, I do think that, on a cost 
benefit test, it meets that standard as well.
    Again, I thought the--some of the suggestions on the panel 
were quite good on how we might redesign. But I would go back 
to saying, you know, do you have a--something like a QWERTY 
problem that needs fixing, and that should be test one. 
Secondly is the change in the national interest. And third, are 
we doing it in a cost-effective way? And I would urge the 
committee to take that approach in everything they do.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Lindsey follows:]

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    Chairman TIBERI. Well, thank you all. And I will remind you 
that your entire testimony will be submitted for the record.
    First question to the panelists. You all know that I have 
been publicly supportive of being a proponent of comprehensive 
tax reform, primarily to simplify our Tax Code, make it more of 
a pro-growth Tax Code, grow our economy, create jobs. Spoke to 
some tax professionals yesterday and had a pretty good 
discussion with them about the competition that they face with 
respect to competitors who are headquartered in other 
countries, and the Tax Codes around the world. And I asked this 
question to them, and I am going to ask it of all of you, as it 
applies to energy.
    What can we do, as the United States Congress, to make our 
Tax Code not only more competitive for our employers, but more 
competitive to attract additional out-of-country employers to 
create jobs and investment in America?
    In the news lately we have all read about the unraveling of 
Solyndra--that case is yet to close--the increase in solar 
panel production in China.
    And so I ask each one of you, starting with Mr. Lindsey, as 
we move to reforming our Tax Code through the efforts of 
Chairman Camp, as we apply it to energy, what can we do to make 
the Tax Code a Tax Code that makes energy--investment in energy 
production, energy security, energy production--more market-
driven with respect to our United States Economy? And I start 
with you, Mr. Lindsey.
    Mr. LINDSEY. Well, narrowly, with respect to energy, I 
think the first thing one has to do is identify what the 
objective is. You mentioned energy independence. And then, once 
you do that, you really want to equalize the incentive across 
different ways of doing it.
    Right now, for example, the electric car technology has a 
subsidy that is many, many times what it is for other ways of 
substituting one fuel for the other. That really doesn't make a 
lot of sense. You are not designing it efficiently. And I think 
that the--what was said earlier on the panel would conform to 
that.
    Second question you have to decide, you mentioned domestic 
production versus imports. That is a threshold question. If you 
really want to develop domestic fuels, then I think what you 
want to do is you have to lower the cost--the tax-based cost 
structure of production in America.
    Right now we have, in general, a Tax Code that 
discriminates against any kind of production in America for 
almost all industries. And I think--and I have testified before 
other committees on this subject--I think, fundamentally, that 
is the kind of reform we have to move to. It is one that has to 
be border-adjustable.
    And I think, in the end, some kind of substitution of a 
cashflow-based tax for a--income-based tax is going to be 
necessary, and I think that applies to the energy side, as well 
as to the general production side.
    Chairman TIBERI. Thank you. Mr. Greeff.
    Mr. GREEFF. I think I would go back to my several criteria. 
The first one is certainty. The investment cycle in energy is 
usually longer, and a number of the credits for renewable 
energy, most notably the PTC for wind energy, is very 
intermittent. And you have these boom bust cycles. And if 
investors are really going to make long-term investments in 
energy and build a manufacturing capacity and a resource base 
in the United States, they need the certainty that the length 
of the investment--so instead of attaching the credits to sort 
of arbitrary timelines of two years, you can attach it to 
production tax credits that are focused on when a particular 
technology would achieve scale.
    And I think the second key criteria is that we need to come 
up with a sense of common goals. So if you look at, for 
example, how we incented corn ethanol, you know, it was agreed 
that ethanol needed to be--or alternative fuels needed to be 
incented, but the government went as far as to say, ``We're 
going to mandate this many gallons of corn,'' whereas we would 
say, ``If the overall goal is to reduce petroleum use, or 
create petroleum displacement, then let's set the goal as 
generally as possible, set the rules of the game, make them 
long term, and then let the market determine which technologies 
and fuels within that category are actually going to meet that 
standard and achieve that credit.
    Chairman TIBERI. Mr. Coleman.
    Mr. COLEMAN. Yes, so I agree with the points around 
leveling the playing field, in particular, and creating 
certainty. I think that what we have seen is a dislocation, in 
terms of the types of credits that go in, and also a level of 
rifle-shooting around particular technologies.
    And I think that the challenge that we face is how to 
create a levelized code that actually induced innovation across 
a whole bunch of different technology categories, and does so 
in a way that actually allows investors to invest ahead of 
those upticks in the market, the uptake of those technologies.
    As was mentioned, the stop-start approach around a lot of 
the renewables credits has been a challenge, and that is 
largely because what we, as investors, have to look at, then, 
is how predictable the political process is, in terms of 
renewing these credits, as opposed to part of what we were 
proposing--what I was proposing in my testimony is if you 
understood that those credits would be in place for a given 
company by the time they got to that stage, then you could 
actually invest in that. You could rely on that. And so, you 
can actually, then, account for those credits in the finances 
of the company.
    Today you can't do that. And so I think what we really need 
is that level of certainty over time.
    Chairman TIBERI. Mr. Auerbach.
    Mr. AUERBACH. Thank you. I won't repeat what the other 
witnesses have said, but I will just note that my testimony 
recommends moving away from the Tax Code as the primary vehicle 
through which the Federal Government expresses energy policy.
    I recognize that there are limitations on tax incentives, 
and that they work best for individuals in businesses that 
actually pay tax. If you are not a taxpayer, it is very 
inefficient to access those benefits that Congress is trying to 
bestow.
    One recommendation I would make, just to directly answer 
the point, though, is that if you are going to use the Tax 
Code, let's recognize that taxes are a drag on economic 
activity. And so, by lowering tax rates overall, you 
incentivize more economic activity. And if you want to 
encourage increased domestic production of energy, lower the 
tax rate on those producers all the way to zero, and that is 
going to get you a lot of activity to produce more domestic 
energy. The lower you go, the more activity you get.
    Chairman TIBERI. Thank you. Mr. Book.
    Mr. BOOK. Yes, I think the message of stability and 
metrics-based decisions has been loud and clear. And I can only 
add more volume and more clarity.
    I do think, though, there is a difference between picking a 
winner and knowing whether you are a buyer or a seller. A 
couple years ago I had a discussion with an advisor to DoE, and 
I said, you know, ``Why are we trying to become an exporter of 
clean energies, when we have been a consumer for so long?'' And 
she said, ``Because we should try to compete.'' And I 
understand that.
    But if the original premise was to install, to encourage 
the installation of clean, renewable power, which it has done 
admirably, then shouldn't we be buying the cheapest, most 
efficient clean, renewable power, and look for ways perhaps to 
support and supplement the technologies where we are not likely 
to be dominant? We are the third largest oil-producing nation 
in the world, and we have become more prolific. It is possible 
that you may not want to pick winners or losers, but you may 
still want to be a seller when you can be a winning seller.
    Chairman TIBERI. Thank you. And finally, Dr. Marron.
    Mr. MARRON. Well, I think all the good answers have been 
taken, so I just want to go back and echo something that Larry 
said in particular, which is, you know, I would start answering 
this question by thinking about investment incentives for the 
United States generally, not just in the energy sector. And I 
think there are a lot of problems in our current corporate Tax 
Code. And I think moving towards something that looks like a 
cash flow tax that gives favorable treatment to new investment 
is the right place to go fishing.
    And then second, let me just echo the level playing field 
argument, that if we want to encourage investment in energy, 
there is no particular reason to play favorites among which 
type of clean energy is going to be used. Design incentives 
that provide a comparable incentive to each type, including 
ones that haven't been invented yet, and then let them fight it 
out in the marketplace.
    Chairman TIBERI. Thank you. Mr. Neal is recognized.
    Mr. NEAL. Thank you, Mr. Chairman. I want to thank the 
panelists, particularly Mr. Greeff for his comments on ethanol. 
Singularly one of the best and most strident arguments I have 
ever heard in this room many years ago was between oil and 
ethanol. And that strident argument was amongst the 
Republicans. They were at battle over that issue.
    Now, Mr. Coleman, I thought you and Mr. Greeff both did a 
good job explaining why the nature of short-term tax credits in 
the code with expiration dates that are fairly sharp discourage 
small business and investment. Would you reiterate that, 
please, again, the two of you?
    Mr. COLEMAN. Sure. The--in terms of early-stage technology 
companies, the kinds of companies that we invest in, we often 
invest years ahead of when they actually hit the market. And so 
the challenge is what level of predictability is there that the 
policies that are currently in place are still going to be in 
place by the time they actually hit the market.
    And so, a more reliable approach would be an approach that 
would allow us to invest in a company, knowing that, as it 
scaled its production, it would actually be able to leverage 
certain credits in the marketplace. That means that you either 
have to reduce the expiration dates around a lot of the credits 
that already exist, or you have to create a policy that doesn't 
have expiration dates in the same way.
    Mr. GREEFF. I think, just to add to that, if you want to 
meet a person who can really stretch the value of a dollar, go 
find an entrepreneur. And it is--the marginal value of money to 
a small business is so much higher than to a larger company.
    And I think one point that I would add to Will's comments 
is we also need the tax policy to be helpful and send a signal. 
But we don't want it to set the market. I think too often times 
we have Tax Codes that have existed for too long for very, very 
mature industries. And so, when you try to crack into a 
marketplace as heavily regulated as the electricity and energy 
sector, it is really hard for new technologies and small 
businesses to compete in the first place.
    So, there is an added level of pressure and a bigger hurdle 
for them to get over. And it makes the money that can come from 
tax policy that much more important for smaller businesses, 
because they face such an uphill climb just to reach the 
marketplace with innovation.
    Mr. NEAL. The current discussion here is focused on moving 
the corporate rate to 25 percent. And that seems to be a very 
desirable goal, if it could be accomplished. But to get there, 
everybody acknowledges that there are going to have to be some 
long sacred credits that will be sacrificed along the way.
    And as we move in the direction of this discussion, and 
centered on the idea of eliminating some of these provisions, 
what would the impact be in the energy area, in particular, 
some of the tougher energy areas, which all of you seem to 
agree upon? What would you give up?
    Mr. GREEFF. It is an excellent question. I mean I think 
that it comes down to when we have to determine tax policy and 
determine where to sunset and where to cut, there is a time 
frame that we should work on. So the idea that we would just 
turn the switch off tomorrow is going to send a shock wave, not 
just through the renewable and clean energy sector, but energy 
sector in general.
    And so, we do need to make a commitment to sun-setting a 
lot of these long-standing tax policies, and put a finite time 
period on them, as we reform the Tax Code.
    However, I will say ultimately it comes down to a value 
judgement of how important the energy sector overall is to the 
economy. And we would argue that it is very important, and 
that, regardless and irrespective of what happens with the 
overall statutory tax rate versus the effective tax rate with 
credits, the energy tax policies are some of the most important 
to continue in the short term.
    And again, let's set predictable time lines for when these 
turn off. So when you look at the PTC for wind, for example, we 
need to set a long-term extension on the PTC of, you know, four 
to five years to allow that industry to go before we start 
talking about where we are going to turn all this off, because 
we have to allow the markets to adjust to tax reform in the 
long term.
    Mr. NEAL. Thank you. Mr. Lindsey, I always appreciate your 
candor here, you know. You know what I am speaking of. And I 
also appreciated your comments this week on income disparity. I 
thought that you and, I think it was, Glen Hubbard had some 
comments in the Wall Street Journal. I thought that was a 
worthwhile discussion that we might have down the road, as 
well.
    But the American Chemical Council has argued that many of 
the subsidies in the Natural Gas Act distorts the market. And 
you spoke to that issue. And I thought the objective that you 
laid out of energy independence is one we all ought to be able 
to rally around. And how might you respond to their suggestion 
that we are really stifling investment and job creation by the 
use of the current incentives?
    Mr. LINDSEY. Well, where I would agree is, generically, if 
we leveled the playing field in the ways that everyone on this 
panel is talking about----
    Mr. NEAL. Yes.
    Mr. LINDSEY [continuing]. That would be a win-win. Again, 
it makes no sense to subsidize technology X this amount and 
technology Y a different amount.
    As I understand the concern of the chemical industry, they 
are a consumer of natural gas, and therefore compete as a 
consumer with other consumers. In this case, I think that they 
would be concerned about a diversion of natural gas into motor 
fuels, because it would raise the cost of their feed stock. I 
think that is their primary concern.
    I am less sympathetic to that concern, because I think the 
issue is--here is a specific technological change which, to me, 
makes a lot of sense. I do think we have to move more toward a 
natural gas-based motor fuels system. I think the market is 
screaming for that. And I think that the existing technology 
barrier, the QWERTY problem, is the identified problem.
    I don't see a similar problem for the chemical industry, 
and that is why I am not convinced by their argument.
    Mr. NEAL. Thank you.
    Chairman BOUSTANY. [Presiding.] I thank the gentleman. I 
want to make a few points and then pose a question. I think it 
is pretty clear right now across the country that we don't have 
a real coherent energy strategy. And one of you mentioned that 
in your testimony.
    And in trying to look at this as a policy-maker, and 
understanding, okay, how do we do this, how do we really move 
forward and jump-start a real process that gets us to an energy 
strategy, I think you have to, number one, understand where you 
are today, and what fuels we are dependent upon, and some sort 
of a reasonable time line of about how long we will be 
dependent on these.
    Secondly, don't push policies that will punish your current 
energy production. I think that is a no-brainer. And some of 
the things we have seen coming from the administration would, 
in fact, do that.
    Thirdly, you have to have a transition strategy, and you 
have to look realistically across the board, current state of 
R&D, innovation, and so forth to understand what is that 
transition strategy. And there are very few things, given the 
current state of R&D, that get us quickly to that point that we 
are trying to get to, which is ultimately energy security for 
the United States.
    And one transition strategy, in my mind, after having spent 
a lot of time looking at this, is clearly natural gas. Because 
we know we don't have biofuels that meet our needs yet on a big 
scale. Solar and wind are not going to do it. And natural gas 
is really the only alternative at this stage.
    And I agree with Chairman Tiberi that we want to do 
comprehensive tax reform. We want to clear it up, clean up the 
code, simplify, lower rates. And so for someone like myself, 
the question is: At what point do we use tax policy to drive 
some of these decisions, rather than having tax policy driving 
all of our energy decisions in a very incoherent way?
    And I think, Mr. Lindsey, you offered a lot of clarity in 
your testimony about how we should approach this when you have 
an issue of national interest. And I found myself very much in 
sympathy with what you said in your testimony.
    I thought all of you did a tremendous job in helping us 
work through some of these very complex issues of, you know, 
tax credits, deductions, loan guarantees, and so forth. It is a 
pretty complex issue, as you look at it. But what ultimately 
gets us to the right policy?
    And so, I am curious. As we look at all of this, I am still 
trying to parse down where that role for tax policy is as we 
look at energy security and driving this.
    And I mean I agree, Mr. Lindsey. I was reluctant. I looked 
at this bill, the Nat Gas Act, I said, ``Well, it is going 
counter to what we want to do with tax reform.'' But does it 
hit that threshold, where we have a national interest and we 
need to do something on a temporary basis to jump start a 
change, a shift in technology that allows us to transition to 
whatever R&D takes us to next?
    And I would love for you to just comment a little bit more 
on that. Let's just explore that topic.
    Mr. LINDSEY. Mr. Chairman, if you told me that we were 
going to get comprehensive tax reform, and there was no room 
for something like this, I would say go for the comprehensive 
tax reform.
    With all respect to the committee and the process of the 
Congress, I am not holding my breath. And so, given that we 
have a--why don't we say an existing flawed system, to me, 
having another flaw, but a cost-effective one, really doesn't 
shock my conscience, and that is why I would be there on that 
one issue.
    But absolutely, comprehensive tax reform would so benefit 
every industry involved that if that were the choice, I would 
go with that route.
    Chairman BOUSTANY. Thank you. Others, please. Mr. Greeff, I 
think you looked like you wanted to comment.
    Mr. GREEFF. Yes. Well, I mean I think, as part of a 
comprehensive plan, I think you have really hit the nail on the 
head. And we would say that tax policy certainly serves a role. 
But ultimately, we need to have a vision. And I think, again, 
it comes back to what are our agreed-upon goals?
    If we think that national security is a big part of what 
our energy policy should be--which I would agree with, because 
there is a lot more at stake here than just the failure of a 
company or a sector--we are really talking about much bigger 
issues. We need to step back and look at, okay, well, what is 
really the problem? If we can agree upon, for example, that we 
need to decrease our imports of foreign oil, then the codes and 
also standards need to be targeted at what would help us do 
that, without dictating the pathway.
    So, again, you know, we need alternative fuels. Does it 
have to be corn ethanol? Not necessarily. Does it even have to 
be ethanol? Not necessarily. And so, we need to make sure that 
the rules of the game are written at the highest level possible 
of an agreed-upon vision, and then let the market adjust to 
figure out which technologies are going to be the best ones to 
get us there.
    Chairman BOUSTANY. And I think each of you have given us a 
reasonable framework in which to think about this.
    My time has expired, but I just wanted to make one last 
comment.
    Mr. Coleman, you mentioned the issue about R&D investment 
in oil and gas. And I think you have to look behind those 
numbers, because there is a certain level of maturation, 
obviously, in that technology. But at the same time, it is the 
R&D that has allowed us to do horizontal drilling, deep water 
exploration, and those kinds of things. And so those things 
have had value, significant value, in helping us meet our 
energy security needs. Because without it, yes, we probably 
would have hit some peak oil issue much earlier.
    And so, as technology advances, and as this type of 
research and development and going after new types of reserves, 
we have to look at that as part of that equation.
    My time has expired, and we will go next to Ranking Member 
Lewis.
    Mr. LEWIS. Thank you very much, Mr. Chairman. I would like 
to thank each of you for being here today. Thank you for your 
testimony.
    Mr. Greeff, I would like to start by asking you a very 
basic question. Backed by the recent flurry of budget cuts, 
there has been more and more talk about significantly reducing 
the size and role of government. It is sometimes seen as unreal 
and unbelievable, but there are forces loose abroad in the 
land.
    Can you tell me, do you believe the Federal Government has 
a role in accelerating the adoption of renewable energy 
technologies? If so, can you tell me why?
    Mr. GREEFF. Yes. I mean unequivocally yes, we do----
    Mr. LEWIS. And share with me and the Members of the 
Committee your vision, your vision of the role of the Federal 
Government.
    Mr. GREEFF. We believe fundamentally two things. Number 
one, that the Tax Code and the role of government can really be 
used to help set a vision, and help emerging nascent 
technologies achieve market scale. We fundamentally believe 
that it really is demand and market scale that is going to 
achieve the most efficient companies and technologies, and also 
the best cost savings for consumers when you implement these 
technologies and they reach maturity.
    But because we have a very heavily-regulated energy sector, 
because we have a very unlevel playing field, it is very 
difficult for these early-stage companies and new technologies 
to crack in. And often times, unintentionally, we do pick 
winners, and have picked winners in the past, that freeze out 
new technologies. So we need to make sure that when the 
government is involved, that we are really focusing on getting 
towards a vision, driving innovation, driving new technologies, 
and helping these technologies stand up and compete, so that 
eventually they are attracting private capital into the system, 
and that it is the private capital in the marketplace that is 
driving these companies once they hit a certain spot.
    But Mr. Coleman had some really good comments on this, and 
probably has something to add about exactly how we get there.
    Mr. LEWIS. I would love to hear from you, Mr. Coleman.
    Mr. COLEMAN. Well, I mean, I think that it is--to Tim's 
point, I think that it is very much around how we get from here 
to there. And I think getting from here to there can take a 
short time for some technologies, and a very long time for 
other technologies.
    And the question is: What role should the government play 
in doing that? I think it is really where there is market 
failures. And, you know, we, as investors, would like to see 
the government play as little a role is possible where we think 
that the market is functional, and where we think that we can 
invest and grow on our own accord. And to the degree that we 
see areas that are broken. We either stay away from those areas 
as investors, or we look to the government to actually make 
them more functional so that we, as investors, can get off the 
sidelines and be productive.
    And I think in energy, in particular, the challenge is 
really around the innovation question. It is really around how 
we move very large infrastructure, how we transition from 
decades and decades of spending to--from one paradigm to 
another paradigm. And that doesn't--you know, as much as I like 
to think that we as investors in early-stage companies change 
the world--I think we do, in a lot of cases--but it is not the 
early-stage companies alone that need to solve this problem.
    And so, part of the challenge, I think, is figuring out how 
to structure these incentives so that they drive both an 
opening of the market, so that you can have early-stage 
companies participate, and they drive investment from some of 
the existing corporations into the next generation of 
technologies.
    Mr. LEWIS. Would anyone else would like to respond?
    Mr. AUERBACH. Yes, if I might. I just note that when we are 
in the commodity business--as the energy is a commodity 
business--that incumbent technologies that have already scaled 
crowd out innovation naturally, because there is no place to 
express consumer preference for something that is innovative, 
and that there are certain values that the nation should 
express, like energy independence, and also environmental 
benefits that are social benefits that cannot be expressed 
today as a price signal to encourage alternative forms of 
energy production.
    And so, what we are trying to do is, in effect, add 
externalities into the equation. But in my testimony I pointed 
out that even without those externalities, by virtue of the 
scale, the increasing scale of the wind and solar industries, 
that costs are already coming down dramatically, and that if we 
have increased expansion of those industries, that we are going 
to see further benefits in lowering costs, and therefore, 
increasing competition.
    Mr. LEWIS. Now, each of you realize, as Members of Congress 
our most important role right now is to create jobs to get 
people back to work. If we do away with these incentives, what 
impact would that have on the economy?
    Mr. GREEFF. It would have a pretty profound impact. If we 
cut these incentives tomorrow, as I mentioned earlier, there 
would be a shock wave that goes through the energy sector. 
Again, going back to the wind example, we don't even have to 
guess. We know that when the PTC credits have expired in the 
past, you see anywhere from a 70 to a 90 percent decrease in 
orders and installation of turbines. So--and the corresponding 
jobs that go with it.
    I think to the manufacturing piece, I would say that we 
have a crisis in manufacturing in this country that has existed 
for several decades. And a lot of the manufacturing jobs that 
we have lost are very hard to get back.
    I think one of the things that the government can play a 
role in is really capturing and going after the industries 
where the manufacturing jobs are still largely up for grabs. 
And in the emerging energy economy, that is true. And if we 
look forward and help drive these companies before the market 
may dictate that the supply would be there, we can keep some 
more of these companies here, and the manufacturing jobs that 
come along with them.
    Mr. LEWIS. I think my time is up. But Mr. Chairman, Mr.----
    Mr. BOOK. Could I just add to that?
    Mr. LEWIS. Yes.
    Mr. BOOK. I mean I think the cartoon-like image that one 
gets is that you are sort of a cat running away from a pack of 
dogs, you run up the tree, out to the end of the branch, and 
then you start sawing off the branch while the dogs are down 
below.
    These two things that are being discussed here, sort of the 
existing energy infrastructure we have, and the innovation we 
must have, are not incompatible. And the question is always one 
of balance. But it is important to remember that when you are 
talking about these mature industries, you are talking about 
mature commodity players, where gasoline stations, for example, 
make money at a fraction of a cent per gallon. If you start to 
take away anything, the market will equilibrate. The big well 
finance companies will always be better off, and the less well-
financed, smaller, and in some cases more innovative but 
conventional companies, will be worse off.
    But while that is equilibrating, the jobs are going to be 
falling away. And so I don't think that it is particularly 
useful, from a job creation perspective, to make the economics 
of a global consumer of a global commodity worse at any given 
time, and certainly not going to help our producers here. And 
you very well might not want to make it harder to compete 
within the country, because as people compete they will cut 
jobs with the margins.
    Mr. LEWIS. Thank you. Thank you.
    Chairman BOUSTANY. The gentleman's time has expired.
    Mr. LEWIS. Thank you, Mr. Chairman.
    Chairman BOUSTANY. Ms. Jenkins.
    Ms. JENKINS. Thank you, Mr. Chair, thank you all. Mr. 
Coleman, your written testimony stresses the need for long-term 
stability in federal policy, and also calls for targeting 
federal incentives by connecting the technologies directly to 
firmly bipartisan policy objectives.
    But it appears that there is widespread disagreement about 
what relative weight, if any, should be given to various energy 
policy goals, such as those identified in your testimony. And 
even if there are firmly bipartisan policy objectives at any 
given point, they seem to be shifting.
    So, it seems federal subsidies create inherent uncertainty 
in the marketplace, and I would just appreciate your thoughts 
on the whole issue of uncertainty.
    Mr. COLEMAN. Well, I think there is all sorts of different 
kinds of uncertainty. And it is part of what we invest in every 
day, is trying to understand what the market is going to look 
like. And part of that, in the energy sector, is trying to 
understand what the politics are going to look like.
    And so, I think we already deal with that uncertainty 
today. I think, in terms of an approach to overcoming some of 
that, within the existing code there are a number of different 
structures that were mentioned in a bunch of different 
testimonies here today that have expiration dates. And there is 
an element of, if we are not going to change the code, then we 
probably need to figure out how to extend those expiration 
dates and make more certainty there so investors can invest 
ahead.
    In terms of the approach that I was recommending, it is 
really focused on the innovation side of the equation, the 
earliest stages of these companies' development, and also the 
early stages of the technology development. And the idea being 
that we can find some generalized numbers, some milestones 
around scale of production, and things like that. So megawatts 
produced, units sold, et cetera. And we have seen these rebates 
and tax programs work in other places that use these kinds of 
metrics.
    But we can use those generalized metrics to create 
certainty for individual companies. And in terms of which 
companies would qualify, which is, I think, to your point, I do 
think that debate needs to happen. And I don't know that we are 
going to solve that on this panel here today. But I do think 
that a lot of people agree around one particular one, and that 
is energy security.
    And I think that here in the U.S. the idea of growing our 
domestic supplies is a really important one. And we have 
focused on that politically for the last century. So, hopefully 
we can continue to do that, and I hope we can continue to do it 
on the innovation side of the equation.
    Ms. JENKINS. Okay, thank you. I yield back.
    Chairman TIBERI. [Presiding.] Thank you. Mr. Marchant is 
recognized for five minutes.
    Mr. MARCHANT. Thank you, Mr. Chairman. I can tell you from 
my constituents back home what they favor is not giving loans 
like have just been given to Solyndra and seeing a half-billion 
dollars wasted, which has hurt the entire energy credit 
reputation. And what they are telling me when I go back home 
and have town hall meetings and meet with my small business 
people is, ``Do away with all of these credits, lower our tax 
rate, and let the best product win, the best service win, and 
get out of the whole business of subsidy.''
    Realizing that that is going to be a struggle, and 
realizing that is a goal and this committee is really working 
on it, I have been very interested today in a couple of the 
concepts that have been discussed.
    Mr. Auerbach, could you walk through the reverse auction 
strategy for me, and how would it maximize any taxpayer dollar 
that was invested?
    Mr. AUERBACH. Yes, thank you very much. The reverse auction 
mechanism, it relies more on the market than on government 
mandates to set a price. And it is self-limiting, because what 
we start off with is, say, ``Let's encourage more domestic 
production of energy.'' And we talk about wind, solar, biomass, 
and also oil and gas. All of those are--what we are talking 
about in reverse auctions--are made-in-America energy.
    And so, the reverse auction mechanism would divert revenues 
from expanded oil and gas drilling. Part of it will pay down 
the deficit, which is, of course, a national priority. And then 
some of it will be allocated to a trust fund and allow 
renewable energy developers to compete for that access to that 
capital.
    In the slides that I pointed out, I pointed out that 
renewable energy costs are coming down already. And I believe 
if you opened it up to competitive auctions, that fewer and 
fewer dollars would need to be allocated for every megawatt 
hour of renewable electricity produced, and you let the market 
do it.
    In the proposal that we are advocating, every year the 
ceiling price from the reverse auction would go down five 
percent automatically. And so, we are phasing out--again, with 
a market-based mechanism, the support for renewable energy 
technologies, and we are letting that go.
    One comment I would make to your constituents, though--and 
I understand the concern, I understand very well; as an 
investor, I don't like losing money, and Solyndra is a black 
eye--but if you analogize where we are today as driving on the 
highway at 70 miles an hour--65, let's say, because that's the 
speed limit, so I'm not saying we should be going faster than 
the speed limit--a light hand on the steering wheel is 
understandable, and that is the way I believe government should 
operate. Taking your hands off the steering wheel at 65 miles 
an hour is perilous.
    And so, just abandoning all responsible oversight and 
government activity to support the growth of the industry would 
be taking your hand off the steering wheel at a time it is 
hurtling down the highway at 65 miles an hour. And I believe 
that the overreaction to some very bad news and distressing 
news about the Solyndra situation would also create problems 
and unintended consequences.
    Mr. MARCHANT. And as a follow-up question to Mr. Coleman, I 
don't think I misheard you, but maybe I did. You said that the 
top five oil companies in America spend almost nothing for R&D. 
Would you clarify that a little?
    Mr. COLEMAN. Yes, they spend less than two percent of their 
profits on R&D. It is one of the lowest numbers of any 
industry. And while I think that is an eye-opening number, at 
the same time I agree with the chairman's statement, which is 
we have had a tremendous number of innovations over the last 50 
to 100 years, particularly in oil and gas, and that is a large 
reason why we continue to have increased access to supply here 
in the U.S.
    Our point is more that, as an industry that is not 
investing as much as other industries in R&D, there is an 
enormous amount of opportunity for new innovation in next 
generation technologies. And we believe that it is not just 
going to come from start-up companies and emerging 
technologies. It is going to come from the oil and gas 
industry, and it is going to come from some of the biggest 
players who already exist in the energy industry. And we see 
those folks as partners.
    And so, the hope is that you can create a policy that 
brings those companies to the table and encourages them to 
realign their investment choices around not just the things 
that will increase supply today, which I think is critical, but 
around those things which will increase supply and decrease 
cost over the long term.
    Mr. MARCHANT. But even at two percent, that gross dollar 
amount that they are spending, if you compare it against the 
gross dollar amount that is being spent by all of the other 
combined industries, aren't they comparable numbers?
    Mr. COLEMAN. I don't have the absolute numbers sitting in 
front of me. I don't believe that they are, although I do--I 
would say that the oil and gas industry is one of the most 
profitable industries in the world. So----
    Mr. MARCHANT. Thank you.
    Mr. COLEMAN [continuing]. It is a good number to have.
    Chairman TIBERI. Thank you. Mr. McDermott is recognized for 
five minutes.
    Mr. MCDERMOTT. Thank you, Mr. President--or Mr. Chairman, 
for having this hearing.
    As I look out on this committee, or this panel, I am really 
pleased to see people who believe in the market. And they think 
the market is the thing that we must worship at. And as I 
look--I watched what happened yesterday on the floor, when the 
floor was controlled by people who really believe that 
government should have no role in doing anything.
    I have a question for all of you, because we had a bill. We 
had a 48 extension here in the 
committee. Members of this panel all signed on, said we ought 
to extend the manufacturing credit for solar things and other 
things, and it died. Okay?
    Now, 1603, direct payment for wind and solar credits, is 
going to expire at the end of this year. Ethanol expires at the 
end of 2011. Renewable diesel and biodiesel expires at the end 
of this year. And alternative fuel credit, natural gas, expires 
at the end of this year. If this Congress acts like they acted 
yesterday, and said, ``We don't want the government involved in 
this stuff,'' what is going to happen in the market?
    How will the market react if the Congress pulls out of all 
of those programs which are set within four months to be gone? 
I would like to hear you all respond to that. Sir?
    Mr. BOOK. I would be happy to answer that, since I talked 
to some of those investors every day. And it scares them very 
badly. And their job is to make money. They are very 
conservative, and they dump investments that they think are 
overweighted with risk.
    The gentlemen to my left are all very good at making money, 
so the analogy that I was suggesting was a portfolio. And they 
don't put all their eggs in one basket, but they also don't get 
out of the market entirely, or there wouldn't be anything in 
it.
    I don't think anyone here is advocating dumping all of 
subsidies----
    Mr. MCDERMOTT. You think the Congress is going to extend 
all these?
    Mr. BOOK. I certainly don't, and that is the point of a 
metrics-based analysis. Figure out what you want to do that is 
working well, allocate a certain amount to that. Look at the 
things that are sort of higher risk, given an amount to that, 
based on efficacy and numbers you can quantify, and then save a 
little bit for the moonshot, and make sure that you have a 
balanced returning portfolio, in terms of energy security, 
environmental benefit, and innovation and the benefit that 
brings it home.
    Mr. MCDERMOTT. Maybe I should have asked the question a 
little differently. Which ones of these should we save to save 
the market?
    Mr. AUERBACH. Well, can I start off?
    Mr. MCDERMOTT. Sure.
    Mr. AUERBACH. First of all, I am a believer in the market, 
I don't worship the market nor government.
    But I do believe that the Federal Government, by abdicating 
any responsibility for the market that exists would create 
chaos. And as a capital committer that has committed hundreds 
of millions of dollars of investment capital in the United 
States, the expiration of some of these incentives is going to 
create chaos and is going to create job losses.
    What I advocated in my testimony, both oral and written, is 
really--one point about Section 1603. Some people don't like it 
because it is associated with stimulus. But it represents 
efficient use of government dollars, as I think every----
    Mr. MCDERMOTT. You mean it was a good idea?
    Mr. AUERBACH. I think it was a----
    Mr. MCDERMOTT. From the Obama Administration?
    Mr. AUERBACH. It was a great idea. I was one of the ones 
who actually was involved in working with the Administration 
and both Houses of Congress in talking them through how it 
would benefit the industry.
    Ultimately, since I believe that cash is a better way--when 
cash transfers hands it is a much easier currency than the 
foreign currency called a tax credit, that the vast majority of 
our industry cannot efficiently utilize.
    Interestingly, 48, well, if you look 
at 48, we were a beneficiary of 
48, and we could not access a dollar of 
it, because we were not a taxpayer. One of our companies was 
afforded a $51 million tax credit that we couldn't use. If we 
got the cash payment, we would have been creating more jobs. 
And 60 percent, in my estimate, of the recipients of 
48 will not be able to access that tax 
credit.
    So, the more we understand about how tax credits are used 
by taxpayers, I think the more effective your policy can be.
    Mr. GREEFF. Just one comment to that to sort of clarify the 
point, I think that the discussion we are having here now makes 
the point of where we think the role of government should be. 
If you have tax credits that are based on things like arbitrary 
deadlines, then every couple years we are back here making a 
decision.
    What we would argue is we shouldn't be making this 
decision. The government can set metrics-based performance 
standards or, you know, whatever the metrics are, make them 
long term and predictable enough that the market knows where it 
is going to head. And I will use an anecdote.
    One of the things that I would say in the clean energy 
sector of the emerging companies that we would say makes a 
difference between a young and a more mature company is the 
more mature companies actually have a line item on their 
spreadsheet that has public affairs, government affairs, as a 
cost of doing business. And I think that when we have a system 
that forces companies to have to interact with the government 
all the time to make sure that every other year, that there is 
more consistent policy, that is not a helpful system.
    We want to have it so that they are spending their money 
building factories, and they are spending their monies hiring 
people. They are not spending their money having to interact 
with the government all the time to make sure that these 
credits become more consistent, or that a better energy vision 
is laid out.
    Chairman TIBERI. The gentleman's time has expired, but 
anybody else want to reply? Mr. Lindsey.
    Mr. LINDSEY. Senator, I think if you actually look at the 
cost per gallon on a lot of those, I think you would--I would 
be one who would certainly want to phase some of them out. I 
think you mentioned ethanol. I think that is one of the most 
highly subsidized, and it definitely doesn't meet any kind of 
standard of cost benefit analysis. You may not want to yank it 
right away, but it makes sense. I think the same thing is 
probably true with biodiesel. I think solar credits generally 
do not pass the cost benefit test. So I would be sympathetic to 
at least phasing many of them out.
    If I might indulge--if you would give--please, related to 
that--and I have heard the word ``jobs'' a lot--and, Mr. Lewis, 
I agree with you 100 percent on the importance of that. To show 
you how old I am, 29 years ago I was working with a guy named 
Larry Sommers in the Council of Economic Advisors, and he wrote 
a memo on Thanksgiving 1982 to the President. There was a 
proposal then that we create jobs with infrastructure, road 
building. And Larry Sommers wrote the memo and said, ``You 
know, Mr. President, if you do this, you have to think, 
'Compared to what?' ''
    Turns out that infrastructure is a less labor-intensive 
part of the economy than the general economy. So if you take 
money from the general economy and put it into infrastructure 
or, frankly, if you put it into energy creation, you are not 
creating jobs net/net, you are actually destroying jobs. Now, 
so a lot of what you are talking about will cost jobs in the 
industries here. But on an economy-wide basis, if your sole 
objective is to create jobs, I would axe most of those 
subsidies.
    Chairman TIBERI. As I said, the gentleman's time has 
expired. Anybody else want to--very good questioning, Mr. 
McDermott. Thank you for always providing some interesting--
anybody else?
    Mr. BOOK. Could I just add a----
    Chairman TIBERI. Sure.
    Mr. BOOK. I think that what we are talking about here--in 
many cases, we are all saying the same thing in different ways. 
But what Mr. Auerbach said, I thought, was really important. He 
was asking how much of that money that you are putting into any 
of these sources flows through to the actual purchase of the 
thing you are buying? That is the thing I call the return on 
tax.
    And I know it sounds like a crazy thing for people who 
believe in free markets to say, but if you want to give away 
money, give it directly away--is a very sensible proposition. 
What Mr. Lindsey said very eloquently is that, guess what, 
capitalism works. And the reason why you have lower labor 
intensity in the things that work at big scale is because that 
is why they are successful in a capitalist economy.
    That does not mean, however, that you won't lose jobs. If 
you take things that currently benefit those industries away, 
it does mean--I think you would have to agree--that 
allocating--if jobs is your only criterion, there is some very 
labor-intensive things you could do, and renewable energy, in 
some forms--agriculture-based renewable energy can be very 
labor-intensive.
    We don't necessarily want to live in an agrarian economy, 
though. I mean I think this is a balanced question. We are an 
industrial economy, and we want to create high-value jobs.
    Chairman TIBERI. Thank you, thank you. I now recognize the 
gentleman from the booming energy state of North Dakota, Mr. 
Berg.
    Mr. BERG. Thank you, Mr. Chairman. I have been anxiously 
awaiting to ask questions here. You know, obviously, in North 
Dakota we have taken a strong approach the last 10 years to not 
just look at oil, but look at all energy sources, and try and 
remove barriers and encourage their production.
    So, Mr. Greeff, I would like to kind of start just in kind 
of the big picture. I mean what can Congress do to provide 
certainty in the energy industry overall, encourage economic, 
you know, growth, and also, from a big picture, I think our 
goal should be energy independence.
    So, if you were going to say, ``Here is three things that 
Congress can do now,'' what would they be that would move us 
towards that end?
    Mr. GREEFF. I think, based on energy independence being the 
goal, I think, number one, we have to set--all policies need to 
have that fundamental goal as the bottom line. And that would 
include, you know, reducing our dependence on foreign oil--and 
I would say oil, overall--diversifying our energy portfolio, 
like anyone would diversify their investments. We depend far 
too much on far too few sources of energy. And we would want to 
make sure that we capture and produce as much of that energy at 
home as possible, so that the dollars that we do spend on 
energy are being spent domestically, and driving the economy.
    I think a second point is that we can't ignore--because 
there is often times a focus on the role of the Federal 
Government, but again, when you get down to the local level, 
most energy markets are protected monopolies, and they are 
limited. And getting into--cracking into some of these 
industries is difficult.
    When you look at, for example, that in the rate base of 
some utilities there is an economic and financial disincentive 
to be more efficient, that is a failure of the policy system. 
And we have got to start to fix that, so that actually you are 
not expecting utilities to lose money if they help end use 
users become more efficient. Because that is in the public 
good, that is in the public interest. And so, we can't 
necessarily just separate the federal policy for more local 
policies. And we know that that is tricky, but that is 
something that we need to walk into with our eyes open.
    And I think the last point is that we do need to have a 
more comprehensive view that doesn't just depend on tax policy, 
doesn't just depend on performance standards. We can't evaluate 
everything in a vacuum; we have to look at it and make sure it 
functions together. And if we can look at where we want to get 
to, if we can set the rules of the game, put them long-term, so 
that the touches of government intervention and the number of 
times that we have to have these conversations become fewer and 
further between, that is going to allow the market to adjust in 
the long term.
    Mr. BERG. Well, thank you. I have been in the commercial 
real estate investment world for 30 years, so I understand 
how--I mean we would think that your whole decision is based on 
tax policy, but the reality is that is just one component of 
making your investment decisions.
    Mr. Lindsey, you had mentioned that the Tax Code 
discriminates against production. Could you just expand on 
that, briefly?
    Mr. LINDSEY. More precisely, it discriminates against 
domestic production. So, if you produce something in North 
Dakota, the workers have to pay both employer and employee side 
of FICA, they have to pay income tax, they have to pay 
corporate income tax. If you import the same good from 
Manitoba, none of that tax is borne.
    Now, Canada has got a similar tax structure, so it is 
there. But if you think about it as China, none of that is 
taxed. We have a tax--we disadvantage our own manufacturers. 
What you need is a border-adjustable tax system, and it should 
be based on cash flow, and not on income, because income is not 
the thing you really want to tax. You want to tax something 
more generic than income.
    Mr. BERG. Thank you. Mr. Coleman, you had mentioned--I may 
not have it quite right, but one solution would be a volume-
based energy incentive system. I know you talked about it a 
little bit earlier. Could you just briefly recap that and give 
me an example of how that would work in real life, if we are 
transitioning from where we are now to maybe no incentives?
    Mr. COLEMAN. Yes. So a volume-based system would be one 
that shifts from the current approach. So if you think about 
the way we currently approach tax policy around energy, 
typically it is--we have technology buckets. So we incent solar 
a certain way, wind another way, oil and gas a different way, 
natural gas a different way. And the challenge there is that 
the government necessarily has to figure out not only what the 
appropriate allocation is to those individual buckets, but has 
to listen to us sit here on these panels say whether, you know, 
one technology is better than the other on a pretty repeatable 
basis.
    And so, the issue there is that when you are trying to 
figure out how to most effectively then incent those 
technologies, you also have to figure out when they are ready 
to move off of subsidies. And we have this semi-annual debate 
associated with whether or not a technology category is ready.
    The challenge is that when you look at the technologies 
inside even a single bucket--let's just take solar, for 
example--you have some technologies that have moved all the way 
down their cost curve to the point--the chart that was brought 
up here earlier--those cost curves come down very steeply, 
based on innovation, and then on scale. They may have gotten to 
the point where they are at the bottom of the cost curve, and 
there is others that are just beginning to come down it. But 
they are also solar companies.
    And so, the question is, if you roll that tax credit off at 
that point, the most mature companies may well be able to 
compete. But the ones that are most innovative--and they may 
have a cost curve that goes well below where the most mature 
companies are--the ones that are most innovative won't get any 
portion of that credit.
    And so, when we are investing in some of those early 
innovative technologies, we look at those policies and we say, 
``Well, will they be there by the time that these companies 
actually hit the marketplace?''
    And so, the approach that I am proposing is one that looks 
at the scale of the technology and says there will be a credit 
for companies that innovate in a given set of categories, and 
it will last until they get to a certain volume, and then it 
will start to roll off for that given company. And we have seen 
it happen in programs all over the place.
    One of the ones that is closest to home--and I am going to 
dare drop a California example here--is the hybrid rebate that 
was put into place, where, basically, for the initial volume of 
hybrids, there was a rebate put into place and then it rolled 
off once an individual company got to a certain volume. So, 
other companies could enter the market with a new hybrid, and 
it would roll off for them over time.
    But effectively, what that does is it gives us a level of 
certainty, as investors, to look at how that policy structure--
and say that will be there by the time the market hits that 
scale, and so we can factor it in, and we can invest ahead of 
it. And it should be applicable, not just to start-ups. It 
should be applicable to any company that is undertaking 
technology innovation.
    Mr. BERG. So the point is you get to a point where the goal 
is to make money for the company, and they are making more 
money by increasing their volume, increasing their sales, and 
as that happens their incentive reduces.
    Mr. COLEMAN. Yes----
    Chairman TIBERI. The gentleman's time has expired----
    Mr. BERG. I will yield back.
    Chairman TIBERI [continuing]. Go ahead and answer the 
question.
    Mr. COLEMAN. Yes, the point is to help these companies get 
to a scale where their cost is fully reduced. And by the time 
they are mature, and their cost is fully reduced, they should 
be able to compete in the marketplace alone, rather than be 
reliant on subsidies, going forward. We want to invest in the 
companies that ultimately compete without subsidies.
    Chairman TIBERI. Thank you. Mr. Reed is recognized for five 
minutes.
    Mr. REED. Thank you, Mr. Chairman. This has been very 
informative. I really do appreciate the panel's input. 
Obviously, as we deal with energy policy going forward, tax 
policy in the energy field is going to be a critical piece to 
that comprehensive plan.
    I am a guy who believes in all of the above: domestic, 
renewables, alternatives, fossil fuels, et cetera. And one 
consistent theme that I am hearing here, and I have heard it 
before, is the certainty in the tax policy is critical to 
getting this correct. And, as a new Member--new member of this 
committee, new Member of Congress--there is a reason why the 
Tax Code is in the condition that it is, with the short-term 
extenders and things of that nature.
    Mr. Lindsey, you have been around quite some time. I 
appreciate your candor with us. Could you offer some advice or 
insight to a new Member as to what is the primary reason why we 
have the code in the condition that it is? How can we--what are 
the barriers to that certainty of getting the long-term tax 
policy initiated?
    I have some personal opinions, from the short term I have 
been here, that there are some institutional issues, the 
scoring issues and things like that, but could you offer any 
insights that maybe I am--that would be helpful to me as we 
develop this policy?
    Mr. LINDSEY. Yes, I have been through this quite a few 
times.
    The first thing is--and this is something you can't do 
anything about, it is the nature of our democracy--obviously, 
the nature of the committee changes, the Congress changes, and 
different Members have different objectives. You know, it might 
be jobs now, it might be inflation another time, and it might 
be energy production. You can't do anything about that.
    I think, though, that the thing you can do something about 
is the focus on income-based taxation. There is a saying on 
Wall Street that cash is a fact, income is an opinion. And when 
you are dealing with an opinion, it is very, very easy to 
change your opinion. And that is why, ``Well, let's see, is 
this really income now? Maybe we should have a deduction 
here,'' I mean all the complexity really comes down to defining 
income.
    On the other hand, if you have a cash flow tax you are 
really looking at something called receipts. And it is very, 
very hard to argue about the definition of a receipt, much, 
much harder than it is income. And I think if you--as a new 
Member, I think what you would want to do if you actually want 
to have certainty in the code and everything else, you want to 
move away from income-based taxation and toward receipts-based 
taxation, or cash flow-based taxation.
    Mr. REED. Any other insights from anyone who has been here 
a while?
    Mr. AUERBACH. Well----
    Mr. REED. Mr. Auerbach.
    Mr. AUERBACH. Yes. I started my career, actually, as a tax 
lawyer, and made a living off of the uncertainty, advising 
taxpayers or clients that were very nervous. And I also worked 
in Washington for a couple years in the government, being on 
the other side of that.
    Part of the problem--and I don't want to say this in an 
impolite way--is, you know, I would actually like to get energy 
policy outside of this room. And H.R. 909 and the reverse 
auction mechanism that I am advocating here--and I hope is 
going to enjoy bipartisan support, but right now is supported 
mostly by Republicans--is trying to set up a mechanism that is 
long-lasting, self-implementing, and does not require the 
constant review before Congress every other year that has been 
built into a code incentivizing renewable energy since 1993.
    There have been 5 times over the last 18 years where the 
credits just died in their tracks, thousands of people were 
laid off, capital flows stopped, and then they started again. 
And so, if we can set up a system that has already been 
architected--and we have been commenting on it, about how to 
make this long-lasting and self-implenting--and get revenue 
sources that are monitored by Congress but actually outside of 
Ways and Means, I actually think it is going to provide a lot 
more certainty for capital committers. It is a much more 
natural way for the system to work.
    So, that was--that would be my advice to you.
    Mr. REED. I appreciate that. Yes, Mr. Marron.
    Mr. MARRON. I guess just--the one other thing I would add 
is the way the budget process and budget discussions happen in 
Congress----
    Mr. REED. Amen.
    Mr. MARRON [continuing]. Which is, as you have experienced, 
10-year budget estimates are the coin of the realm.
    Mr. REED. Yes.
    Mr. MARRON. And that just creates a natural incentive for 
people who want to extend something to extend it in little 
bite-sized chunks at a time. And so folks can get enough 
political will to extend it for a year, and then revisit the 
next year. And that is not something that necessarily leads to 
a good long-run policy.
    I don't know how you would solve it as a process thing. But 
if you and all your colleagues could say, ``Look, if we are 
going to consider a tax incentive to encourage some activity, 
we will commit to either do it for five years, or let it die,'' 
that would be kind of the place you would want to end up.
    Mr. REED. I appreciate----
    Mr. MARRON. At the moment, the budget dynamic is year-by-
year.
    Mr. REED. Yes, that is exactly what I was looking for on 
the record.
    One last question, just a quick yes or no. Because I am an 
all-of-the-above person, can we achieve energy independence 
solely on alternative renewables? Does domestic fossil fuel 
production and development have to be part of that equation?
    Chairman TIBERI. The gentleman's time has expired. 
Everybody will answer yes or no.
    Mr. REED. Thank you.
    Mr. LINDSEY. No to the first, yes to the second.
    Mr. GREEFF. No to the first, yes to the second.
    Mr. COLEMAN. Yes to the first and yes to the second.
    Mr. AUERBACH. I would say no to the first, and yes to the 
second, as well.
    Mr. BOOK. No the first, yes to the second.
    Mr. MARRON. We will never achieve energy independence 
within the lives of the grandchildren of the folks here in this 
room.
    Mr. REED. Thank you for that.
    [Laughter.]
    Chairman TIBERI. We have two more Members who are going to 
ask questions, and I--yes, cancel the next panel, right. No, I 
am just kidding.
    Mr. Lindsey, I know you had to go, and if you do need to 
go, you are excused from this panel. Thank you for your 
generous time commitment. I know you had----
    Mr. LINDSEY. Thank you for your forbearance. I appreciate 
it.
    Chairman TIBERI. Thank you. I recognize Mr. Kind for five 
minutes.
    Mr. KIND. Thank you, Mr. Chairman. On that happy note, 
first of all, I want to thank the witnesses for your testimony, 
and thank the committee for holding this important hearing. I 
think it is very, very helpful that we have periodic hearings 
like this to see whether or not we are getting a good bang for 
the buck that we are trying to incent or invest as a nation. 
And these periodic reviews might be a little easier if we went 
to a biannual budgeting process, as opposed to trying to move 
everything every year, which provides very little time for 
oversight with a lot of these programs, and the discussion that 
we are having today.
    One of the concerns I have--and I think it was addressed 
earlier in the hearing with a question--is if we have got a 
national strategic energy policy, I don't know what it is. I 
don't know where we are going, as a country, with all of this. 
It is just a hodge-podge of a lot of things, and we see it 
riddled in the Tax Code, too, seeing what might work or what 
might stick and what doesn't.
    And I appreciate the testimony we heard in regards to some 
predictability and longevity with some of these decisions, so 
that businesses know what to wrap their arms around, and what 
is going to be certain in out-years, as opposed to being taken 
away from them after they are willing to invest capital and 
time and energy to start moving in that direction.
    But what makes this conversation a little bit difficult to 
have is a lot of the hidden costs with our energy policy today. 
And let me just cite one example of that. I think it was back 
in 2002 or 2003 I cited a Department of Interior's website 
where they had listed the cost of maintaining safe shipping 
lines to the Middle East to our shores of roughly $80 billion a 
year. And I started publicizing that on my own website and 
started talking a lot about it. And then suddenly the 
Department of Interior dropped it from their website. And that 
is one of those hidden costs in our own energy needs as a 
nation that never really gets explored or factored in to 
everything else that we are doing. And that makes these type of 
conversations a little bit problematic to have.
    But I also know that, as an example, the 
25 tax credit for residential efficiency 
has had an economic impact for manufacturers in my district, 
from Trane to A.O. Smith that have benefitted, the Andersen 
Windows that have benefitted through the increase in sales, 
which has meant hiring, but also the impact that it has had for 
a lot of families.
    I recently visited an older couple's house earlier in the 
year that made an investment with new insulation and high-
efficiency furnace and that, because of the tax incentives. 
That spurred them to do it. And they went from $410 a month in 
heating costs to roughly $90 a month in heating costs. Huge 
difference in that family's life, but it was because of the tax 
incentive that spurred them to take that type of action.
    So, I guess I would be interested to hear your feedback on 
how valuable it is to have some of those incentives out there, 
just to overcome the battle of inertia that we often face in 
the nation, getting people to do something which makes complete 
economic sense for them to do, but without that incentive they 
probably wouldn't, because of the power of inertia.
    Does anyone want to take a stab at that? Mr. Book.
    Mr. BOOK. Well, Congressman, I have enjoyed conversations 
about renewable energy with you in the past, and efficiency. 
And I would have to say that I haven't done the quantifying of 
that particular example. But what you have just described is 
something that seems like it had tremendous MMBtu for the buck. 
And you know, if you are going to judge the efficacy of these 
policies on a metric--and that was one of the ones that I think 
a lot of us recommended--it sounds like it is a highly 
effective policy. And that might be a reason why you would 
explore continuing the things that are working, saving some for 
the things that are possible, and allocating a small amount, 
because we need innovation, irrespective of performance to 
generate ideas.
    Mr. KIND. Yes. And I think it is kind of two different 
questions here, too. One is: What do we need to do to build in 
business predictability on what we are doing? But also, what do 
we need to do to get people to take action?
    And part of a way of achieving that is by letting these 
things expire, and people knowing that they are going to 
expire, so they got to move now in order to take advantage of 
it, which, I think, is a lot behind the American Jobs Act, 
trying to get something done now, rather than knowing it is 
going to be there for another five years and we have got time 
to wait.
    Mr. BOOK. That just shifts demand forward, it doesn't 
actually create anything. It creates a lot of lobbying dollars 
locally spent here in the District of Columbia--thank you for 
my home value appreciation--but the real effect of creating an 
innovation center that generates ongoing value is much bigger. 
And the problem with shifting demand forward is that it is not 
new demand. And so, I mean you do get a short-term pop. It is 
like cash for clunkers. But then there is a lag if nothing 
fundamentally recovered to replace what you shifted forward.
    Mr. KIND. I understand and appreciate with the economic 
models the need to develop something more long term, but we are 
stuck right now as an economy, because of the lack of aggregate 
demand. People are scared, and they are hunkered down, they are 
paying down bills, they are not making purchases, and jobs are 
not being created. So shouldn't we be trying to juice short-
term demand, just to get things going again?
    Mr. BOOK. It is messy. It works sometimes very well, but it 
usually has problems and conflicts. And some of what the first 
panel was describing sounded like some of the conflicts that 
come up with it. The rich man's rebate for hybrids for people 
like me who drive 3,000 miles a year is being spent on vehicles 
that low-income families can't source. Insulation in walls is 
what a lot of these families need, but people in my 
neighborhood can buy solar panel systems for $80,000.
    You do have to look at how these demand-side incentives 
work. And they are very hard to get right.
    Mr. KIND. Great. Thank you. Thank you all again. Thank you, 
Mr. Chairman.
    Chairman TIBERI. Thank you. Ms. Black is recognized for 
five minutes.
    Ms. BLACK. Thank you, Mr. Chairman, and I think I am 
bringing up the tail end here. Thank you, panel, for being here 
today. Very informative.
    I want to go to the issue of winners and losers when tax 
credits are created. And in specific, I have a manufacturer of 
water heaters in my district. And because of the way the tax 
credit was written, it benefits foreign manufacturers over our 
U.S. manufacturers. And that means U.S. jobs.
    And so, what I would like to hear from you all is how can 
we be sure that we are not picking winners and losers, and that 
we are having a level playing ground and, in particular, that 
we are looking at making sure that playing ground is level, so 
that our jobs are kept here, in the United States? Anyone want 
to jump on that one? Yes, Mr. Marron.
    Mr. MARRON. Okay, I will be brave and go first. I think the 
unfortunate reality is that if you try to use the tax system to 
provide subsidies for these kinds of activities, it is 
virtually impossible to literally accomplish a level playing 
field. You will see in the testimony of some of my colleagues 
up here on the panel the complicated calculations they go 
through in order to figure out what the implied value per MMBtu 
or value per CO2 saved, or value per gallon is. It requires an 
enormous amount of math.
    Now, try and imagine to do that here in the committee to 
design subsidies to target each possible way one might save 
energy. And the reality is just you are never going to get 
there. So a fully level playing field is incredibly hard to 
accomplish on the subsidy side.
    I know it is an unpopular message, but actually you can 
accomplish a level playing field if you are willing to do 
things on the tax side. If you say, for example, that oil is a 
bad thing to use because of national security concerns and you 
have an oil tax, if you believe carbon emissions are bad you 
tax carbon emissions, that can then filter through the economy 
and establish a level playing field.
    Now, I am not offering that as a raise-tax thing. You can 
then couple that with cutting other taxes, so that it is net-
revenue-neutral. But I recommend that if you really take 
seriously the level playing field, that that is a place to 
look.
    Ms. BLACK. Others have a comment on that? Mr. Coleman.
    Mr. COLEMAN. Well, I would just say, at the risk of 
sounding like a broken record, I think the issue is you really 
need to simplify the code, number one, and I think that means 
trying to figure out how to carve out the hidden components of 
the code, and trying to put them all sort of above the table.
    And the other is really making sure it is a metric-based 
system. So, you know, to the points that were made earlier by a 
number of different panelists, making sure that we align it 
with the metrics that define the priorities we have. So if it 
is energy security, then there are certain metrics associated 
with that, making sure that those that are eligible and those 
that take those credits fit the bill, and that they get the 
credits based on the amount that they actually produce, and the 
amount that they actually meet that objective, I think, is the 
simplest way to do it, and make sure that you have a level 
playing field.
    Mr. AUERBACH. I would just add that, again, there have been 
a number of ideas, I think, proposed by the panelists in their 
testimony, including myself, that go to encouraging increased 
domestic production of energy of all sorts. We have to be 
careful, as we design policy, that we do not violate 
international trade agreements to block out foreign 
competition, because they are going to retaliate and do that to 
us, as well. But there is nothing wrong with encouraging 
domestic production.
    But again, the more that we can create market-based 
mechanisms for all of this, I think the better off we are all 
going to be.
    Mr. GREEFF. I would go back to my comments earlier about 
the need for a comprehensive vision, that, you know, tax policy 
is a role, but let's look at international security. And if we 
look at, for example, our dependence on foreign oil, there is 
demand side and supply side, and you probably need to have a 
separate set of policies for that and focus on the demand side, 
the biggest use in the transportation sector.
    Instead of going back to the earlier example about corn 
ethanol and saying, ``That's the one that we are going to 
pick,'' you have things that work in concert, such as the cafe 
standards that say, ``We want to set a fleet average of miles 
per gallon.'' It doesn't dictate to the auto makers what type 
of car technology they have to use. It sets an aspirational 
target for what the fleet average needs to be. So they still 
get to make SUVs, but it also pushes them to make more advanced 
technologies with better combustion engines, hybrids, electric 
vehicles, et cetera.
    And then, at the same time, you can also use tax policy to 
bolster the next generation technologies. And, to Will's point, 
not just for start-ups, but also for the large companies, so 
that they are actually looking and innovating to what is that 
oh-wow, next big thing that they wouldn't necessarily invest in 
otherwise. If we have more of a vision and we use all of the 
different tools in our toolbox, we will have a much more 
comprehensive policy that picks less winners, and lets the 
market adjust to what the aspirational goals are.
    Ms. BLACK. Thank you all very much.
    Chairman TIBERI. The gentlelady's time has expired. Thank 
you very much.
    Last, but not least, the gentleman from Connecticut is 
recognized for five minutes.
    Mr. LARSON. Thank you, Mr. Chairman, and thank you so much 
for holding these important hearings. And thank all of our 
panelists, some of which I know had to leave already.
    But just a general question. I think all of you are in 
agreement, in terms of the need for comprehensive tax reform 
and how that would benefit, overall, all of our industries. And 
I think there is probably broad agreement on this committee 
with respect to that, as well.
    I am concerned, however, that if the United States doesn't 
supply various types of technology in commercial adaptation, 
that we run the risk of having other nations--I come from a 
state that is a fuel cell sector state, and we see with the 
great interest that Korea has in making sure that that industry 
has a place to grow and thrive over there, through government 
investment.
    It is always a concern about picking winners and losers, 
but in new and breakthrough technologies, what is the feeling 
of the committee with respect to that? And if we could, just 
briefly go through whether or not government should be 
involved. Or is this something that you purely leave up to the 
marketplace, especially when other countries, especially in the 
energy-related areas, are looking to eat our lunch?
    Mr. AUERBACH. Well, I will just start by pointing out one 
thing that we haven't talked about. There has been some mention 
about some due diligence failures associated with one loan 
guarantee for an innovative company, which is unfortunate. But 
put in context, where some of our competitors are--that I view 
also as trading partners--China, the Chinese Development Bank, 
CDB, which is somewhat equivalent to our Ex-Im Bank, has 
provided over $30 billion in loans to support their native 
industries, scaling up their renewable energy. And many of 
those are innovative companies that are increasing their scale 
and lowering their cost.
    And so, if we abandon, if we don't provide systems of 
support to encourage domestic innovation through whatever means 
we think is most economically efficient, we are going to end up 
increasing our trade deficit because, ultimately, we will find 
those products attractive. And instead of having our share of 
American products, it is going to all be coming from overseas.
    Mr. COLEMAN. Yes, I would just add that I do think we need 
to support emerging technologies, and that was the brunt of my 
testimony. I think the way that we need to do it, though, is in 
a technology-neutral way. So I think the closer we can get to a 
metric-based system, the better off we will be.
    Mr. LARSON. There is a great deal of conversation currently 
in the Congress and several bills that abound with respect to 
an infrastructure bank that is both partially funded by 
government providing the base for seed capital, but then with a 
board, and with investment coming from the private sector. 
Could the same kind of innovation bank work for the country?
    Mr. BOOK. Congressman, I have testified on this before the 
Senate in the past, and I was sad to see that the--some folks 
tend to talk about a green bank as a Fannie and Freddie for 
clean energy, and they don't mean it nicely.
    There is actually a problem with the current loan guarantee 
program that has nothing to do with due diligence. It has to do 
with the way financing has to work for real industry at a real-
time basis. The portfolio that you are able to catch is 
probably not going to out-perform the portfolio Mr. Auerbach 
has. He can turn around a term sheet quickly. He has the 
autonomy to choose financing mode, he can decide whether he is 
going to take warrant coverage or equity, he can decide if he's 
going to debt finance something with venture convertible 
security interest.
    If you give that kind of autonomy to a government agency it 
has to be limited, because you don't want to crowd the folks 
who do it for a living out of business, because they do tend to 
yield an awful lot of it. But having it done right probably 
would involve giving it autonomy and the ability to work in 
real time, as the Ex-Im Bank does.
    Mr. LARSON. Would that enhance or detract from your 
efforts, Mr. Auerbach.
    Mr. AUERBACH. I think it would enhance. First of all, thank 
you for the question; it is a very important one. Let me just 
point out that there are various versions of a bill for 
supporting a clean energy deployment administration. Some of 
them call for agency-driven locale for it, others independent. 
So it is somewhat different, but similar to the infrastructure 
bank illustration that you have shown.
    Let me give you one personal example. We went through the 
loan guarantee program and successfully procured a loan 
guarantee. We started our application in December 2008. We were 
finally awarded the loan guarantee about two months ago. Nearly 
three years in due diligence and then in documentation in order 
to get a loan is not exactly fleet-footed, and is not going to 
support American competitiveness.
    We understand the grave concerns about the due diligence 
process and the capacity of the government to do this 
efficiently. Ultimately, I believe that it needs to be 
outsourced to independent folks who have the autonomy to act as 
quickly as we act in the private equity business.
    Chairman TIBERI. The gentleman's time has expired. Anybody 
else want to answer that question?
    Mr. GREEFF. The last thing that I would just add is we 
think that any time that you can create a public-private 
partnership as opposed to a wholly public operation, we think 
that that generally works better. And we would also argue that 
moving the money closer to the source of the innovation 
increases the chances that it is going to be spent wisely. So 
the solutions in Louisiana are going to be different than in 
Ohio or Massachusetts or Georgia.
    And we would say that the public-private partnership done 
at a more regional, local level actually helps to increase the 
efficacy with which that money is distributed, and makes sure 
that that innovation is happening at the ground level, in 
conjunction with the national labs, in conjunction with the 
universities, and all the talent that we have in the United 
States.
    Mr. LARSON. Thank you.
    Chairman TIBERI. Thank you. Thank you all. One last 
question on behalf of the panel. If you guys were up here, just 
a yes or no answer--starting with Dr. Marron--with what you 
know, would you vote yes or would you support or oppose the Nat 
Gas Act, which is our next panel? Because I am going to go to 
our next----
    Mr. MARRON. Pass.
    [Laughter.]
    Chairman TIBERI. Pass? Pass it, or pass?
    Mr. MARRON. Oh, sorry. Pass on the question.
    Chairman TIBERI. Okay.
    Mr. BOOK. I don't know enough until you can give me a 
comprehensive accounting.
    Chairman TIBERI. Stick around.
    Mr. BOOK. But leaning oppose.
    Chairman TIBERI. Okay.
    Mr. AUERBACH. I would have to pass, I haven't studied it 
closely enough. I apologize.
    Chairman TIBERI. All right.
    Mr. COLEMAN. I hate to say it, but I haven't studied it 
closely enough, either.
    Chairman TIBERI. All right.
    Mr. GREEFF. Pleading the Fifth.
    Chairman TIBERI. Pleading the Fifth?
    Mr. GREEFF. I am just kidding. It is the same thing; I 
haven't read the bill.
    Chairman TIBERI. You guys should stick around the for the 
next panel, then.
    Mr. GREEFF. Might just do that.
    Chairman TIBERI. Really appreciate your testimony today. 
You guys did great. Gave us a lot of great information. And 
thank you so much for coming.
    We will now seat the third panel. Our third panel today, 
while they get seated, I will introduce them to save a little 
time as the second panel departs. Very informative second 
panel. Again, thank you so much for coming.
    We have our third and final panel with us today: Mr. Andrew 
Littlefair, president, chief executive officer of Clean Energy 
Fuels; Dr.--oh, not--Dr. Lawrence Lindsey is now gone, he had 
to leave so he was part of the second panel; our former 
colleague, the Honorable Congressman Calvin Dooley, president 
and chief executive officer of the American Chemistry Council, 
welcome; Dr. David Kreutzer, research fellow in energy 
economics and climate change of The Heritage Foundation; and 
finally, our last witness, I will yield to my good friend from 
Massachusetts, Ranking Member Neal, to allow him to introduce 
our final witness.
    Mr. NEAL. Thank you, Mr. Chairman. I am pleased to 
introduce one of my constituents, Hank Ziomek, who is the 
director of sales for the Titeflex commercial division, with 
global responsibility for the automotive and industrial 
markets. Titeflex is headquartered in Springfield, and I must 
tell you it is a very neat story. We are all very proud of what 
has happened at Titeflex.
    Before joining Titeflex, Hank spent nearly 20 years with 
the Dana Corporation, including as a business unit manager for 
the Boston weatherhead division. So it is extremely helpful to 
get the input of individuals like Hank, and I am appreciative 
of the fact that he has taken the time to come to Washington 
today to give us his perspective.
    Chairman TIBERI. Thank you, Mr. Neal. Thank you all for 
joining us. You will each have five minutes to present your 
testimony, and your full written testimony will be submitted 
for the record.
    So, with that, Mr. Littlefair, we will begin with you. You 
are recognized.

    STATEMENT OF ANDREW J. LITTLEFAIR, PRESIDENT AND CHIEF 
 EXECUTIVE OFFICER, CLEAN ENERGY FUELS, SEAL BEACH, CALIFORNIA

    Mr. LITTLEFAIR. Thank you, Mr. Chairman. Chairman Tiberi, 
Chairman Boustany, and Members of the Committee, my name is 
Andrew Littlefair, and I am president and chief executive 
officer of Clean Energy Fuels. I am also the immediate past 
chairman of NGV America, a national trade association, over 120 
companies involved in natural gas vehicles and related 
production distribution and transmission.
    I am here to speak in favor of H.R. 1380, the Nat Gas Act, 
introduced by--on April 6th--by Representative John Sullivan 
and Congressman Larson, cosponsored by both subcommittee 
chairmen, along with 181 other bipartisan Members of the House. 
I would like to focus on the advantages to our economy of jump-
starting a natural gas vehicle industry in the United States.
    The changeover from diesel to natural gas is going to make 
huge strides over the next 10 to 15 years. With this short-term 
boost, we can accelerate that just about five years.
    The benefits to natural gas as a vehicle fuel are numerous, 
wide-ranging, and vital to America's national interest. It is 
abundant, domestic fuel, it is a proven technology, it is 
cleaner than petroleum, and it will generate 400,000 new jobs 
over the next 5 years, and it will reduce our dependence on 
OPEC oil. Natural gas is one of the most abundant natural 
resources in America. From just a few years ago, when natural 
gas was considered an extremely limited resource, it is now 
widely believed we have enough natural gas reserves to last 
between 100 and 150 years.
    Given the amount of natural gas, we must consider how best 
to deploy such a widely distributed domestic natural resource. 
Natural gas is a proven vehicle fuel. There are some 13.2 
million natural gas vehicles operating in the world today. 
Globally, over 4,000 natural gas vehicles are being put on the 
road each and every day, and 8 new natural gas fueling stations 
are being opened every day.
    However, of the 250 million cars and trucks and light-duty 
trucks on America's highways, only about 110,000 are natural 
gas vehicles. The argument against moving from gasoline or 
diesel to natural gas as a principal transportation fuel for 
passenger vehicles has been a matter of infrastructure. And 
that is why H.R. 1380 focuses on the 8 million medium and 
heavy-duty trucks which burn more than 35 billion gallons of 
fuel each year.
    Over-the-road trucks tend to run the same routes on a 
regular schedule, and we have determined that the beginnings of 
a nationwide network is possible with as few as only 150 
natural gas stations at existing truck stops along interstate 
highways which can provide fuel from coast to coast and border 
to border.
    The private sector is doing its part. Recently my company 
announced an investment by Chesapeake Energy to help build 150 
strategically located L&G truck stops. This process, too, can 
be greatly speeded up through common sense incentives in the 
bill. H.R. 1380 takes direct aim at the incremental cost of a 
basic class A truck, which includes regional tractors, trucks, 
refuse and recycling trucks. Built to run on diesel, the base 
cost is approximately $125,000. A similar truck manufactured to 
run on natural gas today costs between $35,000 and $40,000 
more.
    To show how quickly the market is changing, just three 
years ago the incremental cost of a natural gas truck over a 
diesel was between $60,000 and $100,000. So we are moving in 
the right direction. H.R. 1380 is not a hand-out to major 
corporations, grocery chains, and retailers. There are over 
360,000 trucking companies in the U.S.; 82 percent of these 
operate 6 trucks or less, and 1 in 10 over-the-road truck 
drivers is independent, and most own their own rigs. These 
small businesses will retain a larger share of their earnings 
in the form of a tax credit to purchase natural gas trucks. And 
that, plus the savings of $1.50 per gallon running on natural 
gas instead of diesel, provides a significant life cycle 
reduction in cost, and will go a long way in helping to create 
additional demand for trucks and engines built in America.
    Studies have shown that moving America's heavy-duty truck 
fleet from diesel to natural gas will have the effect of 
providing over 400,000 direct and indirect new jobs over the 
next 5 years throughout the NGV supply chain. Every person we 
hire, every position we create, has to make sense for us so it 
can help us make money. Yet we believe that 400,000 of new 
permanent, good-paying jobs to be conservative. These jobs will 
be created through an anticipated private sector investment of 
up to $50 billion over that same 5-year period that we are 
talking about with the bill.
    Using domestic natural gas instead of foreign oil is also a 
security issue. In June 2011 we imported--this is really 
staggering--343 million barrels of oil at a cost of $39 billion 
in one month alone. That is $1 million per minute every minute 
of every day. The cost of importing oil for the first 6 months 
or so this year is $227 billion, over a quarter of a trillion 
dollars.
    A look at the list of countries in which we are sending all 
those dollars is chilling. After Canada and Mexico, the next 
largest suppliers of oil to the United States are Saudi Arabia, 
Venezuela, Nigeria, Iraq, Colombia, Russia, and Angola. This is 
not a list of countries we should be counting on for stable, 
fairly-priced supplies of oil.
    In converting America's heavy-duty truck fleet of about 
eight million vehicles to liquified natural gas would save 2.5 
million barrels of oil per day, meaning we could reduce our 
reliance on OPEC oil in half. At $100 per barrel, that means 
$250 million per day will stay in the U.S. to circulate through 
our economy, rather than being shipped off to the governments 
of Venezuela, Saudi Arabia, and Nigeria.
    Natural gas is abundant, it is available, and it is safe. 
Natural gas is cleaner than gasoline or diesel, produces in 
between 20 and 30 percent fewer greenhouse gases, and natural 
gas is cheaper. A typical over-the-road truck running on 
natural gas will save $40,000 per year.
    Chairman TIBERI. If you could kind of wrap it up----
    Mr. LITTLEFAIR. Thank you for your time, and attention. I 
am happy to answer any questions that you may have.
    [The prepared statement of Mr. Littlefair follows:]

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    Chairman TIBERI. Thank you.
    Mr. LITTLEFAIR. Thank you.
    Chairman TIBERI. Congressman Dooley, you are recognized for 
five minutes.

 STATEMENT OF CALVIN M. DOOLEY, PRESIDENT AND CHIEF EXECUTIVE 
     OFFICER, AMERICAN CHEMISTRY COUNCIL, WASHINGTON, D.C.

    Mr. DOOLEY. Well, thank you, and good morning, Mr. Chairman 
and Members of the Committee. I appreciate the opportunity to 
testify on behalf of the American Chemistry Council and our 
members.
    Your hearing today acknowledged that the United States Tax 
Code is often used to drive energy policy and influence 
markets, sometimes with unintended and detrimental results. The 
Nat Gas Act is an example of one such proposal offered at a 
time when our nation can least afford it.
    Most people don't realize that natural gas is vital to the 
productivity of U.S. manufacturers. This is particularly true 
of the chemical industry, which uses natural gas both as a 
power source and a raw material to develop and produce 
everything from the packaging that keeps our food fresher 
longer, and to the building products that make our homes more 
efficient and affordable, to the parts and materials, including 
high-tech composites that make our cars and planes lighter, 
stronger, and more fuel-efficient.
    Our products and materials are then used by other industry 
to create new goods on which American families, farmers, and 
business rely. In fact, more than 96 percent of all 
domestically-manufactured goods are embraced and enabled by 
chemistry.
    That is one reason why new supplies of natural gas from 
previously untapped shale deposits are such a game-changer for 
our industry, and for American competitiveness. In recent 
months, numerous chemical manufacturers have announced new 
investments, thanks to the outlook for a predictable domestic 
natural gas market. And a recent ACC study found that 
reasonable increases in natural gas, on the order of about 25 
percent, would result in nearly 400,000 new jobs in the 
chemical sector and supplier industries, generating more than 
$132 billion in U.S. economic output, and nearly $4.4 billion 
in local, state, and federal taxes, annually.
    As we move to take advantage of this vast resource, we must 
not introduce expensive distortions into the natural gas 
market. The Nat Gas Act would do just that. The act aims to 
boost the production and use of natural gas vehicles through up 
to 5 billion in taxpayer-funded subsidies. But, frankly, the 
bang for the buck just isn't there. A revenue analysis by Ernst 
& Young conducted on our behalf estimated that the Nat Gas Act 
would result in about 22,000 new natural gas vehicles on the 
road. That is a cost to taxpayers of roughly 135,000 per 
vehicle, regardless of whether Congress has identified a way to 
pay for the bill or not.
    Perhaps most troubling, though, is the bill's potential to 
create an unbalanced, volatile natural gas market plagued by 
price spikes. A return to volatile natural gas markets similar 
to those of the previous decade would undermine a growing 
resurgence in domestic chemical industry. Data from the last 50 
years show that natural gas prices go up, exports from our 
industry fall precipitously, and manufacturing jobs go right 
down with them. For example, in the last decade, in large part 
due to the volatility in natural gas prices, our industry lost 
over 120,000 jobs.
    I think, though, you know, we heard testimony from Mr. 
Lindsey, for whom I have a great deal of respect, and I think 
in his testimony that I had the chance to read, I think it even 
embodies some of the most compelling arguments on why this 
legislation is not appropriate. In his testimony, he identified 
that the differential between a truck running on natural gas 
versus diesel, that it was--it would generate--in 100,000 miles 
it would generate a fuel savings of $57,000 for a year. That 
would have a payback on that conversion of only 15 months, a 
return on capital investment of 80 percent.
    What this legislation would do, if you back up and think 
about it, if you look at what companies have the largest fleets 
in the United States, you have FedEx, you have UPS, you have 
Waste Management, you have the Cokes, you have the Pepsis, you 
have the Wal-Marts. All of those have central fueling stations 
today. So we would be putting the taxpayers on the line. A good 
share of that $5 billion that we are going to be asking them to 
pay would go to companies that have the ability to have 
centralized fueling stations, that would go to their 
conversions of their heavy vehicles up to $64,000, when today 
the market forces would allow them to recoup a return on that 
investment in 15 months without a tax subsidy.
    You know, as we are striving to try to get our country's 
fiscal house in order, it is important for us, more than ever, 
to try to define the appropriate role of government. We need to 
allow the marketplace to work, and the marketplace is working. 
And Mr. Littlefair's company is a good example. With 
Chesapeake, they already have announced that they are going to 
establish 150 natural gas fueling stations throughout the 
country.
    Give this industry time to work. Allow the marketplace to 
work. Do not pick winners and choosers [sic], and do not put 
the taxpayers on the hook for subsidies that will create a 
distortion that aren't needed at this time.
    [The prepared statement of Mr. Dooley follows:]

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    Chairman TIBERI. Thank you.
    Mr. Kreutzer, you are recognized for five minutes.

   STATEMENT OF DAVID W. KREUTZER, RESEARCH FELLOW IN ENERGY 
    ECONOMICS AND CLIMATE CHANGE, THE HERITAGE FOUNDATION, 
                        WASHINGTON, D.C.

    Mr. KREUTZER. Thank you very much. Chairmen Tiberi and 
Boustany, Ranking Members Neal and Lewis, and other Members of 
the Committees, thank you for this opportunity to address you 
concerning the economic consequences of subsidizing natural gas 
technologies. My name is David Kreutzer. I am research fellow 
in energy economics and climate change at The Heritage 
Foundation. The views I express in this testimony are my own, 
and should not be construed as representing any official 
position of The Heritage Foundation.
    I would like to make several points regarding the Nat Gas 
Act. Among them, the act would pick winners by providing 
subsidies in the form of preferential financial benefits for 
select natural gas technologies, the act would lead to 
inefficient allocation of resources and lower national income, 
the act would not necessarily reduce variability in 
transportation energy prices, the act's national security 
impact is muddled, and an equivalent impact on petroleum 
imports could be more quickly achieved by allowing access to 
our domestic energy supplies.
    The act subsidizes preferred natural gas technologies, and 
should not be considered a tax cut in any meaningful sense. An 
example illustrates how the act picks winners and losers. 
Suppose a trucking company considers two options for improving 
its fleet. The first option is to trade in trucks for new 
diesel-powered trucks at a net cost of $80,000 per truck.
    The second option is to retrofit its current trucks to run 
on natural gas, also at a cost of $80,000 per truck. If the 
firm has a marginal tax rate of 35 percent, choosing the 
natural gas retrofit leaves the firm with 41,600 additional 
bottom line dollars for each truck, when compared to trading in 
for new diesel trucks. Natural gas is the chosen winner, diesel 
and gasoline power are the chosen losers.
    If the preferred natural gas technologies were, in fact, 
more cost effective overall, there would be no need to 
subsidize them. This firm will choose natural gas without a 
subsidy. However, with a subsidy in place, the firm will choose 
the natural gas option even if it were $41,599 worse than the 
diesel option. The firm may make $41,599 less with the natural 
gas option, but the $41,600 subsidy leaves them with a net $1 
gain. But that net $1 gain is for the firm. Unfortunately, the 
taxpayers must cough up the other $41,600 to cover the 
difference.
    And this sort of incentive could lead to inefficient 
resource use and lower national income.
    Switching to natural gas does not guarantee price 
stability. As chart one in my written testimony shows, natural 
gas prices are volatile over both the short run and the long 
run. For one day in February of 2003, natural gas prices 
tripled. Investigations determined that a cold front sweeping 
across the northeast after a relatively cold winter was the 
culprit.
    I am a strong supporter of expanded use of hydraulic 
fracturing, which I believe to be quite safe. And natural gas 
prices may well stay low for a long time. But betting on 
continued low prices is a bet that the government shouldn't 
subsidize.
    If we face a security threat from funding oil exporters, 
the Nat Gas Act better not be anti-terrorism plan A. Chart two 
in my written testimony shows the impact of cutting our 
petroleum imports in half. The calculations used in these 
projections are for the year 2035. However, the results would 
not be dramatically different for earlier years. A 50 percent 
import cut is several times larger than the impact proponents 
of the Nat Gas offer as a goal. However, even this larger cut, 
with its 10 percent reduction in exporter revenues, is not 
likely to scare terrorists or unfriendly regimes any time soon.
    In addition, this cut on our part will lower incomes for 
friendly exporters, and lower the import bills for all 
importers. For example, in the case just described, China would 
see its oil import bill cut by $50 billion because of the cost 
that we incur.
    Expanded production from domestic resources, offshore and 
onshore, could produce more petroleum than the Nat Gas Act 
proposes to save, and do so while adding revenues to the 
Federal Government instead of cutting them.
    In summary, the Nat Gas Act would pick winners and losers 
by subsidizing specific natural gas technology, add 
inefficiency to the economy and reduce national income, not 
guarantee low-cost transportation fuel, and not defund terror 
organizations.
    I thank you for this opportunity to address the committees 
and look forward to your questions.
    [The prepared statement of Mr. Kreutzer follows:]

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    Chairman TIBERI. Thank you.
    Mr. Ziomek, you are recognized for five minutes.

     STATEMENT OF HANK ZIOMEK, DIRECTOR OF SALES, TITEFLEX 
            CORPORATION, SPRINGFIELD, MASSACHUSETTS

    Mr. ZIOMEK. Thank you very much, Chairman Tiberi, Ranking 
Member Neal, Chairman Boustany, Ranking Member Lewis, and the 
other Members of the Committee. Thank you for affording me the 
opportunity to come before you on behalf of the people of 
Titeflex in support of the Nat Gas Act.
    Headquartered in Springfield, Massachusetts, Titeflex is in 
its 95th year of operation with locations in Springfield, 
Massachusetts; Vista, California; Laconia, New Hampshire. 
Titeflex is a subsidiary of Smiths Groups, PLC, and under the 
FlexTech division, Smiths Group is a world leader in the 
practical application of advanced technologies, and delivers 
products and services for threat and contraband detection, 
medical devices, energy, communications, and engineer devices 
markets worldwide.
    We have a long history of supplying high-quality fluid-
handling components for fuel, hydraulic, pneumatic systems, 
ranging from implant robotics, automobile brakes, to the space 
shuttle landing gear. Titeflex Commercial Group manufactures 
PTFE Teflon hose and fittings for the automotive, industrial, 
aerospace industries, and the leading supplier of C&G flex 
hoses for the natural gas vehicle market.
    I come before you today to support--in strong support--of 
H.R. 1380, the Nat Gas Act. You have already heard today the 
facts about natural gas are clear. Natural gas is the cleanest 
commercially available fuel for transportation today. Domestic 
reserves of natural gas are estimated to be twice that of 
petroleum. Natural gas has been between 25 and 42 percent 
cheaper than diesel over the last 14 years. Ninety-eight 
percent of all natural gas consumed in America is produced in 
North America, while sixty-four percent of crude oil is 
imported.
    Natural gas vehicles in use are approximately 12 million 
worldwide. There are only 110,000 NGVs in the United States. 
With appropriate government policies, use of domestic natural 
gas to power the nation's trucks and buses could reach as high 
as 10 billion gallons per year by 2020 and displace up to 20 
percent if diesel fuel. Should the Natural Gas Act pass, heavy 
duty haulers and fleet vehicles can immediately displace some 
of the foreign oil we rely on today.
    For Titeflex, total sales have increased by over 50 percent 
over the last 2 years. That is 400 percent in the natural gas 
segment for us. There has also been a 12 percent increase in 
overall employment for Titeflex. However, in the processes 
related to natural gas vehicles, it has increased 41 percent. 
And since the tax credits were in place in 2006, our sales have 
increased 600 percent for natural gas vehicles.
    Smiths recently also invested $4 million in the Titeflex 
plant, and a lot of it had to do with this market and other 
markets which are fast-growing. Also employed locally over 100 
people in construction and trades. And as far as new 
technology, we also put some very efficient new technology that 
were more efficient and also more environmentally friendly.
    The short-term benefits for our economy from NGV market 
growth are evident. The Nat Gas Act would provide the 
additional impetus needed to achieve the step change that will 
achieve--will advance technology, lower overall cost to users, 
further enhance employment, and bring the United States closer 
to energy independence.
    To close, the Natural Gas Act provides a limited five-year 
program that accelerates wider adoption of this American 
vehicle fuel. This legislation is a real solution to our 
nation's challenges. On behalf of the people of Titeflex, thank 
you again for affording me the opportunity to come before your 
committee.
    [The prepared statement of Mr. Ziomek follows:]

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    Chairman TIBERI. Well, thank you all for your very good 
testimony.
    Mr. Littlefair, you just heard Mr. Dooley talk about the 
fact that the marketplace is working, and that you and others 
are making significant investments. So why is the legislation 
needed? Can you tell us?
    Mr. LITTLEFAIR. Well, yes, Mr. Chairman. You know, first 
off, put it in context. We have seen some growth. You today 
have 1,500 heavy-duty trucks on natural gas, and you have 8 
million that are on diesel. So we think this is exactly the 
right place to use tax policy to spur the growth.
    Now, what Mr. Dooley talked about, I think, is--I 
understand that he wants cheap natural gas. And if I was 
running the chemical industry, I would want that too. The 
beauty about this today is we have enough natural gas for both, 
relatively reasonably-priced natural gas for chemicals, and 
also moving our gas into transportation.
    You know, there are winners and losers, I think, as we look 
at this. And the winner is domestic natural gas resource that 
happens to be clean, that creates jobs. And the loser is 
foreign, imported oil.
    But I think if we will just give a little bit of a boost 
here, it will drive the manufacturers in to bring down the 
cost, and I think that we can--what do you call it--sunset this 
bill over the next few years, and I feel confident that we 
don't require an ongoing long incentive.
    You know, the Congress passed a version of the Nat Gas Act 
years ago. And I think it is very instructive. It took a 
while--I think it was passed in 2006, and it took a while for 
it to actually get implemented through the IRS. It really hit 
its stride in about 2008, and at that time we really only had 
trash trucks. We didn't have the engines for these big, heavy-
duty trucks that could really impact foreign oil. But we had 
trash trucks.
    The first year that the tax incentive was in place, the 
penetration was three percent of the new trash trucks purchased 
in the United States. This year, this coming year, 2012, it 
will be 35 percent. And that tax credit is now gone, as you 
know. I think that is the same exact thing that you will see if 
we can have a few years of tax--this doesn't go to us, this 
goes, the incentive, to the trucks--you put that in place 
today, you will kick-start a huge business, moving us off of 
imported, dirty diesel fuel and using our own domestic fuel.
    Chairman TIBERI. Thank you. Mr. Kreutzer, you--in your 
testimony you talk about the fact that national security is 
muddled. One of the arguments the proponents have had with 
respect to this bill is weaning ourselves off of foreign oil. 
And I am a supporter of what you talked about, expanding 
offshore and inland drilling for oil and natural gas.
    But in addition to that, can you tell us why you believe 
that expanding domestic production, or domestic tax credits 
to--as Mr. Lindsey said earlier--to get the private sector over 
the hump of an established private sector already in the 
petroleum and diesel market on a temporary basis kind of 
muddles that national security issue?
    Mr. KREUTZER. Yes, yes. First, as the chart shows, even 
cutting our imports by half, 4 million barrels a day--if we cut 
from 8 to 4, in 2035 the EIA projects we will import 8 million 
barrels--cuts OPEC revenues from 2.3 trillion per year to 2.1. 
Now those are huge numbers. But I don't know that anybody said 
that the terrorists get their funding from the last 10 percent.
    So, I--what I think it muddles is it takes our focus away 
from actual security policies that we need to implement, not 
pretending that cutting our oil imports a decade or two from 
now is going to make us safer any time soon.
    Second, when you implement policies that make the economy 
less efficient, that reduces the robustness of the U.S. and its 
economy and its ability to support a military. So that is my 
only thing.
    There are lots of questions about who should support the 
transportation lines for oil. Why is it the U.S. instead of the 
Persian Gulf nations, and so on? And I don't have the expertise 
to talk about that. And those may be great questions. But would 
cutting our imports by 2.5 million barrels a day eliminate the 
need for the Navy? We had a tremendous amount of money that we 
spent countering the Soviet Union's military might, and we got 
nothing from them. We imported zero.
    Chairman TIBERI. Okay.
    Mr. KREUTZER. Yes, okay.
    Chairman TIBERI. Last question. If all of you could, answer 
this question.
    We have heard from the other panel, we have heard about not 
all tax credits are created equally. Using different kinds of 
metrics with respect to tax credits and overall tax reform, I 
think everybody has agreed to reduce the number of credits, 
reduce the number of tax breaks across the board.
    Starting on this side if you care to answer it, and then 
moving down the line, what makes the Nat Gas Act different, in 
terms of those metrics, in terms of job creation, in terms of 
energy security, in terms of cheaper natural gas for vehicles 
versus what we have on the books today?
    Mr. ZIOMEK. Well, from the basic sense of looking at this 
tax credit, looking at natural gas as a fuel, in general, you 
have a situation where the rest of the world has supported this 
technology, and the United States has not. Why is that?
    Every nation, almost bar none, supported it with a tax 
policy, including Venezuela, that had abundant oil and decided, 
well, it is cheaper, it is much more profitable for us to 
export the oil, and we are going to have our citizens use 
natural gas. So they incentivized them to use natural gas. And 
this has happened in a lot of other areas, as well.
    But the bottom line is we have pretty much not supported 
the natural gas part of our economy, and we have plenty of it. 
It is something that we produce here, and it is something that 
will allow us to grow faster. And what you need, why the tax 
policy is important, is we need to have this change.
    We need to take the curve from where we are today to--like 
a hockey stick. We need to move the technology faster, we need 
to get that money to people in manufacturing, particularly, who 
can invent new things, who can lower the cost of all the 
equipment that is put into this economy of the natural gas 
vehicles. And it is happening, but we need to have it happen 
faster so that we can compete. Bangladesh thinks we are an 
opportunity for growth for them to sell their products here. We 
are that far behind when it comes to technology in that area.
    Chairman TIBERI. Mr. Kreutzer, you might have a different 
view?
    Mr. KREUTZER. Yes, I do. If it comes to choosing--guiding 
our policies according to what Hugo Chavez in Venezuela does or 
what American markets choose, I am going with American markets, 
no questions asked.
    But getting back to your question of how does this differ, 
I don't think it does. I think this is a tax credit subsidy 
scheme, like many others we have, that needs to be simplified. 
We need to weed those out, get down to a simpler tax structure. 
And this is going in the wrong direction.
    I would like to say I am not against natural gas. I am not 
against shifting the trucks over. But I think--I don't know, 
and I don't think anybody here actually knows--all of the costs 
that all of the trucking companies have to go through and the 
trade-offs they have to make. And it is for them to decide. I 
fully believe if the numbers are as they said with Congressman 
Dooley, Coca Cola, FedEx, all those companies will switch over. 
There is not a chicken and egg problem here. Thank you.
    Chairman TIBERI. Congressman Dooley.
    Mr. DOOLEY. Yes, I would respond in this manner, is that, 
you know, I think, you know, it really is your charge to really 
define what the appropriate role of government is. And how can 
you allocate the resources, which are taxpayer resources, in a 
way that achieves societal or economic objectives?
    Mr. Littlefair talked about in 2006 that there was a tax 
credit to try to encourage natural gas vehicles. You know what 
the price of natural gas was in 2006, 2007? It spiked up to $12 
and sometimes $14 an MMBtu. It is $4 today. Now, from a policy-
maker's standpoint, you can make--you have to question. Are the 
circumstances the same that you need a tax credit today when 
the fundamental driver is much different, in terms of the price 
of natural gas? And I would suggest no.
    And that is where I go back. Do you want to tell your 
constituency out there that Congress is enacting a taxpayer 
subsidy that, by our calculations that were done by Ernst & 
Young--and we would be more than pleased to share with you--
amounts to about 137,000 per vehicle that is converted. Do you 
want to tell your constituents that you are supporting a tax 
subsidy for the conversion of a vehicle that if the private 
sector, where the market forces are in place today, if they 
made that investment on their own they would get an 80 percent 
return on that investment for that conversion without any tax 
subsidy? And I suggest they would say no, that is not the 
appropriate role of government.
    And so, I contend we are all for natural gas. We want them 
to be successful. We want a domestic energy policy that 
enhances our domestic security. But this isn't the policy that 
is going to achieve that, and it is going to be one that 
creates distortions in the marketplace.
    Chairman TIBERI. Thank you. Mr. Littlefair.
    Mr. LITTLEFAIR. Well, what we hear from a couple of my 
fellow panelists, ``We want the status quo.'' And I think when 
you go home and you talk to your constituents, I think the real 
question is, ``Do you want to continue to import oil from 
people that don't like us,'' or should you do something, use 
your tax policy to create jobs?
    And I think that this is a unique position in history. Yes, 
it is because it is cheap, because we have so much of it. That 
is why all your factories are using all the natural gas right 
now. But we are in a unique position to be able to move our 
country away and create jobs. And only natural gas can really 
do that. That is the truth here, is that we only really have 
one resource that can make this kind of bold shift. And in 
order to move it, I think we are talking about a very modest 
tax policy. And so I think it is a unique opportunity that you 
don't have in hardly anyplace else.
    Chairman TIBERI. Thank you. Thank you. Thank you all. Mr. 
Neal is recognized.
    Mr. NEAL. Thank you, Mr. Chairman. Hank, certainly the 
priority here, as you have expressed it and the other panelists 
have expressed it in different ways, is to create more jobs. 
And could you spend a couple of minutes talking about what has 
happened at Titeflex, given the use of the Natural Gas Act?
    And because the issue has been raised by other panelists, 
why you think that keeping the credit for only a handful of 
more years, five more years, is necessary. So we are talking, I 
believe, from your perspective, sunsetting the credit down the 
road. Could you respond?
    Mr. ZIOMEK. Well, I think that right away the evidence for 
us is very clear. We have been engaged in this market for quite 
some time. Since the credits were established, that market has 
accelerated tremendously for us. We have made decisions, 
including $4 million in a plant renovation, some advanced 
technology that is--environmental technology for one of our 
processes. We have also now done some innovation in the process 
of making the hose that goes into this market based on the 
future growth we anticipate. And we believe this kind of credit 
is going to allow that growth to happen.
    In fact, we are counting on this type of policy in the 
government to allow that--as I said before--this leap forward, 
so that we can continue to advance technology in our own 
business. Like I said, we have increased our employment in 
Springfield. I mean Massachusetts, manufacturing has been beat, 
beat to heck in Massachusetts. And we have had some winners 
there, but we have had more people leaving Massachusetts.
    So, to be able to do this, there had to be some 
technological improvements. There had to be something that we 
do that no one else can do in the world. And this kind of 
policy is allowing us to grow in that area, where we do have 
advanced technology in our product. And that is for the support 
of natural gas vehicles.
    And the five-year--the reason you only need five years is 
if you could get that infusion, you get that hockey stick, you 
have advanced far enough that you have a competitive market. We 
are not asking you to support this for the rest of our business 
lives. We are asking for a fairly short period of time here. 
And bottom line is I think it will be even more--it will be 
faster than that, and you will find that the jobs are going to 
multiply, based on this policy.
    Mr. NEAL. For you and for Mr. Littlefair, the Natural Gas 
Vehicle America has suggested that there are 12 million natural 
gas vehicles on the road, worldwide, and only 110,000 of them 
can be found in the United States. We are ranked 16th in the 
world, as far as natural gas vehicle deployment, behind 
countries such as India, China, and Bangladesh. Why?
    Mr. LITTLEFAIR. Well, part of the reason is some of those 
countries have put in place incentives to encourage it because 
they are importing oil, much like we do, and so they have 
natural gas and they want to move to natural gas vehicles. And 
we have certainly seen that in China, and we are seeing it--and 
China has just adopted a policy to build 4,000 natural gas 
vehicles and put in an L&G truck corridor. And we are selling 
equipment in China right now, natural gas fueling stations, and 
they are going at it, big time. So--and that is what is 
happening in South America. I mean Peru is doing the same 
thing.
    I mean we look like the odd man out. And it didn't happen 
here for a long time, because we had cheap oil. Well, we don't 
have cheap oil any more. And so they have put in place tax 
policy to move the industry along.
    Mr. NEAL. Hank, do you want to comment to that?
    Mr. ZIOMEK. Well, I agree. Again, what I said earlier about 
what happened in Venezuela, I know Hugo Chavez is a different 
person in the way we look at that, but if you look at all the 
countries in South America, every one of them put tax policy in 
place to drive their people to want to use natural gas. It is 
more environmentally responsible, and it also is cheaper for 
them, because it is more accessible. And now we are finding 
out, here in the United States, natural gas is probably way 
more accessible to us than oil.
    So, to me, it is kind of like--I have had a couple of 
people in your bodies, both Senate and House over the last 
couple of years--it is a no-brainer. That is the way I look at 
it. And it is going to advance employment.
    The other thing is we have to understand. By us being able 
to advance the technologies into this market, just like we have 
done in so many--aerospace, I mean the space shuttle, yes, 
okay, you can call that a big WPA project like somebody told me 
once, but that was--we needed that kind of a catalyst to get 
the kind of technologies to go to space.
    The same thing is true in an economy like this. We are 
developing new things. And we are just a hose manufacturer. 
Just imagine what is happening with tanks and valves, and 
everything else.
    So, bottom line is we just need that five years to get this 
thing going.
    Mr. NEAL. Thank you.
    Chairman TIBERI. Dr. Boustany is recognized for five 
minutes.
    Chairman BOUSTANY. Thank you, Mr. Chairman. I come from 
Louisiana, and my congressional district is on the Gulf Coast. 
And we are a leader in oil and gas production, we have got lots 
of pipelines, the Henry Hub, where gas prices are set for the 
market, I've got one of the largest strategic petroleum 
reserves in my district. So it goes on and on.
    In fact, in 2005, the newest L&G facility in the country 
was built in my district. And now they are retrofitting, 
planning a retrofit to export natural gas, which we would have 
never thought this, five years ago.
    And it is interesting, with the shale plays that have come 
online, now five shale plays, which not only hold the potential 
for gas, natural gas, but also for oil, we are seeing sort of a 
shifting environment with regard to our energy security in this 
country. And it is exceedingly frustrating to me to see that we 
don't have a strategy, going forward, for our country on energy 
security and to move us forward.
    And I think all of you were here--I am not sure with the 
previous panel--but when I made my comments I said, you know, I 
want tax reform, I want to clean up this Tax Code and simplify 
it. But at some point you have to make a decision, how do you 
move the ball forward and jumpstart the movement in the right 
direction for an energy strategy for this country, which means 
we have to have a transition.
    First, don't punish your current energy production. And, 
Mr. Kreutzer, I share your sentiments about expanding the 
access to our reserves, not increasing taxes, getting rid of 
this de facto moratorium on drilling, and in fact, a moratorium 
on areas that are currently off limits. We could do a lot for 
our country if we were to do all these things.
    So, I have a question. Mr. Kreutzer, I saw that chart 
looking at the volatility of prices. And at the very tail end 
it seems to be smoothing out a bit. We don't know what is going 
to happen. But with all the shale plays coming on, and 
everything else, I suspect--and given what these L&G guys are 
going to do in planning exports--that we should see some price 
stability. But we don't know that.
    And so, are you aware of any studies, analyses projecting 
what is going to happen with natural gas prices in this 
country? And I would ask the same question to my friend, 
Congressman Dooley, as well.
    Mr. KREUTZER. Well, the Energy Information Administration 
certainly makes their projections regularly, and they have been 
dramatically revising them because of the hydro-fracturing 
giving access to the shale gas. But they are also maybe revise 
them back a little bit because the USGS came out with their 
estimates of the likely natural gas reserves that are 
available.
    And I am not the geologist or the engineer. I am fully 
willing to believe we are going to have low natural gas prices 
that some of these experts tell us. That argues against needing 
subsidies to get people to shift over.
    I would also just briefly--because we are talking about 
energy independence and security--a previous panel member said 
he absolutely didn't think under anybody's lifetime, his 
grandchildren, we would have energy independence. And that is a 
bet that I might have gone with him a couple of years ago. But 
they have just found 20 billion barrels of petroleum and 
natural gas in Ohio. We are going to get three million barrels 
a day from resources in Texas that we didn't think we were 
going to get anything from.
    So, it is not inconceivable that just without any 
strategy--this is the markets working, looking to find this 
stuff, getting access right now on private lands--if we could 
get it on public, make it even better--that we are getting 
lower prices, access to more energy of conventional types.
    Chairman BOUSTANY. Thank you. Congressman Dooley, I have a 
lot of refineries in my district, as you are probably well 
aware. And I certainly do have that concern about what is going 
to happen with prices, and what is the impact on our energy, 
whether you are talking about upstream, downstream, and so 
forth.
    So, are you aware of any analyses projecting the concern 
you expressed with regard to natural gas prices? And could you 
provide those analyses to the committee?
    Mr. DOOLEY. Let me respond this way, is that we are not, as 
an industry--I mean we are not--it is not that we are for cheap 
natural gas. We are for competitively priced natural gas, and 
however you define that. And we are in a situation now where we 
are coming off a decade where we had great volatility in 
natural gas. And that is what, in large part, drove a lot of 
the chemical industry outside the United States.
    We have moved in the last--if you look at the five years, 
if you looked at a cost curve, five years ago the U.S. chemical 
industry was a high-cost producer. We were more expensive than 
even Western Europe. We compete with the rest of the chemical 
industry globally. They are primarily NAFTA-based, which is oil 
based. The break-even point for us was about one to six, with 
gas to oil. So when you had a $24 barrel of oil, we would have 
$4 gas. We would be in relative equilibrium. We didn't have 
that, and that is why we were at the high cost.
    Now we have a distinct advantage, and that is why you have 
our companies lined up to invest billions and billions of 
dollars in new capacity. But what we are concerned about is not 
solely about the market distorting and picking winners in the 
Nat Gas Act. If you look since 2000, power generation shifting 
from coal to natural gas has increased by 42 percent. Last year 
it was by seven percent.
    Now, we have a lot of promise. I was in Ohio yesterday at 
Governor Kasich's energy summit, touting the potential of the 
Utica and the Marcellus shale. There is--a lot of this natural 
gas isn't out of the ground yet, and we are making some of 
these projections. There is a lot of public opposition to how 
you can bring that out.
    So, we are kind of looking at what are all the 
uncertainties that are out there. There is the regulatory 
uncertainty in order to capitalize on all this natural gas. 
There is also market uncertainty, because of regulatory 
policies that might have even a more rapid shift from coal-
based generation to natural gas, and then we overlay another 
tax policy that drives demand for natural gas through tax 
subsidies, and that is what is our concern here.
    Chairman BOUSTANY. No, I appreciate that, because I am 
certainly concerned about our competitiveness, especially with 
the chemical industry in my state, and it is our second largest 
export, and we are fourth in exports among the 50 states right 
now.
    So--but if you have data, or an analysis, I would love for 
you to share----
    Mr. DOOLEY. Yes. No, we will--and you have been--we 
appreciate the openness of your office, and we will provide 
that information.
    Chairman BOUSTANY. Thank you, sir.
    Chairman TIBERI. The gentleman's time has expired. But Mr. 
Littlefair, you had a comment, I could----
    Mr. LITTLEFAIR. Well, I was just going to say--and I don't 
have it right here in front of me--but, Congressman, if you 
look at the 10-year strip price--and the former congressman 
knows this--I mean you have pretty low natural gas prices. I 
don't know if it ticks up--I don't believe it hits $6. I think 
you go out 10 years and it is $5. And so you are going to have, 
I believe, long, stable, relatively cheap natural gas prices.
    Chairman TIBERI. Mr. Lewis is recognized for five minutes.
    Mr. LEWIS. Thank you very much, Mr. Chairman. Thank you for 
being here. Good to see you, Congressman Dooley, again. 
Welcome.
    I have a question for each member of the panel. As a member 
of the Oversight Subcommittee, I am always concerned with how 
we administer tax policy. Our subcommittee works hard to make 
sure that government has the necessary tools to detect fraud 
and abuse of taxpayers' dollars. Could you tell me what kind of 
documentation you think the IRS service should use to verify 
peoples' claims for deduction under the Nat Gas Act?
    Mr. LITTLEFAIR. I am not an expert, Congressman, on this, 
though----
    Mr. LEWIS. Just try.
    Mr. LITTLEFAIR. A lot of our customers have, until they 
expired. So when a trucking company in the port of Los Angeles 
buys a truck, they basically provide the bill of sale, and that 
is what they use to verify that they have paid an incremental 
cost, and they submit that to the IRS. Same with fuel. So it is 
very similar to the fuel credits, very similar to what goes on 
today. You make that available to the IRS, and they can audit 
it if they don't believe you.
    So I don't think we have a very complicated way to monitor 
the effectiveness and the distribution of the tax incentive. In 
what I have seen it is through the sale of the vehicle, and it 
is through the sale of the fuel.
    Mr. LEWIS. Any of you want to respond?
    Mr. DOOLEY. Yes, I would just----
    Mr. LEWIS. Is there another recommendation you would have?
    Mr. DOOLEY. I would just suggest you could eliminate that 
as a concern by not passing the Nat Gas Act.
    [Laughter.]
    Mr. LEWIS. Oh. Wouldn't you consider that the easy way out?
    [Laughter.]
    Mr. KREUTZER. I guess not quite as jovial, I was going to 
suggest--yes, when you make the tax system more complicated, it 
makes compliance, honest compliance, more difficult and evasive 
activities easier. So the simpler the tax structure is, the 
better compliance we will have. The Nat Gas Act adds a lot of 
complexity for just a few pages. It is amazing. And in my 
testimony, my written testimony, I copied just one section, 
which is gibberish to most anybody.
    Mr. ZIOMEK. From my perspective, since we are really what 
we call tier two, we are way down the chain, as far as the 
customer. But as Mr. Littlefair said, it is with the purchase 
of the vehicle, they provide a receipt, and that is the way 
this is being paid for. I think it is pretty straightforward. I 
don't--I cannot profess to give you any more information on 
that, because I am not that close to that end of the curve 
here.
    So, my position is that it is very straightforward. You buy 
a vehicle, you submit the receipt, and that is how you get the 
credit. Thank you.
    Mr. LEWIS. I asked the panel just before you a basic 
question, and I would like to hear your thoughts on this same 
question. In these tough economic times, more and more people 
are saying we want to reduce the deficit. Many of them would 
prefer we do it by making deep and severe budget cuts. With 
this in mind, please answer the question for us.
    Do you believe the Federal Government has a role--and I 
mean not just a role, but a meaningful role--in accelerating 
the adoption of these renewable energy technologies? Why or why 
not?
    Mr. LITTLEFAIR. Congressman, I do. I look at the role of 
Congress--and I think one of the most important roles you have 
is to provide for the national security for the country. And I 
don't think anybody here today would say that energy--the 
reason we are talking about it is because energy is key to that 
security.
    And so, I think you do have a role to do it, and I think 
the tax policy is a perfectly legitimate way to go about it.
    Mr. DOOLEY. My response would be--is that our industry is 
one of the most innovative in the country. A lot of people 
don't realize, but the chemical industry has issued more 
patents than any other sector in our economy, about 1 out of 10 
patents. We benefit by broad-based tax policies that encourage, 
you know, investment in R&D. So the R&D tax credit, which is--
doesn't pick winners and losers, is across the board, is 
something that we think is very important.
    Mr. LEWIS. I don't want to cut you off, but my time is 
running out. But with the Nat Gas Act, do you believe that we 
would be picking winners and losers?
    Mr. DOOLEY. Absolutely. And----
    Mr. LEWIS. Do you believe we would be picking winners and 
losers?
    Mr. DOOLEY. Absolutely, in terms of consumers. And, you 
know, prior to joining the American Chemistry Council I was 
part of, you know, the Grocery Manufacturers. And we were 
concerned there, with our ethanol policy picking winners and 
losers----
    Mr. LEWIS. Let me just----
    Mr. DOOLEY [continuing]. Among consumers there.
    Mr. LEWIS. You know I come from a city like Atlanta. And 
when I am driving my own car, moving around the city, I see so 
many trucks: Coca Cola, UPS, Federal Express, and many others. 
I even see buses, part of our transit, saying, ``This vehicle 
is operated by natural gas.'' So seem like there is a movement.
    Mr. DOOLEY. Absolutely.
    Mr. LEWIS. There is a movement. So how do we catch up with 
this movement?
    Mr. DOOLEY. The movement is even----
    Mr. LEWIS. It is natural--it is cleaner, isn't it?
    Mr. LITTLEFAIR. Absolutely.
    Mr. DOOLEY. Yes. And, Congressman Lewis, what I would say 
is the movement is going to accelerate. It is going to 
accelerate----
    Mr. LEWIS. Should we be part of the acceleration? Should we 
be left behind?
    Mr. DOOLEY. We--you know, it is--our position is that when 
you have the market forces at work now, when we both would 
acknowledge that you are going to have relatively sustained, 
competitively priced natural gas, maybe in that $6 range, you 
are going to continue to see market forces encourage the 
conversion of fleets to natural gas. You don't need a tax 
subsidy to accelerate that at this time. It is not needed.
    And it does pick winners and losers. When I am competing--
my member companies are competing for a product, and they--you 
are enhancing, through tax policy, increased demand that 
increases--it is going to have an impact, to some degree, on 
increasing the price of that product, that works to the 
detriment of those folks that aren't benefitting from that tax 
subsidy. And that is what we conclude is picking winners and 
losers.
    Mr. LEWIS. Thank you, Mr. Chairman.
    Chairman TIBERI. The gentleman's time has expired. The 
gentlelady from Kansas is recognized.
    Ms. JENKINS. Thank you, Mr. Chairman. Thank you all for 
being here.
    As today's testimony points out, the cost of operating on 
natural gas is significantly cheaper, when compared to diesel 
fuel, about 40 percent cheaper on a per-gallon equivalent. With 
the price of diesel at $4 per gallon, this translates into an 
annual savings of $60,000, or roughly the same amount as the 
tax credits proposed by this legislation. And I believe, as 
Congressman Dooley has already pointed out, the savings can be 
covered in less than 15 months.
    So, it seems to me that the certainty the market needs is 
that of supply. While we have an abundant domestic resource in 
natural gas, it is under constant threat of halting or 
significantly curbing its production. So, Congressman Dooley, I 
have just a few questions for you in that regard.
    Would that certainty, together with the tremendous fuel 
savings, provide the market incentive to shift investments 
toward natural gas? And does this legislation do anything to 
ensure that we would have access to our natural gas? And 
finally, can you elaborate on what tax credits and other 
incentives currently exist for installing natural gas fuel 
infrastructure?
    Mr. DOOLEY. There was a lot of questions in there, but let 
me respond that, no, I don't think there is anything in this 
legislation that has any impact on encouraging the development 
of natural gas supplies and the production of it. And I think 
that is what we think, in terms of--you know, I personally 
think we are poised in an era that we are going to see a 
renaissance in manufacturing. But that renaissance is going to 
have to be built upon a foundation of a sound, comprehensive 
energy policy.
    Whether it was Congressman Kind or--I think it was a 
congressman as well that said, ``All of the above.'' It needs 
to be--I mean we have, basically, from our industry's 
perspective, you know, we are an energy-rich nation. We have 
chosen to make ourselves, you know, in some ways, dependent on 
imported oil because of our regulatory policies put in place, 
and those energy resources that we have put off limits. And 
that is why we are so excited about the shale gas and the 
natural gas supplies, and are committed to developing those 
regulatory policies that fully allow us to access those 
supplies.
    And this is where we have the benefit of not having to have 
a policy now to encourage the use of natural gas, because the 
marketplace is dictating that that is a good choice.
    Ms. JENKINS. Okay, that is fair enough. Thank you. 
Switching gears a bit, Congressman Dooley, I am sure everybody 
is aware the cost of fertilizer depends primarily on the price 
of natural gas, and natural gas costs represent between 70 to 
90 percent of the cost of producing ammonia, the building block 
of nitrogen fertilizers. And being from a farm state, Kansas, I 
am concerned about family farmers getting hit on both sides, 
one with decreasing support for agriculture programs, and also 
seeing a dramatic rise on their input costs.
    While seemingly a small issue, an affordable supply of 
natural gas is very important to the fertilizer industry, and 
on which 60 percent of the world's food supply also relies. 
Forecasts for 2011 show that fertilizer costs for wheat were up 
30 percent from the 2010 levels. The last time we saw a spike 
in natural gas prices, over two dozen ammonia plants in the 
U.S. were forced to close their doors.
    So, as someone familiar with the industry, Congressman 
Dooley, again, would you mind talking just a bit about your 
concerns regarding demand for natural gas on the ag industry?
    Mr. DOOLEY. Well, prior to coming to Congress, I would even 
have had greater concerns, because I was a farmer in the 
Central Valley of California. And so now it is my family that 
is still operating the farm that is concerned about the ability 
to access, again, affordable fertilizers, particularly NH-3 
ammonia, which is obviously an integral component to the 
production of many crops.
    And so, you know, this again is--you know, we are looking 
at not only an enhanced global competitive situation for the 
chemical industry, but also for our United States farmers, 
because of the ability to access natural gas at a price that 
looks, for the foreseeable future, to be very affordable and 
competitively priced. And that is why we have become very 
concerned--the fertilizer manufacturers and farmers, as well as 
chemical manufacturers--when we see Congress considering 
policies that are going to increase demand through tax policies 
or regulatory policies that will then drive up prices.
    And so, you know, we would--the fertilizer and a lot of the 
farm industry would share some of our concerns, again, about 
this interference in the marketplace that create market 
distortions that result in some constituencies benefitting over 
the expense of others.
    Ms. JENKINS. Okay, thank you. I yield back.
    Chairman TIBERI. Thank you. The gentleman from Connecticut 
is recognized for five minutes.
    Mr. LARSON. Thank you, Mr. Chairman, and thank you again 
for holding this hearing. And I want to thank our panelists, 
and I especially want to welcome my old friend and dear 
colleague, Cal Dooley. While I might not agree with everything 
that he said, I am glad that he is here, participating. In 
fact, all the panelists have done an extraordinary job, and I 
commend the chair and the ranking members for creating this 
kind of opportunity.
    I am--would have to say that I am more of a student of 
Thomas Friedman than I am of Milton Friedman as we get--evolve 
into these discussions. But I do think, at the heart of this, 
is something that is vitally important to the Congress.
    The winner here actually, if you talk about picking 
winners, was Mother Nature. She happened to create, in this 
instance, an opportunity for us to capitalize on. And to 
capitalize in on a time, frankly, when it has been very 
difficult for Congress to act at all. Again, I am very proud of 
the fact that there are 180 cosponsors of this bill, and 
growing. And why? Because Congress does need to act. Yes, we 
would all love to have a comprehensive energy policy. Yes, we 
would all love to have comprehensive tax policy. The fact of 
the matter is we don't.
    But where are we in agreement on? We are in agreement on 
the critical issues before us, as it relates to foreign policy 
that happens to be coupled by an environmental benefit, an 
economic benefit, in terms of jobs that we have heard about, 
and also in terms of an energy benefit. Finally we have a 
source that is abundant, accessible, and it is ours.
    And so, we have this enormous advantage. I agree with Cal 
Dooley. We are going to see the opportunity for an industrial 
renaissance. So, as other countries gather strategically and 
are looking to eat our lunch, shouldn't we be doing everything 
within our power to gain the advantage, recapture that 
industrial base, augment what we have already, and provide the 
opportunity to move forward?
    Friedman points out--Thomas, not Milton--that what we are 
doing here is exporting our dollars abroad, sending our money 
to fund the very countries and nations that are attacking our 
troops. It becomes a subsidy that is unthinkable, and 
consequences that we will live with for a number of years.
    And so, that becomes the rallying point, and also a point 
that Mr. Pickens has made testifying before this committee. The 
United States currently in negotiations globally, as it impacts 
everything, is on the outside looking in. It is time to put the 
United States back at the center of these discussions and 
negotiations that transpire globally. And that is why I think 
that it is so important.
    But I do think two things have to be underscored. And Mr. 
Littlefair, I would ask you to again review. In terms of 
national security and reducing our dependance on foreign oil, 
how much foreign oil would be displaced if the Natural Gas Act 
passed?
    Mr. LITTLEFAIR. Well, Congressman, over time we believe--as 
you know, over 5 years, we think you will be on your way to 
100,000 vehicles--actually, about 150,000 vehicles in the fifth 
year. But that is going to set you up to a point where you 
would be able to reduce Middle Eastern OPEC oil by 50 percent, 
which is about 2.5 million barrels a day. So it is significant.
    It doesn't make--the real answer to--the question on the 
earlier panel was can we be energy independent. I don't think 
you can be energy independent. Nobody else on that panel. But 
you can sure go a long way to make sure you are back at the 
table, and reduce your dependence. And so, reducing OPEC by 50 
percent is a hell of a first step.
    Mr. LARSON. And the other aspect of this, with 14 million 
Americans unemployed, the jobs here that you discussed. What is 
the jobs--what are the jobs that you see immediately available? 
And then long term--all the panelists----
    Mr. LITTLEFAIR. Sure. The ones that I have here--and I have 
them right in front of me, Congressman--direct jobs. And I know 
our company is building things right now, we are spending 
millions and millions of dollars, and we are hiring people. In 
the 5 years you get 100,000 direct jobs. That will happen in 
the first 2 years, 27,000 jobs in vehicle fuel system, hardware 
installation, production of fuel stations, production of 
plants. And then you get, you know, about 330,000 indirect 
jobs.
    I am not even counting what happens in the oil patch and in 
the gas patch. I am talking about, really, fueling stations and 
vehicles and the money that is spent. It is really 
breathtaking. I don't think there are that many kinds of deals 
out there before Congress right now that can generate that kind 
of jobs.
    Mr. LARSON. And is there any other source of energy that 
can get us there?
    Mr. LITTLEFAIR. No. And that is the other thing. You know, 
I sit here and get a little frustrated because I--look, I want 
there to be cheap gas for chemicals, and I want cheap gas for a 
fertilizer plant. But, you know, that assumes that we are just 
going to continue to import foreign oil. And we kind of act 
like that is fine, you know, let the market worry about that. 
Sixty-three percent of our foreign oil every day is being 
imported--or oil is being imported every day, and seventy 
percent of that goes to transportation.
    We now are the world's--you know, we have three times the 
amount of--if you take our natural gas today and convert it in 
oil, we have three times the amount of oil as Saudi Arabia 
does. And here, we are not doing anything about it. We are 
going to talk about exporting our natural gas. Now, wouldn't 
that be something? Export our natural gas and import more oil?
    Chairman TIBERI. The gentleman's time has expired. If 
anyone in the room doesn't know what your position is, Mr. 
Larson, I think they probably know objectively where you are on 
this piece of legislation.
    [Laughter.]
    Chairman TIBERI. The gentleman from New York is recognized 
for five minutes.
    Mr. REED. Thank you very much, Mr. Chairman, and I am glad 
to hear my colleague on the other side of the aisle join me in 
support of natural gas development in a clean and responsible 
way. And that is my question to this panel.
    You know, I come at this from a cosponsor to this act. I 
come at this from the founder of the Marcellus Shale Caucus in 
Congress. And I do believe that this shale development is a 
game changer when it comes to our energy policy. And so I was 
intrigued, and I am very excited to hear the immediate response 
to Mr. Lewis's question about this is a clean energy. I heard 
yes, yes, yes, yes, immediately.
    Yet there are some people that are out there that have 
indicated that, with hydrofracking and other issues and 
concerns, that it is not a clean energy, and that there are 
significant risks with it. Would anybody care to respond to the 
criticisms of exploring natural gas because of the 
environmental concerns about it?
    I guess, Mr. Kreutzer, you have----
    Mr. KREUTZER. No, I have said I would fully support 
hydrofracking. I think it is safe. I hope they go forward with 
it. But that is different than saying I think we should 
subsidize users of natural gas.
    Mr. REED. Understood.
    Mr. KREUTZER. We wouldn't have the hydrofracking if we 
depended entirely on government policies to run our energy 
policy--run our energy markets.
    Hydro fracturing technology was developed by George 
Mitchell at Mitchell Energy using his own money, no government 
subsidies. And so we didn't need an energy policy to get this 
huge increase in domestic energy. And that is why I support 
markets.
    Mr. REED. Yes. And I understand that point, and that is why 
I am kind of deviating, because all the good questions--when 
you go last, all the good questions are taken before you get an 
opportunity to ask the questions.
    [Laughter.]
    Mr. REED. So I am kind of deviating from the jurisdiction 
of this committee, because I do see a concern, or a potential 
barrier to the positive development of this resource that is 
floating out there.
    I hear the director of the EPA, Ms. Jackson, talk about 
hydrofracking and how she is going to try to get at it and 
regulate it at the federal level. Are there any concerns coming 
from any of the panelists as to any other threats to the 
potential development of natural gas, outside of the tax 
disagreement?
    Mr. DOOLEY. No, and that is where I made a statement 
earlier, is that we are making a lot of projections on a energy 
resource that is still in the ground, by and large. And we do 
have some concerns about the regulatory impediments that could 
develop and emerge that could preclude our ability to really 
develop this resource. You know, EPA is involved in a study, 
you know, and we hope that that will come out and will 
demonstrate, as the industry has great confidence, that we can 
extract this resource in a very environmentally-responsible 
manner.
    But we are also concerned, as an industry, when we are 
seeing local municipalities that are implementing more of land 
use restrictions that have the potential to impede the 
development of this resource. And there is obviously some 
questions on the constitutionality of some of those.
    But you know, the regulatory arena here is not entirely 
clear yet, which gives some uncertainty in terms of the ability 
to have the great confidence in the long-term supplies that we 
can actually transform into the chemicals that are critical to 
the entire manufacturing sector.
    Mr. REED. Excellent. With that, Chairman, I will yield 
back.
    Chairman TIBERI. Thank you. This has been a fabulous panel. 
We thank the four of you for your time today, and for waiting 
until now to give your testimony.
    This concludes today's hearing. Please be advised that 
Members may submit written questions to the witnesses. Those 
questions and the witnesses' answers will be made part of the 
official record. I would like to thank the participants of all 
three panels today for appearing. It has been a great 
discussion on energy ta
    Thank you so much. This hearing is concluded.
    [Whereupon, at 1:28 p.m. the subcommittees were adjourned.]

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