[Senate Hearing 112-107]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 112-107

                      SMALL NUCLEAR REACTORS AND 
                           ALTERNATIVE FUELS

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                                   ON


                            S. 512

                            S. 937

                            S. 1067



                                     

                               __________

                              JUNE 7, 2011








                       Printed for the use of the
               Committee on Energy and Natural Resources




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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana          JAMES E. RISCH, Idaho
MARIA CANTWELL, Washington           MIKE LEE, Utah
BERNARD SANDERS, Vermont             RAND PAUL, Kentucky
DEBBIE STABENOW, Michigan            DANIEL COATS, Indiana
MARK UDALL, Colorado                 ROB PORTMAN, Ohio
JEANNE SHAHEEN, New Hampshire        JOHN HOEVEN, North Dakota
AL FRANKEN, Minnesota                BOB CORKER, Tennessee
JOE MANCHIN, III, West Virginia
CHRISTOPHER A. COONS, Delaware

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel










                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bartis, James T., Senior Policy Researcher, RAND Corporation.....    34
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Chalk, Steven G., Deputy Assistant Secretary for Renewable 
  Energy, Office of Energy Efficiency and Renewable Energy, 
  Department of Energy...........................................     6
Colvin, Joe, President, American Nuclear Society.................    30
Kelly, John E., Deputy Assistant Secretary for Nuclear Reactor 
  Technologies, Office of Nuclear Energy, Department of Energy...     4
Lyman, Edwin, Senior Scientist, Global Security Program, Union of 
  Concerned Scientists...........................................    26
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     2
Siu, Brian, Policy Analyst, Natural Resources Defense Council....    42

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    61

                              Appendix II

Additional material submitted for the record.....................    77

 
              SMALL NUCLEAR REACTORS AND ALTERNATIVE FUELS

                              ----------                              


                         TUESDAY, JUNE 7, 2011

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
     The committee met, pursuant to notice, at 10:05 a.m. in 
room SD-366, Dirksen Senate Office Building, Hon. Jeff 
Bingaman, chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. OK. Why don't we get started?
    The purpose of today's hearing is to get testimony on 3 
bills.
    S. 512, which is the Nuclear Power 2021 Act. That's a bill 
that I introduced along with Senator Murkowski.
    S. 1067, the Nuclear Energy Research Initiative Improvement 
Act that Senator Mark Udall introduced. Senator Murkowski and I 
have co-sponsored that bill.
    S. 937, which is the American Alternative Fuels Act of 2011 
introduced by Senator Barrasso.
    Let me thank all the witnesses for testifying today. I want 
to particularly mention that 2 of our witnesses are New 
Mexicans.
    Deputy Assistant Secretary, John Kelly, from the Department 
of Energy's Office of Nuclear Energy, spent many years at 
Sandia National Laboratory.
    Mr. Joe Colvin, who is on our second panel, is the 
President of the American Nuclear Power Society and now resides 
in Santa Fe and well known here in Washington as the former 
President and CEO of the Nuclear Energy Institute.
    So I welcome those 2, but all witnesses today.
    Small nuclear reactors, those that are less than 300 
megawatts hold a promise of reducing the cost of nuclear plant 
construction. Proponents claim these reactors can utilize 
modular construction techniques such that plant sub assemblies 
can be built and assembled onsite thus reducing the 
construction costs. Large nuclear plant cost is a major issue 
where 2,000 megawatt plants exceed $14 billion. In addition, 
advocates believe that the small size makes it applicable to 
the chemical industry for process heat thus minimizing carbon 
dioxide emissions.
    The 2 nuclear bills before us today establish research 
programs to reduce the cost of construction using small 
reactors as well as authorizing 2 cost share demonstrations to 
license before the Nuclear Regulatory Commission. There are 
many opinions on the merits of these reactors. We look forward 
to the witnesses' comments on the legislation before us.
    We'll also hear testimony on S. 937, the American 
Alternative Fuels Act which Senator Barrasso, along with 
Senator Murkowski, Senator Manchin and Senator Coats on the 
committee, co-sponsored. This includes a number of provisions 
that would seek to increase our use of transportation fuels 
that do not come from petroleum. I'm glad that my colleagues 
are thinking about ways that we can continue our current 
trajectory of relying less on petroleum to fuel the 
transportation sector. Diversifying our transportation fuels is 
a clear benefit to our national and economic security.
    I am, however, concerned that some of the provisions of S. 
937 might have high environmental costs. So I hope we can focus 
on ways to enhance national, economic and environmental 
security simultaneously. Avoid polices that might sacrifice any 
one kind of security in pursuit of another.
    I have an additional concern that some of the provisions in 
S. 937 are clearly beyond the jurisdiction of our committee. 
Some of the topics covered in the bill are squarely within the 
committee's expertise and jurisdiction. Others, such as long 
term contracting authority for the Department of Defense and 
reassessing ``best available control technology'' under the 
Clean Air Act are clearly not in our jurisdiction.
    It's my view that it would not be appropriate for us to 
circumvent the committees that do have jurisdiction on those 
issues for which those committees expertise would be valuable.
    So let me stop with that and defer to Senator Murkowski for 
her comments.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman. Good morning. 
Thank you for the hearing.
    It's nice to see a packed house in the Energy Committee. 
We've got a line outside. So I think that that demonstrates the 
interest in nuclear and more specifically, the small modular 
reactors that we're discussing today.
    Let me start with small modular reactors. Clearly having 
drawn great support over the past few years. This technology 
has lower upfront costs, increased safety, the siting 
flexibility, potential for domestic manufacture and ability to 
incrementally add capacity as demand and grid capacity warrant, 
all arguments for giving real consideration to small modular 
reactors. I hope that they'll play a larger role in our policy 
conversations as we look at the role that nuclear power can 
play in meeting our energy needs and reducing our greenhouse 
gas emissions.
    The ongoing problems in Japan have certainly focused the 
world's attention on nuclear safety issues. SMRs have some 
significant benefits in this area. Because they are small 
reactors with a lower power level, SMRs present less of a 
potential radioactive source than conventional reactors. Small 
reactors can also be designed with the entire primary coolant 
system in a single integrated vessel eliminating some of the 
more severe accident scenarios.
    Additionally while economies of scale have continued to 
make larger reactors an attractive option, not every utility or 
operating site needs or even can handle 1,000 plus megawatts of 
new power. The ability to incrementally ramp up the amount of 
electricity generated to meet demand growth while staying 
within a grid's capacity is again, another positive for SMRs.
    Two of the bills we're considering today seek to further 
the research and development of SMRs. I believe that they're 
both good bills. I look forward to hearing our witnesses' 
perspectives on each of them.
    I'm also glad, Mr. Chairman, that we've got an opportunity 
to consider the third bill before us today, the American 
Alternative Fuels Act. I do appreciate the good work that 
Senator Barrasso has put into this bill as well as his emphasis 
on removing the government imposed barriers that are making it 
harder to develop alternative fuels. This bill as a whole has 
already drawn some bipartisan support from members of our 
committee. Two provisions from within it were unanimously 
accepted during a recent markup.
    I'm optimistic that our committee will continue to find 
common ground as we look at the remaining provisions of the 
bill. Foremost among those is its repeal of section 526 of the 
2007 energy bill which unnecessarily restricts the types of 
alternative fuels that the Federal Government, and 
particularly, our military, can pursue. Especially given the 
events of the past several months while our economy is still 
very, very weak, oil hovering near $100 a barrel and the 
stability of a foreign energy supply threatened by 
international unrest.
    It's clearly appropriate to prioritize our energy security 
and make greater use of our own abundant resources. A true 
energy policy should include everything that America has from 
biomass and natural gas to coal and unconventional oils. This 
will all advance our goal of greater energy security through 
reduced reliance on foreign energy.
    I'm glad that we have an opportunity to discuss these 
issues this morning, Mr. Chairman. I look forward to the 
comments from the witnesses. Thank you.
    The Chairman. Thank you very much. Let me just introduce 
our first panel.
    Dr. John Kelly is Deputy Assistant Secretary for Nuclear 
Reactor Technologies in the Office of Nuclear Energy in the 
Department of Energy.
    Mr. Steven Chalk is the Deputy Assistant Secretary in the 
Office of Energy Efficiency and Renewable Energy in the 
Department of Energy.
    So Dr. Kelly, why don't you start and then Mr. Chalk, we'll 
hear from you. Then we'll have some questions.

  STATEMENT OF JOHN E. KELLY, DEPUTY ASSISTANT SECRETARY FOR 
    NUCLEAR REACTOR TECHNOLOGIES, OFFICE OF NUCLEAR ENERGY, 
                      DEPARTMENT OF ENERGY

    Mr. Kelly. Great.
    Thank you, Chairman Bingaman, Ranking Member Murkowski and 
members of the committee. This is my first testimony before 
Congress. It's a particular pleasure for me to be discussing 
small modular reactors because these have been an area of great 
interest to me for some time.
    Before joining the Department I co-chaired an American 
Nuclear Society Special Committee that was looking into the 
generic licensing issues associated with small modular 
reactors. Over the course of the last 18 months this special 
committee, together with the Nuclear Energy Institute, the 
Nuclear Regulatory Commission and the nuclear industry has made 
great progress in forging the blueprint for the regulatory 
framework for small modular reactors.
    The Administration continues to view nuclear power as an 
important clean energy option. Small modular reactors are a 
promising and innovative technology that could give our 
utilities additional clean energy options and allow nuclear to 
penetrate the energy market more broadly. Secretary Chu has 
written, ``If we can develop this technology in the U.S. and 
build these reactors with American workers, we will have a key 
competitive advantage.''
    Small modular reactors are already inspiring American 
innovation Have the potential to significantly enhance U.S. 
competitiveness. There are several small modular reactor 
vendors pursuing both light water reactor and advanced 
concepts, and many utilities are interested in this technology 
to replace aging fossil plants.
    Earlier this year the Department released its fiscal year 
2012 budget request which included an expanded small modular 
reactor program that we originally proposed in FY 2011. The 
request for 2012 is $29 million for R and D and $67 million for 
design certification and licensing activities. The DOE request 
outlines a multiyear, $452 million program that would use cost 
share agreements with industry partners to complete design 
certification activities for up to 2 small modular reactor 
designs.
    The events at Fukushima Nuclear Power Plant have led the 
Nuclear Regulatory Commission to launch a 90-day review to see 
what lessons could be learned from the Japanese experience and 
applied to U.S. nuclear plants. I want to note that the 
designers of light water, small modular reactors have already 
placed great emphasis on inherent safety of these reactors. 
Because of their lower power level, SMRs require less cooling 
after shut down.
    Most designs incorporate passive safety features that use 
natural circulation to supply back up cooling in unusual 
circumstances. Some concepts even use natural circulation for 
normal operations requiring no pumps and providing an even more 
robust safety case. Last, SMRs can be sited underground which 
should improve their security profile and may enhance seismic 
safety.
    Turning to the 2 bills under consideration by the 
Committee, the Department has a few comments.
    S. 1067 gives broad authority to conduct research into 
small modular reactors as well as other connected issues.
    S. 512, the Nuclear Power 2021 Act would require the 
Department of Energy to carry out a program to develop and 
demonstrate 2 small modular reactor designs. If passed several 
features would be important to consider.
    The requirement that at least one of the designs be less 
than 50 megawatts is too restrictive in our opinion. Simply 
having an upper bound of 300 megawatt electric would be more 
appropriate. Any cost share design, development and licensing 
activity that uses a competitive procurement should let the 
marketplace establish the appropriate design parameters.
    The second point is the licensing effort should include 2 
different designs to promote competition.
    Finally the program should initially be focused on light 
water reactor technology because of the larger experience with 
design and licensing with such reactors.
    That concludes my formal remarks. Thank you for the 
opportunity to testify. I look forward to answering your 
questions and working with the committee to achieve the 
Administration goals of securing energy security while reducing 
the Nation's carbon emissions. Thank you.
    [The prepared statement of Mr. Kelly follows:]

  Prepared Statement of John E. Kelly, Deputy Assistant Secretary for 
  Reactor Technologies, Office of Nuclear Energy, Department of Energy
                              introduction
    Thank you, Chairman Bingaman, Ranking Member Murkowski, and Members 
of the committee. This is my first testimony before Congress and it is 
a particular pleasure to be discussing small modular reactors (SMRs) 
with you, as they have been an area of great interest to me for some 
time.
    Before joining the Department of Energy, I co-chaired an American 
Nuclear Society special committee that was developing solutions to 
generic licensing issues for small modular reactors. Over the course of 
the last 18 months, this special committee, together with the Nuclear 
Energy Institute, the Nuclear Regulatory Commission and the nuclear 
industry, has made great progress in forging the blueprint for the 
regulatory framework for small modular reactors. This progress 
demonstrates an increased interest in the licensing and 
commercialization of SMRs.
    The Administration continues to view nuclear power as an important 
clean energy option. Small modular reactors, specifically reactors that 
have an electrical output of less than 300 megawatts, are a promising 
and innovative technology. We see these smaller reactors as giving our 
utilities additional clean energy options and allowing nuclear power to 
penetrate the energy market more broadly. Secretary Chu has written 
that, ``if we can develop this technology in the US and build these 
reactors with American workers, we will have a key competitive edge''. 
SMRs are already inspiring American innovation and have the potential 
to significantly enhance U.S. competiveness.
    Since former Assistant Secretary Dr. Pete Miller testified to this 
committee in 2009 on the two bills we are discussing today, several 
developments have taken place. A little 2 over a year ago, we released 
our fiscal year 2011 budget request, which proposed a small modular 
reactor program with $40 million of funding. The proposal was to spend 
half of that funding on R&D efforts and half to initiate a competitive 
selection process to establish public-private partnerships to cost-
share design certification and licensing efforts with the selected 
winners.
    Earlier this year, the Department released its fiscal year 2012 
budget request, which included an expanded version of the small modular 
reactor program. The request for FY 2102 is $29 million for R&D and $67 
million for design certification and licensing activities. The DOE 
request outlines a multi-year, $452 million program that would use 
cost-shared arrangements with industry partners to complete design 
certification activities for up to two light water small modular 
reactor designs. There are several potential SMR vendors pursuing both 
LWR designs and more advanced concepts. Many utilities are interested 
in this technology to replace aging fossil plants.
    The events at the Fukushima nuclear power plants have led the 
Nuclear Regulatory Commission to launch a 90-day review to see what 
lessons can be learned from the Japanese experience and applied to U.S. 
nuclear plants. I want to note that designers of light water SMRs have 
already placed major emphasis on the inherent safety of these reactors. 
Because of their lower power level, SMRs have a much lower level of 
decay heat and therefore may require less cooling after reactor 
shutdown. Several designs incorporate passive safety features that 
utilize gravity-driven systems rather than engineered, pump-driven 
systems to supply backup cooling in unusual circumstances. Some 
concepts use natural circulation for normal operations, requiring no 
primary system pumps and providing an even more robust safety case. In 
addition, many SMR designs utilize integral designs for which all major 
primary components are located in a single pressure vessel. That 
feature results in a much lower susceptibility to certain potential 
events, such as a loss of coolant accident, because there is no large 
external primary piping. Lastly, most SMRs can be sited underground, 
which should improve their security profile and may enhance seismic 
safety.
Comments on S. 512 and S. 1067
    Turning to the two bills under consideration by the committee, the 
Department has a few comments.
    S. 1067 gives broad authority to conduct research into small 
modular reactors, as well as other connected issues.
    S. 512, the Nuclear Power 2021 Act, would require the Department of 
Energy to carry out a program to develop and demonstrate two small 
modular reactor designs. If passed, several factors would be important 
to consider:

   The requirement that at least one of the designs be less 
        than 50 MW is too restrictive; simply having an upper bound of 
        approximately 300 MWe would be more appropriate. Cost-shared 
        design development and licensing should be based on competitive 
        procurements and the market place should establish the 
        appropriate design parameters.
   The licensing effort should include two different designs.
   The program should initially be focused on light water 
        reactor technology based on the large amount of experience--
        both design and licensing--with such reactors.
Conclusion
    That concludes my formal remarks. Thank you for the opportunity to 
testify and I look forward to answering your questions and working with 
the committee to achieve the administration's goals of energy security 
and reducing the nation's carbon emissions.

    The Chairman. Thank you very much.
    Mr. Chalk.

 STATEMENT OF STEVEN G. CHALK, DEPUTY ASSISTANT SECRETARY FOR 
  RENEWABLE ENERGY, OFFICE OF ENERGY EFFICIENCY AND RENEWABLE 
                  ENERGY, DEPARTMENT OF ENERGY

    Mr. Chalk. Good morning, Chairman Bingaman, Ranking Member 
Murkowski and members of the committee. Thanks for the 
opportunity to appear before you today to discuss the 
Department of Energy's work on alternative fuels.
    The American Alternative Fuels Act of 2011, sponsored by 
Senator Barrasso, is still being reviewed by the Department and 
other Federal agencies including the Department of Defense and 
the Environmental Protection Agency. So we do not yet have a 
formal position on the bill. I will, therefore focus my 
comments today on the Department of Energy's efforts to 
research, develop and demonstrate the next generation of 
alternative fuels and electric vehicles.
    The transportation sector accounts for two-thirds of U.S. 
oil consumption and represents one-third of our greenhouse gas 
emissions. After housing, transportation is the second biggest 
monthly expense for most American families. The President 
recently outlined a portfolio of actions, which taken together 
could cut U.S. oil imports by a third by 2025. These include 
programs that would expand biofuels, put a million electric 
vehicles on the road by 2015 and increase the fuel economy of 
our cars and trucks. DOE's past, present and future investments 
are critical to lowering costs for American families while 
reducing our dependence on oil and enhancing our national, 
economic and environmental security.
    Making our cars and trucks more efficient is one of the 
easiest and most direct ways to reduce our petroleum 
consumption and save consumers money. We continue to work on 
improving existing engine technology that will help our cars 
and trucks travel farther using less energy.
    Domestically produced biofuels are also a key component to 
reach the President's goals. Domestic biofuels can provide a 
cost effective alternative to oil imports while creating 
business opportunities and jobs in the U.S., especially in 
rural areas. DOE develops programs that both increase the use 
of today's biomass technologies and support innovative research 
next generation biomass technology.
    An example of this is algae based biofuels, which are a 
very promising next generation technology that DOE is pursuing. 
Our current research on algae includes developing suitable 
strains and cultivation parameters, harvesting and extracting 
oils from algae biomass and including techno-economic analysis 
of different algae processes. We're confident that continued R 
and D in collaboration with relevant government stakeholders, 
including academia and industry will pave the way for 
significant commercial scale-up of algae-based fuels. DOE is 
also making investment in next generation biofuel technologies 
from a variety of other feed stocks including corn stover, wood 
waste and other materials. We're exploring ways of converting 
cellulose not just to ethanol, but to cost competitive, drop in 
substitutes for gasoline, diesel and jet fuel.
    Targeted investments under the American Recovery and 
Reinvestment Act have enabled us to invest in 29 different 
integrated bio-refineries to validate first of a kind 
technologies at pilot, demonstration and commercial scales to 
reduce risk to further investment. These projects are expected 
to generate at least 170 million gallons of advanced biofuels. 
Bringing more commercial bio-refineries online would help meet 
our ambitious RFS goals.
    The Administration also has a goal to put a million 
electric vehicles on the road by 2015. Meeting this goal will 
help establish the United States as a leader in clean energy 
technology through capitalizing on the ingenuity of American 
industry. In 2009 there were only 2, relatively small battery 
factories in the U.S. Over the next few years, through the 
Recovery Act investments, the U.S. will be able to produce 
enough batteries and components to support 500,000 plug in and 
electric vehicles per year. At the same time, DOE projects a 
drop in battery costs of about 50 percent by 2013 compared to 
2009.
    In sum, DOE's transportation portfolio will save consumers 
money, reduce our dependence on foreign oil, lower our 
environmental impact and keep America on the cutting edge of 
clean energy technologies enabling us to build and lead a 21st 
century clean energy economy. Thank you again for your 
opportunity to discuss these issues. I welcome any questions 
that you may have.
    [The prepared statement of Mr. Chalk follows:]

 Prepared Statement of Steven G. Chalk Deputy Assistant Secretary for 
  Renewable Energy, Office of Energy Efficiency and Renewable Energy, 
                          Department of Energy
    Chairman Bingaman, Ranking Member Murkowski and Members of the 
committee, thank you for the opportunity to discuss the Department of 
Energy's (DOE's) efforts to research, develop and deploy the next 
generation of alternative fuels and electric vehicles. I will also 
briefly discuss some areas of S. 937, the American Alternative Fuels 
Act of 2011, sponsored by Senator Barrasso. However, the Administration 
is still reviewing the bill and we do not have a position on the bill 
at this time.
Alternative Fuels
    The transportation sector accounts for approximately two-thirds of 
the United States' oil consumption and contributes to one-third of the 
Nation's greenhouse gas emissions\1\. After housing, transportation is 
the second biggest monthly expense for most American families\2\. As 
the President said on March 30, ``In an economy that relies so heavily 
on oil, rising prices at the pump affect everybody.'' Emphasizing that 
``there are no quick fixes,'' the President outlined a portfolio of 
actions which, taken together, could cut U.S. oil imports by a third by 
2025. These include programs that would increase the fuel economy of 
our cars and trucks and increase the use of nonpetroleum fuels. Both 
biofuels--including algae-based fuel--and electric vehicles are 
critical components of the President's strategy to lessen our 
dependence on foreign oil.
---------------------------------------------------------------------------
    \1\ http://www1.eere.energy.gov/vehiclesandfuels/pdfs/
vehicles_fs.pdf
    \2\ http://www.bls.gov/news.release/cesan.nr0.htm
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    Home-grown biomass can provide a cost-effective alternative to oil 
imports while creating business opportunities and jobs in the U.S. 
Increased use of biofuels also contributes to national and economic 
security by insulating our economy from damaging fluctuations in 
international petroleum prices. And biomass use contributes to national 
environmental goals, helping reduce both smog and greenhouse gas 
emissions.
    Within DOE, programs in the Office of Energy Efficiency and 
Renewable Energy (EERE), the Office of Science, the Advanced Research 
Projects Agency-Energy (ARPA-E) and the Loan Guarantee Program have all 
made investments in next-generation biofuels science and technology. 
DOE also works closely with the US Department of Agriculture (USDA), 
the Environmental Protection Agency (EPA), the Department of Defense 
(DOD), the Department of Transportation's Federal Aviation 
Administration (DOT/FAA) and other Departments and agencies to 
accelerate U.S. use of biomass resources.
    The Nation has ambitious goals for biomass energy through the 
Renewable Fuels Standards (RFS) established through the Energy 
Independence and Security Act of 2007 (Pub. L. No. 110-140). The RFS 
required the annual use of 9 billion gallons of biofuels in 2008 and 
expands the mandate to 36 billion gallons annually in 2022 (of which no 
more than 15 billion gallons can be conventional biofuels, and no less 
than 21 billion must be from advanced biofuels).
    The Navy has set a goal for renewable fuels to comprise 50 percent 
of its transportation fuel consumption by 2020. We are working closely 
with DOD to accelerate the deployment of pioneer plants that can 
support this ambitious goal.
    As we take steps to break down barriers to greater use of today's 
biofuels, DOE is also making investments in next-generation biofuels 
technologies. The American Reinvestment and Recovery Act of 2009 (the 
Recovery Act) accelerated investment in innovative biorefineries, 
providing funding for an additional 18 RD&D projects, in addition to 
the 11 projects previously funded in 2007 and 2008. Through these 
projects, DOE is helping scientists and entrepreneurs explore 
technologies for converting biomass products such as algae into fuel. 
To help accelerate the development of these technologies, President 
Obama announced a goal of breaking ground on four commercial-scale 
cellulosic or advanced biofuels plants over the next two years. To help 
meet this goal, the FY 2012 budget includes funding for a reverse 
auction in which cellulosic and advanced biofuels project sponsors 
would compete for additional support.
    With support for such plants, advanced conversion technologies 
could play a significant role in a commercial biofuels market within a 
few years. DOE is supporting two main pathways to convert biomass into 
biofuels in a cost-effective manner: (1) thermo-chemical conversion, 
based on pyrolysis or gasification, and (2) biochemical conversion 
using enzymes, fermentation, and other mechanisms, including algae. 
Over the longer term, research advances showing promise in the 
laboratory could greatly increase the productivity and reduce the cost 
of biochemical processes using engineered yeast, bacteria, and other 
organisms.
    ARPA-E is also undertaking a novel alternative storage approach in 
its Electrofuels program. ARPA-E is seeking ways to make liquid 
transportation fuels--without using petroleum or biomass--by using 
novel microorganisms to harness chemical or electrical energy to 
convert carbon dioxide into liquid fuels. This fuel can serve as a form 
of energy storage, ready to be used in vehicles, machines, or other 
pieces of equipment. The objective of this program is to develop a new 
paradigm for the production of liquid fuels that could overcome the 
challenges associated with current technologies.
Electric Vehicles
    Few technologies hold greater promise for reducing our dependence 
on oil than electric vehicles (EVs). In his 2011 State of the Union 
address, the President set a goal to have the United States become the 
first country with a million EVs on the road by 2015. Meeting this goal 
will help the United States become a leader in the clean energy 
economy, while capitalizing on the ingenuity of American industry. 
Manufacturing products needed for the clean energy economy will 
generate long term economic strength in the U.S., creating jobs across 
the country while reducing air pollution and greenhouse gas emissions.
    Department of Energy investments past, present, and future are 
critical to achieving this goal. In 2009, the U.S. had only two, 
relatively small, factories manufacturing advanced vehicle batteries, 
and produced less than two percent of the world's hybrid vehicle 
batteries.\3\ But over the next few years, thanks to investments from 
the Recovery Act in battery and electric drive component manufacturing, 
and electric drive demonstration and infrastructure, the U.S. will be 
able to produce enough batteries and components to support 500,000 
plug-in and electric vehicles per year. High volume manufacturing, 
coupled with battery technology advances, design optimization, and 
material cost reductions, could lead to a drop in battery costs of 50 
percent by 2013 compared to 2009, which will lower the cost of electric 
vehicles, making them accessible to more consumers. Further policies 
and research are needed to build on the work under the Recovery Act. 
That is why the Administration supports new efforts to help develop 
electric vehicle manufacturing and adoption in the United States 
through improved consumer incentives, investments in R&D to advance 
innovative technologies, and a competitive program to encourage 
communities that invest in electric vehicle infrastructure and 
regulatory streamlining.
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    \3\ http://www.whitehouse.gov/sites/default/files/
blueprint_secure_energy_future.pdf
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    ARPA-E's Batteries for Electrical Energy Storage in Transportation 
(BEEST) program seeks to develop a new generation of ultra-high energy 
density, low-cost battery technologies for long electric range plug-in 
hybrid vehicles and EVs. Improving the energy density of batteries will 
increase the range of electric vehicles, which the Department 
understands is of critical concern to consumers. If successful, new 
battery technologies developed under this program will help move 
electrified light-duty vehicles toward the ranges, performance, 
lifetime, and cost that will help shift transportation energy sources 
from oil to electricity drawn from the domestically powered U.S. grid. 
ARPA-E's objective is to fund high-risk, high reward research efforts 
that will promote U.S. leadership in this emerging EV battery market.
Loan and Loan Guarantee Program
    The Department of Energy's loan and loan guarantee programs are 
another key component to winning the clean energy future. As a 
representative of the Office of Energy Efficiency and Renewable Energy, 
I can only speak generally to the activities of the Loan Programs 
Office, which is a separate office within DOE.
    In the two years since this Administration took office, the Loan 
Programs Office has helped drive significant investment in our energy 
economy. Since March 2009, the Department has issued conditional 
commitments for loans or loan guarantees to 29 projects, 16 of which 
have reached financial close--with more to follow soon.
    DOE has provided (or conditionally committed to provide) over $30 
billion in financing to these 29 projects, which have total project 
costs of nearly $48 billion. The projects are spread across the 
country, and reflect an array of clean energy and automotive 
technologies, such as wind, solar, geothermal, transmission, battery 
storage, and nuclear. These projects include the world's largest wind-
farm; two of the world's largest concentrated solar power facilities; 
the first nuclear power plant to begin construction in the United 
States in the last three decades; and the world's first flywheel energy 
storage plant.
    Project sponsors estimate these 29 projects will create or save 
over 61,000 jobs, including construction and operating jobs.\4\ 
Cumulatively, they will generate over 25 million MWh of clean energy 
each year--enough to power over two million households, or nearly all 
the households in Maryland.\5\ And they will avoid nearly 17 million 
tons of CO2 annually--more than is produced by all of the 
approximately three million registered vehicles in Oregon.\6\
---------------------------------------------------------------------------
    \4\ Breakdown by program is as follows (based on Sponsor 
estimates): 1703: 5,210 construction, 1,340 permanent; 1705: 12,900 
construction, 3,470 permanent; ATVM: 5,700 created, 33,000 saved.
    \5\ Sources: EIA 2005 Residential Energy Consumption Survey, Table 
US8; U.S. Census Bureau, American FactFinder, 2010.
    \6\ Sources: U.S. Environmental Protection Agency, Emission Facts: 
Greenhouse Gas Emissions from a Typical Passenger Vehicle; U.S. 
Department of Transportation, Federal Highway Administration, Highway 
Statistics 2008, Table MV-1 (December 2009).
---------------------------------------------------------------------------
    Under the Section 1703 program, DOE has offered conditional 
commitments for four projects so far, including one nuclear power, one 
front end nuclear, and two energy efficiency projects, which amount to 
just over $10.6 billion in total government supported financing, 
including capitalized interest. Under 1705, DOE has issued conditional 
commitments to 21 projects representing approximately just under $11.8 
billion in financing, including capitalized interest. In addition, a 
significant number of projects are sufficiently far along in the due 
diligence process that we have issued a working draft term sheet and 
are in active negotiations with the applicants. LPO estimates that 
these projects, if they ultimately reach financial close, will utilize 
all of our remaining credit subsidy appropriations.
    To date, DOE has committed and closed five ATVM loans, totaling 
over $8.3 billion, which will support advanced vehicle projects in 
eight states. We anticipate making a number of significant additional 
ATVM loan commitments in the coming months.
    It is important to remember that the loan programs are not grant 
programs; loans provided or guaranteed by the Department must be 
repaid. We review projects on a competitive basis, and we do not fund 
every eligible project. We ensure that the loans we support meet our 
statutory requirement of having a ``reasonable prospect of repayment.'' 
Every project that receives financing first goes through a rigorous 
financial, legal and technical review process--similar to, and in some 
ways more comprehensive than, what a private sector lender would 
conduct--before a single dollar of taxpayer money is put to work. This 
due diligence and underwriting process takes thousands of man-hours to 
complete for each transaction, particularly as the projects in 
questions are large, complex, and require the coordination of multiple 
parties. The Department is committed to processing transaction as 
expeditiously and transparently as possible, while ensuring that 
taxpayer resources are prudently deployed and properly safeguarded.
GENERAL COMMENTS ON S. 937 THE AMERICAN ALTERNATIVE FUELS ACT OF 2011
    The American Alternative Fuels Act of 2011 seeks to promote and 
understand the use of alternatives to conventional petroleum fuels. The 
bill seeks to provide additional incentives for algae-based fuels, 
examine the emissions impacts of electric vehicles, expand contract 
authority for the Department of Defense to purchase alternative fuels, 
and implement reforms to Department of Energy's Loan Programs. As I 
mentioned previously, these provisions fall under the jurisdiction of 
multiple federal agencies, including the Department of Energy, 
Department of Defense, and the Environmental Protection Agency.
    As the Department of Energy continues to review sections of the 
legislation impacting the Department, various DOE programs are 
continuing to advance the primary goal of the legislation--to reduce 
our oil dependence.
    For instance, DOE believes that algae based fuels may be an 
attractive piece of a long term strategy for biomass production. Algal 
biofuels have the potential to meet a portion of the renewable fuels 
mandate. Some advantages algal biofuels may have over other biomass 
feedstocks include higher per-acre oil productivity, use of non-arable 
land, water input flexibility, mitigation of greenhouse gas emissions 
and the production of high grade fuels and valuable coproducts.
    As such, DOE is pursuing the development of algae-based biofuels 
through funding from the Office of Biomass Programs. DOE continues to 
support the technical development of algal fuels through focused R&D. 
Through the efforts of several consortia, drawing upon private sector, 
academia, and industry stakeholders, scientists and engineers are 
making advances in mitigating the remaining economic and technical 
barriers to achieving the full potential of algal biofuels. Currently, 
research on algae includes developing suitable algal strains and 
cultivation parameters, harvesting and extracting oils from algal 
biomass and techno-economic analysis of different algal biofuels 
processes. However, because the Renewable Fuel Standard program is 
administered by the Environmental Protection Agency, DOE cannot speak 
to any possible implementation challenges associated with using the 
Renewable Fuel Standard to create incentives for algal biofuel 
production.
Summary
    The President recently set a goal of reducing petroleum imports by 
one third by 2025. Together with increased fuel economy in vehicles, 
acceleration of electric vehicle deployments, and expanded production 
and use of biofuels this goal is well within reach. The Department of 
Energy welcomes the opportunity to continue working with the committee 
to advance our energy goals. I would be happy to answer any questions 
the committee may have.

    The Chairman. Thank you both very much.
    Let me start with some questions of you, Dr. Kelly. We have 
a document here in the briefing materials that I got from the 
World Nuclear Association. They list what they describe as 
medium and small reactors with development well advanced. They 
list 16 of them around the world that they claim have 
development well advanced.
    What is the timing for the work that the Department of 
Energy is pursuing here? I'm concerned, I guess, that we may 
just be studying this issue and one of these days wake up and 
find that there's a version of a modular nuclear reactor 
available for sale produced in China and somewhere else that, 
sort of, steals the march on any U.S. company that might be 
interested in this. What is the timeframe and then where do you 
see us as far as being up with these other 16 advanced 
developments?
    Mr. Kelly. Great. Thank you.
    Over the course of the last year we've been conducting 
market research into what is the viability of vendors, 
utilities, of all stakeholders in this market. What we conclude 
at this point is that we believe that within the decade we 
could have small modular reactors of the light water version up 
and operating in the U.S., designed and built by U.S. 
companies. We see multiple vendors available. Utilities are 
interested. So we see that as the front runner in terms of 
getting the technology from design to actual production of 
electricity.
    Longer term we have a program, as outlined in our budget 
request, to investigate advanced concepts which would have 
greater benefit. We see that timeframe for deployment of those 
systems out a little bit longer in time, maybe 15, 20 years.
    The Chairman. But you don't believe that the development of 
these modular nuclear reactors and the sub assemblies and all 
of that is likely to occur more rapidly elsewhere, outside the 
country?
    Mr. Kelly. In my opinion, no at this point. We believe that 
any design would need to go through an extensive licensing 
review which would take several years. Some of these have begun 
in Korea, for instance. But we're awaiting the outcome of their 
work. But we intend, with the program that we propose, to begin 
that effort as soon as possible.
    The Chairman. Now the cost sharing that we have contemplate 
in this legislation, the way I understood it, this would be a 
useful thing because it would not only provide resources and 
give some advantage to the 2 models that were chosen, it would 
also give the Nuclear Regulatory Commission some direction as 
to where they could go as far as approving licenses for modular 
nuclear reactors. Is that a correct understanding or why do you 
think we should include cost sharing and have the government 
pay part of the cost of this thing?
    Mr. Kelly. In our market survey, what industry told us is 
that the regulatory risk of actually taking these new and 
innovative designs through the process is something that they 
thought as a significant risk. Felt it appropriate for the 
government to help reduce the risk of market entry for these 
new designs. At the same time they are very interested in cost 
share.
    So we already understand that they are investing their own 
resources to further design work. So they're willing and able 
to enter into a public/private partnership with no cost share 
agreements.
    The Chairman. OK.
    Mr. Chalk, let me ask you just with regard to this S. 937. 
There's a suggestion that algae based fuels should receive 
triple credits under this renewable fuel standard that we 
already have on the books. If that feed stock is using carbon 
that has already been used in an energy production process, 
that's an interesting concept.
    Could you give us a sense of how likely it is that 
commercial scale, algae based, biofuel facilities will be 
located with power plants. I guess that would be a precondition 
to this happening, right?
    Mr. Chalk. Yes, sir. Algae provides a great opportunity to 
use CO2 from power plants before we emit it into the 
atmosphere. Basically to recycle that CO2.
    Algae feeds off CO2 and sunlight, and you can 
make diesel fuels from algae that are very similar to petroleum 
based diesel fuel you see today. Algae requires lots of 
CO2 in order to fatten up and produce these lipids 
or these oils.
    Location of a nearby power plant would be critical to 
affordability of an algae facility. If the CO2 has 
to be shipped very long distances obviously it's going to 
increase the costs of these fuels. So co-location or somehow 
liquefying or solidifying the CO2 would be very 
important.
    The Chairman. OK. My time is up.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    Mr. Kelly, you mentioned the licensing issue. I think you 
used the word that it would be an extensive process perhaps 
taking several years. Can you just outline some of the 
challenges or the hurdles that we're facing with the licensing 
of these SMRs?
    Mr. Kelly. If we're talking about light water technology 
we, in our discussions with the Nuclear Regulatory Commission, 
believe that they have a lot of knowledge already about that 
technology. So that barrier is fairly low. There are some 
unique features.
    Senator Murkowski. So when you say that's fairly low does 
that mean that we could move through the licensing process in a 
relatively expedited timeframe?
    Mr. Kelly. NRC has their processes, as we've discussed it 
with them. So they would lay out all the sections of the design 
to be evaluated. They would come up with a time table.
    What I think we would achieve is high confidence in the 
schedule for the licensing process because of the maturity of 
the technology. That, in principle, should lead to an expedited 
licensing process. So we're going in, I think, with significant 
knowledge as opposed to more advanced technologies which might 
have some technical uncertainties that would need additional 
research to satisfy the regulator.
    Senator Murkowski. But what you're saying then is that it 
is only as to the light water reactors that we might anticipate 
a more expedited process?
    Mr. Kelly. Exactly. So we view our R and D program, the 
component that we've outlined, as developing the information 
that would eventually get other types of SMRs on par with light 
water reactor technology. But we see that a little bit further 
out in time.
    Senator Murkowski. Alright. I think what we continue to 
looking for is some level of certainty as to this process and 
the timelines and appreciate all that goes with it. But the 
hope is that there can be some element of standardization, if 
you will, through the design certification.
    Let me ask you, Mr. Chalk, you know, one of the big 
component pieces in Senator Barrasso's bill is the repeal of 
section 526 under the Energy Independence and Security Act of 
2007. You omitted either in your testimony to reference that at 
all. I do understand that you say that the Administration has 
taken no formal position.
    Can you give me a little bit more about where you guys 
might be on section 526?
    Mr. Chalk. Yes. I can give you some insight from the 
Department of Energy. First of all, section 526 of EISA is on 
the procurement and acquisition of alternative fuels, and 
basically says that no Federal agency shall contract or buy an 
alternative or synthetic fuel unless its greenhouse gas profile 
is better than conventional fuels.
    We view this as very important if we're going to address 
climate change. We feel that the Federal Government needs to 
take leadership on this issue, and repealing section 526 would 
reverse that leadership.
    In fact, a couple weeks ago, the President directed all the 
Federal agencies to purchase 100 percent alternative fuel 
vehicles, hybrids or EVs by 2015, and going forward to work 
with private companies to upgrade their large fleets to 
alternative fuels vehicles. So we feel----
    Senator Murkowski. What might this mean to further energy 
sources from Canada? I met with a group of Canadian producers, 
no more than a couple weeks ago, and this is absolutely their 
No. 1 agenda item. I think we all recognize that in certain 
parts of Canada the product that we get whether it's from 
Alberta or what might be coming from the Keystone pipeline. 
This is pretty significant to us in terms of supply.
    Mr. Chalk. Yes, I agree. When we look at the attributes we 
want, in our fuel supply, one thing we want is diversification. 
We don't like petroleum. We don't want to be 95 percent 
dependent on one feed stock. So diversification is really 
important.
    The more we rely on domestic and North American fuels, the 
less we have to rely on fuels from sensitive countries like 
some in the Middle East. But the environmental profile of fuels 
in terms of their criteria emissions, greenhouse gas, emissions 
and overall sustainability criteria like water use are just as 
important. A part of the attributes that we seek and we're 
agnostic on feed stock or the technologies that are used, but 
we want alternative fuels to meet those environmental 
attributes, and lower greenhouse gases is one of the criteria 
that we feel is important when we look at an alternative fuel 
in terms of diversification, if it's domestically produced, 
it's environmental impact and energy security.
    Senator Murkowski. From what you've said I don't argue with 
diversification. But I do think that we recognize that when it 
comes to meeting our energy needs it is important that we focus 
on North America. Canada is a good, strong neighbor. They've 
been helping us out and providing us with the resource that we 
desperately need. The concern that with section 526 staying in 
there we severely limit our options, I believe.
    Mr. Chairman, I've got other questions, but I will defer to 
later.
    The Chairman. Very good.
    Senator Franken.
    Senator Franken. Just to follow up on Senator Murkowski's 
question about Canadian oil which is from the Tar Sands, has a 
higher greenhouse gas and the concern that she heard from 
Canadian producers regarding this bill and this exception. 
Doesn't that oil just sort of become part of the entire world 
oil supply? Isn't it hard to distinguish that oil?
    I mean, doesn't that become sort of a mute point?
    Mr. Chalk. Yes, it's a commodity, so it becomes part of the 
world's supply.
    But this particular law is on which alternative fuels 
Federal agencies can purchase. .
    Senator Franken. OK.
    Do we have a commercial scale algae based fuel plant 
anywhere?
    Mr. Chalk. Yes and no. We have different types of algae.
    Senator Franken. First yes and then no.
    Mr. Chalk. We have what we call dark and light algae. The 
Solazyme process is a dark process. You actually feed the algae 
sugar. The algae is not really a feed stock, but it is somewhat 
at a production level.
    The sugar then makes the oil with the algae, and you get 
the oil out of the algae. Solazyme is working with the 
Department of Defense. So that process yields hundreds of 
thousands of gallons per year and is somewhat commercial.
    The light processes are those you typically think about, 
where algae actually is a feed stock, where it's collecting the 
sunlight and you're feeding it CO2 typically in a 
water system. It's really aquaculture. We don't have that at 
acommercial scale yet.
    We have a couple companies under contract at DOE. One is 
Sapphire, in New Mexico, and the other is Algenol. They're 
scheduled to have pilot facilities completed next summer. So 
hopefully after next summer we'll be able to assess where to go 
in terms of commercial scale.
    Senator Franken. We're getting like the first commercial 
cellulosic in Emmetsburg, Iowa, right?
    Mr. Chalk. Yes.
    Senator Franken. That that would--so I have just some 
concern about the algae being, you know, getting 3 times the 
credit in a sense of other feed stocks.
    Mr. Chalk. Yes. In the bill I don't understand the 
rationale for the 3 times.
    Senator Franken. Yes, I don't.
    Mr. Chalk. We would say that algae is a great pathway 
because it doesn't compete with cellulosic ethanol. Cellulosic 
ethanol is probably, in terms of traditional algae at least 5 
years ahead of traditional algae in terms of technical 
maturity. We're not quite there on the light algae that's 
produced from light and CO2.
    Senator Franken. Can I ask you about coal to liquids 
technology which would be a beneficiary to the repeal of 
section 526? What are your thoughts either from a personal 
standpoint or on behalf of the Administration on CTL as a 
technology? Is it viable any time here soon? What are the pros 
and cons of it?
    Mr. Chalk. Unfortunately that's not under my purview. It's 
in the Office of Fossil Energy.
    Senator Franken. OK.
    Mr. Chalk. So I would like to get back to you on the 
record.
    Senator Franken. Sure.
    Mr. Chalk. On the greenhouse gas profile and so forth on 
that.
    [The information referred to follows:]

    Coal to liquids (CTL) is a commercial process which converts coal 
into liquid transportation fuels, such as diesel, gasoline, and jet 
fuel. These coal-derived liquid transportation fuels are compatible 
with our current petroleum-based fuel distribution infrastructure.
    According to the Energy Information Administration's (EIA) Annual 
energy Outlook 2011 (AEO2011) Reference case, world oil price is 
projected to be just under $125/barrel by 2035 and West Texas 
Intermediate (WTI) spot price as of July 14, 2011, was approximately 
$95/barrel. Although studies indicate CTL using today's technologies 
would be profitable at this oil price, industry is best positioned to 
evaluate commercial-scale market opportunities for CTI.
    Technology currently in the demonstration/deployment stage such as 
carbon capture and storage (CCS) technology, if applied to the CTL 
project, would reduce lifecycle emissions of the fuel to roughly 
equivalent to conventional petroleum. A co-feeding coal and biomass to 
liquids (CBTL) concept is another strategy to reduce greenhouse gas 
(GHG) emissions that is currently being explored. Implementing CCS 
technology and increasing the percentage of biomass in the feed can 
reduce the life cycle GHG emissions of the fuel to below the petroleum 
baseline.

    Senator Franken. Dr. Kelly, how does a modular nuclear 
reactor compare to like that in a submarine? A submarine is how 
many megawatts, like 150 or something?
    Mr. Kelly. You know, I actually don't know the design 
details of the naval submarines. But they are small. I believe 
on the same order of magnitude as the SMRs that we're talking 
about now.
    Senator Franken. OK, so these modular reactors, how do they 
compare in terms of cost effectiveness per megawatt compared to 
the standard, large nuclear reactors? I understand there's more 
flexibility here.
    Mr. Kelly. Right. So what the designers have taken on is 
the question of how to reduce the initial capital costs for 
these reactors by through design.
    Senator Franken. Sure.
    Mr. Kelly. So they've designed them smaller. At the same 
time, they've paid particular attention to the safety case. So 
they've made them very safe with lots of cooling, natural 
processes and secure. So they've been thinking about the 
underground siting. So they've tried to put together the main 
attributes we're interested in: cost, safety, security, 
together in the design.
    But to get the competitive advantage they really are going 
to have to rely on factory fabrication, mass production. So 
what comes into play here then is this economy of scale verses 
economy of mass production. The naval experience though, points 
us in the direction that by going to factory fabrication you 
can actually lower the cost as you begin to build more units. 
You learn through that process how to reduce labor, how to use 
more automation, etcetera.
    Our initial studies and again, these are very preliminary, 
indicate that the economy of mass production is very feasible 
with these designs. We believe we can achieve a parity with the 
large plants on a per megawatt basis.
    Senator Franken. Thank you. My time is up. Thank you, Mr. 
Chairman.
    The Chairman. Senator Portman.
    Senator Portman. Thank you, Mr. Chairman and thank you, 
gentlemen, for being here this morning.
    I have some follow up questions regarding the small modular 
reactors. To me this is really exciting technology. It also 
happens to be a place where Ohio plays a role because of our 
current role in the research development and also the supply 
chain should this become something that utilities take up.
    I would say from what I've heard, Dr. Kelly, it is 
different in kind also because with the current plants, 
typically they're built onsite as compared to have been built 
in a factory and then shipped to the plant in parts which is 
part of your comments to scale, I guess. That you can create 
efficiencies through the way in which it's produced. Is that 
accurate?
    Mr. Kelly. That's correct, sir. Having a controlled 
environment for fabricating critical modules or subcomponents 
and then doing just the final assembly at the site, we believe 
will significantly reduce the construction costs. That's part 
of it.
    The other attribute is the quality level. That having 
welding done in a controlled environment and doing the 
inspections while it's being done can actually then improve the 
quality of the product and eliminate the need for rework that 
is sometimes found in onsite construction.
    Senator Portman. Yes, almost an assembly line type example, 
technique.
    Mr. Kelly. Exactly.
    Senator Portman. Going back to our manufacturing roots in 
Ohio and elsewhere.
    The second thing that I've heard is that in terms of the 
cost, that by having a serial design, in other words, being 
able to line up plants over time, reactors over time, utilities 
would be able to offset some of the costs by having a revenue 
stream including the costs of some of the loan guarantees that 
are being discussed. Is that accurate?
    Mr. Kelly. That's accurate, so that a revenue can be 
generated while you're still building out the multi-modules and 
in that type of scenario. The other attribute is that the 
licensing, once you have the design certified, it lasts for a 
long time. Then so as long as you're building replicas of an 
initial model the licensing process is significantly 
simplified.
    Senator Portman. In terms of the licensing process light 
water seems to be the way to go because it would be easier to 
get it through the NRC. Is it the right way to go 
technologically?
    Mr. Kelly. I think for electricity production given what we 
have today that is a true statement that it is the best way to 
go. We understand the fuel and licensing the fuel are a big 
part of the licensing effort. But if we think longer term we 
may want these small reactors in more remote locations, have 
waste management missions, long live core, export markets, 
these types of things. That's where we see the R and D program 
coming into play to help develop the technology to enable those 
additional missions for SMRs.
    Senator Portman. Let's talk about the export potential for 
a second. It seems to me this is one area where the United 
States is a little bit ahead of some of our competitors in 
terms of the technology. I would say that in the same it's not 
true since we haven't moved forward with nuclear power for such 
a long period of time with regard to other aspects with our 
nuclear technology.
    Do you think that's accurate and do you think there's a 
potential to export this technology and this expertise abroad?
    Mr. Kelly. Again, this is based on information that we've 
collected over the last year. But in our opinion, there have 
been a number of designs that have been put forward over the 
last 10 to 15 years for small modular reactors. Many of those 
have not gotten traction.
    But we now see, at least for these light water reactors, 
significant investment by private companies in those designs. 
So we believe the time is ripe to pursue forward with the 
technologies.
    Senator Portman. Do you see export markets?
    Mr. Kelly. There are certainly significant interest 
internationally. The IAEA has a committee that has polled 
countries and there's significant interest. It's primarily 
because the electricity demand may be smaller. Their 
infrastructure for the plants may be more limited. So there may 
be a much better match between the smaller output of these 
plants and the indigenous infrastructure in those countries.
    Senator Portman. This just seems to be a great opportunity 
for us. I think there are members of this committee who are 
interested in nuclear power are really interested in having 
this move forward. I notice in your testimony you talked about 
the $96 million in FY 2012 for the program. You also said that 
there's a DOE request for a multiyear, $452 million program 
that would be a cost share arrangement with private industry 
partners to complete some of these design certifications and so 
on.
    In your opinion, Dr. Kelly, is this adequate? Is this 
funding outline adequate to be able to do what you think is 
necessary to have these SMR demos up and deployed and going 
forward?
    Mr. Kelly. We based our cost estimates on input from 
industry. You know, assuming that there's a significant cost 
share contribution from industry for this effort we think that 
we could get through the design certification up to 2 reactors 
with that funding level.
    Senator Portman. What date do expect these SMRs to be 
operational with that funding level?
    Mr. Kelly. We're targeting operation within a decade 
perhaps as early as 2018, 2019. We're looking at a 4 to 6 year 
process for the design and licensing and then construction 
could begin after that.
    Senator Portman. My time is up. Thank you, Mr. Chairman. I 
have additional questions for the record. Thank you, Dr. Kelly.
    The Chairman. Thank you.
    Senator Landrieu.
    Senator Landrieu. Thank you and following up on Senator 
Portman's line of questioning which was excellent and Dr. Kelly 
thank you for being here.
    The industry of course, based on the packed house today and 
the line outdoors and the meetings that have been requested of 
the members of this committee, seem to be extremely interested 
in accelerating the timeframe of this effort. There seems to be 
a tremendous amount of promise for these small nuclear 
reactors. I know we've been pressing you for dates and you keep 
saying some time in the next 10 years.
    Can you be a little bit more specific? My second question 
is, is there any barrier that exists that you can identify that 
Congress could eliminate for you or is it something that you 
and staff need more of or less of to accelerate this process? 
Because we would like the United States to be the leader and we 
see a real opportunity here.
    Mr. Kelly. Right. In terms of the timeframe so at this 
point we do not have any contracts with any industrial firms 
because our program has not yet been initiated. So, but we have 
gotten information from them in terms of what they think.
    Senator Landrieu. Why hasn't the program been initiated 
yet?
    Mr. Kelly. It was requested in 2011 and the continuing 
resolution was passed but as a new start it still needs 
Congress to approve that as a new start program in FY 2011.
    Senator Landrieu. So have we not approved it, Mr. Chairman?
    The Chairman. So as I understand what you're saying is that 
there's no money in the continuing resolution to begin the 
program. Therefore you're going to have to wait until we do our 
appropriation for the next fiscal year and hope that----
    Mr. Kelly. No, it's been requested that this program be 
allowed to be initiated this year. But it's within discussion 
with all other type of new start activities.
    Senator Landrieu. That's what I'm confused about. I mean, I 
think we believe, at least I believe, let me just speak for 
myself, that we've given you the green light. We want to 
provide the money. We want you to go, green light, fast.
    I just keep hearing this, sort of, well, we don't know when 
we'll get to it. We've had competing. So try to be a little bit 
more clear about your intentions and the Secretary's intentions 
to accelerate what we think is a very promising program.
    Mr. Kelly. Right. So we think the program that we've 
outlined will accelerate the deployment of SMRs relative to 
what industry would do on its own. So the cost share component 
should be able to bring in by a couple of years what we think 
industry would be able to do with private investments.
    But nevertheless, going through the regulatory process 
which we think is a 4 to 6 year type of effort, allows us then 
to have confidence in the safety and security of these units. 
At the same time gives these designs a comparative advantage 
worldwide. It is recognized around the world.
    Senator Landrieu. We appreciate that. I'm all for not 
picking one design and moving forward. But I'm also for giving 
industry some signals as to what designs could potentially be, 
you know, be accelerated more quickly because it's almost like 
a chicken or the egg.
    I mean, there's a lot of money out there willing to be 
invested in a promising technology. But for industries to be 
designing 50 different types when the government may be looking 
at only 1, 2 or 3, I don't know. I'm going to learn more about 
the details of this.
    But I understand there are 2 potentially promising maybe 
even more designs. But again, it's sort of a partnership that 
has to work. You're waiting for industry. They're waiting for 
you. Then our taxpayers are, you know, paying more for 
electricity than they need to be.
    Mr. Kelly. Right.
    Senator Landrieu. So I'm going to be pressing for some more 
specifics on that.
    Let me move to algae really quickly. I've been having some 
great visits down to Louisiana. People bring this subject up to 
me whether I ask for it or not which indicates to me that 
there's a lot of excitement.
    We've got one company, Aquatic Energy. They haven't been 
able to get a grant for years from the Department. I'm not sure 
why because we have a lot of water. We have a lot of sugar. We 
have a lot of power plants in Louisiana.
    So I'm going to be sending you all another letter about 
this. But nonetheless, there are many companies that are 
looking to do the research. But in Louisiana we have what all 
the byproducts, or the initial products you've discussed here 
at the table.
    We have the power plants.
    We have sugar.
    We have sunlight.
    We have adequate water.
    From what I can understand algae doubles the cells every 12 
hours. It produces approximately 6,000 gallons of oil per 
hector compared to 200 gallons for soybeans, 1,000 for palm. 
They sequester carbon dioxide which you've mentioned. They 
don't have to compete with drinking water, the production, 
because they can grow in any fresh water source including waste 
water which is very interesting.
    Algae is very similar to petroleum according to my 
producers and pipeline folks. Because you don't have to 
retrofit the equipment. It can move through the pipelines, you 
know, as designed which is a significant advantage.
    I'm sympathetic to the Senators. I represent a lot of corn 
interest and sugar cane interest myself. But I think for the 
long term future of the country to find a product like this 
that doesn't compete as a food source, that can be produced 
almost anywhere and have the added benefit of sequestering 
carbon is something that we really should be very excited and 
enthusiastic about. We are in Louisiana.
    So my final question, Mr. Chalk. What do you when you look 
out in 5 years, what do you see in terms of algae production 
actually in the United States?
    Mr. Chalk. I would say in 5 years we should be in a very 
good position to be at what we would call demonstration scale. 
Right now we're at pilot scale. I mentioned Algenol and 
Sapphire and they are really at a pilot scale producing about a 
million gallons a year. Hopefully we can scale up at least by a 
factor of 10 in 5 years.
    I would agree with everything you said. In addition, algae 
needs nutrients which the chemical industries near Louisiana 
could provide as well. We have requested $10 million in the FY 
2012 budget for algae. So hopefully if that money is 
appropriated there will be new opportunities for companies to 
give us proposals.
    Senator Landrieu. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Barrasso.
    Senator Barrasso. Thank you very much, Mr. Chairman for 
holding this hearing. I want to thank Senators Manchin as well 
as Senators Murkowski and Coats for co-sponsoring the American 
Alternative Fuels Act.
    High gas prices are causing American families pain at the 
pump. With gasoline at nearly $4 a gallon, American families 
are spending an additional $800 this year to fill up their 
tanks. The high prices are hurting families. It affects the 
quality of life for families living with children and with 
bills and with a mortgage.
    It also threatens to undercut our economic recovery. So 
this is an issue of economic security as well as national 
security. That's why I introduced this bill along with our co-
sponsors.
    The American Alternative Fuels Act breaks down the barriers 
to alternative fuels. The bill repeals section 526 of the 2007 
Energy bill which discourages development of alternative fuels 
and limits access to available resources. The bill also 
promotes algae based fuels by giving it credit under the 
renewable fuel standard. The bill also would give the 
Department of Defense authority to enter into long term 
contracts for purchasing alternative fuels. This provision will 
help spur the development of America's alternative fuel 
capacity.
    Promoting alternative fuels for the Defense Department will 
safeguard the military from price spikes and make us less 
dependent on foreign sources of oil. The Department of Defense 
sent a letter to Congress in 2010 supporting long term 
alternative fuel contracting authority. The letter says, ``The 
Department of Defense agrees that alternative fuels can play a 
role in ensuring our Nation's energy security.'' It says, ``We 
believe long term contracting could help encourage 
infrastructure investments to develop a domestic alternative 
fuels market.''
    This bill would provide the long term contracting authority 
that I believe is needed. The American Alternative Fuels Act is 
an important step to increasing alternative fuels in the 
country. It will foster greater production of American fuels 
and help address our reliance on foreign oil.
    Mr. Chalk, I believe one of the major challenges for 
alternative fuels and alternative vehicles is fuel distribution 
infrastructure. Coal based fuels, I believe, don't face the 
same challenges, which makes it a much more viable alternative 
in the short term. Could you tell me does the Department of 
Energy support the use of America's coal resources as a 
transportation fuel that can help replace some of the oil 
that's imported from overseas?
    Mr. Chalk. Yes, as I said earlier we strongly believe 
diversification is really critical here. Diversification 
including through some of the feed stocks we've been talking 
about world enable us to not be overly reliant on petroleum 
like we are now. But we also think domestic fuels are important 
to keep the money flowing in our economy and in the North 
American economy as well when we look at Canada. But 
environmental attributes are also very important.
    When we look at the attributes of alternative fuels, 
greenhouse gas intensity is an important criteria. We are 
trying to go in a trend to reduce greenhouse gases. So we are 
agnostic in terms of feed stock, but we should be in a downward 
trajectory as far as greenhouse gas intensity compared to the 
fuels we use today, specifically the benchmark conventional 
fuels.
    Senator Barrasso. What alternative fuel sources are really 
the easiest and the least expensive to deploy widely in the 
short term?
    Mr. Chalk. Ethanol, as you know, is displacing about 5 
percent of our petroleum today. The RFS has called for billions 
of additional gallons of bio. Today around 10 or 11 billion 
gallons of ethanol will be delivered and the greenhouse gas 
benefit is about 20 percent.
    Cellulosic ethanol is being delivered today, but in very 
small quantities. As we mentioned we're hoping to scale that up 
in the next 5 years providing a greenhouse gas benefit of about 
60 percent. So the renewable fuel standard is our guidepost. In 
the renewable fuel standard there are checks and balances with 
greenhouse gases being reduced and sustainability criteria.
    Senator Barrasso. Alright. You mentioned Canada. You had a 
previous question from Senator Franken about Canada and what's 
going on. I don't know if you saw the article in today's New 
York Times*. Canada prepares plans B and C in case oil sands 
pipeline hits a roadblock.
---------------------------------------------------------------------------
    * http://www.nytimes.com/2011/06/07/business/energy-environment/
07pipeline.html
---------------------------------------------------------------------------
    Mr. Chairman, I'd like to, if I could, introduce this as 
part of the record.
    [The information referred to follows:]

    The transportation sector accounts for approximately two-thirds of 
the United States' oil consumption and contributes to one-third of the 
Nation's greenhouse gas (GHG) emissions. After housing, transportation 
is the second biggest monthly expense for most American families. 
Earlier this year, the President outlined a portfolio of actions which, 
taken together, could cut U.S. oil imports by a third by 2025. These 
include programs that would put one million electric vehicles on the 
road by 2015; increase the fuel economy of our cars and trucks; as well 
as expand the biofuels market and commercialize new biofuels 
technologies, including cellulosic and other advanced biofuels.

    Senator Barrasso. I just want to highlight a couple of 
paragraphs from this.
    ``Oil producers in Canada have several alternatives for 
reaching the United States market. Recent investments by 
Chinese companies in the oil sands suggest that a growing 
alternative market lies across the Pacific. Ronald Liepert, the 
Energy Minister in Alberta said that while Canada would prefer 
to sell its oil to the United States, this commodity, he said, 
will go someplace.''
    Do you agree with that?
    Mr. Chalk. I do. As Senator Franken alluded to, this 
commodity is going to enter the world market and it's going to 
be sold. It's going to be mixed in with whole gasoline or 
diesel pool.
    Senator Barrasso. So the final paragraph says, ``In 
particular China is already a major consumer of other Canadian 
natural resources and a small investor in the oil sands.'' Its 
Minister of Energy in Alberta quotes, ``I can predict 
confidently that at some point China will take every drop of 
oil Canada can produce.'' So if the United States is blocked, 
it seems to me, that if we're blocked from obtaining this oil, 
then it's going to go to China.
    Mr. Chalk. We have a goal of reducing our oil imports by a 
third by 2025, I believe. Let me check on that record.
    Mr. Chalk. The critical part of this is less reliance. So 
biofuels is one pathway increasing corporate average fuel 
economy which we've done over the last few years. CAFE 
standards are increasing from 2010 to 2016 by about 35 percent 
in light duty cars and about 25 percent in light trucks.
    Finally, electrification through plug in hybrid vehicles 
and battery electric vehicles can also reduce our reliance on 
foreign oil.
    Senator Barrasso. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Manchin.
    Senator Manchin. Thank you, Mr. Chairman. I want to thank 
also Senator Barrasso and Senator Murkowski that were on this 
bill. We believe very strongly in it.
    West Virginians believe that basically we are too dependent 
on foreign oil. It's cost us a tremendous toll as far as in our 
human suffering that goes on around the world trying to secure 
the energy that we need for this country. We believe that there 
is a better alternative. This is why we introduced and why I'm 
happy to sponsor or co-sponsor this bill. All we're saying is 
we should be using everything humanly possible.
    Mr. Chalk, do you believe that we can be energy independent 
in the United States?
    Mr. Chalk. I believe we can be self reliant. I believe that 
we can----
    Senator Manchin. At a competitive price, sir?
    Mr. Chalk. Yes, sir.
    Senator Manchin. At a competitive price?
    Mr. Chalk. I believe that. For instance, if you look at our 
electric vehicle program right now we have all the tools in the 
tool kit. I've been at the Department of Energy for 20 years 
and never in a program have we covered all the bases over basic 
research, the research and development, demonstration, the 
manufacturing to deployment that we have that in the electric 
vehicles area.
    We've also proposed a hub which gets the best scientists in 
the world together for basic energy science related to energy 
storage.
    Senator Manchin. Do you believe that can be done without 
coal?
    Mr. Chalk. Pardon me?
    Senator Manchin. Do you believe we can have energy 
independence without coal?
    Mr. Chalk. I believe we can.
    Senator Manchin. How?
    Mr. Chalk. We wouldn't shut it out through the 
diversification----
    Senator Manchin. You're 50 percent. You're 50 percent in 
this Nation right now, dependent on fossil base. The rest of 
the world has more demand. I can tell you in my little state 
that there's more demand for the coal being exported, kept the 
prices higher for with every industry of our time.
    Now if the rest of the world is going to be using the coal 
that we're producing in West Virginia. They want to buy up our 
coal fields in West Virginia. Here we are not even using it to 
our best abilities.
    Why would--does that make any sense to you at all?
    Mr. Chalk. We are looking at coal. We've got clean coal 
programs in the Department.
    Senator Manchin. Why isn't the rest of the world looking at 
it that way? Why do they just need--they're taking our jobs. 
They're taking our economy from us.
    We're raising the price. New Jersey just lost a large 
plant, 250 jobs. Twelve cents a kilowatt hour was their average 
price per kilowatt hour on fuel because of all the regulations 
we put on. They came down into the Pennsylvania/West Virginia 
area and relocated that plant because of 6 cents.
    Don't you think you're going to displace the jobs and the 
markets that go with it?
    Mr. Chalk. The best opportunity we have for economic growth 
are these new technologies that I'm talking about, 
electrification, biofuels----
    Senator Manchin. Where do you think the electric is going 
to come from?
    Mr. Chalk. Pardon me?
    Senator Manchin. Where do you think this electric is going 
to come from at a competitive price?
    Mr. Chalk. It will come from the same sources that we have 
now. We're hoping to double renewable energy by 2035 with the 
President's proposed clean energy standard.
    Senator Manchin. So you're saying the Department of Defense 
they've already run B-52 bombers on coal to liquids and they 
were very pleased with it. But the provisions we have in the 
law here don't allow us to develop it.
    Mr. Chalk. It doesn't allow the Federal Government to buy 
that fuel because it's going backward in terms of greenhouse 
gas emissions.
    Senator Manchin. It's best for them to buy foreign oil?
    Mr. Chalk. Our strategies to develop biofuels and biofuels 
can yield great jet fuel and great diesel fuel and we're doing 
that through 2 pathways. One is cellulosic and one is through 
the algae work that we talked about. Both of these pathways are 
what we call drop-in fuels which are totally compatible with 
today's jet engines.
    Senator Manchin. I just think--do you find it appalling 
that we don't have an energy policy in 2011 in the United 
States of America?
    Mr. Chalk. I believe we do. We have a blueprint for the 
energy----
    Senator Manchin. Who's this? The bureaucracy or the 
lawmakers? I mean, do you find us to be an impediment to you 
all moving forward with what you want to do?
    Mr. Chalk. I think we have pieces of very good energy 
legislation.
    Senator Manchin. Don't you think we should be----
    Mr. Chalk. We also have an agenda in our blueprint for how 
we're going to relieve our dependence----
    Senator Manchin. Don't you think the elected 
representatives should be leading that and representing the 
people that they do serve?
    Mr. Chalk. I think that they are. Yes.
    Senator Manchin. You think they are?
    Mr. Chalk. I think leadership in the Senate Energy and 
Natural Resources Committee has been great over the last few 
years.
    Senator Manchin. Do you support the repealing of section 
526?
    Mr. Chalk. As I said, we don't have a formal position. It 
does not allow the Federal Government to contract or buy fuel 
that emits more greenhouse gases than conventional 
technologies. So----
    Senator Manchin. You're talking about oil base.
    Mr. Chalk. So that's the first trend that we want. We want 
to address climate change. We want to reduce greenhouse gases.
    Senator Manchin. We want jobs. We want an economy. We want 
to be able to compete. We don't want wars around the world. We 
don't want to continue to be relying on foreign oil.
    Don't you think that plays a part also?
    Mr. Chalk. I think that all of these goals are mutual. I 
think we can get reduced greenhouse gases along with new jobs.
    Senator Manchin. Is China worried about reducing greenhouse 
gases? Is India worried about reduced greenhouse gases? Is 
Indonesia?
    Mr. Chalk. China is going to be formidable and they are 
already very formidable competitor in all of these areas I'm 
talking about: electric vehicles, solar technology, wind 
technology.
    Senator Manchin. One final question, sir.
    Mr. Chalk. They see that as economic growth.
    Senator Manchin. Do you believe that we should be 
developing these new technologies overseas verses developing 
here in the United States?
    Mr. Chalk. We want to develop them here in the United 
States.
    Senator Manchin. Thank you.
    The Chairman. I thank you all.
    Senator Murkowski, do you have additional questions?
    Senator Murkowski. I recognize we have a second panel, Mr. 
Chairman. So I don't want to take too much more time. But I 
certainly appreciate what my colleague, Senator Manchin, has 
been drilling at and what Senator Barrasso said.
    You know, as we talk about our dependence on foreign 
sources of oil I think we have to recognize that some of our 
dependency is making us more vulnerable as a Nation than 
others. I appreciate Senator Franken's question and your 
response about oil being a global commodity. We all understand 
that.
    But I certainly am not losing sleep thinking that we are 
gaining a substantial source of our oil revenue from our 
neighbors in Canada. I do lose a lot of sleep over the reliance 
that we have on Middle Eastern sources of oil and how we 
reconcile that. But I think that the position that you have 
just stated here, Mr. Chalk, on behalf of the Administration 
allows for a vulnerability. It enhances our insecurity. I don't 
think that's the direction that we should go in.
    Yes, we need to be working to reduce our emissions. But as 
Senator Manchin has said, there are technologies that we can be 
advancing in this country that allow us to use our most 
affordable resource. Let's use it smartly. Let's use the 
technologies to have the jobs, to have the energy and to reduce 
our reliance.
    Mr. Kelly, I wanted to ask you one very quick question. I 
had asked you about some of the hurdles with the SMRs. A 
question came up about the control rooms that would be required 
for the reactors.
    In existing reactors there's one control room for each 
reactor. But in a small modular reactor set up would you still 
require one control room for each reactor or would there be one 
control room for the entire plant? Have we worked that through 
yet?
    Mr. Kelly. That particular question is still being worked 
by the Nuclear Regulatory Commission. They are studying that. 
They're pointing toward the need to collect data on how human 
and machines work together in order to quantify how many 
operators, how many shift supervisors, etcetera.
    We----
    Senator Murkowski. Is that information coming as quickly as 
you would like?
    Mr. Kelly. I believe so. It's certainly going to be in time 
for the design activity that we're talking about. They have a 
very public process. They have the issues. They will publish 
their findings and then seek public comment.
    At this point it seems to be heading in a direction that's 
favorable.
    Senator Murkowski. OK.
    Thank you, Mr. Chairman.
    The Chairman. Do others have additional questions or can we 
go to the second panel?
    Thank you both very much for your testimony. We appreciate 
it. We will move now to the second panel.
    Dr. Edwin Lyman, who is the Senior Scientist with the 
Global Security Program at the Union of Concerned Scientists.
    Mr. Joe Colvin, who is the President of the American 
Nuclear Society.
    Dr. James T. Bartis, who is Senior Policy Researcher with 
RAND Corporation.
    Mr. Brian Siu, who is Policy Analyst with the Natural 
Resources Defense Council.
    We thank all of you for being here. We'll have the same 
ground rules for you as we do with all witnesses. That is we 
will include your entire statement in the record as if read. We 
would appreciate it if you would each take about 5 minutes and 
give us the main points that you think we need to understand 
from your testimony.
    Dr. Lyman, why don't you begin, please?

  STATEMENT OF EDWIN LYMAN, SENIOR SCIENTIST, GLOBAL SECURITY 
             PROGRAM, UNION OF CONCERNED SCIENTISTS

    Mr. Lyman. Good morning. On behalf of the Union of 
Concerned Scientists, I would like to thank Chairman Bingaman, 
Ranking Member Murkowski and the other members of the committee 
for the opportunity to provide our views on the--some of the 
important legislation that's being considered today.
    The Union of Concerned Scientists is neither pro nor 
antinuclear power. But we have served as a nuclear safety and 
security watchdog for over 40 years. UCS is also deeply 
concerned about global climate change. We have never ruled out 
an expansion of nuclear power as an option to help reduce 
greenhouse gas emissions provided that it is affordable 
relative to other low carbon options and that it meets very 
high standards of safety and security.
    However, the Fukushima Daiichi crisis has revealed 
significant vulnerabilities in nuclear safety around the world. 
If we want to reduce the risk of another Fukushima in the 
future, new nuclear plants will have to be substantially safer 
than the current generation. To this end we appreciate the 
initiative of Members of Congress who seek to bolster the 
development of innovative nuclear technologies through 
legislation such as S. 512. But to help ensure the Energy 
Department will spend taxpayer money only on technologies that 
will actually increase nuclear safety in the end, we believe 
that S. 512 should provide more stringent and specific safety 
criteria than it currently does.
    In our view small modular reactors may pose some benefits 
but they're likely to be modest at best. But on the other hand 
unless they're carefully designed, licensed, deployed and 
inspected, small modular reactors could actually pose greater 
safety, security and proliferation risks than large reactors. 
This has to be avoided.
    Small modular reactors start out with a very big cost 
disadvantage because of the economies of scale. By standard 
formula the overnight capital cost per kilowatt of a 125 
megawatt reactor would be nearly two and a half times greater 
than that of a 1,250 megawatt unit for all other factors being 
equal. Now advocates of small reactors argue there are a whole 
host of other factors that could help reduce those costs. But 
one estimate I'm aware of in a 2007 paper by Westinghouse 
actually found when they quantified these factors they could 
not overcome the big burden or the big cost disadvantage from 
economies of scale. At best you might achieve parity with large 
reactors per kilowatt which is what Dr. Kelly said in the first 
panel.
    Given there is no apparent capital cost advantage for SMRs 
the advocates of SMRs have been pushing to reduce the operating 
maintenance costs. Dr. Kelly testified or told the Nuclear 
Regulatory Commission in March that the Nuclear Regulatory 
Commission's framework, regulatory framework for small modular 
reactors will be a very large determinant into the economic 
feasibility of these plants. As a result the industry has been 
pressing the NRC to reduce regulatory requirements based on the 
idea that small modular reactors will be inherently safer than 
large reactors.
    Now even a 50 megawatt reactor will still contain an 
enormous quantity of fission products. There has to be 
significant protection against accidents or sabotage. So 
cutting regulatory requirements is not really the thing to do 
especially in light of the Fukushima accident.
    What we found from Fukushima is that we need significant 
margins of safety to protect against extreme events. We believe 
the NRC should be increasing nuclear safety requirements across 
the board today rather than considering reducing them for SMRs. 
Because even if an SMR has inherent safety advantages you don't 
want to erode those advantages by reducing the safety margins 
and you may end up with something which is no safer than what 
we have today.
    Consider the reduction of emergency planning zones which 
some have advocated. We've seen in Fukushima that significant 
radioactive contamination has occurred well beyond the ten mile 
zone which is the current regulatory standard in the United 
States for emergency planning. In fact the levels would trigger 
resettlement if they occurred here in the United States. So I 
don't think we should be talking about reducing emergency 
planning zones today for any type of reactor.
    Also we've seen how the impact of multiple reactors at one 
site can greatly complicate dealing with crises as we've seen 
in Fukushima. You have to consider the interactions between the 
reactors. For small modular reactors we might have up to 12 
modules at a site. You have to have additional safeguards to 
ensure that you can deal with multiple events and you do not 
want to do things like reduce the number of qualified operators 
that can deal with a significant confusing crisis like we saw 
at Fukushima.
    We've also seen that multiple safety systems disabled a 
reactor can lead to a rapid degradation of the core and 
meltdown. Sabotage can actually simulate that and even cause a 
faster meltdown than we saw in Fukushima. So you do not want to 
actually reduce security requirements which is another aspect 
which has been considered.
    So we believe that the legislation should really encourage 
the Department of Energy to pursue designs that only have 
greatly increased safety and security standards relative to 
current reactors. Should also not accelerate or put undue 
pressure on the Nuclear Regulatory Commission to accelerate 
licensing of novel designs because you're going to pay in the 
end later if you take short cuts now.
    I will stop my remarks. Be happy to take your questions. 
Thank you.
    [The prepared statement of Mr. Lyman follows:]

 Prepared Statement of Edwin Lyman, Senior Scientist, Global Security 
                 Program, Union of Concerned Scientists
    Good morning. On behalf of the Union of Concerned Scientists, I 
would like to thank Chairman Bingaman, Ranking Member Murkowski, and 
the other distinguished members of the committee on Energy and Natural 
Resources for the opportunity to provide our views on S. 512, the 
Nuclear Power 2021 Act, and S. 1067, the Nuclear Energy Research 
Initiative Improvement Act of 2011.
    The Union of Concerned Scientists is neither pro nor anti-nuclear 
power, but has served as a nuclear power safety and security watchdog 
for over 40 years. UCS is also deeply concerned about global climate 
change and has not ruled out an expansion of nuclear power as an option 
to help reduce greenhouse gas emissions-provided that it is affordable 
relative to other low-carbon options and that it meets very high 
standards of safety and security. However, the Fukushima Daiichi crisis 
has revealed significant vulnerabilities in nuclear safety. If we want 
to reduce the risk of another Fukushima in the future, new nuclear 
plants will have to be substantially safer than the current generation. 
To this end, we appreciate the initiative of members of Congress who 
seek to bolster the development of innovative nuclear technologies 
through legislation such as S. 512. But to help ensure that the Energy 
Department will spend taxpayer money only on technologies that will 
actually increase nuclear safety, we believe that S. 512 should provide 
more stringent and specific safety criteria than it currently does.
    S. 512 supports the development and licensing of two small modular 
reactor (SMR) designs, which are defined by the bill to be less than 
300 electric megawatts. In our view, any advantages that SMRs may offer 
over larger reactors would be modest at best. On the other hand, unless 
they are carefully designed, licensed, deployed and inspected, SMRs 
could pose greater safety, security and proliferation risks than large 
reactors.
    Because nuclear reactor costs follow the principle of economies of 
scale, smaller reactors will begin with a large economic disadvantage. 
For example, a standard formula indicates that the overnight capital 
cost per kilowatt of a 125 megawatt reactor would be roughly 2.5 times 
greater than that of a 1250 megawatt unit, all other factors being 
equal. Advocates argue that SMRs offer advantages that can offset this 
economic penalty, such as a better match of supply and demand, reduced 
up-front financing costs, reduced construction times, and an 
accelerated benefit from learning from the construction of multiple 
units. However, a 2007 paper by Westinghouse scientists and their 
collaborators that quantified the cost savings associated with some of 
these factors did not find that they could overcome the size penalty: 
the paper found that at best, the capital cost of four 335 megawatt 
reactors was slightly greater than that of one 1340 megawatt 
reactor.\1\
---------------------------------------------------------------------------
    \1\ M.D. Carelli et al., ``Economic Comparison of Different Size 
Nuclear Reactors,'' 2007 LAS/ANS Symposium, Cancun, Mexico, 1-5 July 
2007. Available at http://www.las-ans.org.br/Papers%202007/pdfs/
Paper062.pdf
---------------------------------------------------------------------------
    Given that there is no apparent capital cost benefit for SMRs, it 
is not surprising that the SMR industry is seeking to reduce operating 
and maintenance (O&M) costs by pressuring the Nuclear Regulatory 
Commission to weaken certain regulatory requirements for SMRs. Deputy 
Assistant Energy Secretary John Kelly told the Nuclear Regulatory 
Commission in March that the NRC's regulatory requirements for SMRs 
will ``directly influence the operating cost, which will be a large 
determinant into the economic feasibility of these plants.''
    For example, the industry argues that regulatory requirements for 
SMRs in areas such as emergency planning, control room staffing and 
security staffing can be weakened because SMRs contain smaller 
quantities of radioactive substances than large reactors and therefore 
pose lower risks to the public. The NRC is currently considering the 
technical merits of these arguments. But even a single 50-megawatt SMR 
will contain an enormous quantity of radioactive fission products and 
could pose a severe public health threat if the core is damaged by an 
accident or sabotage.
    Moreover, small reactors will not necessarily be safer than large 
reactors on a per-megawatt basis. Simply put, the risk to the public 
posed by one 1200-megawatt reactor will be comparable to that posed by 
six 200-megawatt reactors (assuming that all units are independent), 
unless the likelihood of a serious accident is significantly lower for 
each small reactor. But such an outcome will not be assured under the 
current regulatory regime. The Nuclear Regulatory Commission has a 
long-standing policy that new nuclear reactors, large or small, are not 
required to be safer than operating reactors. One consequence of this 
policy is that new reactor designs that have inherent safety features 
not present in current reactors may not actually end up being safer in 
the final analysis if designers compensate by narrowing safety margins 
in other areas, such as by reducing containment strength or the 
diversity and redundancy of safety systems. Any safety advantages will 
be eroded further if the NRC allows SMR owners to reduce emergency 
planning zones and the numbers of operators and security officers per 
reactor.
    One of the early lessons from Fukushima is that prevention of 
serious nuclear accidents requires significant margins of safety to 
protect against extreme events. After Fukushima the NRC should be 
strengthening nuclear safety requirements across the board, rather than 
weakening them for SMRs. Consider the following examples:

   Emergency planning zones around U.S. nuclear plants extend 
        to a radius of ten miles. Yet significant radiological 
        contamination from the Fukushima accident has been detected 
        well beyond a distance of ten miles from the plant. In fact, 
        radiation levels high enough to trigger resettlement if they 
        occurred in the United States have been detected over 30 miles 
        away from the Fukushima site. The discussion we should be 
        having today is whether current emergency planning zones need 
        to be increased, not whether we can shrink them for SMRs.
   As we have seen in Fukushima, nuclear plants with multiple 
        reactors that experience severe conditions present extreme 
        challenges. At Fukushima, the need to manage multiple 
        simultaneous crises resulted in what sometimes appeared to be a 
        game of ``whack-a-mole'' as the plant operator was forced to 
        shift limited resources from one unit to another as new 
        problems cropped up. These considerations make multiple-reactor 
        sites less attractive from a safety perspective. Yet many plans 
        entail multiple SMRs at one site-in some proposals, up to 
        twelve SMRs would be co-located. The need to maintain adequate 
        physical separation between individual SMRs and sufficient 
        equipment and resources to ensure all the reactors could be 
        safely shutdown and managed in an emergency would likely drive 
        up costs.
   Fukushima also demonstrated how rapidly a nuclear reactor 
        accident can progress to a core meltdown if multiple safety 
        systems are disabled. A well-planned and executed 6 terrorist 
        attack could cause damage comparable to or worse than the 
        earthquake and tsunami that initiated the Fukushima crisis, 
        potentially in even less time. And although Osama bin Laden is 
        gone, the terrorist threat to domestic infrastructure may 
        actually increase over time as al Qaeda seeks to retaliate. 
        This is the wrong time to consider reducing security 
        requirements for nuclear power plants, regardless of their 
        size.

    UCS is also concerned that reducing safety and security 
requirements for SMRs could facilitate their sale to utilities or other 
entities in the United States and abroad that do not have prior 
experience with nuclear power. Some SMR vendors argue that their 
technology is well-suited for deployment to remote areas, military 
bases, and countries in the developing world that have relatively low 
electric demand and no nuclear experience or emergency planning 
infrastructure. In the United States, for example, a rural electric 
cooperative might be interested in replacing an old coal-fired plant 
with a small nuclear plant. As another example, high-temperature gas-
cooled SMR vendors are marketing reactors to the chemical industry 
worldwide for the production of process heat. However, SMRs deployed in 
this manner would raise additional safety, security and proliferation 
concerns compared to their deployment by experienced nuclear utilities.
    The distributed deployment of small reactors would put great 
strains on licensing and inspection resources. Nuclear reactors are 
qualitatively different from other types of generating facilities, not 
least because they require a much more intensive safety and security 
inspection regime. Similarly, deployment of individual small reactors 
at widely distributed and remote sites around the world would strain 
the resources of the International Atomic Energy Agency (IAEA) and its 
ability to adequately safeguard reactors to guard against 
proliferation, since IAEA inspectors would need to visit many more 
locations per installed megawatt around the world. Maintaining robust 
oversight over vast networks of SMRs around the world would be 
difficult, if even feasible.
    UCS does not support the deployment of SMRs to any entity that does 
not have a demonstrated or plausible capability to manage and operate 
nuclear facilities safely. UCS believes that the United States needs to 
carefully control the deployment of SMRs, especially those that it 
supports through proposed cost-sharing programs.
    How can legislation address these problems? S. 512 has a provision 
that requires DOE to take into account ``the efficiency, cost, safety 
and proliferation resistance of competing reactor designs.'' We would 
suggest that even more stringent factors be applied. Congress should 
direct DOE to consider only designs that have the potential to provide 
significantly greater levels of safety and security than currently 
operating reactors (and hence exceed NRC requirements). As a corollary, 
Congress should prohibit DOE from selecting designs with a business 
case that depends on a weakening of NRC safety and security regulations 
or marketing reactors to countries with inadequate safety rules.
    S. 512 requires DOE to establish a program to develop designs for 
two SMRs and then to obtain design certifications from the NRC by 
January 1, 2018 and combined operating licenses by January 1, 2021. We 
are concerned about the establishment of statutory requirements of 
dates certain for the completion of licensing actions on these new 
reactor designs. This requirement could put undue political pressure on 
the NRC to accelerate its reviews of these novel technologies (if, for 
instance, DOE blames the NRC for schedule delays), and potentially 
force it to cut short its examination of complex technical issues. It 
would be counterproductive to undermine the thoroughness of the review 
of new reactor designs, because it would be much more costly to fix 
problems discovered after construction has already begun. Therefore, we 
respectfully suggest that while the bill could instead impose a 
deadline on DOE to submit its licensing applications to the NRC, it 
should not impose a deadline on the final approval of those 
applications, but rather let the NRC reviews proceed at a pace 
determined by the technical complexity of the reviews.
    We would also like to comment on S. 1067, which requires the 
Secretary of Energy to conduct a research program to ``lower the cost 
of nuclear reactor systems.'' We suggest that the bill direct the 
Secretary to ``conduct research to lower the cost of nuclear reactor 
systems while increasing their levels of safety and security.'' After 
all, one can always reduce costs by cutting corners: the real research 
challenge is how to reduce cost without compromising safety. Given that 
the Fukushima accident review may well indicate the need for 
additional-and potentially costly-safety requirements for both 
operating and new reactors, there is an acute need for research on how 
to enhance safety as cost-effectively as possible.
    Thank you for your attention.

    The Chairman. Thank you very much.
    Mr. Colvin, go right ahead.

  STATEMENT OF JOE COLVIN, PRESIDENT, AMERICAN NUCLEAR SOCIETY

    Mr. Colvin. Good morning. Thank you, Mr. Chairman and 
Ranking Member Murkowski and members of the committee.
    As indicated I am here as my capacity as President of the 
American Nuclear Society or ANS. ANS represents the more than 
11,000 men and women of the American nuclear community 
including utilities, national laboratories, government, State 
agencies, industrial vendors, suppliers, universities and the 
whole area of medicine. Our members have been involved with 
small reactors for almost the entire 55 year history of their 
organization including the Experimental Breeder Reactor, EBR-1, 
the first reactor to produce electricity in the U.S. in 1951 
and with the 10 megawatt USS Nautilus reactor, the original SMR 
which paved the way for the nuclear navy and today's commercial 
water cooled reactor fleet.
    The ANS and its membership believe that the development of 
new generation of SMRs has the potential to make a significant 
contribution to our long term energy, economic and national 
security. They offer a unique flexibility. Has been discussed 
earlier by Dr. Kelly, they can produce large quantities of 
fresh water through desalination, can be used to produce 
hydrogen and biofuels, deployed in remote areas to produce 
energy for towns and military installations, heat for mining 
operations and unconventional oil recovery. SMRs could also be 
an attractive alternative for smaller U.S. utilities, 
especially in the Midwest, who seek to replace old coal fired 
generating stations because of environmental considerations.
    Today's SMR designs also employ the latest generation suite 
of safety features. Obviously we're all saddened by the events 
at Fukushima, the earthquake and tsunami, and the impact on the 
Japanese population as well as the world as a result of 
Fukushima Daiichi nuclear power plant events. In the wake of 
those events we must reiterate our commitment to maintaining 
the highest levels of safety.
    Frankly, in my view the best way to improve long term 
nuclear safety is to hasten deployment of a new generation of 
reactors that have advanced safety systems. New SMR designs 
employ features such as underground containment structures that 
can be filled with water to provide indefinite decay heat 
removal without external power or diesel generators, ``Integral 
designs'' that place steam generators and pressurizers within 
the reactor pressure vessel thereby eliminating the threat of 
primary coolant loop ruptures and extensive use of natural 
phenomena such as convection and conduction in place of pumps, 
valves and pipes.
    There's also a national security aspect to the development 
of U.S. SMR technology that must be considered. Beyond the 
United States, over 60 countries have expressed interest in new 
nuclear power plants. Some of those countries already have 
nuclear power plants, others are developing Nations who do not 
have the electrical grid that can support a 1,000 megawatt 
nuclear plant.
    While U.S. nuclear technology is still considered to be the 
gold standard in safety and reliability, the nuclear supply 
market has been increasingly international in the last 30 
years. If the U.S. is unwilling or unable to develop exportable 
SMR technology there are several other Nations who are prepared 
to meet the growing demand. I believe it's clearly preferable 
to have the active U.S. engagement in global nuclear 
marketplace rather than seeding that territory to non U.S. 
suppliers that may always not share our approach to our safety 
and non-proliferation.
    ANS fully supports the legislation. Although we're a 
501(c)(3) organization so normally that's not--we do not 
normally support legislation as a process. But I can 
confidently say that S. 512 represents a strong foundational 
effort to augment the Federal Government's role in U.S. SMR 
development.
    The 2 bills including S. 512 and S. 1067 would give DOE the 
additional tools to address the technical aspects of nuclear 
energy which have the greatest impact on installed costs. The 2 
bills focus on advanced light water SMR technology which I 
think clearly is the next target for commercialization. I urge 
the committee and the Administration to keep the pedal down on 
Gen Four reactor technology. Both high temperature gas and 
liquid metal cool fast reactor systems offer true game changing 
potential to address long term carbon emissions and to turn 
nuclear waste into a clean energy fuel.
    In closing I would like to offer the following 
observations.
    It's critically important that the U.S. transition to a 
stable, long term energy policy emphasizes reliability, 
affordability, predictability in pricing, diversity of supply 
and well paying, domestic, job growth. Under any conceivable 
scenario nuclear energy will be an indispensible component of 
our nuclear energy future. SMR technology will likely play an 
increasing important role.
    Thank you for the opportunity to be with you today. Thank 
you.
    [The prepared statement of Mr. Colvin follows:]

 Prepared Statement of Joe Colvin, President, American Nuclear Society
    Thank you, Chairman Bingaman and members of the committee for the 
opportunity to testify before the committee today. I am here in my 
capacity as President of the American Nuclear Society (ANS), the 
premier U.S. professional society dedicated to promoting the beneficial 
uses of nuclear science and technology. The ANS has roughly 11,000 
national members and another 10,000 plus members of 51 local sections 
spread across 38 states. We also have 38 student sections at major U.S. 
universities and 11 international sections in other countries. Our 
members span the nuclear enterprise, including: utilities, national 
laboratories, government and state agencies, industrial vendors and 
suppliers, universities, and medicine.
    ANS members have been involved with small reactors for almost the 
entire 55 year history of the organization, including the Experimental 
Breeder Reactor (EBR-1), the first reactor to produce electricity in 
1951, and the 10 MW USS Nautilus reactor--the original SMR--which paved 
the way for the nuclear navy and today's commercial water cooled 
reactor fleet.
    More recently, through its Special Committee on SMR Generic 
Licensing Issues, ANS has worked with experts in the U.S. nuclear 
industry, universities, national laboratories, and government agencies 
to identify key regulatory impediments in the areas of licensing, risk 
informed regulation, physical security, staffing requirements, which 
could hinder timely deployment of a new generation of SMRs, and offered 
consensus solutions to address them.
    My testimony today will focus on 3 main points:

          1. SMRs have great potential to contribute to U.S. energy, 
        economic and national security.
          2. S. 512, the Nuclear Power 2021 Act is an important step 
        toward the near-term deployment of U.S. SMR technology.
          3. There are other SMR related technical and regulatory 
        challenges that need to be addressed by the federal government.
1. The Potential of Small Modular Reactors
    The ANS and its membership believe that the development of a new 
generation of small modular reactors has the potential to make a 
significant contribution to our long-term energy, economic, and 
national security. SMRs offer several unique advantages over their 
larger brethren.
    First, they provide great operational flexibility. SMRs can be 
deployed in arid regions to produce large quantities of fresh water 
through desalination. They can be used as a heat source for industrial 
processes, including hydrogen production, fertilizers, production of 
synthetic fuels and biofuels. They can be deployed in remote areas to 
produce energy for towns and military installations as well as heat for 
mining operations and unconventional oil recovery. SMRs could be an 
attractive alternative for smaller U.S utilities, especially in the 
Midwest, who seek to replace their old, coal-fired generating stations 
because of environmental considerations. These facilities would already 
have the necessary water, rail and transmission facilities and the 
necessary infrastructure, thereby simplifying the installation process.
    Second, new SMR designs employ the latest generation suite of 
safety features. Obviously we are all saddened by the Japanese 
earthquake and tsunami and its impact on the Fukushima Daiichi nuclear 
power plant. In the wake of these events, we must reiterate our 
commitment to maintaining the highest levels of safety.
    Frankly, in my view, the best way to improve long-term nuclear 
safety is to hasten deployment of a new generation of reactors that 
have advanced safety systems. New SMR designs employ features such as 
underground containment structures that can be filled with water to 
provide indefinite decay heat removal without external power or diesel 
generators; ``integral'' designs'' that place steam generators and 
pressurizers within the reactor pressure vessel, thereby eliminating 
the threat of primary coolant loop ruptures; and extensive use of 
natural phenomena such as convection and conduction in place of pumps, 
valves and pipes.
    Third, there is a national security aspect to the development of 
U.S. SMR technology that must be considered. Beyond the U.S., over 60 
countries have expressed interest in developing new nuclear energy 
generation capacity. While some of these countries already have 
existing nuclear plants, others would be new entrants, many of whom are 
from the developing world which do not have electrical grids that can 
absorb a 1 GW nuclear plant in their current configuration.
    While U.S. nuclear technology is still considered to be the gold 
standard in safety and reliability throughout the world, the nuclear 
supply infrastructure has become thoroughly internationalized in the 
last three decades. If the U.S. is unable or unwilling to develop SMR 
technology which can be exported internationally as well as used 
domestically, there are several nations who are prepared to meet the 
growing global demand. I believe it is clearly preferable to have 
active U.S. involvement in the global nuclear marketplace, rather than 
ceding the territory to non-US suppliers that may not always share our 
approach toward safety and nonproliferation.
2. S. 512 the Nuclear Power 2021 Act
    As a 501(c)(3) not-for-profit organization, the American Nuclear 
Society does not normally endorse congressional legislation. However, I 
can say confidently that S. 512, The Nuclear Power 2021 Act, represents 
a strong foundational effort to augment the federal government's role 
in U.S. SMR development. It would provide the US Department of Energy 
(DOE) with the authority to enter into public-private partnerships to 
develop and license small modular reactors. We believe this would 
significantly accelerate U.S. SMR reactor development in a manner that 
furthers U.S. environmental, foreign-policy, and economic objectives. 
This legislation builds on the proven success of the Nuclear Power 2010 
(NP 2010) program, which expedited the design and licensing activities 
of the Westinghouse AP 1000 and GEH ESBWR reactors, enabled the 
submission of over 15 combine construction permit and operating license 
(COL) applications for NRC review, while attracting billions in private 
investment in creating tens of thousands of jobs.
3. Other challenges to SMR development/deployment
    ANS encourages Congress to consider other aspects of SMR 
development. These include accelerating the development of SMR-related 
codes and standards; updates to U.S. laws and regulations that would 
facilitate accelerated maturation and transfer of SMR-relevant 
technology from the national laboratories to U.S. industry and 
regulators; streamlining export control laws to minimize the incentives 
to ``off-shore'' SMR component manufacturing; and integration of 
university-based U.S. nuclear science and engineering education 
programs with SMR development efforts to ensure we have technically 
skilled workforce to design, deploy, and operate these reactors in the 
future. Furthermore, I strongly encourage the U.S. Nuclear Regulatory 
Commission (NRC) to move forward with alacrity in addressing the 
outstanding generic licensing and regulatory issues, including 
instrumentation and control, required staffing levels, unique design 
features, enabling construction activities during operations, and 
security requirements.
    In closing, I would like to offer the following observation: it is 
critically important that the U.S. transition to a stable long-term 
energy policy emphasizes reliability, affordability, predictability-in-
pricing, diversity of supply and well-paying domestic job growth. Under 
any conceivable scenario, nuclear energy will be an indispensable 
component of our energy future, and SMR technology will likely play an 
increasingly important role.

    The Chairman. Thank you for that testimony.
    Dr. Bartis, go right ahead.

 STATEMENT OF JAMES T. BARTIS, SENIOR POLICY RESEARCHER, RAND 
                          CORPORATION

    Mr. Bartis. Mr. Chairman and distinguished members, thank 
you for inviting me to testify on S. 937, the American 
Alternative Fuels Act of 2011. My remarks today are based on 
RAND studies that cover a spectrum of alternative fuels 
including oil shale, coal to live liquids, oil sands and 
biofuels. As is RAND's policy my testimony neither endorses nor 
opposes specific legislation.
    An important finding from this body of research centers on 
the vastness of the resource base for alternative fuels in the 
United States. The largest deposits of oil shale in the world 
are located in Western Colorado and Eastern Utah. The potential 
yield is about triple the oil reserves of Saudi Arabia.
    Our coal resource base is also the world's largest 
dedicating only 15 percent of recoverable coal reserves to coal 
to liquid production would yield roughly 100 billion barrels of 
liquid transportation fuels, enough to sustain 3 million 
barrels per day for more than 90 years.
    Our biomass resource is also appreciable offering to yield 
over 2 million barrels per day of liquid fuels. Over the longer 
term, as we have heard earlier today, advanced research in 
photosynthetic approaches for alternative fuels production 
offers the prospect of even greater levels of sustainable 
production.
    Our research at RAND also examined the benefits that a 
commercial alternative fuels industry would yield to our 
Nation's economic well being and national security. In 
particular a national energy policy directed at:
    One, promoting increased energy efficiency.
    Two, the development of a commercial, alternative fuels 
industry would weaken the ability of the OPEC cartel to raise 
world oil prices by limiting production.
    This benefit alone is substantial. Every $10 increase in 
the price of crude oil costs the average American household 
over $550 per year. That's because they use more than just 
gasoline.
    Another important benefit of some alternative fuels is the 
reduction in life cycle, greenhouse gas emissions as compared 
to their petroleum counterparts. Alternative fuels have offered 
significant reductions include some, but not all, renewable 
fuels and some, but not all, fuels manufactured from a blend of 
coal and biomass.
    Presently the legislation governing the energy policies of 
the United States strongly promotes the production of 
alternative fuels that can be derived from renewable resources. 
These policies have successfully promoted the extensive use of 
corn derived ethanol in gasoline powered vehicles. This has 
yielded energy security benefits but economic and environmental 
impacts have been mixed.
    Moving beyond food derived fuel will be difficult. 
Production of cellulosic biofuels is well below the target set 
by Congress. Our examination of near term renewable oils such 
as seed oils and waste oils and fats indicates that the 
national production potential is extremely limited.
    Meanwhile U.S. Federal energy policies give very little 
support to any alternative fuel produced from coal or for that 
matter, any other fossil energy source. In doing so, we forgo 
the opportunity to develop a domestic industry that has the 
potential of producing millions of barrels per day of 
alternative fuels that can reduce dependence on imported oil 
while not increasing greenhouse gas emissions. Moreover over 
the long term liquid fuels derived from the combination of coal 
and biomass could provide a new market for coal that could 
counter the adverse local and regionally economic impacts of 
reduced demand for coal in power generation due to potential 
future measures to reduce greenhouse gas emissions.
    Our analysis indicates that there are serious 
misperceptions regarding the use of coal as opposed to biomass 
for alternative fuels production. Coal facilities do have 
higher capital costs, but their through put is also higher. Our 
research also shows that alternative fuels derived from coal or 
a mixture of coal and biomass have production costs that are 
generally more favorable when compared to those of fuels 
produced from most biomass resources.
    While there is no doubt that additional coal mining raises 
safety, health and environmental issues, inappropriate 
production of biomass could also lead to serious, adverse 
environmental impacts including loss of biodiversity, diversion 
of water resources and water pollution. With regard to worker 
health and safety, agriculture ranks among the most hazardous 
industries. For these reasons we suggest that when framing new 
energy legislation Congress refrain from establishing resource 
specific goals and instead focus on desired outcomes such as 
conventional petroleum, displaced and life cycle greenhouse gas 
emissions. More to the point, I would suggest consideration of 
revising the renewable fuels standards so that they become 
``the clean and secure fuels standards.''
    With regard to the provisions contained in S. 937, my 
written testimony addresses sec. 3 and sec. 5-7. My overall 
assessment of these sections is that enactment of any or all 
will not appreciably influence future alternative fuels 
production in the United States. To do so requires legislation 
that is a bit more comprehensive and that focuses on goals, as 
I mentioned, including environmental goals and establishes 
broad based mechanisms that are free of technology, resource, 
regional or sector bias.
    This concludes my remarks. Thank you.
    [The prepared statement of Mr. Bartis follows:]

     Prepared Statement of James T. Bartis\1\ The RAND Corporation
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    \1\ The opinions and conclusions expressed in this testimony are 
the author's alone and should not be interpreted as representing those 
of RAND or any of the sponsors of its research. This product is part of 
the RAND Corporation testimony series. RAND testimonies record 
testimony presented by RAND associates to federal, state, or local 
legislative committees; government-appointed commissions and panels; 
and private review and oversight bodies. The RAND Corporation is a 
nonprofit research organization providing objective analysis and 
effective solutions that address the challenges facing the public and 
private sectors around the world. RAND's publications do not 
necessarily reflect the opinions of its research clients and sponsors.
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   testimony on s. 937 the american alternative fuels act of 2011\2\
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    \2\ This testimony is available for free download at http://
www.rand.org/pubs/testimonies/CT364/.
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    Chairman and distinguished Members: Thank you for inviting me to 
testify on S. 937, the American Alternative Fuels Act of 2011. I am a 
Senior Policy Researcher at the RAND Corporation with over 30 years of 
experience in analyzing and assessing energy technology and policy 
issues. At RAND, I have been actively involved in research directed at 
understanding the costs and benefits associated with the use of 
domestically abundant resources, such as coal, oil shale and biomass, 
to lessen our nation's dependence on imported petroleum. The findings 
that I will discuss today are drawn from studies sponsored and funded 
by the National Energy Technology Laboratory (NETL) of the U.S. 
Department of Energy, the United States Air Force, the Federal Aviation 
Administration, the National Commission on Energy Policy, the U.S. 
Chamber of Commerce, and the Defense Logistics Agency.
    Today, I will discuss the strategic importance of alternative fuels 
and our assessment of the most promising candidates for near-term 
production. I will also specifically address sections 3 and 5 through 7 
of S. 937. These are the sections of the proposed legislation where I 
hope to provide useful insights to the committee based on our recent 
research on alternative fuels and energy security.
The Importance and Value of Alternative Fuels
    The United States' consumption of liquid fuels is about 19 million 
barrels per day (bpd). Meeting this demand requires importing about 10 
million bpd of petroleum, mostly in the form of crude oil. In a world 
that consumes about 85 million bpd of petroleum products, the United 
States holds first place in total consumption and in the magnitude of 
its imports.
    Currently the average price of crude oil imports is over $105 per 
barrel. At these prices, oil imports will cost U.S. oil consumers 
nearly $400 billion per year. Considering both direct and indirect 
expenditures for energy, each $10 per barrel increase in the price of 
world oil costs the average U.S. household over $550 per year.
    The national security consequences of the dependence of the United 
States, and its allies and trading partners, on imported oil are well-
documented.\3\ All oil consumers are vulnerable to increased prices for 
oil when oil exporters are able to reduce supplies on the world oil 
market. Most serious would be the economic impact of a large and 
extended disruption in global oil supplies as a result of conflict or 
natural disaster. There is also the problem of wealth transfers to the 
governing regimes of some oil exporting nations, such as Libya, 
Venezuela and Iran, that pursue policies that run counter to the 
national security interests of the United States and its allies. When 
oil prices are high, these nations have more funds to invest in 
purchasing armaments and building their own industrial bases for 
manufacturing munitions. High oil prices also provide more funds that 
may eventually find their way to large terrorist organizations such as 
Hamas and Hizballah.
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    \3\ Imported Oil and U.S. National Security, Crane et al., Santa 
Monica, Calif.: RAND Corporation, MG-838-USCC, 2009.
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    Alternative fuels are already being produced in many countries. 
Examples include corn-derived ethanol in the United States and sugar-
derived ethanol in Brazil, synthetic crude from oil sands in Canada, 
coal-to-liquids production in South Africa, natural gas-to-liquids 
production in Qatar and Malaysia, and small amounts of biodiesel 
production in the United States and Europe. Expanding alternative fuels 
production beyond these initial efforts would offer economic and 
national security benefits to the United States. Because it provides a 
substitute for products refined from crude oil, increased production of 
alternative fuels will reduce demand for crude oil, resulting in lower 
world oil prices to the direct benefit of all oil consumers. Lower 
world oil prices and greater supply diversity also mitigate the adverse 
national security impacts of imported oil.
    About 45 percent of the operating refinery capacity of the United 
States is located in the hurricane-prone states of Texas, Louisiana, 
and Mississippi. Because alternative fuels production would likely 
occur in diverse locations throughout the United States, a domestic 
alternative fuels industry would improve the resiliency of the 
petroleum supply chain, especially against natural disasters. 
Increasing the geographical diversity of fuels production implies that 
a smaller fraction of supplies would be affected by any natural 
disaster. As such, we anticipate less economic disruption as the 
remaining supplies are allocated to users.
    For certain alternative fuels, another important benefit could be a 
reduction in lifecycle greenhouse gas emissions, as compared to their 
counterparts produced from conventional petroleum. Alternative fuels 
that offer significant reductions include some, but not all, types of 
renewable fuels and fuels manufactured from a blend of coal and 
biomass.
    But if alternative fuels are to achieve these economic, security, 
and environmental benefits, combined global and domestic production of 
alternative fuels must be an appreciable fraction of global and 
domestic demand for liquid fuels. Specifically, the need is for an 
alternative fuel portfolio that can competitively produce millions of 
barrels per day in the United States. Alternative fuel advocates often 
use gallons per year when describing production potential. For 
perspective, one million barrels per day is 15.3 billion gallons per 
year.
    An important finding from our research in alternative fuels is that 
the United States has resources that could be used to produce 
alternative fuels at a rate of millions of barrels per day. The largest 
deposits of oil shale resources in the world are located primarily in 
western Colorado and eastern Utah. The potential yield is about triple 
the oil reserves of Saudi Arabia. Our coal resource base is also the 
world's largest. Dedicating only 15 percent of recoverable coal 
reserves to coal-to-liquid production would yield roughly 100 billion 
barrels of liquid transportation fuels, enough to sustain production of 
three million barrels per day for more than 90 years. Our biomass 
resource base is also appreciable, offering to yield over two million 
barrels per day of liquid fuels. And over the longer term, advanced 
research in photosynthetic approaches for alternative fuels production 
offers the prospect of even greater levels of sustainable production.
    Presently, mining in the United States produces about 1.1 billion 
tons of coal per year. Nearly all of this production is directed at the 
generation of electric power. Coal's future in power generation will 
depend on whether the United States adopts measures to control 
greenhouse gas emissions. If such measures are implemented, it is very 
likely that the level of coal mining will decrease, with potential 
adverse economic impacts in traditional coal mining areas. Using coal 
to make liquid fuels, especially when combined with biomass so that 
greenhouse gas emissions are favorable, provides not only the economic 
and national security benefits associated with reducing dependence on 
imported oil, but also a new market for coal that could counter the 
adverse local and regional economic impacts of reduced demand for coal 
in power generation.
Assessment of Alternative Fuels
    The Duncan Hunter National Defense Authorization Act for Fiscal 
Year 2009 contained a provision calling for the Secretary of Defense to 
select a federally funded research and development center (FFRDC) to 
conduct a study of the use of alternative fuels in military vehicles 
and aircraft. Responding to Congress, the Department of Defense asked 
the RAND National Defense Research Institute, an FFRDC, to conduct an 
examination of alternative fuels for military applications. Our report 
on this study was published and delivered to the Secretary of Defense 
and Congress in January 2011.\4\ As part of that study, RAND 
researchers examined the opportunities to produce alternative fuels in 
a way that reduces lifecycle greenhouse gas emissions relative to 
emissions from the production and use of the petroleum products that 
they would replace.
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    \4\ Alternative Fuels for Military Applications, Bartis and Van 
Bibber, Santa Monica, Calif.: RAND Corporation, MG969-OSD, 2011.
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    Because this Congressionally-mandated study was directed at 
military applications, we focused our attention on alternative fuels 
that could substitute for jet fuel, diesel fuel, and marine distillate 
fuel, since these are the major liquid fuels consumed by military 
aircraft, ships, ground vehicles, and associated combat support 
systems. These fuels are often referred to as distillate fuels to 
distinguish them from the more volatile and more easily ignited 
gasoline used in spark-ignition automobiles.
    As a group, distillate fuels account for over 95 percent of 
military fuel purchases, which are currently averaging about 340,000 
barrels per day. Distillate fuels are also important in the civilian 
sector, fueling the trucking industry and commercial aviation and 
serving as an important home heating fuel in some parts of the United 
States. Current consumption of distillate fuels in the United States is 
about 5 million bpd. For comparison, recent gasoline demand is running 
at slightly below 9 million bpd.
    While the emphasis of our assessment of alternative fuels was on 
military applications, our results also apply to alternative fuels that 
could displace petroleum-derived distillate fuels that are used in 
civilian application. Note, however, that as part of this 
Congressionally-mandated study, we did not examine options for 
producing alternative fuels that can substitute for gasoline, such as 
alcohol fuels. For safety and operational reasons, these more volatile 
fuels are not appropriate for military applications. Since RAND has not 
conducted an in-depth examination of alcohol fuels, my remarks today 
will not cover this family of fuels.
    Also included here is a brief statement regarding the oil shale 
resources located in the Green River Formation of Colorado, Utah, and 
Wyoming. Here our findings derive from the RAND 2005 examination of oil 
shale and our continuing monitoring of progress in this area.\5\
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    \5\ Oil Shale Development in the United States: Prospects and 
Policy Issues, Bartis et al., Santa Monica, Calif.: RAND Corporation, 
MG 414-NETL, 2005.
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    Fischer-Tropsch fuels are the most promising near-term options for 
producing middle distillate fuels cleanly and affordably.--The Fischer-
Tropsch (FT) method was invented in Germany in the 1920s. It can 
produce alternative liquid fuels that can substitute for petroleum 
derived civilian and military fuels, including civilian and military 
jet fuels, marine fuels, and automotive diesel fuel, and home heating 
oil. Generally, gasoline is produced as a co-product in FT facilities, 
and one commercially proven variant can be configured to produce only 
gasoline. The method accepts a variety of feedstocks. For example, a 
commercial facility operating in South Africa uses coal, one operating 
in Qatar uses natural gas, and forest product firms in the United 
States are examining the viability of small facilities that would use 
biomass. Blends of up to 50 percent FT-derived jet fuel and petroleum-
derived jet fuel have been certified for use in commercial aircraft. 
Ongoing work by the services strongly suggests that appropriately 
formulated FT fuel blends can be safely used in tactical military 
systems as well.
    Both coal and biomass are abundant in the United States. Together, 
they are sufficient to support a multimillion-barrel-per-day 
alternative fuel industry based on FT fuels. But if FT fuel production 
is to occur without compromising future national goals to control 
greenhouse gas emissions, the following must hold:

   For biomass-derived FT fuels, the biomass feedstock must be 
        produced in a sustainable manner; specifically, its production 
        should not be based on practices that lead to sizable emissions 
        due to direct or indirect changes in land use. If this is 
        achieved, lifecycle greenhouse gas emissions can be near zero.
   For coal-derived FT fuels, carbon dioxide emissions at the 
        FT fuel production facility must be captured and sequestered. 
        If this is achieved, lifecycle emissions can be in line with 
        those of petroleum-derived fuels.
   For FT fuels derived from a mixture of coal and biomass, 
        carbon dioxide capture and sequestration must be implemented. 
        The biomass must also be produced in a sustainable manner. If 
        this is achieved, lifecycle emissions can be less than half 
        those of petroleumderived fuels. For example, a feedstock 
        consisting of a 60/40 coal/biomass blend (by energy) should 
        yield alternative fuels with lifecycle greenhouse gas emissions 
        that are close to zero.

    The preceding approaches can result in FT fuels with lifecycle 
greenhouse gas emissions that are less than or equal to those of their 
petroleum-derived counterparts and thereby fuels that are eligible for 
government purchase per the provisions of section 526 of the Energy 
Independence and Security Act of 2007.
    Considering economics, technical readiness, greenhouse gas 
emissions, and general environmental concerns, FT fuels derived from a 
mixture of coal and biomass represent the most promising approach to 
producing amounts of alternative fuels that can meet military, as well 
as appreciable levels of civilian, needs by 2030. But whether this 
technology will reach its potential depends crucially on gaining early 
production experience-including production with carbon capture and 
sequestration-in the United States. To our knowledge, no agency of the 
U.S. government has announced plans to promote early commercial use of 
FT fuels derived from a mixture of coal and biomass.
    It is highly uncertain whether appreciable amounts of hydrotreated 
renewable oils can be affordably and cleanly produced within the United 
States or abroad.--Hydrotreated renewable oils are produced by 
processing animal fats or vegetable oils (from seed-bearing plants such 
as soybeans, jatropha, or camelina) with hydrogen. Various types of 
algae have high oil content and are another possible source of oil for 
hydrotreatment. Fifty-fifty blends of hydrotreated oils have already 
been successfully demonstrated in flight tests sponsored by the 
commercial aviation industry. Laboratory analyses and testing strongly 
suggest that hydrotreated renewable oils can also be formulated for use 
in the Department of Defense's tactical weapon systems. Technical 
viability is not an issue.
    The problem lies in uncertainties regarding production potential 
and commercial viability, especially affordability and lifecycle 
greenhouse gas emissions. Animal fats and other waste oils may offer an 
affordable low-greenhouse-gas route to hydrotreated renewable oils. But 
these fats and waste oils are also traditionally used in other nonfuel 
applications, including animal feed additives and the manufacture of 
soaps, household cleaners, resins, and plastics. Because the supply of 
these feedstocks is limited, substitutes would need to be found for use 
in these other applications. These substitutes may cause additional 
greenhouse gas emissions. Production potential is also a significant 
issue with animal fats and waste oils: The available supply of these 
feedstocks will likely limit production to no more than 30,000 barrels 
per day.
    With regard to feedstock vegetable oils, to keep lifecycle 
greenhouse gas emissions at levels lower than those of petroleum-
derived fuels, these oils must be derived from crops that do not 
compete with food production and that minimize nonbeneficial direct and 
indirect changes in land use. Jatropha and camelina are often mentioned 
as ideal plants to meet these requirements, but there exists little 
evidence to back these claims. Even if low-greenhouse-gas approaches 
can be established and verified, total fuel production is likely to be 
limited. Producing just 200,000 barrels per day (about 1 percent of 
daily U.S. petroleum consumption) would require an area equal to about 
10 percent of the croplands currently under cultivation in the United 
States.
    Advanced approaches, such as photosynthetic approaches using algae 
or other microbes as a feedstock, may yield renewable oils without the 
limitations and adverse land-use changes associated with seed oils. But 
all of these advanced approaches are in the early stages of the 
research and development (R&D) cycle. Large investments in R&D will be 
required before confident estimates can be made regarding production 
costs and environmental impacts. Considering (1) the very limited 
production potential for fuels derived from animal fats and waste oils, 
(2) the highly uncertain prospects for affordable, low greenhouse-gas 
fuels derived from seed crops, and (3) the early development status of 
algae/microbe-based concepts, renewable oils do not constitute a 
credible, climate-friendly option for meeting an appreciable fraction 
of civilian or military fuel needs over the next decade. Because of 
limited production potential, fuels derived from animal fats, waste 
oils, and seed oils will never have a significant role in the larger 
domestic commercial marketplace. Algae/microbe-derived fuels might, but 
technology development challenges suggest that algae/microbe-derived 
fuels will not constitute an important fraction of the commercial fuel 
market until well beyond the next decade. This assessment holds for 
algae-derived fuels based on photosynthetic energy conversion or based 
on the conversion of cellulosic biomass. Algae-derived fuels based on 
the conversion of sugars compete with food production and are not a 
sustainable source of liquid fuels.
    The prospects for oil shale development in the United States remain 
uncertain.--With regard to oil shale, most of the high-grade shale is 
on federal lands. Six years ago, when we published our examination of 
oil shale, we concluded that the prospects for development were 
uncertain. They remain so today. The Bureau of Land Management has made 
available small amounts of acreage so that private firms can perform 
research and development and demonstrate technology performance before 
committing to the construction of full-scale commercial plants. It is 
our understanding that privately-funded research activities are ongoing 
but that no private firm is prepared to commit to commercial 
production. Meanwhile, the Department of the Interior has announced a 
review of the commercial rules for the development of oil shale 
resources on public lands. In part, this review will examine approaches 
for assuring a fair return for providing access to oil shale lands. 
This part of the review is consistent with recommendations provided by 
RAND to the Congress in 2007.\6\ The key to progress lies in 
formulating a land access and incentive policy that rewards those 
private firms willing to take on the substantial risks associated with 
investing in pioneer production facilities. It would not be advisable 
to develop detailed regulations that would pertain to full-blown 
commercial development until more information is available on process 
performance and impacts.
---------------------------------------------------------------------------
    \6\ ``Policy Issues for Oil shale Development,'' Testimony by James 
T. Bartis presented before the House Natural Resources Committee, 
Subcommittee on Energy and Mineral Resources, April 17, 2007. Available 
for download at http://www.rand.org/pubs/testimonies/CT279.
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Comments on S. 937
    The remainder of my testimony is focused on specific sections of S. 
937.
Section 3. Repeal of Unnecessary Barriers to Domestic Fuel Production
    Section 3 would repeal section 526 of the Energy Independence and 
Security Act of 2007 as well as section 1112 of the National 
Aeronautics and Space Administration Authorization Act of 2008.
    Section 526 prohibits federal agencies from entering into a 
contract for procurement of an alternative fuel or a fuel from an 
unconventional petroleum source unless the contract specifies that the 
lifecycle greenhouse gas emissions of that fuel are less than the 
equivalent product produced from conventional petroleum. The only 
exception would be for alternative fuels purchased for the purposes of 
research and fuel testing.
    As enacted, section 526 places severe restraints on the 
government's ability to purchase fuels. It would prohibit the 
government from purchasing any mobility fuel that might be derived in 
part or whole from coal, oil shale, oil sands, or biofuels without a 
certification from the fuel supplier regarding lifecycle greenhouse gas 
emissions. To my knowledge, section 526 has not been applied to 
biofuels, even though biofuels can have lifecycle greenhouse gas 
emissions that are higher than the equivalent product produced from 
conventional petroleum.
    Since passage of section 526, the main concern has been whether the 
law prohibits government purchases of fuels that might be derived in 
part from Canadian oil sands. If this were the case, the government 
would be unable to purchase fuels from a growing number of commercial 
fuel vendors. With less competition, it is reasonable to expect that 
the government would incur increased costs. Additionally, the Defense 
Department may find it difficult or very costly to purchase aviation 
fuel in South Africa or Qatar, where alternative fuels from coal and 
natural gas are likely to be blended with conventional fuels.
    To remedy this problem, Congress in 2010 passed legislation (Public 
Law 111-314, Sec 30210) that provides an exception to the fuel purchase 
prohibitions of section 526. That exemption apparently allows 
government purchases of commercially available fuels that might in part 
be derived from alternative fuels so long as three conditions hold. The 
language of section 30210 is unclear, so my interpretation of Public 
Law 111-314 as providing a remedy to the more onerous provisions of 
section 526 may be incorrect.
    Repeal of section 526 would remove any confusion regarding the 
exemptions to constraints on government purchases of mobility fuels. It 
would also allow agencies to continue their current practice of 
purchasing biofuels, such as corn-derived alcohol fuels and biodiesel, 
without regard to lifecycle greenhouse gas emissions. Finally, it would 
allow federal procurement of alternative fuels such as coal-derived 
liquids, natural gas-derived liquids, and fuels produced from oil shale 
without regard to lifecycle greenhouse gas emissions.
    The primary policy issue raised by repeal of section 526 is whether 
it is in the national interest to allow government agencies to promote 
the production of alternative fuels that have lifecycle greenhouse gas 
emissions that are significantly higher than their petroleum 
counterparts. For example, repeal of section 526 would open the door to 
a government procurement of coalderived liquids produced without 
managing greenhouse gas emissions.
    If Congress is concerned with the limitations and continued 
uncertainties associated with the implementation of section 526, I 
suggest consideration of legislation that would clarify the meaning of 
Section 30210 of Public Law 111-314 so that the government is not 
prohibited from purchasing commercial fuels derived in part from 
alternative fuels or oil sands. Congress should also clarify whether 
section 526 prohibitions apply to biofuels.
    If the intent of Congress is to promote the early production of 
alternative fuels with greenhouse gas emissions that are comparable or 
better than those of their petroleum counterparts, I suggest 
consideration of an amendment to section 526 that would allow the 
government to target purchases of alternative fuels derived from fossil 
fuel resources (such as coal, natural gas, or oil shale) if 90 percent 
of greenhouse gases produced during the alternative fuel production 
process are captured and sequestered or if lifecycle greenhouse gas 
emissions are no more than five percent above the lifecycle greenhouse 
gas emissions of their petroleum counterparts. This suggested amendment 
would still require management of greenhouse gas emissions, but it 
would significantly reduce the costs of building and operating pioneer 
alternative fuels facilities that are based on coal, stranded natural 
gas resources in Alaska, and possibly oil shale.
Section 5. Algae-Based Fuel Incentives
    Section 5 would modify a portion of the Clean Air Act that governs 
the implementation of the Renewable Fuel Standard program managed by 
the Environmental Protection Agency (EPA). This program forces the use 
of government-selected fuels in the transportation sector. It provides 
unknown, but potentially very high, levels of subsidies to certain 
renewable fuel producers, but works in a way that the total costs borne 
by the public are hidden. These hidden costs include not only increased 
prices at the pump but also at the supermarket. Finally, this program 
puts government in the position of picking technology winners 
irrespective of whether these technologies offer environmental or 
energy security benefits.
    Under section 5, each gallon of algae-based fuel would basically 
receive a triple subsidy if it were produced using carbon dioxide from 
an energy production process that would otherwise release that carbon 
dioxide into the atmosphere. section 5 does not define an ``energy 
production process.'' Possible candidates include electric generating 
plants that use fossil or biofuels, oil refineries, alternative fuel 
production facilities, and natural gas processing plants.
    Section 5 applies to algae that use sunlight to convert carbon 
dioxide to oils that are similar to vegetable oils. These oils can be 
converted to a biodiesel or can be treated with hydrogen so that they 
are interchangeable with conventional diesel or jet fuel. The technical 
viability of producing useful fuels from algae has been established for 
some time. The big unknown is whether these fuels can be produced at 
costs that are competitive, or even in the ballpark, with conventional 
fuels. Over the past two years, we have closely examined this issue. 
Our finding is that photosynthetic approaches to algae appear very 
promising, but that at this time algae-derived fuel is a research 
topic, not an emerging fuel option.
    EPA has published its renewable fuel standards for 2011. From their 
Notice of Final Rulemaking, it is clear that the rule requires the use 
of fuels from small experimental facilities. This could lead to fuel 
refiners and importers paying very high premiums i.e., over $10 per 
gallon for certain renewable fuels. These additional costs will likely 
be passed to consumers. If EPA continues to apply this logic, any small 
pilot or demonstration plant built for the purpose of understanding 
scale-up and operational issues would be transformed into a commercial 
production facility. The same would apply to pre-commercial algae-
derived fuel production facilities, including those being built with 
federal funds.
    If this were a direct government expenditure, many would doubt that 
subsidies in the range of $10 to $30 per gallon are appropriate. 
Considering that commercially viable photosynthetic algae production is 
many years in the future, a more productive approach in accelerating 
this technology is direct investment in research and development.
    Overall, the net effect of section 5 will be a transfer of wealth 
from fuel consumers to firms trying to develop algae-derived fuel. It 
is difficult to see how these subsidies and this approach will have any 
impact over the next decade on the rate of development of a 
commercially viable industry.
Section 6. Loan Guarantees
    This section would amend the Energy Policy Act of 2005 so that 
eligibility for DOE loan guarantees would include facilities that 
produce a fuel that can substitute for natural gas using a solid 
feedstock, provided that at least 90 percent of the carbon produced 
through the gasification process is captured. Since any renewable 
energy projects already qualify for loan guarantees, the net effect of 
this amendment would be to extend the coverage of the loan guarantee 
program to projects that use coal, or possibly oil shale, to make a 
substitute natural gas.
    Considering the resource estimates and recovery costs for shale 
gas, it is highly unlikely that any firm will consider using any solid, 
non-renewable feedstock to produce natural gas as a primary product. 
Oil shale production facilities might produce natural gas as a by-
product, although it is not clear whether such production would cause 
them to qualify for a loan guarantee. Overall, it is highly unlikely 
that enactment of this section will have any impact, positive or 
negative, on energy production in the United States.
Section 7. Multi-year Contract Authority for Department of Defense For 
        Procurement of Alternative Fuels.
    The main benefit would be to allow the use of the purchasing power 
of the Defense Department for the promotion of early commercial 
experience in the production of alternative fuels. The ``Required 
Provisions'' within section 7 make it fully consistent with the 
findings of our research on alternative fuels for military 
applications. Specifically, our analysis suggests that a cost-effective 
approach, considering both government and industry perspectives, would 
be one in which:

   the Defense Department would commit to purchase alternative 
        fuels that meet military specifications at a specified floor 
        price;
   the alternative fuels producer would commit to sell 
        alternative fuels that meet military specifications to the 
        Department according to a specified formula that would 
        basically set a ceiling price; and
   the Department's purchase price would be set using a market-
        based formula when prices for the corresponding petroleum-
        derived fuels are between the floor and the ceiling.

    This arrangement places a collar on the prices of some fraction of 
the fuels that would be produced by an alternative fuels production 
facility. In return for guaranteeing a minimum sale price to the 
benefit of the producer in the event that world oil prices are low, the 
Department would be guaranteed a maximum purchase price that would be 
lower than world oil prices in the event that world oil prices pass a 
specified threshold. Such arrangements appear to be allowed and meet 
the provisions of section 7 that call for ``pricing mechanisms to 
minimize risk to the Federal Government from significant changes in 
market prices for energy.''
    This arrangement would have the added benefit of promoting the use 
of coal-derived liquids in applications where they have the greatest 
value. In particular, most military applications involve the use of 
high sulfur jet fuel in turbine engines. These applications place no 
value on the high cetane number and near-zero sulfur levels of 
hydrotreated renewable fuels and Fischer-Tropsch fuels.
    In closing, I thank the committee for inviting me to testify. I 
hope the foregoing analysis of policy issues is useful to your 
deliberations.

    The Chairman. Thank you very much.
    Mr. Siu, go right ahead.

   STATEMENT OF BRIAN SIU, POLICY ANALYST, NATURAL RESOURCES 
                        DEFENSE COUNCIL

    Mr. Siu. Chairman Bingaman, Ranking Member Murkowski and 
members of the committee, thank you very much for today's 
opportunity to testify on the subject of S. 937. My name is 
Brian Siu and I'm a policy analyst for the Natural Resources 
Defense Council. NRDC is a national, non-profit organization 
dedicated to the protection of public health and the 
environment.
    There is no doubt that our sources of conventional liquid 
fuel have become increasingly problematic. We are reminded of 
this every time events beyond our control drive price 
volatility. Thus it is with good reason that the Nation is in 
search of energy efficiency in alternative fuels. It is vitally 
important not to let the urgency that we all feel distorts 
sound, long term judgment driving investments that are 
ultimately more harmful than the ones we have today.
    Today I'll focus my comments on 3 provisions of the 
American Alternative Fuels Act that increase the likelihood of 
such mistakes.
    The first of these provisions would repeal section 526 of 
the Energy Independence and Security Act of 2007. NRDC strongly 
opposes efforts to repeal this reasonable protection that 
ensures that the Department of Defense and other Federal 
agencies do not exacerbate climate change by buying fuels with 
higher greenhouse gas emissions than conventional fuels. It is 
noteworthy that section 526 does not categorically prohibit any 
fuel source nor does it require emissions to even decline, it 
simply ensures that the Federal Government does not 
commercialize environmentally flawed technologies that make no 
effort to reign in their carbon pollution to at least parity 
with conventional petroleum. Such restrictions are necessary 
given scientific concern that rising temperatures will induce 
higher sea levels, migration of invasive species, disease 
factors and severe weather incidents.
    The link between climate change and national security is 
another strong reason to preserve section 526. I do not profess 
to be a military expert, but take them at their word when they 
cite the climate change's numerous liabilities. Highly 
credentialed organizations such as the National Intelligence 
Council, the Center for Naval Analysis and the Pentagon have 
all noted that climate change can act as an accelerant of 
instability drive humanitarian crises, tax military resources 
and less readiness and threaten coastal installations.
    Placed in this context section 526 is largely about 
accountability. Removing it would allow fuel producers to 
access public funds without making any effort to mitigate these 
well acknowledged, public concerns. By contrast, preserving 
section 526 sends a signal that new fuel technologies must 
balance energy, environment and climate security.
    Next Section 7 of 937 empowers DOD to enter 20 year 
contracts for alternative fuels. For emerging fuel technologies 
long term contracts are viewed as a way to mitigate risk by 
establishing a known and stable revenue stream. NRDC agrees 
that some form of genuinely low carbon fuel is desirable for 
environment and supply. However this provision does not 
encourage such fuels and would have the opposite effect.
    First, it acts in conjunction with repealing section 526 to 
wipe long term financial support for fuels that are vastly more 
destructive than today's.
    Second, the language fails to ensure that potentially 
beneficial fuels do not also accrue unacceptably high 
ecological costs.
    While emerging biofuels may provide sustainable options for 
aviation and ground transport careless development can also 
lead to a range of consequences such as water quality 
deterioration, greenhouse gas emissions and habitat loss. Given 
that possibility, eligibility guidelines must help minimize 
unintended consequences. Unfortunately no such guidelines are 
set here.
    Finally, section 8 of 937 would amend the determination of 
best available control technology or BACT, under the Clean Air 
Act by allowing emissions reductions from electric vehicles to 
be taken into account. The BACT requirement is designed to 
ensure that newer, modified major facilities minimize their 
emissions of regulated air pollutants like sulfur dioxide, 
particulates, oxides of nitrogen and mercury as well as carbon 
pollution.
    NRDC has serious concerns with introducing offsets into the 
BACT determination process since it would allow power plants to 
forgo available technology to control emissions that are 
dangerous to human health. In doing so, it risks failing to 
protect those whose health would be adversely affected by 
increasing power plant emissions since there's really no 
guarantee that offsite emission reductions would geographically 
match increased power plant pollution. In those cases air 
quality from some local businesses and residents would be 
allowed to deteriorate simply because it improved elsewhere.
    In conclusion fuel policy must include protections to hedge 
against significant environmental harms. Unfortunately no such 
protections appear in S. 937. Once again, NRDC thanks you for 
the opportunity to present its views. I'm happy to answer 
questions. Thank you.
    [The prepared statement of Mr. Siu follows:]

  Prepared Statement of Brian Siu, Policy Analyst, Natural Resources 
                            Defense Council
    Chairman Bingaman, Ranking Member Murkowski and members of the 
committee, thank you for today's opportunity to testify on the subject 
of Senate bill 937. My name is Brian Siu. I am a policy analyst for of 
the Natural Resources Defense Council (NRDC). NRDC is a national, 
nonprofit organization of scientists, lawyers and environmental 
specialists dedicated to protecting public health and the environment. 
Founded in 1970, NRDC has more than 1.2 million members and online 
activists nationwide, served from offices in New York, Chicago, 
Washington, Los Angeles and San Francisco.
    S. 937 would amend several existing laws in an effort to promote 
alternative transportation fuels. While the bill may be well 
intentioned, NRDC maintains that many of its provisions will have 
unintended consequences that outweigh any expected benefits. Today, I 
will focus my comments on three key provisions. The first of these 
provisions is the proposed repeal of section 526 of the Energy 
Independence and Security Act of 2007 (EISA). The second allows the 
Defense Department (DoD) to enter 20 year procurement contracts for 
alternative fuels. Finally, the third provision requires state and 
federal agencies that issue construction permits for major new or 
modified power plants under the Clean Air Act to consider on-road 
pollution reductions due to electric vehicle deployment when 
determining best available control technology.
Section 526 of the Energy Independence and Security Act of 2007 Should 
        Remain in Place
    There is no doubt that our sources of conventional liquid fuel have 
become increasingly problematic. We are reminded of this every time 
geopolitical unrest, natural events or developments beyond our control 
drive price volatility. Thus, it is with good reason that the nation is 
in search of energy efficiency and alternative fuels. But it is vitally 
important not to let urgency distort sound long term judgment, leading 
to investments that cause more harm than good. Section 3 of the 
American Alternative Fuels Act increases the likelihood of such 
mistakes by repealing section 526 of EISA. NRDC strongly opposes 
efforts to weaken or remove this reasonable, common sense protection.
    Put simply, section 526 disallows federal agencies from procuring 
alternative fuels that have higher lifecycle greenhouse gas emissions 
than conventional petroleum products. It is noteworthy that section 526 
does not categorically prohibit any type of fuel nor does it require 
emissions to actually decline. It simply ensures that federal 
government does not exacerbate climate change by expanding or 
commercializing high carbon technologies before measures are taken to 
capture and dispose the carbon pollution. While section 526 applies to 
all federal agencies, the Department of Defense is the largest federal 
purchaser of fuel. In the past, the United States Air Force was eager 
to develop liquid coal fuels. section 526 prevented DoD from leveraging 
its significant procurement power to commercialize those fuels unless 
the emissions were managed responsibly.
    There are strong environmental reasons to avoid expanding or 
commercializing high carbon fuels. The increased carbon loadings 
associated with these fuels would accelerate global warming and its 
catastrophic consequences. There is broad scientific concern that 
rising temperatures will induce higher sea levels, shifting disease 
vectors, migration of invasive species, and severe weather incidents.
    To help avoid these consequences, the United States and other 
nations will need to deploy energy resources that release lower amounts 
of carbon pollution than today's use of oil and gas. To keep global 
temperatures increases from causing widespread environmental and 
economic harm, we need to get on a pathway now to allow us to cut 
global warming emissions significantly from today's levels over the 
decades ahead. The technologies we choose to meet our energy needs in 
the transportation sector and in other areas must have the potential to 
perform at greatly improved emission levels. Unfortunately, high carbon 
fuels such as liquid coal, tar sands, and oil shale do not have a role 
in that scenario. Liquid coal without carbon capture and storage, for 
instance, produces approximately double the carbon pollution as 
conventional petroleum fuel over the full product lifecycle.
    The good news is that others in the transportation sector plan to 
reduce their emissions of greenhouse gases. Pursuant to the 
Administration's vehicle efficiency and carbon pollution standards, for 
instance, auto companies will achieve an equivalent of 35.5 miles per 
gallon by 2016. According to the Environmental Protection Agency, the 
2012-2016 standards will avoid 960 million metric tons of greenhouse 
gas emissions that would have otherwise been emitted into the 
atmosphere.\1\ As the auto and other economic sectors endeavor to 
reduce carbon emissions, unchecked high carbon fuel facilities could 
offset their achievements. In the interests of consistency and 
fairness, federal government should not assist these fuels to mass 
market, especially when no measures are taken to bring emissions into 
alignment with even conventional fuels.
---------------------------------------------------------------------------
    \1\ Environmental Protection Agency, ``EPA and NHTSA Finalize 
Historic National Program to Reduce Greenhouse Gases and Improve Fuel 
Economy for Cars and Trucks'', April 2010.
---------------------------------------------------------------------------
    There are other substantial environmental reasons to avoid these 
technologies. Fuels such as liquid coal and tar sands tend to impose 
significant upstream impacts as a result of feedstock extraction. These 
are difficult to avoid, especially as the industry scales up. For 
instance, it requires nearly half a ton of coal to produce one barrel 
of liquid coal. Thus, establishing a mature liquid coal industry, 
perhaps at 3 million barrels per day, would greatly increase coal 
mining. Meeting those levels would require roughly 550 million 
additional tons of annual coal production.\2\ By comparison, the Energy 
Information Administration estimates that the United States mined just 
over one billion tons of coal in 2009.\3\ Thus, a significant liquid 
coal industry might increase mining activity by roughly 50% over 
today's levels.
---------------------------------------------------------------------------
    \2\ James Bartis et al, Producing Liquid Fuels from Coal, RAND 
Corporation, 2008.
    \3\ Energy Information Administration, Annual Energy Review 2009, 
August 2010.
---------------------------------------------------------------------------
    The environmental consequences would be tremendous. Today, coal 
mining is already responsible for a range of environmental harms 
including biodiversity loss, mountaintop removal, groundwater 
contamination and loss of natural heritage. To be certain, coal plays a 
major role in America's power production and will for some time. But 
few believe this energy source is benign. As we evaluate our liquid 
fuel options, we must remember that the decisions we make today will 
have growing implications for decades to come. We must therefore 
prioritize resources that achieve balance between energy supply and 
environmental sustainability while avoiding fundamentally flawed 
technologies that are not already in use today.
    The recognized link between climate change and national security is 
yet another reason to preserve section 526. In recent years, many 
military and security experts have noted that increased temperatures, 
droughts, and extreme weather events could exacerbate political tension 
and resource competition in some of the world's volatile regions. 
Moreover, military experts have expressed concern that elevated seal 
levels threaten coastal installations as well as the supporting 
industries. Here are direct quotations from national security voices 
with impeccable credentials:

   In 2008, the National Intelligence Council noted that ``As 
        climate changes spur more humanitarian emergencies, the 
        international community's capacity to respond will be 
        increasingly strained. The United States, in particular will be 
        called upon to respond. The demands of these potential 
        humanitarian responses may significantly tax US military 
        transportation and support force structures, resulting in a 
        strained readiness posture and decreased strategic depth for 
        combat operations.''\4\
---------------------------------------------------------------------------
    \4\ June 25, 2008: House Permanent Select Committee on Intelligence 
& House Select Committee on Energy Independence and Global Warming: 
Statement for the Record by Dr. Thomas Fingar, Deputy Director of 
National Intelligence for Analysis--National Intelligence Assessment on 
the National Security Implications of Global Climate Change to 2030
---------------------------------------------------------------------------
   In 2008, the National Intelligence Council also found that 
        ``A number of active coastal military installations in the 
        continental United States are at a significant and increasing 
        risk of damage, as a function of flooding from worsened storm 
        surges in the near-term. In addition, two dozen nuclear 
        facilities and numerous refineries along US coastlines are at 
        risk and may be severely impacted by storms.''\5\
---------------------------------------------------------------------------
    \5\ ibid.
---------------------------------------------------------------------------
   In 2009, the Center on Naval Analysis found that 
        ``Destabilization driven by ongoing climate change has the 
        potential to add significantly to the mission burden of the 
        U.S. military in fragile regions of the world'' and that ``the 
        U.S. should not pursue energy options inconsistent with the 
        national response to climate change.''\6\
---------------------------------------------------------------------------
    \6\ Center for Naval Analysis, Powering America's Defense: Energy 
and the Risks to National Security, May 2009.
---------------------------------------------------------------------------
   In 2010, the Pentagon Quadrennial Defense Review stated that 
        although ``climate change alone does not cause conflict, it may 
        act as an accelerant of instability or conflict, placing a 
        burden to respond on civilian institutions and militaries 
        around the world. In addition, extreme weather events may lead 
        to increased demands for defense support to civil authorities 
        for humanitarian assistance or disaster response both within 
        the United States and overseas.''\7\
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    \7\ U.S. Department of Defense, Quadrennial Defense Review, 
February, 2010.

    Placed in this context, section 526 is largely about 
accountability. It simply ensures that alternative fuel providers do 
not benefit from federal procurement initiatives if their products make 
addressing these risks even more difficult than they already are. 
Stated another way, removing section 526 would allow fuel producers to 
access public coffers without at least making efforts to mitigate these 
well acknowledged national concerns.
    Finally, repealing section 526 sends the wrong signal to the 
broader economy. Even if the DoD chooses not to pursue high carbon 
fuels due to previously noted concerns, repealing the provision would 
increase tolerance for these types of fuels. A signal that increasingly 
harmful fuels are now endorsed by the federal government could help 
encourage investments that are wholly incompatible with the need to 
reduce carbon pollution and harmful extractive practices while 
drastically reducing opportunities in cleaner, sustainable fuels that 
that provide a wider array of benefits.
Long Term Contracting Provisions must Include Environmental Protections
    Section 7 of the American Alternative Fuels Act empowers the 
Department of Defense to enter 20-year contracts for alternative fuels. 
As written, NRDC opposes this provision since it fosters alternative 
fuels without the necessary safeguards to avoid unacceptable 
environmental costs.
    Current regulations limit the Department of Defense from entering 
into fuel procurement contracts that exceed a five year period. But 
there has been growing interest in extending the contracting window. 
This is because many emerging technologies pose high risk due to 
initial technology costs and lack of commercial experience. In the 
past, long term fixed price contracts have been viewed as a way to 
mitigate those risks by establishing a known and stable revenue stream. 
It is believed that this certainty will help attract private capital 
for the project.
    NRDC agrees that some form of genuinely low carbon alternative fuel 
is desirable for both environmental and energy security reasons. 
However, this provision falls short of encouraging such fuels and could 
easily function to the opposite effect. First, the provision acts in 
conjunction with repealing section 526 to provide long term financial 
support for fuels that are more destructive than today's. Secondly, the 
language fails to set any environmental parameters that ensure 
alternative fuels do not create unacceptably high ecological costs. 
NRDC does not categorically oppose these forms of support, so long as 
the resulting fuels are consistent with public health, climate science 
and environmental protection. But the long term contracting provision 
in this bill appears to create a pathway for unchecked high carbon, 
high impact fuels.
    As an example, I will once again use liquid coal to describe the 
risk. Liquid coal facilities are large, centralized and capital 
intensive. By some estimates, the investment costs might approach 
$125,000 per barrel of daily production capacity.\8\ Indeed, recent 
cost estimates for proposed commercial scale projects exceed billions 
of dollars per facility. Given these costs, a long term contract, or 
even the possibility of such an arrangement could go a long way towards 
assuring investors that the project can generate profitable returns 
over a significant portion of the operating life.
---------------------------------------------------------------------------
    \8\ James Bartis et al, Producing Liquid Fuels from Coal, RAND 
Corporation, 2008.
---------------------------------------------------------------------------
    Yet for reasons we have already discussed, federal agencies should 
not help deploy technologies that undermine climate and environmental 
priorities. Instead, these types of supports should be reserved for 
fuels that strike balance between security, environmental and climate 
concerns. These parameters will foster new fuel technologies that 
respond to, rather than ignore the growing impacts of increased fuel 
demand.
    Even for advanced biofuels, the proposed language is 
environmentally insufficient. NRDC believes that emerging forms of drop 
in biofuel can provide sustainable options for aviation and ground 
transport if caution is observed throughout the chain of production. 
But vegetative feedstocks are intertwined with land and water health. 
Thus, careless development can lead to a range of consequences such as 
water quality deterioration, soil impaction, habitat loss and 
greenhouse gas emissions. As a nascent advanced biofuels fuels industry 
scales up, it is critically important to observe these risks so that 
the supporting resources can sustain the industry.
    Unfortunately, S. 937 is silent on these critical issues. To manage 
these concerns, NRDC recommends an approach taken by Senator Murray, 
Senator Cantwell and Representative Inslee. Their proposal, the 
Domestic Fuel for Enhancing National Security Act (D-FENS), would 
provide 15-year contracting authority for DoD but limit eligibility to 
``advanced biofuel'' as defined under section 211(o) of the Clean Air 
Act. That definition includes critical land and wildlife protections as 
well as greenhouse gas targets. To that extent, the D-FENS Act 
addresses separate but linked challenges. Rather than favoring 
mountaintop removal and global warming, it helps diversify fuel supply 
with sustainable alternatives to oil. At the same time, it helps 
identify environmentally realistic pathways amid public concern over 
unintended environmental consequences of careless fuel development. And 
by encouraging genuinely low carbon fuel, it helps manage the 
recognized national security threats of global warming. This approach 
demonstrates how a core emphasis on performance can address multiple 
but linked challenges.
    In sum, NRDC does not support the long term contracting provisions 
in American Alternative Fuels Act. While we believe that there may be 
some role for these instruments, the potential effects of significant 
alternative fuel production require careful attention to environmental 
protection and public health. At this time, parameters to encourage 
that balance have not been included.
The Clean Air Act's ``Best Available Control Technology''
Requirements Should Not Be Changed in an Alternative Fuels Bill
    Section 8 of the bill would amend the determination of best 
available control technology (BACT) under the Clean Air Act. The 
requirement for major new and modified sources to meet emission 
limitations reflecting BACT was originally adopted as part of the 1977 
Clean Air Act amendments. The Act requires a preconstruction review and 
the issuance of a permit for the construction of any new or modified 
``major emitting facility''.\9\ The BACT requirement is designed to 
require new or modified major facilities to minimize their emissions of 
any regulated air pollutant, including greenhouse gas emissions.
---------------------------------------------------------------------------
    \9\ See 42 U.S.C. Sec. Sec. 7475, 7501-7503.
---------------------------------------------------------------------------
    The American Alternative Fuels Act introduces, for the first time, 
an off-site consideration in determining BACT. It is not at all clear 
how off-site emission reductions would be incorporated into a 
determination of BACT. Perhaps most importantly, there is significant 
risk that this provision would fail to protect those whose health will 
be adversely affected by increased emissions of power plant pollutants 
that are directly dangerous to human health such as sulfur dioxide, 
particulates, oxides of nitrogen, and mercury, as well as carbon 
pollution that contributes to risks of death, illness, and injury 
through climate change impacts. There is no guarantee that off-site 
emission reductions will affect the same locations that are affected by 
unmitigated power plant pollution. There is certainly no guarantee that 
electric vehicles will be deployed in the immediate vicinity of large 
power plants where some pollutant concentrations are highest. In those 
cases, it would be highly inequitable to allow air quality for some 
local businesses and residents to deteriorate simply because it 
improved elsewhere.
    Moreover, it would base the long term BACT determination upon 
factors that are hard to discern and may fluctuate over time. While a 
plant must undergo a BACT determination only before major construction, 
the vehicle mix and vehicle usage patterns may shift on an ongoing 
basis, rendering the original determination inaccurate. For instance, 
the determination would not respond to subsequent vehicle retirements, 
migrations or other shifts to the fleet mix. It is also unclear what 
the assumed pollutant reductions would be in reference to as an 
increasing number of clean and efficient vehicle choices enter the 
market. While generating emissions can be predicted with relative 
accuracy, it will be hard to determine what the vehicle purchaser would 
have chosen if not an electric vehicle. Comparison to an average 
vehicle, a cleaner vehicle or something less efficient will yield 
different pollution reductions that could applied in the BACT 
determination.
    Finally, introducing offsets into the BACT determination 
essentially allows power plants to forego available technology that 
could improve health and save lives. The determination process includes 
an analysis on technical and economic feasibility, ensuring that the 
environmental measures are achievable. Indeed, it is worth noting that 
vehicle electrification is a key opportunity for power producers to 
enter the lucrative transportation fuel market. As more electric and 
plug-in electric vehicles hit the road, power producers will meet the 
new electricity demand and therefore capture new revenue. NRDC believes 
that allowing them to minimize their responsibility over emissions that 
are a direct result of significant new business opportunities provides 
a windfall at the expense of those who may be affected by air quality 
impacts.
Conclusions
    NRDC appreciates and shares the desire to identify alternative fuel 
sources. The nation's dependence on petroleum is a known economic and 
national security burden. However, we also maintain that each 
alternative fuel pathway provides unique tradeoffs, some greater than 
others. These effects are destined to grow as fuels achieve self 
sufficiency and expand in scale. Policymakers must be highly cognizant 
of the potential impacts in order to avoid the significant unintended 
consequences that wide scale fuel production can create. The best way 
to manage these risks is to establish parameters that guide investment 
decisions. With regards to S.937 those should be:

   Avoid actions that move us backward on climate change. Given 
        the national security, environmental and economic implications, 
        it is best to forego commercializing high carbon, high risk 
        technology. To that extent, section 526 must remain in place 
        because it sends the right signal to private markets and 
        government alike.
   Only extend long term financial support to technologies with 
        demonstrable environmental benefits. Federal procurement awards 
        represent an exciting opportunity to develop fuels with 
        climate, supply, and environmental advantages. Capturing these 
        benefits once again requires embedding the right parameters to 
        optimize results.
   Maintain strong protections for public health and air 
        quality. While vehicle electrification may reduce pollution in 
        some regions, these reductions may not geographically match 
        where pollution from the power facility would increase. It is 
        inequitable to relax pollution controls in these regions simply 
        because pollution has declined elsewhere.

    Once again, NRDC thanks you for the opportunity to present its 
views. As the nation continues to strive towards alternatives to 
petroleum, we look forward to working with the committee to develop 
policies that foster a balanced and sustainable outcome.

    The Chairman. Thank you all very much for your testimony. 
Let me start with a few questions.
    Mr. Colvin, I think it was Senator Franken who raised the 
question of how the small nuclear reactor models that are now 
coming forward are--how they relate to the naval reactors that 
you referred to in your testimony. Could you just give us a 
general perspective on that? Is there a close connection or is 
it very different?
    Mr. Colvin. Thank you, Mr. Chairman.
    You know, the question that we talked about in SMRs from 
the reality was that the U.S. light water reactor program 
really developed from the Navy program in concert with the 
government programs. I operated SMRs on 6 different nuclear 
submarines for nearly 20 years. There are some very good 
similarities and some differences.
    The biggest issue has to do with the power density, the 
fact that the submarine has to operate in an environment with 
rapidly changing power level requirements for propulsion 
mainly. So that's probably the largest difference. The basic 
philosophy and the basic design of these plants is the same.
    The second nuclear submarine built was actually the USS 
Seawolf which was a liquid cool fast reactor that operated for 
a number of years before it was converted to light water. So 
back in--this was in 1975 through 1978. So we have a tremendous 
history of development of these technologies that we can bring 
to bear on these new designs.
    It is being brought to bear on these new designs. So there 
are very, very good similarities, but at the same time, we're 
looking at the advanced technologies, advanced design 
characteristics and ways to improve the safety and reliability 
of these plants in much different ways than we looked at back 
in the early 1950s.
    The Chairman. Alright. Let me switch and talk about this 
section 526.
    Mr. Siu and Dr. Bartis, either one or both of you might 
comment on how you see, section 526 affecting the Department of 
Defense's ability to contract for coal to liquid fuel if 
greenhouse gas emissions were sequestered or otherwise reduced?
    Dr. Bartis, why don't you go ahead first and then Mr. Siu, 
if you have a comment.
    Mr. Bartis. With extensive capture of greenhouse gas 
emissions we think current technology abounds. Coal to liquid 
plants would put out emissions, life cycle emissions, that are 
comparable to those from conventional petroleum products. In 
some cases it is going to be very technology specific. We don't 
have that much experience here in the United States.
    In some cases they may be slightly over. When I say 
slightly, we're talking about a few percent. Or they could be 
slightly under. As you all are aware, you know, the greenhouse 
gas problem we have it's not about a couple of percent.
    So given the--one of the things that we suggested for your 
consideration was would be to allow coal to liquid plants that 
do capture, say 90 percent of their greenhouse gas emissions 
and sequester them, to allow them to be included within the DOD 
purchasing. But----
    The Chairman. Do you----
    Mr. Bartis. It's at the margin. It's just at the margin. 
That's the problem. It's right at the edge.
    The Chairman. If the coal to liquids plant was producing or 
was capturing 90 percent it would be eligible to enter into or 
to be selling to the Department of Defense.
    Mr. Bartis. Not under--not necessarily under current law. 
It may miss the mark by a couple of percent points, by a very 
small amount.
    The Chairman. I see. OK.
    Mr. Bartis. That's why when we suggested that there could 
be a slight modification to the act that would allow coal to 
liquid plants with sequestration to conform, to be allowed to 
be purchased.
    The Chairman. OK.
    Mr. Siu, did you have a point of view on this?
    Mr. Siu. Yes, I do. In terms of the impacts on section 526 
I agree with Jim to a large extent. If you sequestered enough 
carbon dioxide at the CTL plant you could achieve emissions on 
parity with conventional petroleum.
    There is a degree of error in there, a couple percent 
above, a couple percent below. But assuming that you achieve 
parity with conventional petroleum there is no legal 
contradiction with section 526. I think that it's a 
misperception that section 526 is a technological ban. It's a 
performance standard.
    The Chairman. You're both recommending that we try to 
legislate performance standards rather than technology specific 
provisions. That's my understanding. Is that right?
    Mr. Bartis. I mean I don't want to get--there's a much 
broader way to approach this. But within the current context it 
would try, you know--to me the most important goal is to get 
some early production experience here in the United States on 
coal to liquids production. Because then we'll see how this 
technology performs and we'll start learning.
    This slight modification, to me, a very slight modification 
that does not compromise on the major goal of section 526 will 
go a long way in opening that door up. But there are other--
there's a bigger problem with section 526 which I mentioned in 
my written testimony. That's this issue of incidental blending 
of, I'll say, oil sands or if we want to buy fuel from Cutter, 
we're going to find gas derived alternative fuels that have 
excessive greenhouse gas emissions compared to section 526, 
blended in it's going to preclude us from buying those fuels.
    Now there appears to be some legislation that have 
corrected that problem. I've read it. I don't understand it 
fully. So we suggest in our remarks that we might want to 
clarify that.
    Mr. Siu. May I respond to that?
    The Chairman. Sure.
    Mr. Siu. Just to depart from what Mr. Bartis is saying a 
little bit. NRDC supports section 526 in its current form. In 
terms of buying jet fuel and other DOD fuel from South Africa, 
Cutter, if you look at the DLA, then DESC 2009, section 526 
implementation plan, they cut themselves out an exception to 
buying overseas where readiness might be a problem there.
    NRDC does not take an issue with this position.
    The Chairman. Alright.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. Gentlemen, 
appreciate your testimony.
    Mr. Siu, you mentioned that within NRDC you can look at the 
picture. You've got energy. You've got the intersect with 
environment and you've got climate security. I would suggest 
that we also need to be looking at economic security.
    What that means to this Nation in terms of our jobs, in 
terms of the strength of our economy, in terms of how we, 
again, move away from this vulnerability that we have. There's 
vulnerability on oil and other sources of energy, most 
certainly. But clearly there is economic vulnerability that 
comes to us when we basically say well, ok, China can have 
everything that they're going to produce out of Alberta.
    Mr. Bartis, you mention the economic benefits of coal to 
liquids. Cite a whole series of statistics, which I think are 
helpful to us. You mention as we're talking about Department of 
Defense, long term contracting and the ability really to help 
advance in perhaps a more robust manner the development of some 
of these alternative fuels, technologies, if in fact, DOD has 
that long term contracting authority to go forward.
    But it's not just the benefits to our military I would 
suggest. Would you not also agree that we could then see those 
benefits translate to commercial aviation, to the Maritime 
industry in terms of how they power the vessels? I mean, what 
are we talking about specifically, if you were able to get this 
long term contracting within DOD?
    Mr. Bartis. In fact we just completed a congressionally 
mandated study at RAND where we looked at the military benefits 
and the civilian benefits of alternative fuels. Because 
alternative fuels are no worse and they're no better than 
regular fuels for the military. So there's limited military 
benefits, if any, to these fuels.
    So our view is that if the military is going to be involved 
in alternative fuels the reason they should be involved is as 
an agent of the broader government to encourage early 
production. We don't see a tactical military benefit with these 
fuels.
    Senator Murkowski. Let me ask you, Mr. Colvin, about the 
SMR bills. If we could get things moving forward, as I think, 
you and I would agree is a good thing for this country and our 
energy policy, if you had a small nuclear reactor design of 
about 300 megawatts that's licensed by the NRC, how long would 
the build out of something like this take?
    How long to construct? How long to bring a reactor online? 
Then how would that compare, for instance, with a smaller SMR 
in say the 50 megawatt range?
    Mr. Colvin. I think the biggest challenge we have moving 
forward is the design certification, licensing process that we 
have to face going forward by the Nuclear Regulatory 
Commission. I think there's a perception as illustration by Dr. 
Lyman's comments that the industry and the designers are trying 
to cut regulatory requirements. But the reality is, I think, we 
need to look at the regulatory requirements going forward that 
are necessary to provide the adequate levels of protection of 
the public health and safety.
    They may not be the same as we're operating today because 
the technology is different. It's a different design or a 
different criteria. I think that's going to be the biggest 
transition.
    So if you look at the timeframe right now, as Dr. Kelly 
talked about, we're looking out at about between 4 and 6 years 
to achieve the design certification. That's fairly similar to 
the timeframe for the large advanced reactors that we're 
seeing. So right now, that process hasn't changed.
    I think what we were trying to encourage is between the 
Department of Energy and the Nuclear Regulatory Commission. To 
lay out the plan to in fact accelerate the licensing activities 
as well as the research and development activities for the SMR 
technology to be able to move forward and make that transition. 
Once we get to the design certification phase with the first of 
a kind engineering nearly completed for that design, then we 
get the construction build out process for the SMRs will be 
considerably shortened from the light water reactor technology 
we have today. I mean----
    Senator Murkowski. That's not saying much. Because we know 
how long it takes.
    Mr. Colvin. Today you're seeing U.S. reactor technology, 
advanced reactor technology, that will be built and into 
operation in less than 4 years for a 1,100 plus megawatt plant. 
We haven't done that in the United States yet. We have 2 
utilities that are in the process of building and looking for 
the license, combined operating license for 2 AP1000 reactors, 
both at southern companies, Vogtle plant near Augusta, Georgia 
and then South Carolina Electric and Gas summer plant up on the 
South Carolina coast.
    Those plants are going to gain a tremendous amount of 
experience from the construction and build out that's being 
conducted in China by the U.S. companies, by Westinghouse and 
Shell Engineering. So I think we're going to see the economy of 
scale and the experience feedback that's going to give us an 
accelerated timeframe. I think we'll see the same thing in the 
SMR technology moving forward.
    Senator Murkowski. Thank you. Thank you, Mr. Chairman.
    The Chairman. Senator Manchin.
    Senator Manchin. Dr. Bartis, is there--do you know of any 
commercial coal to liquid plants in the United States and has 
any been permitted recently?
    Mr. Bartis. Quite a few have been announced. There's--I 
think the one that's farthest along is in Wyoming. It's a plant 
that would produce gasoline using the process developed by 
Exxon Mobil and commercially proven on natural gas in New 
Zealand. Now that plant has started, I believe, some site 
preparation work. But that's the only plant that's moved 
forward that far, so far.
    Senator Manchin. What country is developing more in CTL 
than most or what's the most developing Nation that you know 
of?
    Mr. Bartis. China was. China had a very aggressive program 
but they've run into problems with their coal supply. So I 
think they've pulled back a lot of builds because of that.
    Senator Manchin. Because of the stock feed.
    Mr. Bartis. Yes, they're having problems delivering coal 
to----
    Senator Manchin. South Africa. How's their CTL program?
    Mr. Bartis. South Africa's CTL plant is moving along. Most 
interestingly, of course, is that, you know, the big technical 
advances have taken place with natural gas to liquids. It's the 
same technology. Quite frankly, I thought it would never apply 
to the United States except now that we have stranded gas in 
Alaska this may be a technology that's applicable there.
    We've had great progress in Cutter. They will be producing, 
this year, about 170,000 barrels per day. That's not gallons 
per year. That's a huge amount of fuel.
    So the technology is really up to date.
    Senator Manchin. You believe that basically we, as a 
country, could be energy independent if we use the resources we 
have available?
    Mr. Bartis. We have so much oil shale, coal and biomass 
that together it is easy to see that we could be using, well, 
making well over 5 to 6 million barrels a day from these 
resources alone. Combine that with efficiency measures and I 
think we could easily make that. But we have to have--we have 
to unleash these other fuels.
    Senator Manchin. Not the course we're on now.
    Mr. Bartis. The situation we have now it's not going to get 
us there.
    Senator Manchin. Mr. Siu, do you believe that we're too 
dependent on foreign oil?
    Mr. Siu. Yes. That's NRDC's position. But we also believe 
that there are other tradeoffs that we have to consider when 
planning out our energy technologies.
    Senator Manchin. Do you look at the economy at all when 
you're stating your policies or taking you all's position? Do 
you look at the economy, I mean, the American economy, if you 
will, the jobs that go with it, the balance between environment 
and the economy?
    Mr. Siu. Yes, we, of course, consider the economy. We 
believe energy efficiency provides benefits to consumers. We 
believe that reducing the oil imports provides economic 
benefits to the United States. So yes, we are in agreement 
there.
    However, I think where we depart is where we also believe 
that we should put emphasis on avoiding unintended consequences 
when we deploy some of these fuels to, you know, broad scale.
    Senator Manchin. Do you believe any of that can be done 
without the use of fossil but we have gas and coal and the 
abundance of resources we have in this Nation?
    Mr. Siu. To argue the other side of that I think that if we 
deploy coal technologies that we're not already using here in a 
very irresponsible way, I think it completely destroys our 
chances of achieving these other important public priorities.
    Senator Manchin. Mr. Colvin, as far as on the nuclear. What 
is our reliance on nuclear power in America? Is it 19? I heard 
19, 20 percent?
    Mr. Colvin. We generate about 20 percent of our 
electricity, about 1 out of 5 households is served by nuclear 
generated electricity in the United States currently, Senator.
    Senator Manchin. Coal is how much, Mr. Bartis?
    Oh, I'm sorry, Mr. Colvin. That would be OK if you have the 
answers, sir, go ahead. Go ahead.
    Mr. Colvin. Coal generates, we generate about 50 percent of 
our electricity from coal in the U.S.
    Senator Manchin. So 70 percent between nuclear and coal 
right now. The 30 percent, is a derivative of so many other 
different things, correct?
    Mr. Colvin. Correct.
    Senator Manchin. There's nothing in sight that's going to 
take that, in any short period of time, take up that amount of 
dependency that we have?
    Mr. Colvin. No, not that we see, Senator. I think one of 
the things that I might just mention, you know, the big 
question that faces a lot of the utilities is what's the best, 
long term source of electricity going forward when you take in 
all the parameters. The biggest risk that's seen by most of the 
utilities is the volatility of natural gas.
    Senator Manchin. Do you see the citizens of this country 
paying a much higher price because of our indecision in not 
having an energy policy?
    Mr. Colvin. Yes, absolutely, Senator.
    Senator Manchin. What has that increased? I mean, I know I 
see my mother's bill and some different of our bills coming 
across what they were before, a year or 2 or 5 years ago.
    Mr. Colvin. You know, it really depends on the area of the 
country. I think in parts of the country we have very low and 
economical electricity prices given where we are today. But in 
some parts of the country, especially the Northeast we see 
very, very high electricity prices. Those are typically caused 
by the difference in generation sources that we apply to the 
electricity sector.
    Senator Manchin. Thank you.
    The Chairman. Senator Barrasso.
    Senator Barrasso. Thank you very much, Mr. Chairman.
    Mr. Bartis, I enjoyed your presentation. I had an 
opportunity to read everything you've submitted. I admire the 
work that you've been doing because I believe that coal is 
America's most affordable, available, reliable and secure 
source of energy and using America's coal resources as a 
transportation fuel will decrease our dependence on foreign 
sources of oil and really strengthen our national security.
    Getting to section 526 of the 2007 energy bill, that places 
restrictions, as we know, in the Federal Government's ability 
to purchase alternative fuels. In your testimony you 
highlighted potential problems for the Defense Department 
purchasing fuels in areas. I think you said, in South Africa as 
well as in Qater.
    Would repealing section 526 decrease the Department of 
Defense fuel costs in the long term? What's your assessment of 
that?
    Mr. Bartis. To the extent that if section 526 prohibits the 
incidental inclusion of alternative fuels then there's going to 
be fewer vendors that are willing to sell to our Defense 
Department. So that's going to make costs go up. As I mentioned 
so repeal, outright repeal, would certainly eliminate that 
problem.
    I've also suggested that the bill could be amended slightly 
and take care of that problem.
    Senator Barrasso. From a practical perspective does section 
526 in its current form discourage investment in coal to 
liquids, even including coal to liquids with a major carbon 
capture potential?
    Mr. Bartis. I think it gives the investment community a 
signal and that the government is opposed to--doesn't favor 
coal to liquids. But it's a signal. It's hard for me to 
quantify that.
    Senator Barrasso. Thank you.
    Mr. Siu, following up on the section 526 discussion with 
the previous panel I want to ask you a question related to 
Canadian oil verses Middle Eastern oil. The Administration 
said, as I heard it, it said that it doesn't believe that 
buying Canadian oil is better than buying oil from the Middle 
East. That so if Canada can provide oil from oil sands that's 
say, higher in greenhouse gas emissions and Saudi Arabia can 
provide oil that's lower in greenhouse gas emissions.
    Does your organization believe that oil from Saudi Arabia 
is better for the United States to purchase?
    Mr. Siu. I think what the Administration might have been 
referring to is the effect on the world oil market and how the 
world oil market affects us. As far as I know last--
economically speaking in last year's, this year's price run ups 
the Canadians weren't cutting us any good neighbor to the south 
deals.
    Senator Barrasso. Let me ask about the position of your 
organization, the position of your organization for imports. Is 
a greenhouse gas potential impact the greater issue?
    Mr. Siu. I think the greenhouse--I think they're both 
important issues. I think given the national security 
liabilities of climate change, I think we seriously need to 
consider that as well when turning to more and more greenhouse 
gas intensive forms of fuel.
    Senator Barrasso. So I'll get back to the question. Yes or 
no? If Canada can provide oil from oil sands that's higher in 
greenhouse gas emissions, Saudi Arabia can provide oil that's 
lower in greenhouse gas emissions. Does your organization, the 
NRDC, believe that oil from Saudi Arabia is then better for the 
United States than oil from Canada?
    Mr. Siu. NRDC hasn't had that internal discussion yet and 
put a formal opinion out on that. I will give you my personal 
opinion on it, is I don't think that there this a benefit to 
buying from Canada as opposed to Saudi Arabia if we're talking 
about how much money each of these countries is deriving from 
the world oil market.
    Senator Barrasso. Mr. Bartis, do you want to comment?
    Mr. Bartis. If we impose a barrier to a logistically 
preferred purchase then we're going to--there's going to be a 
premium attached to that. The net greenhouse gas effect will be 
zero because that Canadian tar sands is just going to go 
somewhere else and we're just playing with the logistics of the 
oil, the international world oil market.
    Senator Barrasso. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Senator Shaheen has not yet asked any 
questions so maybe we should give her a chance to ask questions 
first and then Senator Franken.
    Senator Shaheen. Mr. Chairman, Senator Franken, can go 
ahead.
    The Chairman. Alright.
    Senator Franken.
    Senator Franken. OK, if you want to be that way.
    [Laughter.]
    Senator Franken. Mr. Bartis, last week in your testimony in 
the House you said that, ``Without management of greenhouse gas 
emissions liquid fuels produced from coal will have life cycle 
greenhouse gas emissions that are about twice that of their 
conventional petroleum counterparts.'' Even if you had carbon 
capture and storage--that's the end of your quote. OK. Even if 
you had carbon capture and storage for these liquid coal 
production facilities the greenhouse gas emissions would be 
higher than conventional petroleum based fuels depending, I 
guess, on how much carbon you could sequester.
    Now the National Academies of Science warned just last 
month that, ``The risk of dangerous climate change impacts is 
growing with every ton of greenhouse gas is emitted into the 
atmosphere.'' Given this warning from America's scientists does 
it make sense to use Federal dollars to produce fuels that have 
greater greenhouse gas emissions than the ones that are 
employed today? Shouldn't we instead be focused on technologies 
like advanced biofuels which don't have--which have a lower 
carbon footprint and which are renewable and have--and are 
being brought to commercial scale, have already been brought to 
commercial scale. Now cellulosic is being brought to commercial 
scale.
    Mr. Bartis. It is true that without any management of 
greenhouse gas emissions coal to liquids is a technology with 
double the life cycle emissions of conventional petroleum. 
That's why we at RAND and others, for example, those at the 
National Academy, one of the study committees, Princeton 
University and others have examined another alternative, have 
examined the alternative sequestration. With carbon 
sequestration we believe they're basically even, a couple 
percent either way, with conventional petroleum.
    It depends on what fuel you're talking about. There is a 
way that oil is a lot dirtier than the average oil in terms of 
greenhouse gases, for example.
    Senator Franken. OK.
    Mr. Bartis. But----
    Senator Franken. Like cellulosic ethanol.
    Mr. Bartis. Cellulosic ethanol isn't here today, right?
    Senator Franken. It's being, actually, it is--there is a 
commercial scale plant being built in Emmetsburg.
    Mr. Bartis. It's a first of a kind demonstration plant. 
It's----
    Senator Franken. It's a commercial plant. There have been 
demonstrations.
    Mr. Bartis. But if you look at the production. I don't know 
if it's 100 barrels a day or 200 barrels a day because it's a 
small facility. What I was trying to say in my written 
testimony is, is that there are ways to make coal a very clean 
fuel by combining coal with biomass and including 
sequestration.
    When you do that we can get greenhouse gas emissions that 
are very favorable. We can significantly lower the cost of some 
of these processes that just depend on biomass. Many of the 
cellulosic processes on biomass begin with gasification.
    Senator Franken. OK. Let me ask you this.
    Mr. Bartis. Right. OK. I'm sorry.
    Senator Franken. Is there commercial scale sequestration?
    Mr. Bartis. Yes. It's done commonly in the United States. 
We use about 40----
    Senator Franken. Where?
    Mr. Bartis [continuing]. Million tons of CO2 are 
taken out of the ground and put into oil fields in the United 
States. It's common. It's been done. It was discussed by the 
IPCC. It's in Colorado and the regional oil fields.
    Senator Franken. OK. Let me put it this way.
    Mr. Bartis. It stays in the ground.
    Senator Franken. I understand that. Has there been 
sequestration in a way--I'll ask Mr. Siu. Has there been 
commercial sequestration in a way that has made coal, clean 
coal?
    Mr. Siu. Not to my knowledge outside of enhanced oil 
recovery.
    Senator Franken. In a commercial, you know, scale?
    Mr. Siu. Not to my knowledge, no.
    Senator Franken. Mr. Bartis.
    Mr. Bartis. We have a coal to liquid--a coal to natural gas 
plant in North Dakota that sends its product to an oil field in 
Canada. It sends its CO2.
    Senator Franken. Is that plant now----
    Mr. Bartis. It's a commercial plant. It was built----
    Senator Franken. All right. I mean, where is the plant? Is 
it carbon neutral?
    Mr. Bartis. I don't know if it's carbon neutral.
    Senator Franken. You don't know. So you have no answer to 
my question in this sense.
    Mr. Bartis. I don't know whether it's carbon or not. I can 
find out.
    Senator Franken. OK. Because when you burn biomass it's 
carbon neutral, right? I mean----
    Mr. Bartis. Biomass it is, no, it is not carbon neutral 
when you use biomass. Not at all. There is significant issues 
with regard to the life cycle greenhouse gas emissions when 
using certain forms of biomass.
    Senator Franken. OK.
    Mr. Bartis. When you start using food there's a major 
problem.
    Senator Franken. OK. OK. I guess my time is up then go to 
Senator Shaheen. Unless you don't want to ask any?
    [Laughter.]
    Senator Franken. Oh, wait. It's actually I go to the 
chairman. The chairman is the Chairman.
    The Chairman. Let me call on Senator Shaheen for her 
questions and then we'll have an opportunity for you to 
continue with more questions, Senator Franken.
    Senator Shaheen. Thank you, Mr. Chairman.
    I apologize for having missed the testimony, but I would 
actually like to go back and address some of the nuclear issues 
in the other 2 pieces of legislation that are pending before 
the committee this morning. I find it very interesting that 
there is technology that could develop smaller, more cost 
effective nuclear plants. I'm interested in how the current 
regulations around nuclear plants would affect those potential 
nuclear reactor designs.
    So are there requirements in the legislation or should 
there be requirements in the legislation that address safety 
concerns with these nuclear designs that might be different 
than current nuclear plants. I don't know, Dr. Lyman or Mr. 
Colvin, if either of you would like to address that.
    Mr. Lyman. Thank you for your question. As I said in my 
testimony, on paper certain designs have features that look 
like they might present safety advantages. But unless--those 
safety advantages could be lost if there's an erosion of the 
safety standards that govern their licensing.
    So we believe that--the Nuclear Regulatory Commission has a 
policy that new nuclear reactors don't have to be any safer 
than existing reactors. We think that's a bad policy because 
we're missing an opportunity. I mean if we build reactors that 
may be around for 60, 80 years why not use the best available 
technology. Make sure they're safer than what they have today.
    We feel that the consequence of that policy is that the 
designs and the licensing aren't as good as they should be. So 
we think, you know, Congress has the opportunity and Department 
of Energy is already interested in financing of these cost 
sharing programs but what the value added of this legislation 
could be to lock in additional safety and security levels that 
even the Nuclear Regulatory Commission doesn't require because 
of their own bureaucratic issues.
    Senator Shaheen. Could you talk about what some of those 
safety and security requirements ought to be?
    Mr. Lyman. Yes. I mean, for example, as I said in my 
testimony, the emergency planning zones around U.S. nuclear 
reactors are only required to be 10 miles. Yet we've seen after 
Fukushima that there are significant contamination that goes 
much further.
    So we've always thought that 10 miles is not adequate to 
address all the populations that may be at risk. So we'd like 
to make sure that if we site new nuclear reactors in the future 
we make sure that there's emergency planning, very rigorous 
emergency planning in place to make sure that potassium iodide, 
for example, will be able to get to the children who might need 
it. That people will be evacuated out of zones where they might 
receive high radiation exposure.
    Now the small modular reactor community has been arguing 
that because these reactors are smaller they'll have less 
radioactivity we can shrink these zones even to the boundary of 
the plant so that the people living right outside the gate may 
not even have to receive any special instructions. We think 
that that is shortsighted, especially in what we've seen in 
Fukushima.
    Senator Shaheen. Do we know, and maybe Mr. Colvin you could 
also address this. Do we know if the technology for these 
modular reactors is more advanced and what that would mean in 
terms of any emissions?
    Mr. Colvin. I think that the real point in this and I made 
the comment earlier, Senator, was that we really need to have 
the NRC set the safety standards for the reactors in a way to 
protect the public health and safety. That's been the NRC's 
mandate from day one. On the industry side I reckon, an 
experience we've had in the advanced light water reactor 
program.
    The industry has actually set a standard for itself to 
design all the new advanced reactors to a level at least 10 
times safer. Problematically and deterministically then we did 
with the earlier light water reactors. In fact, the advanced 
reactors that we're building, planning to build in Georgia, 
South Carolina, that are being built in China, meet that 
criteria.
    We think there's a lot of that same logic and philosophy in 
practice that would go into the advanced--to the SMR design. 
We're asking the Electric Power Research Institute is 
undertaking a project to develop what we call a utility 
requirements document which was the basis for the design of 
those plants that would lead you to those levels of safety and 
ultimately be decided by NRC.
    If you really look at S. 512, what S. 512 is trying to do, 
in my view, is to in fact launch those discussions between DOE, 
NRC and the industry and to help define those criteria. We need 
to move that discussion forward because there may be safety 
criteria that are different than the criteria we use today that 
could lead us even to higher levels of safety even though we 
don't follow the procedures we've used in the past. I think 
that's the real benefit of moving forward in this public/
private partnership working with the government and with the 
Nuclear Regulatory Commission to define that.
    Senator Shaheen. Thank you. My time is actually expired. 
But one issue that we saw in Japan was that the reactor design 
was not--didn't consider the worst case scenario which was not 
just the earthquake but the tsunami. I think, as you point out, 
if we're going to be looking at a new design we should make 
sure that they address the worst case scenario.
    Coming from a state where we licensed the last nuclear 
power plant in the country I think we do need to re-evaluate 
the ten mile emergency zone around nuclear plants.
    Thank you, Mr. Chairman.
    The Chairman. Thank you. Let me just see if Senator 
Murkowski had any additional questions. Alright.
    Senator Franken.
    Senator Franken. I just want to say one thing and then ask 
a question. I would love to see carbon sequestration in coal 
fired utility plants work magnificently. I mean, that would 
be--solve a lot of problems.
    If we could find all the places to sequester it whether it 
be the bottom of the ocean, whatever it is, if it works, that 
would be--I think we'd all agree, everyone would be just 
jumping for joy because then we'd have a use for all this coal 
in a clean way. So that's my one--I want to say that. But I 
wonder about making liquid fuel out of coal before we establish 
that we can actually do that.
    Dr. Lyman, you mentioned the need for safety in the siting 
and operation of modular reactors. Are there any issues that 
you think we should worry about regarding the design of modular 
reactors?
    Mr. Lyman. Yes. For one example, Fukushima has also shown 
that a defective containment design can lead to unacceptable 
radiological consequences and a large radiological release. Now 
many of the modular reactor designs depend on having 
containment buildings that are smaller, that have less 
capacity, to withstand something like a hydrogen explosion.
    In some cases it would be hard to see how you can design a 
small modular reactor economically without shrinking the 
containment like that. But you have to examine the consequences 
of whether those containment buildings are really going to be 
robust enough to protect the public and beyond design based 
accident.
    Senator Franken. Thank you. As far as the worst case 
scenario, in Minnesota, in Monticello we have the exact as--
plant as Fukushima and although Minnesota the chances of 
having--Senator Shaheen was talking about worst case scenario, 
the chances of an earthquake of that level in Minnesota are 
very low. But if we had a tsunami in Minnesota we'd have bigger 
problems that even the reactors.
    [Laughter.]
    The Chairman. You're opposed to tsunamis, is that the----
    [Laughter.]
    Senator Franken. No, I'm just saying that if there was a 
tsunami in Minnesota we'd be----
    The Chairman. Really in trouble.
    Senator Shaheen. So the Great Lakes are not a potential.
    Senator Franken. Actually I don't know maybe the Great 
Lakes. I don't know.
    [Laughter.]
    The Chairman. Thank you all very much. We've learned a 
great deal. We appreciate your hard work and testimony.
    That will conclude our hearing.
    [Whereupon, at 12:03 p.m. the hearing was adjourned.]
                               APPENDIXES

                              ----------                              


                               Appendix I

                   Responses to Additional Questions

                              ----------                              

 Responses of James T. Bartis\1\ to Questions From Senator Murkowski, 
                              on S. 937\2\
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    \1\ The opinions and conclusions expressed in this testimony are 
the author's alone and should not be interpreted as representing those 
of RAND or any of the sponsors of its research. This product is part of 
the RAND Corporation testimony series. RAND testimonies record 
testimony presented by RAND associates to federal, state, or local 
legislative committees; government-appointed commissions and panels; 
and private review and oversight bodies. The RAND Corporation is a 
nonprofit research organization providing objective analysis and 
effective solutions that address the challenges facing the public and 
private sectors around the world. RAND's publications do not 
necessarily reflect the opinions of its research clients and sponsors.
    \2\ This testimony is available for free download at http://
www.rand.org/pubs/testimonies/CT364z1.html.
---------------------------------------------------------------------------
    Question 1. Coal-to-liquid (CTL) Fuel in Alaska (S. 937)--The 
military bases in my home state of Alaska have shown significant 
interest in CTL fuels over the years. When you look at Alaska's 
resource base and geographic location, what do you think the most 
viable alternative fuels are, both now and over the near term?
    Answer. My RAND colleagues and I have not conducted research on the 
prospects of producing alternative fuels in Alaska; however, I can make 
a few general comments. Alaska has three resources that potentially can 
be used to produce alternative liquid fuels: natural gas, coal, and 
biomass. Abundant natural gas resources are located in the Alaska North 
Slope. Because of projected production of shale gas in the lower-forty 
eight, it is possible that North Slope gas will not be marketable. This 
stranded North Slope gas could serve as the feedstock for a gas-
toliquids (GTL) production facility. The technology for such a plant is 
fully commercial, as shown by the recent construction of two modern GTL 
plants in Qatar. The liquid products of the facility could be 
transported using the Trans-Alaska Pipeline System. With stranded 
natural gas, a large GTL plant might be an economically viable project. 
However, we have not examined the extra costs or environmental damage 
that would be incurred in constructing and operating a plant in the 
harsh environment of the North Slope. An alternative is to transport 
North Slope gas to a location on the Gulf of Alaska, from whence it 
could be brought to market as LNG or converted to an alternative liquid 
fuel.
    In the absence of a Trans-Alaska Gas Pipeline, a potentially 
attractive location for alternative fuels production is the Cook Inlet 
area. A few small (e.g., 5,000 barrels per day) production facilities 
using a combination of biomass and natural gas (BGTL) could yield 
favorable greenhouse gas emissions without the need to capture and 
sequester greenhouse gas emissions. Such a facility could possibly 
qualify for federal loan guarantees. Further analysis would be required 
to determine whether, and under what conditions, the fuel produced from 
such a facility would qualify under the renewable fuel standard 
provisions of the Clean Air Act.
    Another option for Alaska would be to construct an alternative 
fuels plant that would use a combination of coal and natural gas to 
produce liquid fuels (CGTL). This feed combination has process 
advantages that could reduce overall production costs, but whether this 
combination makes economic sense depends on the delivered costs of coal 
and natural gas. A moderate size facility (e.g., 20,000 barrels per 
day) would require a major increase in Alaskan coal production and may 
require the development of new natural gas production in the Cook Inlet 
area. Lifecycle greenhouse gas emissions associated with the production 
of fuels from a CGTL plant are likely to be much lower than a coal-only 
alternative fuels plant, but still higher than those from the 
corresponding petroleum fuels. To reach parity with conventional 
petroleum would require capturing and sequestering greenhouse gases 
that would otherwise be emitted at the production facility. Oil 
producers in the Cook Inlet basin might be interested in purchasing 
captured carbon dioxide for use in enhanced oil recovery.
    In the preceding, I have emphasized alternative fuel concepts that 
involve natural gas, since such concepts might give Alaska a 
competitive advantage as compared to other U.S. locations. Other 
concepts such as using coal, biomass, or a combination of both as a 
feedstock are possible. Whether Alaska affords a competitive locale for 
such production facilities depends on local construction costs and the 
costs of delivering suitable feedstocks to the facility.
    Transport of finished fuels, such as diesel, jet, and home heating 
oil, to Alaskan ports represents a small fraction of the total costs of 
delivering fuel to these ports. Consequently, local demand in Alaska, 
whether civilian or military, is not a significant factor in 
determining whether Alaska is a favorable location, as opposed to other 
U.S. locations, for alternative fuel production facilities.
    Question 2. Economic Benefits of Coal-to-liquid and Coal/Biomass-
to-liquid Fuels (S. 937): You've researched the economic benefits of 
coal-to-liquid and coal/biomass-to-liquid fuels. In one scenario, you 
project that the United States could develop an industry capable of 
producing 3 million barrels a day by 2030. Can you describe the 
economic value of that production to the United States, especially in 
terms of how much less we would spend to acquire foreign oil, the 
government revenues that would be generated, and any potential impact 
on global oil prices?
    Answer. In our 2008 report on liquid fuels from coal, we examined 
the economic benefits of domestic production of alternative fuels. The 
most substantive benefits are those associated with the economic 
profits of domestic production and reductions in the world oil price. 
Three million barrels per day of alternative fuels production would 
reduce imports of petroleum by about $120 billion dollars per year. 
This estimate is based on a world oil price of $100 per barrel. If 
production costs, including a reasonable rate of return on capital 
investments, are below the prevailing market price for oil, a domestic 
alternative fuels industry would generate economic profits. For 
example, once an alternative fuel technology, such as CBTL becomes 
mature, we expect that production costs could be much lower than those 
of first-of-a-kind facilities. In 2011 dollars, $75 per barrel might be 
possible. At world oil prices of $100 per barrel, this production cost 
would yield an economic profit of $25 per barrel, or equivalently, $27 
billion per year if annual production is 3 million barrels per day. 
Through income taxes, about a third of these economic profits would go 
to the federal government, and thereby broadly benefit the public. 
Smaller amounts would go to state and local governments.
    Fundamental economic considerations indicate that lower world oil 
prices will result from any increase in liquid-fuel production anywhere 
in the world, whether it be conventional petroleum extraction or from 
unconventional resources such as tar sands or from alternative fuels 
from coal, biomass or natural gas. Our research indicates that an 
alternative fuel production level of 3 million barrels per day could 
cause world oil prices to drop by between 2 and 5 percent, as compared 
to what they would otherwise be. Assuming that a 3 million barrel per 
day industry is operating in 2030 and that the world oil price is $100 
per barrel at that time, the analysis that we published in 2008 
indicated that the value of the world oil price reduction to the U.S. 
economy is a savings of between $10 and $25 billion per year. These 
benefits are in addition to the economic profits discussed above.
    Since publication of our 2008 report on coal-derived liquids, very 
little progress has been made toward obtaining early production 
experience. For that reason, a very aggressive national program in coal 
and coal/biomass fuel production would be required to achieve a 
production level of 3 million barrels per year by 2030.
    Question 3. CTL Abroad (S. 937)--We often hear about the 
investments that other countries, particularly China, are making in 
alternative and renewable technologies. Can you discuss any investments 
that China--and perhaps India and other nations--are making into CTL 
fuels?
    Answer. Our main source of global CTL fuel developments is the 
National Energy Technology Laboratory. We have also discussed CTL 
development with senior Chinese government officials. Within China, two 
CTL plants are operational. One is a small facility 2,500 barrels per 
day) that produces gasoline using the ExxonMobil coal-to-methanol-to-
gasoline process. The other is a facility designed to produce 24,000 
barrels per day of fuels using a method generally referred to as direct 
liquefaction of coal. This facility is the first direct liquefaction 
facility built at a significant scale since the end of the Second World 
War. We do not know whether it will be able to reach and sustain 
operations at or near its design capacity.
    A number of additional CTL plants in China had been announced, but 
all of these appear to have been placed on hold. In addition to CTL 
plants, China also has about 35 facilities that gasify coal to produce 
various chemicals. As such, these plants provide China with extensive 
experience in technology that is directly applicable to alternative 
fuels production.
    Press reports indicate that two large CTL plants have been approved 
by the Indian government. Within India, the major investors are 
reported to be Tata Steel and Jindal Steel and Power, Ltd. We do not 
have information regarding the level of design work that has been 
completed on either of these two projects.
    Question 4. Oil Shale (S. 937)--Your organization has estimated 
that the U.S. has about 800 billion barrels of technically recoverable 
oil shale. Can you provide the committee with an assessment of the 
federal government's current approach to oil shale? Do you believe 
federal policies are helping, hindering, or hurting efforts to 
commercialize this resource?
    Answer. I have examined the commercial leasing rules published in 
2008 and find them to be seriously deficient. Basically the oil shale 
leasing rules were modeled on existing rules for coal and oil leasing. 
The rules do not take into account the geographic concentration of the 
oil shale resource base, the fundamental uncertainties regarding the 
economic, environmental, and technical performance of oil shale 
production technologies, and the national energy security benefits of 
being able to produce eventually a few million barrels per day of fuel 
(gasoline, diesel, and jet) derived from oil shale. My June 3, 2011 
testimony before the Energy and Power Subcommittee of the House Energy 
and Commerce Committee further amplifies on this matter and suggests 
areas where Congress might offer direction.
    It is my understanding that the Department of the Interior is 
conducting a review of the commercial leasing rules for oil shale. At 
this time RAND does not have sufficient information to make an informed 
assessment of the impact of current or prospective federal policies on 
the commercialization of oil shale.
    Question 5. Energy Security as a Priority--One of the greatest 
benefits of coal-derived fuels is their ability to provide our military 
with a more stable, domestic source of the energy. section 526 of the 
2007 energy bill effectively sets us on a course to rely even more upon 
the unstable regions where many of our military men and women are now 
deployed. Which do you believe is the greater national security 
imperative: the potential to source military fuel from domestic 
resources, or the ability to reduce greenhouse gas emissions by 
maintaining the status quo established by section 526?
    Answer. RAND research on alternative fuels shows that viable 
approaches to produce alternative fuels are available that would allow 
coal and other fossil fuel resources to be used to produce alternative 
fuels without increasing greenhouse gas emissions. Specifically, 
research by RAND and others shows that using a combination of fossil 
fuel resources and biomass can result in lifecycle greenhouse gas 
emissions that are significantly lower than those associated with 
conventional petroleum products or with certain biofuels that receive 
favorable treatment under Renewable Fuels Standard provisions of the 
Clean Air Act.
    Full repeal of section 526 is unlikely to have a significant impact 
on the development of a domestic alternative fuels industry. First, 
government purchases account for less than 2 percent of national fuel 
consumption. Second, potential investors in alternative fuel production 
projects will likely remain wary of the possibility of future 
legislation that will place a cost on emitting greenhouse gases. 
Considering the growing evidence of the deleterious impacts of 
increasing atmospheric concentrations of greenhouse gases, such 
legislation is likely over the financial lifetime of an alternative 
fuel facility. Consequently, alternative fuel production projects that 
are based on fossil energy resources are likely to include management 
of greenhouse gas emissions so that net emissions are in line with 
those of conventional petroleum products.
    In my written testimony submitted to the committee on June 27, 
2011, I provided options for minor revisions to section 526 that would 
serve to reduce fuel procurement costs, and reduce barriers to the 
procurement of fossil-derived alternative fuels that can be produced 
with greenhouse gas emissions that are comparable to those of 
conventional petroleum-based fuels.
    Question 6. Long-term Contracting Authority: What role do you 
believe long-term contracting authority for the Department of Defense 
could play in the development of a robust alternative fuels industry? 
Do you believe that the military's efforts to bring alternatives into 
the marketplace would have any positive effects for other industries, 
including the commercial aviation and maritime industries?
    Answer. Long-term contracting authority will not have any 
appreciable role unless it is coupled with other measures that would 
provide incentives for investments in alternative fuel projects. 
Otherwise, the military will be purchasing at competitive prices, and 
therefore offering no incentive beyond the civilian marketplace. 
Measures to provide incentives for investment include investment 
subsidies (such as direct grants and tax credits), loan guarantees, 
production subsidies, and price floors. The cost effectiveness and 
risks of these various measures differ considerably. By examining 
incentives from the perspective of the federal government as well as 
private investors, our analysis revealed that a balanced and cost-
effective approach would include a price floor on purchases of fuel 
from pioneer production facilities, an investment incentive (such as an 
investment tax credit, a loan guarantee, or both), and an income 
sharing agreement, in the event that world market oil prices 
significantly increase during the term of the incentive agreement.
    While properly prepared alternative fuels are no less able than 
conventional fuels for meeting the needs of the Defense Department, 
they offer no particular tactical or operational benefit. Therefore, 
the only significant benefit of Defense Department purchases would be 
to promote early production of fuels that have application in the 
broader civilian market. This raises the issue of whether incentives 
for early production should be placed within the Defense budget, as 
opposed to within the budget of the Department of Energy.
      Responses of James T. Bartis to Questions From Senator Udall
    Question 7. Your report Alternative Fuels for Military Applications 
recommends that ``Fischer-Tropsch fuels are the most promising near-
term options for meeting the Department of Defense's needs cleanly and 
affordably.'' (p. xi)
    Your report did not evaluate the amount of water required to 
produce this level of alternative fuels, or the amount of wastewater 
that would be created. It did not assess the discharge of this 
contaminated water, or protection of surface or ground waters. Your 
report did not compare the impact on water use of F-T coal to liquid 
fuels compared to advanced biofuels. Given that your report did not 
assess the impact on water quantity or quality of producing military 
fuels, how can you credibly claim that using this process can meet the 
Department of Defense's fuel needs both ``cleanly and affordably''?
BACKGROUND
    In the 1990s, Bechtel performed a series of studies for DOE in 
which they evaluated a variety of coal liquefaction schemes for 
indirect liquefaction (Bechtel 1998) and determined the following water 
needs:
    ``For eastern coal 7.3 gal of water/gal F-T liquid
    ``For western coal 5.0 gal of water/gal F-T liquid''
    Emerging Issues for Fossil Energy and Water, NETL, June 2006
    ``Before coal liquefaction can make a significant contribution to 
meeting the demand for liquid fuels, it will be necessary to ensure 
that sufficient water resources are available at proposed plant 
sites.''--ibid
    Answer. The report on Alternative Fuels for Military Applications 
drew on our 2008 report: Producing Liquid Fuels from Coal: Prospects 
and Policy Issues. That report did examine water requirements to 
produce liquid fuels from coal as well as other environmental issues, 
including greenhouse gas emissions, air quality, land use, ecological 
impacts, and water quality. With regard to water consumption, our 
analysis suggests that the practical lower limit is about 1.5 gallons 
of water per gallon of F-T liquid. The amount of water that will be 
consumed in a CTL plant will depend on the availability of suitable 
water supplies, including groundwater. Where water supplies are 
abundant and inexpensive, as they are in certain locations in the 
central and eastern United States, CTL plant designs may involve 
consumption of over 10 gallons of water per gal of F-T liquid. These 
estimates do not include water used during coal mining or during the 
production of biomass.
    In contrast, plants built in arid regions will likely employ 
methods to minimize the consumption of water. How much will depend on 
cost-benefit and regulatory analyses that will be done as part of the 
front-end engineering design of such facilities. It is possible that 
water consumption may be a limiting factor in locating CTL plants in 
arid areas. At present, this remains an unresolved issue. If and when 
industrial interest in CTL development grows to the point at which 
several large plants are planned in arid regions, local, state, tribal 
and federal governments should assess how longterm water supplies and 
projected demand will be affected. Otherwise, heavy water usage in 
early CTL plants will compete with other priority uses and possibly 
foreclose further CTL development.
    We did not do a comparative analysis of water requirements for 
various alternative fuel production concepts. Available information 
suggests that water requirements for F-T fuels are comparable or lower 
than other near-term biofuel production concepts for middle distillate 
fuels, including hydrotreated renewable oils and algae-derived fuels.
    Consistent with current regulations and modern engineering 
practices, Fischer-Tropsch facilities will be built with zero discharge 
of water. With regard to both coal-derived fuels and biofuels, the 
primary water quality concerns are associated with feedstock 
production. In the case of coal mining, these issues include mine 
drainage, hydrological impacts, and the management of coalslurry 
impoundments. For biofuels, the water quality issues depend very much 
on how the feedstock is produced, including whether irrigation is used 
for feedstock production.
    Question 8. In your testimony (page 3) you state that, ``advanced 
research in photosynthetic approaches for alternative fuels production 
offers the prospect of even greater levels of sustainable production.'' 
In this case, how do you define, ``sustainable production''? And would 
you consider liquid fuel production from coal to be sustainable on the 
same timescales as that of these photosynthetic approaches?
    Answer. In my testimony, ``sustainable'' implies production that 
can be carried out over an extended timeframe with acceptable 
environmental impacts. For coal, our analysis show a sustainable 
timeframe could be on the order of 100 years. If and when industry 
interest indicates that large-scale development of a coal-derived 
alternative fuel industry is likely, a review of the legislation and 
regulations governing mine safety, environmental protection, and 
reclamation may be appropriate to assure that production will be 
sustainable.
    Advanced photosynthetic approaches, such as algae and certain 
biochemical approaches for liquid and gaseous fuels production, are at 
the research stage. If and when they will be commercially viable 
approaches for alternative fuel production remains highly uncertain. 
Whether these approaches will offer sustainable production of millions 
of barrels per day is also highly uncertain, depending on process 
details, such as water requirements, that are not well understood at 
the present state of knowledge. If development efforts are successful, 
these photosynthetic approaches offer sustainable production over a 
multi-century timeframe, and possibly with environmental impacts that 
are more favorable than those associated with coal/biomass approaches. 
The prospect of successfully achieving a sustainable, environmentally 
superior process for alternative fuels development warrants federal 
investment in long-term research and development directed at 
photosynthetic approaches.
    Question 9. The February 2010 Quadrennial Defense Review notes that 
climate change will play a significant role in the future security 
environment for the United States. Additionally, in the 
Congressionally-mandated report by the National Research Council, 
National Security Implications of Climate Change for U.S. Naval Force, 
the authors list a number of adverse impacts that climate change will 
have on U.S. Naval operations, and U.S. national security, in general. 
For example:

          climate change can act as an accelerant of instability or 
        conflict'' (page 20)

    and,

          Viewed from a national security standpoint, these [climate-
        induced] changes would likely amplify stresses on weaker 
        nations and generate geopolitical instability in already 
        vulnerable regions.'' (page 21)

    And a number of reports, including the recent America's Climate 
Choices suite of reports from the National Research Council, 
affirmatively attribute climate change to increasing levels of 
greenhouse gases in the atmosphere.

    In your testimony you state (page 9) that Congress ought to 
consider an amendment to section 526 of the Energy Independence and 
Security Act of 2007:

          suggest consideration of an amendment to section 526 that 
        would allow the government to target purchases of alternative 
        fuels derived from fossil fuel resources (such as coal, natural 
        gas, or oil shale) if . . . lifecycle greenhouse gas emissions 
        are no more than five percent above the lifecycle greenhouse 
        gas emissions of their petroleum counterparts.''

    Given this context, isn't such a proposal in direct conflict with 
the aforementioned national security interests of the United States 
since greenhouse gas emissions would increase under your proposal?
    Answer. My testimony does not recommend or advocate specific 
legislation. As an energy policy researcher working at the RAND 
Corporation, my testimony is provided for the purpose of informing the 
committee and its staff of alternative options. For that reason, the 
quotation from the testimony regarding consideration of an amendment to 
section 526 was preceded by the phrase: ``If the intent of Congress is 
to promote the early production of alternative fuels with greenhouse 
gas emissions that are comparable or better than those of their 
petroleum counterparts, . . . ''
    Information on the adverse impacts of increasing atmospheric 
concentrations of greenhouse gases suggest that national security 
consequences represent but a single dimension of a growing global 
environmental problem. If Congress is interested in reducing U.S. 
greenhouse gas emissions, I strongly suggest consideration of broad-
based approaches, such as placing a fee on carbon dioxide emissions. 
Liquid fuel use by the U.S. military generates less than 1 percent of 
national greenhouse gas emissions. Targeting military fuel consumption, 
which is basically the impact of section 526, while ignoring the much 
larger civilian sources of greenhouse gas 10 emissions is not an 
effective approach to addressing the national security or other adverse 
impacts of rising atmospheric greenhouse gas concentrations.
    With regard to the suggestion of ``no more than five percent,'' a 
number of ``conventional'' petroleum products that government is 
allowed to purchase are characterized by lifecycle greenhouse gas 
emissions that are above 5 percent of the U.S. average. For example, 
fuels produced from heavy oils produced in California or imported from 
Venezuela exceed the 5 percent threshold.
    Question 10. With respect to your testimony on section 7 of S.937 
(Multi-year contract authority for DOD procurement of alternative 
fuels), do you have any comments on the manner in which the 
Congressional Budget Office currently scores such long-term contracting 
authority? Do you feel their accounting methodology is a true and 
accurate representation of the actual cost to the federal government? 
Does it account for the cost savings accrued over the lifetime of the 
contract or for the fact that the federal government would be 
purchasing some form of fuel, electricity, etc. anyways?
    Answer. These specific questions deal with issues that we have not 
examined and, therefore, respectfully defer comment.
    Question 11. In 2007 you testified in front of Congress that the 
BLM should ``rescind the requirement to prepare a programmatic EIS for 
a commercial leasing program [for oil shale],'' and instead you 
recommended that the federal government phase in a process based upon 
research results. Last month, you testified in front of the House 
Energy and Commerce committee that ``It would not be advisable to 
develop detailed regulations . . . until more information is available 
on process performance and impacts.'' Just last week, in front of the 
same committee you stated in written testimony that the 2008 commercial 
leasing regulations are ``seriously deficient.'' Can you say more? Does 
the rush to lease jeopardize the development of oil shale?
    Answer. The research that we conducted on oil shale in 2004 and 
2005 indicated that not enough information was available to assess the 
environmental impacts of large scale oil shale development. Major 
information shortfalls included:

          1) Options for mitigating damage to plants and wildlife;
          2) Reducing uncertainties associated with ecological 
        restoration after oil shale production activities;
          3) Understanding the subsurface environment, including 
        hydrological, geochemical, and geophysical phenomena that could 
        result from oil shale development; and
          4) The air and water emissions associated with advanced 
        processes for oil shale development.

    It was and continues to be our judgment that these information 
shortfalls preclude moving forward with a programmatic EIS for a full-
scale commercial leasing program.
    The written testimony provided to the Energy and Power Subcommittee 
of the House Energy and Commerce Committee on May 5 and June 3 and to 
the Senate Energy and Natural Resources Committee on June 7 represents 
our current perspective on the challenges of moving forward with oil 
shale development. The emphasis should be on obtaining information from 
a limited number of pioneer facilities. The leasing program should be 
designed to motivate investment in such pioneer plants. A rush to a 
commercial leasing program could seriously jeopardize the development 
of oil shale and could result in adverse socioeconomic and 
environmental impacts that could have a profound effect on northwestern 
Colorado and northeastern Utah.
    Question 12. Last month you testified in front of a house committee 
that in regard to oil shale development, ``It would not be advisable'' 
to proceed with ``full-blown commercial development'' until we know 
more. How much do we know about the research that is going on, whether 
it will bring us to a point where we can even contemplate commercial 
development of America's oil shale resources? In the past, you've also 
raised concerns about water quantity and quality. Has research 
addressed these concerns?
    Answer. Formal research by RAND on oil shale terminated with 
publication of our 2005 report. Since then, I and other staff have 
tried to maintain an awareness of what progress is occurring. With 
regard to the four information shortfalls discussed in the answer to 
Question 11, we are not aware of significant progress, although certain 
firms interested in oil shale development may have information that is 
not publicly available. Government support of research that would 
address these information shortfalls is very small.
    Question 13. What can you tell us about other attempts to develop 
oil shale around the world; Estonia being the nation that is mentioned 
the most often? What can you tell us about these other experiences with 
oil shale? What have been the results? Is it the case that Estonian is 
struggling to manage the tremendous volumes of toxic waste from their 
years of oil shale development?
    Answer. In Estonia, oil shale is primarily used as a solid fuel for 
the generation of electric power. A small amount is converted to a 
liquid fuel, all of which is used in power generation or 12 
cogeneration plants. To our knowledge, oil shale in Estonia is not used 
to produce transportation fuels. A recent environmental assessment of 
oil shale produced and consumed in Estonia indicates severe impacts 
have occurred. These include subsidence over underground mining areas, 
overexploitation of underground waters, pollution of surface and 
underground waters, and the emission of hazardous air pollutants 
(Gavrilovaa, Olga, et al, ``A life cycle environmental impact 
assessment of oil shale produced and consumed in Estonia,'' Resources, 
Conservation and Recycling, Volume 55, Issue 2, December 2010, Pages 
232-245).
    China also produces a small amount of liquid fuels from oil shale. 
We have not been able to locate information on the environmental 
impacts of oil shale production in China.
     Responses of James T. Bartis to Questions From Senator Portman
    Question 14. Would you see it as a positive step for development of 
domestic energy resources if government agencies--the Department of 
Defense specifically--were given authority to enter into long term 
purchasing agreements for alternative fuels?
    Answer. This question is similar to Question 6 posed by Senator 
Murkowski. Please see Answer 6.
    Question 15. Would those long term purchasing agreements assist 
alternative fuels developers in obtaining the private financing they 
need to move forward with projects?
    Answer. They could if such purchasing agreements protected 
investors against the risk that world oil prices might drop for an 
extended period during the financial lifetime (about 20 years after 
operations commence) of an alternative fuel project. In particular, if 
DoD were given authority to grant long-term contracts, it could offer 
price floors to investors to protect them against low world oil prices. 
To balance this benefit to investors, DoD could require price discounts 
during periods of high oil prices. To be more cost-effective, however, 
fuel contracts designed to promote early commercial production should 
be part of a broader package of incentives, such as investment tax 
credits, accelerated depreciation, and loan guarantees. The RAND 
analysis also argues against long-term contracts that establish a 
guaranteed or fixed price without recourse to adjusting prices. Such 
agreements are rarely observed in contracts between private parties and 
are far less likely to serve the federal government's interests. More 
of this is discussed in Camm, Bartis, and Bushman, Federal Financial 
Incentives to Induce Early Experience Producing Unconventional Liquid 
Fuels, Rand Corporation, TR-586-AF/NETL, 2008.
    Question 16. How effective would you say the Department of Energy 
has been in utilizing its Loan Guarantee Program?
    Answer. Loan guarantees can strongly encourage private investment. 
However, they encourage investors to pursue early alternative fuels 
production experience only by shifting real default risk from private 
lenders to the government. By their very nature, the more powerful 
their effect on private participation, the higher the expected cost of 
these loan guarantees to the government. In addition, loan guarantees 
encourage private investors to seek higher debt shares that increase 
the risk of default and thus increase the government's expected cost 
for providing the guarantee. Consequently, it is appropriate that the 
government should take great care in employing loan guarantees to 
promote early experience in producing alternative fuels.
    RAND has not conducted an analysis of the effectiveness of the 
Department of Energy in utilizing its Loan Guarantee Program, and 
therefore the preceding observations should not be interpreted as 
justifying the pace or portfolio of the Department of Energy's loan 
guarantee program. It is my understanding that the Department of Energy 
has not yet made a commitment, either conditional or final, to provide 
a loan guarantee to any project that would produce an alternative 
liquid fuel.
    Question 17. Are you familiar with section 526 of the 2007 Energy 
bill and the restrictions it places on the federal government's ability 
to purchase alternative fuels? Does that policy make any sense in a 
world where energy prices are spinning out of control and we are 
increasingly dependent on foreign energy sources?
    Answer. I am familiar with section 526 and the restrictions it 
places on the federal government. Please see my responses to Question 5 
from Senator Murkowski and Question 9 from Senator Udall.
                                 ______
                                 
       Responses of Joe Colvin to Questions From Senator Bingaman
    Question 1. Your testimony mentions other countries pursing small 
modular reactors, can you describe these efforts?
    Answer. There is significant international interest in the field of 
small modular reactors (SMR) given the potential benefits and uses of 
this technology for mankind. The major countries pursuing SMRs, in 
addition to the US, are Russia, China, Argentina, South Africa and 
Japan. There are currently 16 specific SMR designs from these countries 
that are well-advanced and that are believed to be at the forefront of 
the initial designs being pursued.
    Question 2. What do you think will be the hardest element to 
licensing small modular reactors?
    Answer. From the licensing perspective, the hardest element will 
likely be the safety criteria and design requirements set by the 
Nuclear Regulatory Commission (NRC) from two important perspectives:

          I. First, the NRC needs to determine the necessary safety 
        case for SMRs from a thorough evaluation of the steps necessary 
        to protect the public health and safety. This must recognize 
        the unique design considerations of the technologies, rather 
        than just to apply the regulatory requirements currently used 
        for larger reactor technologies. The unique designs of SMRs 
        will result in safer plants, rely on natural phenomena such as 
        natural circulation, not on power-driven pumps, likely be 
        located below ground, rely on inherently safe considerations 
        that do not require the typical containment structures, etc. 
        Applying the current regulatory requirements, as is, will 
        likely lead to SMRs not being viewed as viable by customers in 
        the future.
          II. Second, many of the new technologies are in areas outside 
        the typical light-water reactor technology currently licensed 
        in the US. The NRC does not currently have the expertise 
        necessary to evaluate the designs, safety cases and technology 
        of the advanced SMRs, such as high-temperature gas reactors and 
        fast reactor technology. It's important that the NRC, working 
        with the DOE and industry, develop this expertise to allow 
        efficient and effective licensing of these advanced concepts.

    Question 3. Given your experience with the nuclear industry and 
their utilities trending over the last 40 years towards large 1000 MW 
reactors with economies of scale, do you think small modular reactors 
will be adopted by this same market?
    Answer. Clearly the economies of scale and the economics of the SMR 
technology will determine if SMRs are adopted by utilities in the US 
and around the world. Many of the US companies interested in building 
new reactors are interested in larger reactors in the range of 1000MWe 
to 1500MWe; however, there are many other smaller utilities in the US 
that would likely be interested if the SMR technology is proven--
utilities whose systems could not support the addition of a large 
reactor or those utilities that desire to shut down older coal-based 
units and replace them with non-emitting generation sources. Outside 
the US, there will be many applications for SMR technologies, once 
proven, since most of the developing world could take full advantage of 
the smaller capacity of SMRs and then add additional plants as needed.
    Question 4. Your testimony mentions the early relationship of these 
reactors with Navy prototypes, my understanding is Naval power reactors 
are substantially different in design and operation than small modular 
reactors--is that true?
    Answer. The US Naval Submarine reactor programs were clearly the 
first SMRs and were the foundation of many of the technologies that are 
being used and/or developed today. For example, the 10MW light-water 
reactor for the first nuclear submarine, USS Nautilus (SSN-571) formed 
the basis for the initial commercial designs. The second submarine 
reactor on the USS Sea Wolf (SSN-575) was a liquid metal sodium-cooled 
intermediate reactor using thorium fuel. A number of the currently 
proposed SMRs intend to use liquid metal cooling with a fast reactor 
fuel, including thorium-based technologies.
    At the same time, submarine reactors have many differences in the 
designs due to their intended purpose. For example, the majority of the 
reactor output of a submarine reactor is used for propulsion and the 
reactor needs to be able to change power very rapidly to meet tactical 
conditions. Additionally, reactor design criteria such as power 
density, length of time between refueling, etc. result in design 
considerations different than for SMRs used in power generation, steam 
production or desalinization applications.
      Responses of Joe Colvin to Questions From Senator Murkowski
    Question 1. (S. 512 and S. 1067)--What is the biggest hurdle that 
needs to be overcome for all components of a small modular reactor to 
be manufactured in the United States?
    Answer. The loss of US manufacturing capability for large reactor 
components and equipment is a serious concern. The current global 
marketplace for nuclear components and equipment is likely to continue 
until there are sufficient markets to warrant the investment in new 
plants and equipment in the US. There has been some recent investment 
in new facilities in the US for reactor construction in Virginia and in 
Louisiana; however, these facilities will provide only part of the 
equipment and components for new reactors. New facilities will be built 
when the growth in new reactor construction in the US expands 
significantly.
    Question 2. (S. 512 and S. 1067): In order for any SMR to move 
forward, there must be interest from a user. What are you hearing from 
utilities about their interest in SMRs?
    Answer. There is significant interest and support from US utilities 
in new SMR technology. For example, the Tennessee Valley Authority 
recently announced a partnership with B&W for the m-reactor project and 
desires to pursue the development of a prototype to prove the 
technology for future applications and sales. In the end, the utilities 
are interested in keeping all their options open for SMR technology. 
Once SMRs are proven to be safe, licensable and competitive, there will 
be increasing interest and use of this promising technology.
                                 ______
                                 
      Responses of Edwin Lyman to Questions From Senator Bingaman
    Question 1. Fukushima Daiichi involved an accident with several 
reactors all adjacent to each to other, do you see a similar safety 
concern with multiple small modular reactors sited adjacent to each 
other as proposed by many vendors?
    Answer. In light of the Fukushima Daiichi accident, I do see a 
safety concern with co-located multiple small modular reactors (SMRs) 
in close proximity that should be addressed by the Nuclear Regulatory 
Commission (NRC) in SMR licensing. In its June 2011 report to the 
International Atomic Energy Agency, the Nuclear and Industrial Safety 
Agency of Japan (NISA) stated that

          The accident occurred at more than one reactor at the same 
        time, and the resources needed for accident response had to be 
        dispersed. Moreover, as two reactors shared the facilities, the 
        physical distance between the reactors was small and so on. The 
        development of an accident occurring at one reactor affected 
        the emergency responses at nearby reactors.
          Reflecting on the above issues, Japan will take measures to 
        ensure that emergency operations at a reactor where an accident 
        occurs can be conducted independently from operation at other 
        reactors if one power station has more than one reactor. Also, 
        Japan will assure the engineering independence of each reactor 
        to prevent an accident at one reactor from affecting nearby 
        reactors. In addition, Japan will promote the development of a 
        structure that enables each unit to carry out accident 
        responses independently, by choosing a responsible person for 
        ensuring the nuclear safety of each unit.''

    These lessons need to be studied by the NRC, which has acknowledged 
that some of its current regulations and procedures do not account for 
events affecting multiple units on a site. For instance, according to 
the NRC, emergency planning regulations focus on single-unit events 
with regard to requirements for emergency operations staffing, 
facilities and dose projection capability. Also, the NRC's guidance for 
probabilistic risk assessment, an analysis tool which is used in many 
regulatory applications, does not require the consideration of 
multiple-unit events.
    It is also clear that NRC will need to consider these issues in 
developing its licensing approach for small modular reactor sites, 
which may host two to four times the number of units present at the 
largest U.S. nuclear plant site today. As I pointed out in testimony, 
prior to Fukushima SMR vendors called for relaxing NRC staffing 
requirements for multiple modules, which would tend to decrease, rather 
than increase, the independence of modules at a site. In the aftermath 
of Fukushima, such requests need to receive very careful scrutiny.
    Question 2. What concerns you, technically, in the licensing 
process at the NRC for these small reactors?
    Answer. At present the NRC has almost no regulations specific to 
small modular power reactors. Small reactor vendors are lobbying the 
NRC to weaken certain requirements for small reactors based on a 
perception that they will be safer. My chief concern is that there is 
inadequate justification at this point for licensing small reactors to 
a lesser standard than large reactors. The Fukushima disaster has shown 
that nuclear safety standards need to be raised for all plants. To the 
extent that small reactors have inherent safety features relative to 
large reactors, they can be part of this solution, but not if standards 
for small reactors are weakened.
    One aspect of NRC's licensing approach for small modular reactors 
that I find particularly troublesome is a recent proposal to ``risk-
inform'' the reviews of small modular reactor applications.\1\ This 
proposal would use probabilistic risk assessment (PRA) information to 
assess which systems, structures and components (SSCs) of small modular 
reactors are the most important with regard to severe accident risk, 
and would downgrade the review of SSCs that are determined not to be 
``risk-significant.'' But the Fukushima accident has called into 
question the nuclear community's understanding of risk for reactor 
types that have been operating around the world for decades. In 
particular, equipment that could have mitigated the outcome of the 
Fukushima accident was not available for use because it was not 
sufficiently well-protected. Similar equipment at U.S. plants is not 
considered ``risk-significant'' and therefore is not required to have 
high reliability or survivability. This misperception of risk is likely 
to be even greater for new plant designs, since their PRAs are only 
paper studies that have not been validated with plant operating data. I 
am concerned that the NRC's proposal would put too much weight on these 
theoretical studies in small modular reactor licensing reviews and as a 
result could fail to thoroughly evaluate important contributors to 
plant risk in the real world.
---------------------------------------------------------------------------
    \1\ R.W. Borchardt, ``Use of Risk Insights to Enhance the Safety 
Focus of Small Modular Reactor Reviews,'' SECY-11-0024, U.S. Nuclear 
Regulatory Commission, February 18, 2011.
---------------------------------------------------------------------------
    Question 3. Do you believe some of these reactors as proposed are 
truly passive in their safety features, that is they can shut down and 
cool themselves without intervention?
    Answer. I am not aware of any credible reactor design that is truly 
passive and can shut itself down and cool itself in every circumstance 
without any potential need for intervention. Some reactor designs, 
large or small, have certain passive safety features that allow the 
reactor to depend less on operator action for a limited period of time 
following designbasis accidents. Small reactors may have an advantage 
here because the lower the power of a reactor, the easier it is to cool 
through passive means such as natural convection cooling. But generally 
all passively safe reactors require some features, such as valves, that 
are designed to operate automatically but are not one hundred percent 
reliable. And operators will always be needed to monitor systems to 
ensure they are functioning as designed, and to intervene if they fail 
to do so. Both passive systems and operator actions would require 
functioning instrumentation and control systems, which have been shown 
to be unreliable during severe accidents both at Three Mile Island and 
Fukushima. It is unrealistic to expect any reactor design to be 
completely passive in every contingency, and as result passive designs 
should also be equipped with highly reliable active backup systems and 
associated instrumentation and control systems.
    Question 4. Many people believe that small modular reactors can be 
used in geographically remote locations or with smaller utilities than 
would be for large reactors--this seems simplistic to me--can you 
comment on this?
    Answer. In my view, small modular reactors are not suitable for 
deployment in remote locations unless there is an established 
infrastructure to cope with emergencies, and if sufficient numbers of 
trained operator and security staff can be provided. In light of the 
answer to the previous question, it is unrealistic to assume the 
availability of small reactors that are so safe they can be shipped 
around the world without the need to ensure the highest levels of 
competence and integrity of local regulatory authorities, plant 
operators, emergency planning organizations and security forces. 
Fukushima has demonstrated the importance of timely off-site response 
in the event of a severe accident, so the accessibility of reactors in 
remote locations also must be a prime consideration. Even within the 
U.S., small utilities with little or no experience in operating nuclear 
plants need to fully appreciate the unique challenges and 
responsibilities associated with nuclear power and should not expect 
that small modular reactors will provide any relief in this regard.
       Response of Edwin Lyman to Question From Senator Murkowski
    Question 1. (S. 512 and S. 1067)--Could you describe how a light-
water small modular reactor (SMR) would have fared if faced with 
similar conditions at the Fukushima Daiichi power plant? (S. 512 and S. 
1067)--Much of your testimony is directed at the concern that the 
Nuclear Regulatory Commission will weaken regulatory requirements for 
SMRs. In your view, do all of the requirements need to be the same for 
small and larger reactors? Capital costs aside, if a site is only being 
used for a 300 megawatt reactor--to replace an existing coal power 
plant--or a single 50 megawatt reactor for off-grid applications, 
should the emergency planning zone requirements be the same as a 1200 
megawatt reactor?
    Answer. It is difficult to say in general how any light-water small 
modular reactor would have fared under the conditions experienced at 
Fukushima Daiichi. That would depend on many factors, including the 
plant design basis, siting characteristics, the size, number and 
separation of modules on site, the level of operator staffing, and the 
adequacy of the emergency procedures. While heat removal requirements 
would be less challenging for a single small reactor than a single 
large one, on a per-megawatt basis (that is, if one 1250 MW plant is 
replaced with ten 125 MW modules, for example) the difficulty of coping 
with multi-unit accidents could well outweigh this advantage. And for 
any plant, large or small, the key factor is the most severe event that 
the plant is designed to withstand. No reactor, large or small, can be 
expected to survive an event significantly beyond its design basis, and 
that is why post-Fukushima nuclear safety standards for new reactors 
need to be strengthened across the board. If the NRC weakens standards 
for SMRs based on an erroneous perception of their safety relative to 
large reactors, SMRs may well end up less able to cope with a severe 
event.
                                 ______
                                 
       Responses of Brian Siu to Questions From Senator Bingaman
    Question 1. I do not understand how increased demand for 
electricity to power electric cars is relevant to EPA's assessment of 
``best available control technology.'' Could you explain how these are 
related to each other, and what policy change might result from tying 
the two together, as they are in Sec. 8 of S. 937?
    Answer. NRDC finds the implementation pathway for section 8 of S. 
937 to be unclear. The provision appears to allow on-road emissions 
reductions due to electric vehicle deployment to be taken into account 
when determining best available control technology for power plant 
pollution. Yet the bill's language is extremely vague, lacking rules or 
parameters to guide how these offsets would be determined, measured, 
monitored or otherwise applied. For instance, it does not explain which 
pollutants could be considered or how they would be measured. Nor does 
it explain how baseline emissions would be evaluated. In order to 
determine an offset for BACT, one must know what the consumer would 
have bought if an electric vehicle were not chosen. Without that 
information, it would be impossible to determine the pollution 
reduction that actually took place. Yet, no such guidance is provided 
under section 8 of the bill. For these reasons it is difficult to 
predict if and how this provisions could be implemented.
    Assuming that section 8 could be implemented, the provision poses 
serious risks to public health and welfare. As mentioned, it appears to 
use on-road pollution reductions from electric vehicle deployment to 
justify laxer pollution controls for power plants. For instance, if 
electric vehicles were able to reduce on-road NOx emissions, those 
reductions could apparently be taken into account when determining BACT 
for the generating source. This poses serious risks to local air 
quality and public health because increased power plant pollution might 
not geographically match on-road emissions reductions. Thus, the 
provision would allow air quality in some regions to deteriorate based 
on improvements elsewhere. This would be extremely unfair to local 
businesses and residents who would ultimately suffer the health 
impacts.
    Moreover, on-road emissions reductions could conceivably be applied 
to carbon dioxide and other greenhouse gases since BACT determinations 
now include global warming pollution. If so, section 8 is once again at 
fundamental odds with sound public policy. Allowing power plants to 
increase their carbon pollution would significantly undermine efforts 
to lower transportation sector emissions. Automakers will achieve the 
Administration's vehicle efficiency and tailpipe standards through 
range of clean technologies, including vehicle electrification. Section 
8 introduces an element of emissions leakage that allows power plants 
to directly negate those automaker achievements. To that extent, it 
would provide a windfall to the power sector at the expense of auto 
manufacturers that are working to provide a cleaner vehicle fleet. NRDC 
maintains that this is inequitable and short sighted policy that will 
make necessary transportation emissions reductions much more difficult.
    Question 2. What would be the likely outcome if algae-based fuels 
that were co-located with power plants were given triple RFE credits? 
Would suggest favoring some algae technologies and pathways over 
others?
    Answer. It is difficult to predict whether a credit multiplier 
would effectively promote algal fuels. If successful, however, it could 
come at the expense of other emerging biofuels since the signal could 
potentially divert investment from other nascent fuel technologies. 
This view is not intended to show disapproval or opposition to 
sustainably grown algal fuels in general. It simply speculates on one 
possible outcome of S. 937s proposal.
    Environmentally, it is important to note that there is no carbon 
benefit to co-locating algal fuel production near power plants or other 
large industrial sources of carbon dioxide. Algae requires the same 
volume of carbon dioxide to grow irrespective of location. From a 
carbon accounting standpoint, it is irrelevant whether the algae takes 
carbon directly from the atmosphere or from a carbon dioxide stream 
that is imminently headed to the atmosphere. Thus, the proposal applies 
a triple credit multiplier where there are no significant carbon 
benefits relative to algae grown elsewhere.
                                 ______
                                 
     Responses of John E. Kelly to Questions From Senator Bingaman
    Question 1. S. 512, the Nuclear Power 2021 Act requires cooperative 
agreements with cost-sharing. Can you comment on the non-federal cost 
sharing outlined in this bill?
    Answer. Under the provisions of S.512, industry would be required 
to support design certification activities at a 50% cost-share level 
and construction and operating license activities at a 75% cost-share 
level. i
    In balancing, the acceleration of work and the offset in risk 
afforded by the Government cost-share. DOE determined that at least 50% 
cost-share From industry for both the design certification and 
licensing activities was a starting point. The Department believes that 
a higher cost share from industry be incentivized and will include 
greater than 50% industry contribution as a priority rating criterion 
for selection.
    Question 2. S. 1067, the Nuclear Energy Research Initiative 
Improvement Act authorizes $50 million per year for 5 years--is this 
adequate?
    Answer. The S. 1067 Bill authorizes $50 million a year for the 
research element of the Small Modular Reactor (SMR) program. The 
Department's budget request for FY 2012 outlined a $452M, five-year 
program to help accelerate the commercialization of light water reactor 
based SMRs through a cost-shared public-private commercial application 
project. In addition, a research component ($28.7 million in FY 2012) 
was proposed to accelerate the development of more advanced SM R 
concepts. The Department believes that this level of funding is 
appropriate.
    Question 3. S. 512, authorizes the selection under merit review of 
two candidate small reactors to begin a demonstration program lor 
licensing. Are these the appropriate reactor sizes to consider for 
licensing?
    Answer. A wide range of design parameters and power levels have 
emerged during the recent surge in the domestic SMR market. These 
designs have largely been driven by what the vendors perceive to be 
their customers needs and requirements, including cost, incremental 
load growth, and aging fossil plant replacement. As such, the 
Department does not see the need for this bill to dictate reactor size 
constraints to the industry. The Department has defined the upper limit 
on the SMR power output as 300 MWe, and will only be considering those 
designs that meet this criterion in our solicitation. Beyond this 
constraint, we should be soliciting and selecting, projects based on 
the value they can provide in improving the U.S. environment, economy, 
and energy security and let market forces determine the precise size 
range.
    Question 4. S. 1067, the Nuclear Energy Research Initiative 
Improvement Act authorizes research and development, should it also 
include demonstrations as well?
    Answer. The Department does not plan to support demonstrations of 
either the near-term light water-based or advanced SMR designs.
    Question 5. S. 1067 requires cost sharing--is that appropriate?
    Answer. Yes. The Department expects that any RD&D activity that 
supports the development of technologies will be cost-shared. Any RD&D 
activity that supports specific designs will be appropriately cost-
shared by the industry partners that receive direct benefit from that 
activity.
      Response of John E. Kelly to Question From Senator Murkowski
    Question 1. Given your background with DOE and the American Nuclear 
Society, and your interaction with Nuclear Energy Institute and the 
Nuclear Regulator Commission, could you discuss some of the lessons 
learned from implementing the Nuclear Power 2010 program in terms of 
industry participation, cost sharing, and design certification that 
would be applicable to the Nuclear Power 2021 Act?
    Answer. Nuclear Power 2010 (NP 2010) was a government-industry, 50-
50 cost-shared initiative with two main goals: demonstrating the then 
newly revised. Nuclear Regulatory Commission's design-centered 
licensing approach and providing industry with information needed to 
make decisions to construct and operate those plants. The program 
concluded at the end of FY 2010.
    A NP2010 lessons learned report is under development and will 
ultimately be available on the DOE Office of Nuclear Energy website. 
Key lessons learned from the NP2010 program that should be applied to 
SMR activities supported under the Nuclear Power 2021 Act include:

   Developing the business case and, most importantly, a 
        Roadmap in the early phases of the program
   Encouraging the formation of utility-led industry consortia 
        based on a specific reactor technology
   Including appropriate industry cost share (50-50 minimum)
   Including utility members of consortia in a leadership role, 
        especially with respect to reactor technology selection
   Including utility participation in reactor design 
        development
   Avoiding and/or tightly controlling `in-kind' contributions 
        on industry cost-share
   Phasing project activities and including appropriate project 
        decision points (off-ramps) and oversight

    NE is incorporating these lessons into the SMR program methodology 
at each stage of the program.
      Responses of John E. Kelly to Questions From Senator Portman
    Question 1. In your opinion, with the funding outline suggested by 
DOE ($452 million), what is the earliest that you think the first SMR 
demo could be deployed and operational?
    Answer. The Department believes industry is planning deployment 
decisions in a timerrame that could result in the first SMR plants 
being operational in the 2020 timeframe.
    Question 2. The Administration requested $67 million for design, 
certification and licensing. In which of those three areas will the 
majority of the funding, be spent?
    Answer. In FY 2012, the vast majority of the $67 million request 
would be for engineering work-to support design related activities. 
Total expenditures for Nuclear Regulatory Commission design 
certification and licensing are modest by comparison. Perhaps two-
thirds to three-quarters of the cost will be associated with design 
activities, recouizing that there arc some grey areas or overlaps 
between these activities and that there would be some discretion on how 
costs are allocated between the activities.
    Question 3. Small Modular Reactors have received increased 
attention since the disaster in Japan. SMR designs are considered 
``highly passive,'' meaning if there is a situation where the reactor 
is disconnected from the grid, the safety functions of the unit can 
still engage and ensure that the reactor is shut down without an 
external incident. Dr. Pete Lyons, Assistant Secretary of the Office of 
Nuclear Energy at the Department of Energy, highlighted this fact in 
March at the Senate Energy of Natural Resource Committee's briefing on 
Japan. Can you speak in more detail about these particular safety 
functions?
    Answer. All of the currently proposed light water-based SMR 
technologies have been designed to provide long-term cooling via 
natural circulation after accidents that may result in a loss of 
powered systems. This means that the circulation of-water over the fuel 
is driven by thermal gradients and gravity, so there is no need for 
powered pumps. This passive cooling capability does not require 
emergency generators or additional operator actions to continue cooling 
a reactor core. Some designs utilize natural circulation cooling for 
normal operation as well. Most of these designs also integrate the 
primary system components within the reactor pressure vessels, which 
could significantly reduce the possibility for large-break loss-of-
coolant accidents. SMRs also employ smaller cores requiring less water 
to cool.
    Question 4. The economics of natural gas have changed significantly 
in the past couple of years. Prices have dropped significantly since 
2008 and many are saying that prices will remain low and stable for the 
significant future. In your opinion, at what price level must natural 
gas be for S'AVIRs to be competitive?
    Answer. At the current market price for natural gas, existing 
options for electricity generation are not competitive based solely on 
a cost per kilowatt basis. however, significant long-term investments 
in electrical generation capacity must consider more than current fuel 
prices. Utilities adding future capacity will consider price 
volatility, diversity of supply, the amount of capital cost and 
financing, project risks, and policy considerations. For example, 
natural gas price volatility over time and policies to curb greenhouse 
gases could affect electricity' generation choices.
    While it is premature to provide a specific price range for SMRs to 
compete favorably with natural gas at present, the Department thinks 
that tinder certain circumstances, future (nth of a kind) SMRs can be 
competitive with both large baseload nuclear plants and the historical 
mean price for natural gas. In addition. SMRs offer potential buyers a 
lower (or incremental) capital investment. lower interest costs and a 
shorter construction schedule than the large nuclear plants.
    Responses of Steven G. Chalk to Questions From Senator Bingaman
    Question 1. Could you please explain to us what changes in 
Administration policy would result from the repeal of Sec. 526 of the 
Energy Independence and Security Act of 2007, as called for in S.937? 
Is it likely that government purchasing decisions would be altered in 
any way?
    Answer. The Department has not analyzed what changes in 
Administration policy would result from the repeal of Sec. 526 of the 
Energy Independence and Security Act of 2007, as called for in S. 937. 
Sec. 526 of EISA 2007 is consistent with the goals contained in 
Executive Order 13514 and is an effective provision in helping meet the 
Administration's greenhouse gas reduction goals.
    Question 2. Could you explain to us how the changes to the DOE loan 
guarantee program proposed by S. 937 would affect DOE's decisions about 
what projects are awarded loan guarantees?
    Answer. The Administration is still reviewing S. 937 which proposes 
an expansion of section 1703 eligible projects to include substitute 
natural gas production facilities. DOE is concerned that the reporting 
requirement proposed in S. 937 could have detrimental effects on the 
Department's ability to review loan guarantees effectively.
    Responses of Steven G. Chalk to Questions From Senator Murkowski
Loan Guarantees for Fossil Projects (S. 937)
    Question 1. The 2005 Energy Bill names ``coal gasification'' as 
eligible for support under the loan guarantee program that the law 
created. As you are aware, coal is abundant in the United States and a 
very affordable option for consumers. Not only does gasification make 
coal use cleaner, but it can also diversify the products we make with 
it, including electricity, fuels, plastics, fertilizer, and other 
commodities.
    Please describe the level of interest the coal sector has shown in 
the loan guarantee program, and the status of the Department's support 
for coal-utilizirw, projects that have sought guarantees. How does that 
compare to guarantees considered in other sectors?
    Answer. The Loan Guarantee Program has received several fossil 
applications in the section 1703 program.
Oil Shale (S. 937)
    Question 2. DOE has estimated that our technically recoverable oil 
shale resource base is potentially greater than one trillion barrels. 
Please describe what DOE is doin4 to help commercialize this 
potentially massive resource. Is your Department coordinating its 
efforts with the Department of Interior?
    Answer. DOE worked closely with the Department of the Interior and 
other representatives of the Unconventional Fuels Task Force 
(established under subsection 369(h) of the Energy Policy Act of 2005) 
in developinv, the Task Force's initial report and program plan to 
expedite commercialization of unconventional fuels, including oil 
shale. The initial report and the program plan are available on the 
Task Force's website at www. unconventionalluels.org.
     Responses of Steven G. Chalk to Questions From Senator Manchin
    Question 1. During my tenure as Governor of West Virginia, I 
chaired the Southern States Energy Board for one year we released a 
study, the American Energy Security Study, which evaluated 
opportunities to use coal and biomass as transportation fuel 
feedstocks. Are there legislative actions we could take to enhance the 
American Alternative Fuels Act of 2011 to provide more market 
opportunities for coal-derived fuels?
    Answer. Conversion of.coal to transportation fuels is a mature 
technology. The Energy Information Administration's (ER) Annual Energy 
Outlook 2011 projects that world oil prices will he just under $125/
barrel in 2035 (2008 $/barrel). Given ETA's long-term projection and 
current world oil prices, which are near $100/barrel as of June 13, 
2011, industry is best positioned to evaluate market opportunities to 
proceed with commercial production of transportation fuels derived from 
coal.
    Question 2. Over the past several years, RAND has studied various 
mechanisms to stimulate the creation of a broader alternative fuels 
industry in the United State using domestic resources. Are you in a 
position to identify the mechanisms that would be most effective in 
encouraging the necessary investment in projects to produce alternative 
fuels from domestic energy resources?
    Answer. DOE is familiar with RAND's work on this issue, and 
representatives from DOE's Biomass Program have met with an author of 
RAND's recent study, ``Alternative Fuels for Military Applications.'' 
Alternative fuels are a critical component of DOE's strategy to lessen 
our dependence on oil while creating business opportunities and jobs in 
the United States. Biofuels derived from domestic biomass can 
potentially provide a cost-effective alternative to oil and, depending 
on the choice of feedstock, can contribute to national environmental 
goals, by helping reduce greenhouse gas emissions.
    Private sector investment is necessary for creating meaningful 
growth in the U.S. alternative fuels industry, and DOE and other 
agencies can play an effective role in stimulating this investment 
through a variety of mechanisms. In our discussions with investors and 
prospective binfuel producers, we have identified four main sources of 
risk that discourage private investment: (I) feedstock supply risk; (2) 
fuel-production technology risk; (3) product offtake risk; and (4) 
regulatory stability risk.
    For (1) and (2), both USDA and DOE have been supporting projects 
ranging from R&D to small-scale trials and up to ``pioneer'' commercial 
scale plants in order to improve and demonstrate the necessary 
technologies at scale. Continuing these research, development, and 
demonstration efforts for emerging, new crops and conversion 
technologies should encourage private investors in these areas.
    For (3), there are two factors. First, long-term fuel-purchase 
contracts are virtually unknown in private industry, and limited by law 
to 5 years for Department of Defense purchases. Second, crude oil 
prices (and therefore fuel prices) are exceedingly volatile. Even 
though the long-term trend of increasing oil prices justifies 
investment in alternative fuels, the volatility of crude oil prices can 
deter investors clue to the significant downside risk when crude oil 
prices are low.
    For (4), the issue is that advanced biofuels will entail huge 
investments both for farmers (new, perennial crops and the equipment to 
plant and harvest them) and fuel producers (costly new biorefineries).
                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

                                             NuScale Power,
                                        Portland, OR, June 7, 2011.
Hon. Jeff Bingaman,
Chair, Committee on Energy and Natural Resources U.S. Senate, 
        Washington, DC.
RE: S. 215, a bill to promote small, modular scalable nuclear power 
reactors, public witness testimony for the record.

    Dear Mr. Chairman and Ranking Member,
    On behalf of NuScale Power, Inc. of Corvallis, Oregon we are 
writing in support of your efforts to enact S.215, as currently drafted 
and introduced in the Senate and which was passed in identical form by 
your committee last session. We believe that the creation of a U.S. 
based, nuclear manufacturing industry will significantly contribute to 
our nation's long-term economic goals and help the U.S. sustain and 
grow the existing 20 percent contribution to our electricity needs from 
clean, non-emitting nuclear power.
    There is a great deal of urgency in these efforts as the U.S. 
already faces stiff competition from overseas vendors. With quick and 
proper action, I believe we can preserve much of the U.S. market share 
and compete successfully in overseas markets because of our superior 
design features and the commitment to safety in the U.S. that is 
unsurpassed around the world.
    Small, modular reactor technologies build on a rich history of 
American innovation and world class nuclear design, manufacturing and 
operations. The President has recognized the need for nuclear power as 
part of a comprehensive energy, environment and employment strategy for 
this country, including new financial incentives. NuScale is ready to 
deliver:

   NuScale Power owns and operates a one-third scale test 
        facility on the campus of Oregon State University. It is in use 
        to document critical tests required to comply with NRC design 
        certification and licensing. The next phases of regulatory 
        approval are costly in the U.S. and require federal support.
   Since last year, NuScale Power has conducted extensive 
        discussions with various government operations centers managed 
        by both DOE and DOD. We are in the process of scoping both 
        research and deployment opportunities that have the potential 
        to benefit the federal government directly by lowering the 
        facilities' long term costs and reducing their greenhouse gas 
        impacts as an electric power consumer.
   NuScale Power has committed to construct a full-scale 
        control room simulator to specifically address digital 
        instrumentation, control and human factors analysis that will 
        be integrated in all of the next generation nuclear plants, 
        regardless of size. NRC staff has visited Corvallis to review 
        these plans and provide their input.
   As confirmed by a panel of independent experts whose work 
        was presented to the NRC in September 2009, NuScale Power has 
        achieved safety margins that are 10 times safer than the 
        previous generation of nuclear plants. This translates into 
        improved public safety and better financial risk management.
   NuScale Power's inherently safe technology has received 
        considerable attention since the natural disaster and ensuing 
        nuclear accident in Japan. We have developed a nine-page safety 
        illustration that can be viewed on our website, 
        www.nuscalepower.com. It shows how our reactor and spent fuel 
        pool might have responded to similar events. From what we know 
        now, the results are very positive.
   Finally, in addition to the President's leadership in 
        requesting funding for research, development and demonstration 
        of small, modular reactors, the Nuclear Regulatory Commission 
        and its staff have also continued to provide on-going licensing 
        support efforts in their own separate budget request. In a 
        Commission briefing held in March 2011, NRC staff outlined for 
        the Commission the planned approach to licensing SMRs. Staff 
        concluded by saying, in essence, ``It's not a matter of whether 
        we can license these plants but how we best proceed.'' This was 
        encouraging to us, and is a positive sign that Congress can 
        move forward with taxpayer dollars to support the licensing 
        efforts.

    Our company experienced a temporary financial setback earlier this 
year but we are receiving considerable interest in new funding from 
investors that include American manufacturers, fabricators, suppliers, 
constructors and investment firms. We have advised DOE that we expect 
to be in a position to compete for Federal cost-sharing dollars as 
early as FY2011 if the program is approved by Congress.
    NuScale Power wants to thank you, the other cosponsors of this 
legislation and other members of the committee for the support you are 
providing to SMRs. We look forward to continued work with you and your 
staff.
            Sincerely,
                                         Paul G. Lorenzini,
                                           Chief Executive Officer.
                                 ______
                                 
  Statement of Steven Sterin, President, Advanced Fuel Technologies, 
                    Celanese Corporation, on S. 937
    Mr. Chairman and members of the committee--On behalf of Celanese 
Corporation (Celanese), I am pleased to offer the following statement 
to be entered into the hearing record.
    Mr. Chairman, we believe that our federal fuels policy should be 
feedstock and technology neutral, should promote domestic fuel sources 
and should be subsidy free.
    Celanese Corporation will deliver a fuel that adheres to each of 
these concepts, provided federal regulations do not discriminate 
against our process for producing ethanol from basic hydrocarbons such 
as natural gas and coal.
    Celanese is a leading global technology and specialty materials 
company that makes a broad range of products essential to everyday 
living. Headquartered in Dallas, Texas, Celanese employs approximately 
7,250 people worldwide, including 2,350 in the U.S. Our products, 
manufactured in the Americas, Europe and Asia, are found in many 
consumer and industrial applications and deliver value to customers 
around the globe with innovative solutions using best-in-class 
production technologies. It is from this expertise that I derive my 
comments for today's hearing.
    Celanese commends the Senate Energy & Natural Resources Committee 
for considering S. 937, the American Alternative Fuels Act of 2011. 
This legislation would expand the opportunities for domestic fuel 
production using traditional hydrocarbon feedstocks. Celanese believes 
that new, ground-breaking technologies within the energy and fuels 
industries can help alleviate the high cost of gasoline consumers are 
facing at the pump, be part of a solution to broader energy security 
concerns about our dependence on foreign petroleum and minimize some of 
the unintended consequences of the current federal policy on 
transportation fuels.
    Celanese has developed and is in the process of commercializing a 
game-changing process to produce ethanol from basic hydrocarbons, and 
we can do so in a much more water-and energy-efficient manner than the 
traditional fermentation process. In addition, under today's market 
conditions, we will be able to produce ethanol for approximately $1.50 
per gallon--a fraction of the current per gallon cost of corn-based 
ethanol or gasoline. Because of this, Celanese could compete with 
traditional ethanol even without a subsidy from the federal government.
    Celanese is concurrently intends to commercialize its technology 
both domestically at our Clear Lake, Texas facility and at our wholly 
owned operation in Nanjing, China. In China, the growing demand for 
additives that promote cleaner burning gasoline faces concerns about 
the diversion of food sources such as corn to produce fuel. This 
country faces a similar dilemma. Public policy in the United States, 
however, would preclude our product from competing in the current fuel 
ethanol marketplace.
    Current transportation fuels policy is dictated largely by the 
Renewable Fuels Standard (RFS), which was established by the Energy 
Policy Act of 2005 and amended by the Energy Independence and Security 
Act of 2007. The RFS created a federally mandated marketplace designed 
to promote the development of domestic renewable fuel technology and 
production capacity. This new capacity would replace the use of 
traditional fuels based on petroleum, much of which is imported from 
foreign countries. The RFS establishes specific feedstock and fuel 
definitions that create fuel categories, which are then required to be 
produced and used at volumes prescribed on an annual basis. While well-
intentioned, the structure of the RFS is overly rigid and does not lend 
itself to ongoing advances in technology and processes that can fall 
outside the original definitions outlined in statute, even those that 
may address the underlying purposes of the RFS.
    Celanese's groundbreaking technology is a perfect example of these 
limitations. Our technology is not only capable of producing ethanol at 
a fraction of the cost of traditional fermentation, but it also can 
more quickly ramp up production of advanced biomass-based fuels. Under 
the current RFS regime, however, we could not sell our fuel into the 
mandated U.S. marketplace, forcing the company to look to other markets 
around the world to deploy this technology.
    In addition to the statutory prohibition, the RFS creates an over-
reliance on the agricultural community to grow the feedstocks necessary 
to produce the bulk of the 36 billion gallons of fuel required by 2022. 
This over-reliance has resulted in a number of unintended consequences. 
For instance, the RFS's diversion of traditional food and animal feed 
crops to the fuel sector has negatively impacted a number of industries 
that depend on these products. Corn prices today are near historic 
highs, leaving little margin should natural disasters or other events 
disrupt the normal growing season. Celanese believes diversifying the 
use of feedstocks to produce renewable and alternative fuels would 
greatly enhance our overall ability to meet the growing energy and fuel 
demands facing the nation and mitigates these unintended consequences.
    Celanese commends the committee's consideration of S. 937 because 
our company believes that public policy surrounding transportation 
fuels should be technology and feedstock neutral. Such neutrality would 
unlock the full potential of American ingenuity and make better use of 
our abundant natural resources. We encourage the committee to continue 
exploring the potential of all new and emerging technologies. Celanese 
stands ready to add its expertise to this issue and would be pleased to 
provide additional information to the committee, its Members and staff.
    Thank you for this opportunity to offer our thoughts on the 
committee's important work.
                                 ______
                                 
 Statement of Marvin S. Fertel, President and Chief Executive Officer, 
                        Nuclear Energy Institute
    The Nuclear Energy Institute\1\ (NEI) appreciates the committee's 
continuing recognition of nuclear energy's essential role in achieving 
three strategic U.S. goals: energy security, environmental protection 
and economic development. Your vision and leadership will help America 
achieve the clean energy future we want while creating the high quality 
jobs we need.
---------------------------------------------------------------------------
    \1\ The Nuclear Energy Institute is the industry's policy 
organization, whose broad mission is to foster the beneficial uses of 
nuclear technology in its many commercial forms. Its membership, more 
than 350 corporate members in 17 countries, includes every U.S. utility 
that operates a nuclear power plant as well as international utilities, 
plant designers, architect and engineering firms, uranium mining and 
milling companies, nuclear service providers, universities, 
manufacturers of radiopharmaceuticals, universities, labor unions and 
law firms.
---------------------------------------------------------------------------
    Specific to today's hearing, NEI's comments are focused on S. 512, 
the Nuclear Power 2021 Act, and S. 1067, the Nuclear Energy Research 
Initiative Improvement Act of 2011, which we broadly support. The 
Nuclear Power 2021 Act will help accelerate the development and 
deployment of small modular reactors (SMRs) in much the same way that 
the highly successful Nuclear Power 2010 program helped to 
commercialize the large, advanced nuclear plants now being built in the 
United States and overseas, including those expected to be licensed in 
the United States later this year. The Nuclear Energy Research 
Initiative Improvement Act of 2011 will direct research to drive down 
the cost of manufacturing and constructing nuclear power systems, 
including small reactors.
Small Reactor Development Advances Energy, Environmental Benefits in 
        New Markets
    Small-scale reactors can complement large nuclear plant projects by 
expanding potential markets in the United States and abroad for carbon-
free energy production. Smaller reactors provide energy companies and 
other users with additional options to achieve energy and environmental 
objectives.
    Their small size-less than 300 megawatts-and innovative features 
like dry cooling expand the range of sites suitable for deployment to 
include remote and arid regions. These and other attributes make them 
well-suited to repower some of the 50,000 MW of older coal plant 
retirements predicted in a December 2010 study by the Brattle Group\2\, 
helping us achieve our clean energy goals.
---------------------------------------------------------------------------
    \2\ Potential Coal Plant Retirements Under Emerging Environmental 
Regulations, The Brattle Group, December 8, 2010.
---------------------------------------------------------------------------
    Modular construction will allow these new small reactors to be 
built in a controlled factory setting, transported to the site by rail, 
truck or barge, and installed module by module, improving manufacturing 
efficiency and cost while reducing construction time and financing 
costs. Because they can be manufactured in North America to meet 
growing domestic and export demand, their deployment will create high-
tech U.S. jobs and improve our global competitiveness.
Public/Private Partnerships are Essential to Achieve Small Reactor 
        Deployment
    The economic, energy security and environmental benefits of small 
reactor technologies make a strong case for accelerated market 
development. Work remains to design, develop and license small reactor 
designs. A variety of factors must be addressed to achieve this 
outcome. The cost and time required to design, develop, and license a 
small reactor is not necessarily reduced linearly with size. In 
addition, it takes time and resources for the Nuclear Regulatory 
Commission (NRC) to develop the institutional capacity to license new 
reactor designs.
    All of these issues increase the risk and uncertainty for vendors 
facing expensive design and licensing challenges. Traditional 
partnerships among technology vendors, component manufacturers and end 
users are necessary but insufficient in themselves. Absent additional 
business risk mitigation through government incentives, the potential 
benefits of these small, modular reactor concepts may go unrealized, or 
may be realized later than desirable.
    Leveraging these private sector resources through public 
partnerships with the Department of Energy and other government 
entities will accelerate these new reactor technologies to market, 
achieving their many benefits while helping regain U.S. nuclear 
leadership.
Legislation Before this Committee Contains Practical, Proven Provisions
    The industry supports the intent of both S. 512, the Nuclear Power 
2021 Act, and S. 1067, the Nuclear Energy Research Initiative 
Improvement Act of 2011. Together they can accelerate the deployment 
and improve the competitiveness of U.S.-developed small modular 
reactors.
    S. 1067 authorizes the Secretary of Energy to carry out research, 
development and demonstration programs to reduce manufacturing and 
construction costs relating to nuclear reactors, including small-scale, 
modular designs. By focusing federal research support on programs to 
reduce the cost of licensing, construction and the manufacturing plant 
components, S. 1067 can accelerate the construction of small modular 
reactors.
    Chairman Bingaman's Nuclear Power 2021 Act directs the Secretary of 
Energy to carry out programs to develop and demonstrate two small, 
modular reactor designs. It would seek to secure design certifications 
and combined licenses for the two designs by 2021. Proposals for this 
initiative will be made on the basis of scientific and technical merit, 
using competitive procedures, and taking into account efficiency, cost, 
safety, and proliferation resistance.
    Since the Nuclear Power 2021 Act was first introduced in 2009, both 
the industry and the NRC have explored the option of using 10 CFR Part 
50 to license the ``first mover'' plants of a specific small reactor 
design. Subsequent designs would be licensed under 10 CFR Part 52 using 
a combined operating license.
    The Administration's FY 2012 budget request for a cost-shared 
program to develop and demonstrate two small modular reactor designs 
provides the flexibility to use 10 CFR Part 50 to license the lead 
plants of a specific small reactor design. The cost-shared provision of 
this proposed DOE program requires a minimum of 50 percent industry 
funding for both design certification and licensing support. This also 
differs from S. 512, which requires that not less than 75 percent of 
the funding for licensing demonstration come from non-federal sources.
Conclusions and Recommendations
    NEI appreciates the committee's ongoing, comprehensive support of 
public-private partnerships to share the costs and risks associated 
with developing and licensing small modular reactors. S. 512 
demonstrates the committee's vision and leadership role in deploying 
small reactors within the next 10 years.
    Beyond legislation the committee is considering now, the industry 
recognizes that the committee's support has also extended to the 
Department of Energy's FY 2012 budget request for the LWR SMR Licensing 
Technical Support Program, and SMR Research and Development. NEI thanks 
the committee for its bipartisan support of this funding, which is 
critical to help ensure our industry can meet the deployment timelines 
laid out in S. 512.
    The intent and vision of The Nuclear Power 2021 Act and the 
Department of Energy's SMR activities are united, and together promise 
to create the partnerships that will reestablish our nation's 
leadership in advanced nuclear energy innovation.
    NEI nonetheless encourages the committee to consider two minor 
modifications to S. 512 that would ensure its implementation is aligned 
with DOE's FY 2012 SMR cost-share program. These recommendations are:

          1. Provide the Department of Energy, Nuclear Regulatory 
        Commission, eligible vendors and utilities the flexibility to 
        use either the 10 CFR Part 52 or 10 CFR Part 50 licensing 
        framework, as appropriate; and
          2. Apply a consistent, minimum 50 percent industry 
        contribution to all activities included in the program.

    Current regulations allow the use of either 10 CFR Part 52 or 10 
CFR Part 50 for the deployment of first-of-a-kind nuclear power plants. 
``First mover'' utilities may choose to use the 10 CFR Part 50 
framework to provide necessary flexibility in the deployment of the 
first SMRs.
    NEI believes that the use of this framework, where appropriate, 
would be advantageous to the committee's goal to achieve near-term 
deployment of small reactors. Therefore, S. 512 should be modified 
slightly to align with current regulatory options. In addition, the 
Department of Energy's Fiscal Year 2012 budget request for the SMR 
program includes financial cost-share assistance with a minimum of 50 
percent industry contribution to support both design and licensing of 
selected reactor systems. NEI believes this cost-share arrangement is 
appropriate to the risks of both vendors and utilities, and therefore 
recommends that S. 512 be modified to align with the Department's 
request.
    We urge the sponsors to combine the small reactor provisions into a 
single bill, and adopt the two changes recommended above.
    The potential benefits of small, modular, nuclear energy plants are 
substantial and the technologies should be pursued and supported. These 
designs expand the strategic role of nuclear energy in meeting national 
environmental, energy security and economic development goals.
                                 ______
                                 
           National Rural Electric Cooperative Association,
                                       Arlington, VA, June 9, 2011.
Hon. Jeff Bingaman,
Chairman, Senate Energy Committee, U.S. Senate, Washington, DC.
Hon. Lisa Murkowski,
Ranking Member, Senate Energy Committee, U.S. Senate, Washington, DC.
    Dear Senators: On behalf of over 900 not-for-profit electric 
cooperatives serving consumers in 47 states, I am writing to respond to 
a false and, frankly, demeaning statement made by the Union of 
Concerned Scientists (UCS) at your June 7, 2011 hearing regarding S. 
512, the Nuclear Power Act of 2012. The UCS, without any foundation or 
apparently any facts in hand, asserted that electric cooperatives would 
be inexperienced or unsafe operators of Small Modular Reactors (SMRs). 
In fact, cooperatives successfully and solely operated two of the first 
small reactor demonstrations in the nation--the Elk River reactor in 
Elk River, Minnesota, and the Lacrosse Boiling Water Reactor in Genoa, 
Wisconsin. Moreover, electric cooperatives own shares of nine nuclear 
plants in eight states, totaling 2,710 MW of generation. In many cases, 
cooperatives have experienced staff on site at those plants and are 
members of the management teams that operate the facilities.
    In Edwin Lyman's testimony on behalf of the UCS, he states:

          UCS is also concerned that reducing safety and security 
        requirements for SMRs could facilitate their sale to utilities 
        or other entities in the United States and abroad that do not 
        have prior experience with nuclear power. Some SMR vendors 
        argue that their technology is well-suited for deployment to 
        remote areas, military bases, and countries in the developing 
        world that have relatively low electric demand and no nuclear 
        experience or emergency planning infrastructure. In the United 
        States, for example, a rural electric cooperative might be 
        interested in replacing an old coal-fired plant with a small 
        nuclear plant. As another example, high-temperature gas-cooled 
        SMR vendors are marketing reactors to the chemical industry 
        worldwide for the production of process heat. However, SMRs << 
        File: GE letter re coops and smrs.docx >> deployed in this 
        manner would raise additional safety, security and 
        proliferation concerns compared to their deployment by 
        experienced nuclear utilities. (emphasis added) 4301 Wilson 
        Blvd.

    Mr. Lyman has no grounds to imply that electric cooperative 
deployment of SMRs raises safety, security or proliferation concerns 
beyond those raised by deployment by investor-owned utilities with whom 
electric cooperatives frequently partner. The regulations, safety and 
licensing requirements set forth by the Nuclear Regulatory Commission 
(NRC) apply equally to all nuclear operators. And, electric 
cooperatives have experience operating nuclear generation 
successfully--as well as natural gas, coal, hydropower, wind, solar, 
and biomass generation. I can only speculate, therefore, that the UCS 
does not believe that people in ``rural'' areas are as effective in 
engineering and business as people in urban areas, or that they do not 
believe that not-for-profit, consumer-owned businesses are legitimate. 
I am disappointed that the UCS used their invitation to your hearing on 
this important topic to distort the committee's understanding of 
electric cooperatives.
    To update you on current activities among electric cooperatives--
Oglethorpe Power Corporation has 30% ownership of the Vogtle 3 and 4 
reactors in Georgia. They are the first new nuclear plants that will be 
built in the nation in several decades, with help from a loan guarantee 
from the Department of Energy. And, thirteen generating and 
transmitting cooperatives from across the country are members of the 
Babcock and Wilcox mPower consortium that is seeking to deploy its 
first SMR by 2020. Cooperatives will continue to seek safe, affordable 
and reliable generation options for their consumers. As such, electric 
cooperatives support your efforts through S. 512, the Nuclear Power 
Act, to make licenses for SMRs a reality.
    Thank you for your consideration of these facts and do not hesitate 
to call on me or my staff with any questions or concerns.
            Sincerely,
                                             Glenn English.
                                 ______
                                 
                                             Nuscale Power,
                                       Portland, OR, June 29, 2011.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources U.S. Senate, 
        Washington, DC.
Hon. Lisa Murkowski,
Ranking Member, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
RE: Union of Concerned Scientists Testimony on Small Modular Reactors 
(SMR's)

    Dear Chairman Bingaman and Ranking Member of the Committee,
    On June 7, a representative of the Union of Concerned Scientists 
(UCS) testified before your committee regarding S. 512 and S. 1067, and 
the safety of small, modular reactors. As the President and Chief 
Executive Officer of NuScale Power, Inc., a company that is developing 
a 45MWe light water Small Modular Reactor (SMR), I am writing to 
challenge claims in this testimony regarding both the safety and 
economics of SMRs.
    Enhanced Safety--A number of the new SMR designs offer an approach 
to commercial nuclear power that greatly enhances safety. Since I am 
most familiar with the NuScale design, let me speak to some of these 
unique features. NuScale's SMR design includes:

   An innovative approach that places each small reactor in its 
        own steel containment vessel then submerges both in a pool of 
        water below ground. The pool of water is so large it can absorb 
        all the heat from every reactor module for more than 30 days 
        until it is safely cooled after shutdown.
   A containment vessel that can withhold ten times the 
        pressure of a conventional containment building. Because it is 
        entirely submerged in a large pool of water, the containment 
        vessel is highly effective at transferring heat from the 
        nuclear fuel, if needed.
   A plant that does not require any back-up emergency 
        electrical generators to operate the systems that remove the 
        decay heat produced after shutdown. Instead, water continues to 
        cool the fuel using natural circulation.
   A simple design that eliminates almost all of the pumps, 
        pipes and valves required in a large nuclear power plant, and 
        thus numerous traditional failure modes--no pumps to fail, no 
        pipes to break. For these and other reasons, an independent 
        analysis of the NuScale design estimated that it was safer by 
        at least a factor of 10 and as much as a factor of 100 when 
        compared to current nuclear power plants.
   Because the nuclear reactor and its containment are 
        submerged in a pool of water inside a building designed to 
        withstand large earthquakes, tornadoes and aircraft impact, 
        there are added barriers between the nuclear reactor and the 
        external environment, greatly minimizing the potential for an 
        environmental release in the event a severe accident should 
        ever occur.
   Because the plant and the pool of water are below ground, it 
        is seismically more resilient and can withstand larger seismic 
        forces.

    It is clear from its testimony that the UCS had no knowledge of, or 
appreciation for, any of these features. The testimony rests on the 
dubious significance of the observation that many units may be located 
at a single site. While a single NuScale installation may indeed house 
up to 12 individual units, each would have its own individual 
containment, and all would be submerged in a large pool of water with a 
sufficient capacity to remove all the decay heat from all the units 
inside the facility. In the event of a situation like Fukushima, the 
operators can put the plant into safe long-term shutdown simply by 
opening valves that allow water to circulate and continue to cool the 
fuel. The simplicity and lack of complexity associated with the design 
do not compromise safety; quite the contrary, they collectively reduce 
risks and improve safety.
    Improved Economics--For decades, the economics of nuclear power 
have been informed by what insiders refer to as the ``economies of 
scale.'' If a plant of a particular design can be increased in size, 
typically the per unit costs go down. With no more thought or insight 
than this, UCS confidently asserts that SMRs will be uneconomic because 
they are small. A closer look says otherwise.
    NuScale challenged this historic notion by asking a different 
question. If one starts with a clean sheet of paper, are there 
economies that are unique to a smaller plant that can be captured to 
improve economic performance? We discovered there are and have tried to 
capture that idea in what we refer to as the ``Economies of Small.'' 
Those economies come first from the simplicity that allows major 
systems to be eliminated, and second, from the efficiencies that can be 
captured by moving from the construction yard to a factory floor. The 
experience of manufacturers in the nuclear navy bears this out. They 
even have a well established ``rule of thumb'' gained from their real 
world experience with submarines and aircraft carriers. According to 
that principle, as manufacturing moves to the factory floor, 
productivity improves by as much as a factor of eight. This combination 
of simplicity and manufacturing efficiency have allowed NuScale to 
produce a plant design that fully captures the advantage of reduced 
capital costs and thus reduced financial risk while at the same time 
maintaining competitive unit costs. This has been confirmed both by 
comprehensive engineering design and estimating efforts, and the 
independent reviews of industry experts.
    Taken together, the prospect of an approach to nuclear power that 
increases safety and strengthens economics explains why SMRs have 
attracted the attention they have over the past three years. When one 
adds to this the opportunity to strengthen the domestic manufacturing 
base and create new export markets, one can see why S. 512 and S. 1067 
serve the national interest.
    There were other contentions in the UCS testimony, most of which 
rely on the presumption that existing regulations and regulatory 
agencies will somehow choose to ignore their rules for SMRs. The notion 
that untrained operators will be running nuclear plants is but one 
example. On its face, these are claims without merit.
    The many professionals at NuScale Power and at our strategic 
partners across the U.S. appreciate the support proposed in S. 512 and 
S. 1067. We are committed to delivering a clean, inherently safe and 
economic technology that can make a profound difference in efforts to 
address climate change and improve the quality of life around the 
world. Interestingly, and contrary to the innuendo in the testimony of 
the UCS, NuScale is relying on the international strength of U.S 
regulatory oversight to build its global markets. U.S. regulatory 
approval has become the ``gold standard'' throughout the world. That is 
why we have chosen to gain regulatory approval in the U.S. first and 
use it as a platform to reach out to global markets. In short, we 
believe the cost-shared licensing process envisioned by this 
legislation assures that the U.S. regulatory oversight process will 
apply these high standards to the evolution of new SMR designs as they 
mature into the marketplace. It is a process we embrace and one which 
is assured by this legislation.
            Sincerely,
                                         Paul G. Lorenzini,
                             President and Chief Executive Officer.
                                 ______
                                 
                       World Nuclear Association
                Report: http://www.world-nuclear.org/info/inf33.html



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