[Senate Hearing 113-289]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-289
 
                          POWERING OUR FUTURE: 
                    PRINCIPLES FOR ENERGY TAX REFORM 

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

                                HEARING

                               before the

     SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE

                                 of the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 31, 2013

                               __________

                                     
                                     

            Printed for the use of the Committee on Finance


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                          COMMITTEE ON FINANCE

                     MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
Virginia                             CHUCK GRASSLEY, Iowa
RON WYDEN, Oregon                    MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         PAT ROBERTS, Kansas
DEBBIE STABENOW, Michigan            MICHAEL B. ENZI, Wyoming
MARIA CANTWELL, Washington           JOHN CORNYN, Texas
BILL NELSON, Florida                 JOHN THUNE, South Dakota
ROBERT MENENDEZ, New Jersey          RICHARD BURR, North Carolina
THOMAS R. CARPER, Delaware           JOHNNY ISAKSON, Georgia
BENJAMIN L. CARDIN, Maryland         ROB PORTMAN, Ohio
SHERROD BROWN, Ohio                  PATRICK J. TOOMEY, Pennsylvania
MICHAEL F. BENNET, Colorado
ROBERT P. CASEY, Jr., Pennsylvania

                      Amber Cottle, Staff Director

               Chris Campbell, Republican Staff Director

                                 ______

     Subcommittee on Energy, Natural Resources, and Infrastructure

                  DEBBIE STABENOW, Michigan, Chairman

MAX BAUCUS, Montana                  JOHN CORNYN, Texas
JOHN D. ROCKEFELLER IV, West         CHUCK GRASSLEY, Iowa
Virginia                             MIKE CRAPO, Idaho
RON WYDEN, Oregon                    MICHAEL B. ENZI, Wyoming
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
BILL NELSON, Florida                 RICHARD BURR, North Carolina
THOMAS R. CARPER, Delaware           JOHNNY ISAKSON, Georgia
MICHAEL F. BENNET, Colorado

                                  (ii)



                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Stabenow, Hon. Debbie, a U.S. Senator from Michigan, chairman, 
  Subcommittee on Energy, Natural Resources, and Infrastructure, 
  Committee on Finance...........................................     1
Cornyn, Hon. John, a U.S. Senator from Texas.....................     3

                        CONGRESSIONAL WITNESSES

Moran, Hon. Jerry, a U.S. Senator from Kansas....................     5
Coons, Hon. Christopher A., a U.S. Senator from Delaware.........    17

                               WITNESSES

Cuttino, Phyllis, director, clean energy, The Pew Charitable 
  Trusts, Washington, DC.........................................     9
Reicher, Dan, executive director, Steyer-Taylor Center for Energy 
  Policy and Finance; professor, Stanford Law School; and 
  lecturer, Stanford Graduate School of Business, Stanford 
  University, Stanford, CA.......................................    10
Coleman, Will, partner, OnRamp Capital, San Francisco, CA........    12
Thorning, Margo, Ph.D., senior vice president and chief 
  economist, American Council for Capital Formation, Washington, 
  DC.............................................................    14

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Coleman, Will:
    Testimony....................................................    12
    Prepared statement...........................................    35
Coons, Hon. Christopher A.:
    Testimony....................................................    17
    Prepared statement...........................................    49
Cornyn, Hon. John:
    Opening statement............................................     3
Cuttino, Phyllis:
    Testimony....................................................     9
    Prepared statement...........................................    51
Moran, Hon. Jerry:
    Testimony....................................................     5
    Prepared statement...........................................    81
Reicher, Dan:
    Testimony....................................................    10
    Prepared statement...........................................    85
Stabenow, Hon. Debbie:
    Opening statement............................................     1
    Prepared statement...........................................    97
Thorning, Margo, Ph.D.:
    Testimony....................................................    14
    Prepared statement, with attachment..........................    99

                                 (iii)
                             Communications

Alliance to Save Energy..........................................   143
American Public Power Association................................   156
American Trucking Associations...................................   162
National Association of Publicly Traded Partnerships.............   167
Solar Energy Industries Association et al........................   175


                         POWERING OUR FUTURE: 
                    PRINCIPLES FOR ENERGY TAX REFORM

                              ----------                              


                        WEDNESDAY, JULY 31, 2013

                           U.S. Senate,    
                Subcommittee on Energy, Natural    
                     Resources, and Infrastructure,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 3:15 p.m., 
in room SD-215, Dirksen Senate Office Building, Hon. Debbie 
Stabenow (chairman of the subcommittee) presiding.
    Present: Senators Wyden, Cantwell, Nelson, Bennet, Crapo, 
Cornyn, and Portman.
    Also present: Democratic Staff: Joe McGarvey, Senator 
Stabenow's staff. Republican Staff: Andrew Siracuse, Senator 
Cornyn's staff.

OPENING STATEMENT OF HON. DEBBIE STABENOW, A U.S. SENATOR FROM 
MICHIGAN, CHAIRMAN, SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, 
            AND INFRASTRUCTURE, COMMITTEE ON FINANCE

    Senator Stabenow. Well, good afternoon. I want to call the 
Finance Committee Subcommittee on Energy, Natural Resources, 
and Infrastructure to order and apologize for the wait. Due to 
votes and an extended vote, we are starting later than we had 
anticipated. But I would like to ask Senator Moran to join us 
at the table, and Senator Coons is anxious to be here. He is 
now presiding over another hearing, unfortunately, so, if he is 
able to come before the meeting is over, we do intend to give 
him an opportunity later in the hearing to speak.
    Last month, Chairman Baucus and Ranking Member Hatch 
invited all Senators to provide their ideas on what a reformed 
tax code should look like. I know the chairman and ranking 
member and their staffs will be carefully reviewing these 
ideas. Starting from the views of each member, we need to build 
a consensus in Congress and around the country on what our tax 
system should look like.
    The purpose of today's hearing is to see if there are 
principles for energy tax reform where we can build consensus. 
In general, I believe that we should seek to streamline our 
Nation's tax code to grow our economy while making the system 
fairer and simpler for our families and our businesses.
    Tax reform will only be successful, however, if it furthers 
our effort to make America more competitive in the global 
economy. Competitiveness needs to be defined in a way that not 
only includes business success, but the economic success of 
individual Americans as well.
    A recent study by the Harvard Business School makes the 
point exceptionally well, I believe: ``The United States is a 
competitive location to the extent that firms in the U.S. can 
succeed in the global marketplace while raising the living 
standards of the average American.''
    That is why a top priority of tax reform needs to be the 
elimination of current barriers in our tax code that make it 
difficult to innovate and make things in this country, and thus 
create and sustain a strong middle class. We need a do-it-all 
approach when it comes to energy production.
    This is not a new idea, and it has garnered support from 
both sides of the aisle, but we cannot have a true do-it-all 
approach if we only support one technology with 100-year-old 
tax credits and incentives while ignoring emerging energy 
technologies. Part of our strategy must be supporting 
innovative new clean energy industries and jobs in America.
    The global demand on fossil fuels is increasing as well, 
with rapidly growing middle classes in countries like Brazil, 
China, and India using much more energy than in previous 
decades. China put 16.5 million vehicles on the road in 2010 
alone.
    Prices will continue to go up, and the world will 
increasingly look for alternatives. Other countries know this, 
and that is why they are investing heavily to develop new clean 
energy technologies. We know that China is spending over $178 
million every day on clean energy technologies.
    New clean energy industries not only mitigate the impact of 
climate change, they represent the potential for tremendous job 
creation here at home. They also give consumers more options 
and provide more market competition in energy.
    Other countries know that the race is on to be the global 
leader in these new technologies and that the country that 
controls new energy production will be the Saudi Arabia of the 
21st century. This is one of the most important economic and 
national security issues of our time. We cannot afford to trade 
dependence on foreign oil for dependence on advanced batteries, 
wind, solar, hydrogen, advanced biofuels, or any other forms of 
energy.
    This discussion is also very much about jobs. There are 
8,000 parts in a wind turbine, as I like to say, and we can 
make every single one of those in the United States. In fact, 
we can make every one of those in Michigan. During 2012, wind 
energy became the number-one source of new U.S. electricity 
generating capacity, providing 42 percent of new generating 
capacity and supporting 75,000 jobs nationwide. The solar 
industry employs 119,000 people, up 13 percent from 2011, 
representing one of the fastest growth rates for any industry. 
Solar prices have declined by 60 percent as well since 2011.
    I believe we must engage in the global race to lead the 
world in these new technologies or risk falling farther behind 
other countries. It is our responsibility to create tax 
policies that help our companies thrive. We need to provide 
American businesses the long-term certainty they need so they 
will invest in creating these new technologies and jobs, and 
give consumers real energy choices in order to bring down 
prices. We need to seize the opportunity before it is too late, 
and tax reform is that opportunity.
    [The prepared statement of Senator Stabenow appears in the 
appendix.]
    Senator Stabenow. I would now like to turn to my friend and 
ranking member, Senator Cornyn, for his opening remarks.

            OPENING STATEMENT OF HON. JOHN CORNYN, 
                   A U.S. SENATOR FROM TEXAS

    Senator Cornyn. Thank you, Madam Chairman. I appreciate you 
holding today's hearing, and it is certainly very timely 
considering the discussion of tax reform initiated by Chairman 
Baucus and Senator Hatch, although, as we know, the process of 
requesting Finance Committee members to send in their preferred 
tax expenditures has proven to be somewhat problematic. I read 
somewhere I think they offered to allow Senators to be part of 
the witness protection program if they submitted their 
preferred tax expenditures. [Laughter.]
    So it has been a little bit of a challenge. But it is 
important to talk about taxes. Taxes affect everything we do, 
although I must say that the revolution, or maybe renaissance 
is a better word, of energy production in America was primarily 
due to the innovation in the private sector of George Mitchell, 
the father of horizontal drilling and fracking, who died just 
this last week.
    I think he was 94 years old, and he was a legend and a 
great innovator in the oil and gas industry who created this 
process that promises to help us produce more oil in America 
than in Saudi Arabia by 2020. Of course, the natural gas 
revolution has been nothing short of phenomenal, causing 
inexpensive energy to be available for manufacturers, having 
them move back on shore.
    I mentioned all that, which you know, just to say that the 
private sector is not waiting on the Federal Government, but 
the Federal Government can throw obstacles in the way of the 
private sector when it comes to producing more energy here at 
home.
    In my State, we are fortunate to be a growing, stable 
economy, in large part because of our energy policies. We have 
a diverse array of energy sources. We are, by the way, number 
one in the production of electricity from wind energy, so we 
really do believe in the all-of-the-above policy. These 
industries, this energy production, provides great employment 
opportunities for Texans, while at the same time supplying 
energy needs to small businesses and working families.
    Of course, any time Washington starts talking about taxes, 
people sit up and listen. I want to say that I do appreciate 
the work of Chairman Baucus and Senator Hatch, although I do 
notice some divisions between those who insist that tax reform 
generate more revenue and those of us who--actually, I think I 
heard President Obama at one time say, at least for the 
corporate side, that he is for revenue-neutral corporate tax 
reform, which would be in our Nation's self-interest and help 
get our economy back on track.
    The President's own fiscal commission--if I am not 
mistaken, Senator Bennet was a part of that, the Simpson-Bowles 
Commission--argued that the tax code is rife with 
inefficiencies, loopholes, perverse incentives, tax earmarks, 
and, as we all know, baffling complexity.
    They also noted that we need lower rates, marginal rates, 
we need to broaden the base, and we need to simplify the tax 
code to make America the best place to start and grow a 
business and create jobs, especially during a time of chronic 
high unemployment and where the labor participation rate is at 
a 30-year low, because many people have simply quit looking for 
work and a lot fewer of them participate in the job market.
    But our efforts to reform and simplify the tax code should 
not devolve into an opportunity just to raise taxes on the 
American people. After all, the Congressional Budget Office 
already projects that tax revenues in 2014 and beyond will 
exceed historical averages. Tax reform should not be taken as 
an opportunity to make job creation harder or more expensive or 
burdensome, especially given the millions of people who are out 
of work or under-employed.
    So, for these reasons, I think we have a little bit of an 
impasse--maybe not a little bit of an impasse, a big impasse. 
When the Senator Majority Leader says that tax reform cannot 
even be close to revenue-neutral, that is a non-starter for my 
colleagues; certainly it is for me.
    I do not think many, if any, families or small businesses 
in Texas believe that tax reform should just be another 
opportunity for Washington to suck more money out of the 
private sector. Tax policy is one important piece of the policy 
when it comes to making energy affordable and robust job 
creation a reality.
    A regulatory regime that makes it more difficult to produce 
or deliver affordable energy and to sustain and create jobs 
here at home is a recipe for more dependence on foreign sources 
of energy, which can lead to volatility and be a threat to our 
economy. It certainly does not do anything to help create the 
jobs we need.
    In this regard, I continue to be disappointed at the 
administration's pursuit of regulatory policies that will end 
up increasing the cost of energy to consumers, to their 
employers, and their families. I understand, and Americans 
understand, that raising taxes and putting more regulations on 
industry will translate into higher prices. They are not 
absorbed by the industry; they are passed along to consumers in 
terms of higher prices. But I really would like to commend 
Senator Stabenow for having today's hearing.
    This is important to flesh out differences in point of view 
and to hear from the experts from whom I am sure we can learn a 
lot. Today's hearing is just another step down the path created 
by the chairman and ranking member of the full committee, and 
it is useful for the committee to examine what is in the tax 
code that is working and what is not. Many will argue for 
extensions of valuable tax incentives, or new tax incentives 
perhaps, for their preferred type of energy.
    The question is, for me, are we getting the best bang for 
the tax dollar, and which ones should we extend, modify, or 
eliminate altogether? Of course, the answer is one that 
Congress will ultimately provide. I look forward to hearing the 
testimony of the witnesses on what should be our guiding 
principles as we move forward. I especially want to welcome my 
friend, Senator Moran from Kansas. When Senator Coons comes and 
joins us, we look forward to hearing from him too.
    Thank you, Madam Chairman.
    Senator Stabenow. Thank you very much. I also want to 
recognize our very distinguished friend, Senator John Warner, 
who is with us. We welcome you and miss you and hope all is 
well. So we are very glad to see you today.
    So, Senator Moran, if you would like to proceed, we would 
welcome your testimony.

                STATEMENT OF HON. JERRY MORAN, 
                   A U.S. SENATOR FROM KANSAS

    Senator Moran. Madam Chairman, thank you very much. It is 
disappointing to me that my colleague and friend, Senator 
Coons, is not available for us to do this jointly, and I 
probably will not be here for his testimony, but he has been a 
great ally on an issue that he and I both are excited about and 
wanted to visit with the committee about today.
    This is the first time I think in the 2\1/2\ years that I 
have been a member of the U.S. Senate that I have testified in 
front of a committee, and I was not intimidated--no offense to 
either one of you, Ranking Member or Chairman--but when my 
colleague from Colorado, Chairman Bennet, walked in, I became a 
bit more nervous. But then, when you announced that Senator 
Warner was seated behind me, now I am a little bit more nervous 
than I had hoped. There are standards that I wish we all could 
meet, and Senator Warner certainly exemplifies those.
    The United States is experiencing a resurgence--and Senator 
Cornyn talked about what is happening in the private sector. 
But we are seeing a real resurgence in domestic energy and 
innovation in exploration and production. With this growth, 
more Americans all the time are employed in the development of 
our country's natural resources, both traditional and 
renewable.
    Our country does much of its energy policy in the tax code, 
so, while many of us will spend time trying to develop what we 
call energy policy, the reality is that what this committee, 
what the Finance Committee does, how the tax code looks, in 
many ways determines what our energy policy is. So I am pleased 
that this committee and the subcommittee are pursuing this 
topic.
    As our technologies have matured and our knowledge has 
advanced, our tax code has not adjusted to the needs of today's 
markets. As Congress considers the future tax treatment of the 
energy sector, there appears to be a bipartisan consensus 
around a sound financial tool that has allowed the oil and gas 
industry to efficiently raise more than $450 billion over the 
past 2 decades from a broad array of individuals and 
institutions, and that tool is the Master Limited Partnership 
(MLP) structure that was introduced in 1987 in section 7704 of 
the Internal Revenue Code. In my view, it should be renewed, 
continued, and, in my view, it should be modernized to include 
renewable and clean energy sources.
    The MLP is what I would describe as a publicly traded 
partnership that holds energy or other specified assets. Traded 
on public stock exchanges, MLPs allow individuals and small 
institutional investors to invest in energy projects similar to 
the way a mutual fund allows investors to make small 
investments in diversified stock portfolios.
    MLPs are efficient structures for raising capital, in part 
because, unlike corporations, the taxable income and deductions 
are passed through directly to the investors, the limited 
partners, rather than being taxed twice, once at the corporate 
level and then again at the shareholder level. This feature of 
MLPs has enabled the oil and gas industry to raise capital 
efficiently at an appropriate cost that has provided investors 
with sustained and consistent cash flow. It is important to 
note that MLPs, in my view, do not represent what I would call 
a tax break.
    For those industries that are eligible for MLP structures, 
it is not a tax break; rather, it is a tax simplification 
structure that concentrates tax at the investor level, avoids 
double taxation, and significantly broadens the potential 
investor base.
    MLPs have aided in the construction and operation of much 
of our modern oil and gas infrastructure and, most recently, 
fueled the shale revolution in oil and gas. In 2012 alone, MLPs 
raised over $23 billion of new capital for eligible projects. 
These include significant parts of the oil and gas supply 
chain, such as production pipelines, refineries, and gathering 
and storage facilities.
    MLPs create needed investment opportunities for individual 
savings for retirement, for pension funds, and, according to 
the National Association of Publicly Traded Partnerships, in 
their survey, 75 percent of investors in MLPs are over the age 
of 50. This is in part due to the fact that these individuals 
are seeking secure 
income-oriented investments that provide a reasonable return.
    MLPs fill this roll, where other types of investments will 
fall short. This perhaps is most important for those who 
struggle to pay their utility bills. MLPs lower the cost of 
energy. MLPs afford the energy industry stable access to less 
expensive capital and therefore lower the cost of energy to 
consumers. While it is critical that MLPs continue to be 
available to investments in the non-
renewable energy industry, it is also important that we extend 
this tax structure to the broader energy sector.
    For example, companies involved in the production of solar, 
wind, geothermal, combined heat and power, our largest 
renewable energy industries, they have never been eligible for 
MLP treatment even though renewable energy has been burdened by 
the same high cost of capital as the non-renewable energy 
industry. Only a small group of investors, consisting mostly, 
almost entirely, of a few large corporations, have been able to 
invest profitably in renewable energy projects.
    Ironically, the United States has the largest and most 
efficient capital markets in the world, but our renewable 
energy companies rarely have access to those markets. Extending 
MLP treatment to renewable energy could move the renewable 
energy industry from relying on a few investors demanding high 
rates of return to a broader and deeper investment pool for 
those energy projects.
    Continuing the MLP structure in the Internal Revenue Code 
and expanding it to include investments in renewables and clean 
energy would provide a predictable tax policy that encourages 
investment in U.S. energy projects, creates jobs, and promotes 
American competitiveness in the global race to develop and 
utilize competitively priced energy sources.
    I grew up in a family whose father worked in the oil 
fields. It is what put food on our family's table. The energy 
sector is a perfect example of how America can provide an 
opportunity for all Americans to pursue the American dream, and 
I encourage the committee's consideration of MLPs, and I thank 
the chairman.
    Senator Stabenow. Thank you very much. We welcome your 
testimony.
    [The prepared statement of Senator Moran appears in the 
appendix.]
    Senator Stabenow. I am pleased to be a co-sponsor of the 
bill. I think you and Senator Coons have done a terrific job in 
putting this together.
    I am wondering if you might just speak a little bit more 
about the kinds of energy companies that you think would be 
most interested in organizing as MLPs. You talked a little bit 
about it, but, as you talk to businesses, how do you think this 
would have a specific impact, and what kind of businesses would 
be most interested in organizing as MLPs?
    Senator Moran. Madam Chairman, it is clear to me that 
certainly the tax treatment available, or the circumstances 
that our oil and natural gas companies, our pipelines, our 
infrastructure companies in the energy sector, are able to 
access today are very important to them, so in part I am here 
to indicate that that needs to continue.
    But, as you say, there are a number of other companies 
involved in other sectors of energy: wind, geothermal. The 
inability to raise capital is one of the greatest impediments 
toward us pursuing more energy projects in the United States.
    Senator Cornyn talked about Texas. Madam Chairman, I would 
only disagree with you when you indicate that all those things 
can be done in Michigan. They can, and are, being done in 
Kansas. The manufacturing of the necessary equipment to create 
wind and solar is occurring in our State. We are the third-
largest supplier of wind energy in the country. The ability to 
transport that energy elsewhere where wind is not such a viable 
resource creates the necessity of raising significant amounts 
of capital to transport, to transmit that energy.
    Again, these are areas in which private investment, not 
only in the production of energy but in the transmission of 
energy in the renewable area, is where I believe this 
legislation, this tax provision, creates great opportunities.
    Senator Stabenow. Thank you very much.
    Any questions from the committee? Senator Cornyn?
    Senator Cornyn. I have some really hard questions for 
Senator Moran, but I am going to withhold them for now.
    Senator Stabenow. Senator Bennet?
    Senator Bennet. Not a question, but a comment. I just want 
to say ``thank you'' to you and to Senator Coons for your 
leadership on this important bill. As Senator Cornyn said, we 
are about to begin this discussion about tax reform generally 
in the country. What I hope people will remember when they hear 
people say, the government should not pick winners and losers, 
is that we already have a tax code that is full of that, full 
of decisions that have been made about winners and losers.
    What we need is a tax code that is actually looking forward 
into the 21st century, into the economy that the people of 
Kansas are building, the people of Colorado are building, that 
does not necessarily look like the economy from 100 years ago. 
So I want to say ``thank you'' to you for recognizing that and 
for the work you have done on this bill.
    Senator Moran. Thank you, Senator Bennet.
    Senator Stabenow. Thank you very much. We appreciate your 
coming.
    Senator Moran. Madam Chairman, thank you. I did submit a 
letter to the committee, and I am interested in further 
pursuing the witness protection program. [Laughter.]
    Senator Stabenow. We look forward to working with you on 
that as well.
    We would ask our second panel, who have been very patient 
today, to please come forward. Good afternoon, and welcome. Let 
me introduce our panel, then of course, as you know, we will 
ask each of you to give us 5 minutes of testimony. We welcome 
your larger testimony in writing, as well as any other 
information that you have for us. We are very pleased to have 
such a distinguished panel of experts, people who have been 
working in these areas for a long time.
    First, Ms. Phyllis Cuttino is director of the clean energy 
program for The Pew Charitable Trust. She has helped lead Pew's 
research on a series of reports on the global clean energy 
sector titled, ``Who's Winning the Clean Energy Race?'' Thank 
you for coming.
    Mr. Dan Reicher--it is good to see you--is executive 
director at the Steyer-Taylor Center for Energy Policy and 
Finance at Stanford University. He is also a professor at the 
Stanford Law School and a lecturer at Stanford Graduate School 
of Business. Prior to joining Stanford in 2011, Mr. Reicher 
worked as director of climate change and energy initiatives at 
Google and as president and co-founder of New Energy Capital 
Corporation and Vantage Point Venture Partners, which provided 
early funding for clean energy projects. Of course, we all know 
you from your days in the Clinton administration, having served 
8 years in a number of very key positions at the Department of 
Energy, including the Assistant Secretary for Energy Efficiency 
and Renewable Energy. So, it is great to see you again.
    Mr. Will Coleman, it is good to see you again. Mr. Coleman 
is the founder and a partner in OnRamp Capital in San 
Francisco, which partners with corporations to invest in early-
stage innovations. He was previously a partner at the venture 
capital firm, Mohr Davidow, investing in early-stage companies 
producing products like LED lighting and building networks. So, 
welcome. It is good to have you with us.
    And Dr. Thorning. Dr. Margo Thorning is senior vice 
president and chief economist for the American Council for 
Capital Formation here in Washington, which represents members 
of the American business community on issues like tax and 
regulatory policy. She previously worked at the U.S. Department 
of Energy, the U.S. Department of Commerce, and the Federal 
Trade Commission. We welcome you as well.
    So we will now turn to Ms. Cuttino to begin today.

 STATEMENT OF PHYLLIS CUTTINO, DIRECTOR, CLEAN ENERGY, THE PEW 
               CHARITABLE TRUSTS, WASHINGTON, DC

    Ms. Cuttino. Well, thank you, Chairman Stabenow and Ranking 
Member Cornyn, for inviting me to discuss clean energy, tax 
policy, and our energy future. I would like to submit my full 
testimony for the record, and I will summarize it in the time 
that I have here.
    [The prepared statement of Ms. Cuttino appears in the 
appendix.]
    Ms. Cuttino. It was discussed earlier, but it is worth 
noting that a remarkable U.S. energy transformation has 
occurred in less than a decade. Oil imports have dropped to 40 
percent, and the electric sector has never been so diverse, 
with approximately one-third of electricity coming from coal, 
one-third coming from natural gas, and a third from nuclear, 
hydro, and renewable energy sources.
    Efficiency is also having a major impact in transportation, 
buildings, and commercial sectors. These developments have 
delivered important benefits to the American people: our trade 
balance has improved, energy prices are relatively stable and 
low, and carbon emissions have been reduced.
    As a result, our economy is stronger, our country is more 
secure, and our environment is cleaner. The lesson is clear. 
Diversification and advanced energy technologies must be the 
cornerstone of U.S. energy and tax policy. Research by The Pew 
Charitable Trust has shown that clean energy technologies have 
entered the mainstream of global energy markets. In 2012, $269 
billion was invested, and clean energy deployment was a record 
88 gigawatts, spurred by dramatic price declines.
    Private investment will continue to grow significantly as 
countries around the world prioritize clean energy. The 
International Energy Agency predicts that renewables will 
provide more than half of all new electric generating capacity 
over the next 25 years, and forecasters expect trillions of 
dollars to be invested in the sector.
    This presents a significant economic opportunity for our 
U.S. manufacturers. Madam Chairman, even the oil-rich state of 
Saudi Arabia has set a goal of obtaining 30 percent of their 
electricity from solar power. We want to step up and compete in 
these emerging markets and supply these growing markets 
because, although we lead in clean energy innovation, we are 
not manufacturing, deploying, or exporting those technologies 
as we should be.
    Once, we were the worldwide clean energy leader, but policy 
uncertainty in this country has hurt U.S. standing in the 
global sector. In 2012, China led the world in attracting 
private investment, with $65.1 billion. In the United States, 
investment fell 37 percent to $35.6 billion, and we are now in 
second place.
    Last year, Pew organized roundtable discussions in New 
York, Ohio, Colorado, Georgia, Mississippi, and Washington, DC 
with clean energy leaders in the areas of finance, 
manufacturing, innovation, and deployment. They identified 
three key challenges facing their industry. Policy uncertainty 
was described as the over-riding impediment, but stiff 
international competition and tight credit markets were also 
identified as challenges.
    Our roundtable participants offered six policy priorities 
to address these challenges and for Congress--you--to consider. 
First, set a clear and long-term goal for the deployment of 
clean energy, providing the certainty needed for innovators to 
invent, investors to mobilize capital, and manufacturers to 
scale up. Tax policy can play a critical role.
    Second, support energy R&D at higher levels in order to 
maintain that pipeline of ideas and innovation which are so 
critical to U.S. competitiveness.
    Third, renew the production and investment tax credits. 
Congress has, and does, provide permanent incentives to 
incumbent technologies such as oil, gas, and nuclear power. Our 
industry participants would welcome a multi-year, but time-
limited, extension of clean energy tax credits to help ensure 
full market maturation, including strengthening the investment 
tax credit to better reflect the needs of industrial energy-
efficient technologies, including combined heat and power, and 
waste heat recovery. The renewal of the ITC and PTC would 
provide certainty and encourage a more diverse and clean energy 
mix.
    Fourth, address barriers to industry progress and pass 
Senator Moran's and Senator Coons's MLP Parity Act, which would 
allow clean energy to qualify for the same tax treatment that 
is open to oil and gas infrastructure. It is a matter of 
fairness.
    Fifth, support American manufacturing through the Advanced 
Energy Manufacturing Tax Credit. This will help us better 
compete in this critical and growing industry.
    Finally, sixth, strengthen and expand trade promotion for 
exports of American-made technologies to emerging markets. In 
conclusion, U.S. competitiveness in the clean energy economy 
warrants public and private priority and partnership.
    In this regard, policy matters. Encouraging the innovation, 
deployment, manufacturing, and trade of clean energy 
technologies through policy will help ensure that America 
capitalizes on this substantial economic opportunity. It will 
provide our Nation with economic, environmental, and national 
security benefits.
    Thank you.
    Senator Stabenow. Thank you very much.
    Mr. Reicher, welcome.

  STATEMENT OF DAN REICHER, EXECUTIVE DIRECTOR, STEYER-TAYLOR 
 CENTER FOR ENERGY POLICY AND FINANCE; PROFESSOR, STANFORD LAW 
  SCHOOL; AND LECTURER, STANFORD GRADUATE SCHOOL OF BUSINESS, 
               STANFORD UNIVERSITY, STANFORD, CA

    Mr. Reicher. Thank you, Chairman Stabenow, Ranking Member 
Cornyn, and subcommittee members. I really appreciate the 
opportunity to testify.
    My written statement addresses three finance challenges: 
first, how to significantly lower the cost of financing 
renewable energy; second, how to dramatically increase 
investment in building efficiency retrofits; and third, how to 
more effectively commercialize energy technology of all kinds. 
I will address the first two challenges now, but I would be 
pleased to take questions on commercialization.
    Regarding renewables, two factors largely determine the 
cost of large-scale renewable power projects: first, equipment 
costs, that is, what you pay for buying and installing solar 
panels, wind turbines, and the like; second, finance costs, 
what you pay for project capital.
    Technological innovation has dramatically reduced renewable 
energy equipment costs, but financial innovation has not kept 
pace. As a result, the cost of financing today makes up an 
ever-greater fraction of the total cost of renewable energy 
projects, inflating the cost of the electricity that is 
produced. We face this because solar and wind projects are 
generally financed using Federal tax credits.
    These credits, which have been critical over the last 2 
decades, turn out to be an expensive way to finance renewable 
energy projects. First, there are only a couple of dozen 
investors nationwide who can monetize them; that is, only those 
with very large taxable incomes to shelter who can navigate the 
complicated structuring. This greatly drives up the cost of 
capital.
    Second, use of these credits ties up capital for years 
because of IRS recapture rules. This illiquidity drives up 
rates further.
    Third, renewable energy tax credits have only short-term 
congressional approval. Boom-and-bust cycles make tax credits 
less attractive to investors.
    The good news? There is a straightforward solution: give 
renewables access to the very same mechanisms currently 
providing low-cost capital to hundreds of billions of dollars' 
worth of traditional energy projects like oil and gas pipelines 
and transmission infrastructure.
    These mechanisms, as you have heard, are Master Limited 
Partnerships and Real Estate Investment Trusts, also known as 
MLPs and REITs. As you just heard from Senator Moran, the use 
of MLPs and REITs would give renewable energy developers access 
to much greater pools of capital, and they would no longer have 
to pay scarcity prices. We estimate that MLPs and REITs could 
cut the cost of capital in half for many renewable energy 
projects relying on tax equity.
    MLPs and REITs would also mean that millions of Americans 
could finally own shares in a renewable energy project just 
like they can in a gas pipeline project. The MLP Parity Act, 
co-
sponsored by Senators Coons, Moran, Stabenow, and Murkowski, 
would open up MLPs to renewables and other kinds of energy 
projects, including co-generation and carbon capture, and there 
is a companion and bipartisan bill in the House.
    On the REIT front, the Treasury Department, on its own, 
could issue a broad revenue ruling extending REITs to 
renewables. 
Thirty-five congressional Democrats and Republicans wrote 
President Obama, urging his support for REITs and MLPs.
    I want to emphasize that my support for MLPs and REITs 
should in no way signal that I endorse an immediate phase-out 
of the PTC or any weakening of the current ITC. We need 
significant time for a smart transition to MLP and REIT 
financing.
    Turning to energy efficiency finance, Deutsche Bank 
calculates that there is about a trillion dollars worth of 
energy to be saved in U.S. buildings over the next 10 years, 
and the bank says there is about a $300-billion investment 
opportunity to achieve those savings, but there is barely a 
trickle of investment being made in energy efficiency 
improvements in existing buildings.
    The challenge is helping investors of all types see their 
way clear to making large-scale energy efficiency investments 
and making some money. This means addressing the performance 
and credit risks in energy efficiency investments. There are 
several finance mechanisms now being used to address these 
risks, like property assessed clean energy and on-bill 
repayment.
    The jury is still out on these mechanisms, but in the 
meantime there are steps that Congress could take to prime the 
pump. One is, legislation sponsored by Senators Bennet and 
Isakson of this subcommittee called the SAVE Act.
    The SAVE Act would address an odd situation in home 
mortgage underwriting. A lender, in determining mortgage terms, 
takes into account the cost of real estate taxes and home 
owners' insurance but does not consider the cost of energy, 
often a greater expense in many parts of our country.
    The SAVE Act would require a lender to take the projected 
energy savings of an efficient home into account when presented 
with a qualified energy report. Under Federal law, borrowers 
have to report whether termites are chewing up the beams in an 
attic. Why not encourage a homeowner to discover an inefficient 
furnace devouring cash in a basement and help find low-cost 
financing to replace it?
    The SAVE Act enjoys the backing of key business 
organizations, including the National Association of Home 
Builders and the National Association of Realtors, and there is 
immediate opportunity to attach the SAVE Act to the Shaheen-
Portman bill. There are few legislative moments in Washington 
these days where the stars are so well-aligned.
    With that, I would be pleased to take your questions, 
including on commercialization. Thank you.
    Senator Stabenow. Thank you very much.
    [The prepared statement of Mr. Reicher appears in the 
appendix.]
    Senator Stabenow. Mr. Coleman?

              STATEMENT OF WILL COLEMAN, PARTNER, 
               ONRAMP CAPITAL, SAN FRANCISCO, CA

    Mr. Coleman. Thank you, Chairman Stabenow, Ranking Member 
Cornyn, and distinguished members of the committee. I 
appreciate the opportunity to be here today.
    My name is Will Coleman. I am an investor in early stage 
energy and technology companies. I have spent the better part 
of the last 15 years assessing different ways to build and 
invest in new technologies in the energy sector.
    I think we need to start this conversation by acknowledging 
that in energy, Federal policy, and particularly Federal tax 
policy, has a huge impact on where and how investors and 
corporations invest their dollars.
    In my written testimony, I talked a lot about innovation. I 
focused on that because innovation is what has kept us 
competitive as a Nation, and because the truth is the 
government has always played a huge role in driving innovation 
in energy.
    We have nuclear energy because of policy, we have 
renewables because of policy, and we have the Bakken because of 
policy. So I want to focus on three major points today: number 
one, America is actually falling behind when it comes to energy 
innovation; two, the tax code is compounding that problem; and 
three, we need solutions that specifically target this 
innovation challenge that apply equally across technologies and 
that provide the long-term certainty necessary to drive 
investment, and then we need to get out of the way.
    Energy has always been a strategic imperative. Some people 
argued just a few years ago that we already had the technology 
to compete and that we just needed to produce more, yet we have 
seen over the last few years how technologies like fracking and 
horizontal drilling that were developed over several decades by 
the National Labs and others have been applied to open up 
significant new resources like the Bakken. This would not have 
happened without new innovation, and it would not have happened 
without tax credits that reduced the risks of development.
    But oil and gas is just one piece of the equation. Even 
with these resources, we still spent almost 30 percent more on 
imports in 2012 than we did in 2010. There are a multitude of 
other alternatives that could be equally transformative if they 
could just get to scale. Continued innovation is critical in 
oil and gas and beyond, not just because we need more 
alternatives, but because it ensures our competitiveness and it 
is a huge driver of growth in our economy at a time when growth 
is obviously at a premium.
    It has been shown that innovation at large is responsible 
for 75 percent of the economic growth in this country since 
World War II. It drives down costs, catalyzes investments, and 
enables new industries. Unfortunately, the energy industry 
spends less on innovation than almost any industry in the 
world, and when independent investors like us look at the tax 
code, it clearly drives them toward investing in projects using 
only mature, already-proven technologies rather than taking 
risks on developing new technologies and unproven ones.
    This would not be a problem if we did not need innovation, 
but we do. This committee has spent a lot of time thinking 
about how to reform the medley of energy tax provisions that 
have been spawned over the last century. As an investor with 
the flexibility to invest in whatever technologies and 
industries make economic sense, I am glad to hear the 
increasing view that, whatever we do, we need to apply tax 
policy more equally across technologies.
    As investors, we ask the question: if you wipe the slate 
clean, where would there still be failures in the market? The 
answer is that new technologies in any category would still 
struggle to get to scale and commercialized, to get the 
financing to build that first manufacturing plant for the 
technology, and this would diminish any interest in investing 
further upstream in innovation.
    In my written testimony, I detailed this persistent funding 
gap in energy and other industrial sectors. The bottom line is 
that technology innovation, particularly in sectors like 
energy, takes a long time. Without long-term, stable market 
indicators or policies that otherwise incent investors to take 
the risks necessary for new technology, innovation atrophies. 
We have never accepted that as a Nation, and I do not think we 
have the ability to start now.
    Venture capitalists have invested over $25 billion in 
energy technologies over the last 10 years, but in large part, 
because we have not yet figured out how to overcome this 
commercialization funding gap, even venture capital has begun 
to pull back from investing in new energy technologies. 
Investing in the early stages of innovation has dropped from 50 
percent of capital deployed to less than 10 percent in 2012.
    We believe there are solutions that can address this gap in 
a technology-neutral way, that are targeted and efficient, and 
that can continue to drive the innovation we need without 
dictating the playing field. In my written testimony, I 
detailed one such approach which provides a credit for 
investment in the manufacture of new and improved technologies. 
Companies would receive the credit up to a percentage of the 
capital invested to produce the innovation and would only 
receive the credit for actual production.
    The credit would be available to all technologies across 
the energy sector, and it would support specific innovations 
only to the point where they reach commercially competitive 
scale and then roll off. The key in our minds is to create a 
credit that encourages the private sector to invest in 
strategically important areas and forces investors, rather than 
the government, to make the determination of whether a 
technology can eventually compete.
    So let me be clear. If we are going to remain competitive, 
we need more Bakken shales, and we need more of them not just 
in oil and gas. Venture capital and other investors have the 
capacity to invest in these sectors, but the current code 
encourages us not to.
    In this 113th Congress, the tax code is clearly front and 
center. I believe we have a rare opportunity to streamline the 
tax code to make it more efficiently and equitably encourage 
the next generation of technologies.
    Innovation is something we have done extremely well in this 
country, but we cannot assume that we will continue to innovate 
in important sectors like energy without the right policies. I 
appreciate the time, and I look forward to working with you on 
these important issues.
    Senator Stabenow. Thank you very much.
    [The prepared statement of Mr. Coleman appears in the 
appendix.]
    Senator Stabenow. Dr. Thorning, welcome.

 STATEMENT OF MARGO THORNING, Ph.D., SENIOR VICE PRESIDENT AND 
   CHIEF ECONOMIST, AMERICAN COUNCIL FOR CAPITAL FORMATION, 
                         WASHINGTON, DC

    Dr. Thorning. Thank you, Chairman Stabenow, Ranking Member 
Cornyn, members of the committee. My name is Margo Thorning, 
and I am chief economist of the American Council for Capital 
Formation. I appreciate the chance to appear before you today.
    I would like to look a little bit at where we are with 
respect to our economy. The new GDP numbers came out today 
showing that, for the first half of 2013, economic growth has 
averaged only 1.4 percent. That is far too low to have an 
impact on the high unemployment rate, 7.6 percent. So, as we 
look at tax policy, I think it is very important that we look, 
as we think about reform, at how it is going to impact new 
investment, how it is going to impact economic growth.
    One of the things I wanted to highlight is the contribution 
of the shale oil and shale gas revolution to our current job 
growth. It is not as strong as it should be, but States like 
Wyoming, North and South Dakota, Texas, Colorado, others, are 
experiencing much faster growth in personal income and much 
lower unemployment rates than our States that are not producing 
shale oil or shale gas.
    Furthermore, a new McKinsey Global Institute study just 
released a week or so ago shows that, of the five game changers 
that could really help us restore economic growth, shale oil 
and shale gas are the number-one item. According to the 
McKinsey report, we could see GDP growth of between 2 and 4 
percent by 2020 and an additional 1.7 million jobs. So we need 
to make sure, as we evaluate tax proposals, that we look at the 
costs and the benefits and think about what they may do to 
investment incentives.
    I would like to propose that the policymakers think even 
more broadly about tax reform and think about a consumption tax 
in which all investment, including for renewables, oil and gas, 
every kind of energy, is expensed the first year. All 
investment would be expensed, and saving would be taxed at a 
very low rate.
    I would like to ask that you include in the record a new 
paper that my colleague Dr. Cebi and I just released on the 
impact of a consumption tax and what it could mean to the 
capital stock and to job growth.
    Senator Stabenow. Without objection.
    [The paper appears in the appendix on p. 120.]
    Dr. Thorning. So a consumption tax would be the best way to 
go forward, as a Treasury analysis in 2006 indicated, and I 
draw your attention to the table in my testimony that shows how 
much stronger the capital stock would grow if all investment 
could be expensed immediately and consumption was the tax base 
rather than income.
    But if policymakers cannot make that leap and cannot get 
there in the near term, they should at least consider the 
impact of cash flow on investment. Recent research by academics 
shows that, for firms that have ready access to capital, each 
dollar of cash flow generates about 33 cents of new investment. 
For firms with not such strong access to capital, each dollar 
allows another 66 cents of new investment.
    Recall that each $1 billion of investment in the U.S. is 
associated with 22,300 new jobs. The new GDP numbers that the 
Bureau of Economic Analysis released today show that we are 
still down $27 billion in non-residential fixed investment 
compared to the fourth quarter of 2007. So here it is, 5 years 
after the recession started, and we still have not gotten real 
investment up to the level that it was prior to the recession, 
and it obviously is hurting job growth.
    So I would like to look a little bit at the provisions that 
impact the oil and gas industry. They of course use accelerated 
depreciation, LIFO, bonus depreciation, other provisions that 
are available to all industries, but, in particular, provisions 
like geological and geophysical expenses, intangible drilling 
costs, percentage depletion, are really outlays for current 
labor costs, current well costs. These are costs that have no 
salvage value, and they should not be depreciated.
    So it is important that these provisions be kept in the 
code, as long as we have the current system, in order to keep 
the cost of capital low for these investments that have been 
responsible for so much of the oil and shale gas boom.
    One thing that I think we ought to also think about, and 
again, harking back to the need for a cost/benefit analysis, 
is, as we look at incentives for renewable energy, we need to 
look at the cost of that energy and the benefit that we are 
going to achieve. As you see in Table 3 in my testimony, the 
Department of Energy estimates that the capital cost of 
renewable energy electricity generation is far higher than that 
for conventional energy.
    In addition, the costs in my table do not even measure the 
need for back-up generation; they are just strictly the capital 
costs. In this global situation where energy costs matter, we 
want to keep energy costs as low as we can in order to stay 
competitive and, we hope, strengthen our economic recovery.
    It is interesting to note that European countries are 
cutting back on their subsidies for renewable electricity and 
energy, in part because they realize it is impacting their 
energy costs, so we need to be sure that each of the provisions 
in the code really meets that cost/benefit test. As data from 
the Congressional Research Service shows, the renewable sector 
gets 80 percent of all the tax code subsidies, and other energy 
is only getting 20 percent.
    Finally, I would like you to think about some of the 
environmental regulations that act like a tax on U.S. industry 
in general, not just the energy industry. For example, the 
administration's new ``social cost of carbon'' number--which is 
pegged at about $36 a metric ton of CO2 compared to 
their number 3 years ago, which was $22--is based on we are not 
sure what.
    It has not been a transparent process, and we think 
stakeholders should be allowed to understand and comment on 
changes that may be justifying stricter requirements for 
renewable fuel and other mandates.
    Other provisions like the Renewable Fuel Standard--which 
the National Academy of Science study just released shows--have 
actually increased greenhouse gases, not decreased them. That 
should be looked at too, because it is clearly costing 
consumers a lot of money, and it is not helping the 
environment.
    And finally, the Clean Air Act is not a good tool for 
regulating GHGs and, according to ACCF studies which I cite in 
my testimony, and others, is costing quite a bit of investment 
because of the uncertainty and the inability to meet some of 
the targets that EPA is supporting.
    So finally, I would just like to say, let us take each 
provision in the code and look to see how much job growth and 
investment it is creating and make sure that, as we move ahead, 
we are keeping our eye on the most effective ways of growing 
our economy. Thank you.
    Senator Stabenow. Thank you very much.
    [The prepared statement of Dr. Thorning appears in the 
appendix.]
    Senator Stabenow. Before proceeding to questions, I do 
notice that Senator Coons has joined us. So, Senator Coons, if 
you would like to come up to the table, we would ask witnesses 
just to remain. Senator Coons, if you are willing to come up to 
the table here with our witnesses rather than asking people to 
step away, we will just ask you to join the table and to speak 
about your very important legislation.
    Senator Moran was also here earlier and had an opportunity 
to speak. But we welcome you and appreciate your leadership on 
this question of leveling the playing field and providing some 
opportunities for capital, so we will let you proceed. I know 
you were presiding, and we are pleased that it worked out that 
you were able to join us.

            STATEMENT OF HON. CHRISTOPHER A. COONS, 
                  A U.S. SENATOR FROM DELAWARE

    Senator Coons. Thank you, Madam Chairman. As always, I am 
relying on the kindness of my colleagues. Senator Baldwin of 
Wisconsin was willing to accommodate me by changing her 
schedule and allowing me to get here a little early, so thank 
you.
    Thank you to you for convening this hearing and for your 
leadership and partnership on this important piece of 
legislation. I think this is a timely and important subject, 
and so, as we look at energy taxes in particular and as you 
consider principles for energy tax reform, I am grateful for 
the chance to offer a brief testimony on an element of the tax 
code that I think, if appropriately modernized and focused, 
could drive significant new investment in clean and renewable 
energy while sustaining a long, beneficial, advantageous tax 
provision for traditional energy.
    Chairman Stabenow, I am particularly grateful to you and 
Senator Moran, who testified previous to me, for your 
collaboration and support.
    I think there is little debate about America's very strong 
potential to lead the world in clean energy development and 
deployment. We have unparalleled innovation and ingenuity. We 
are among the world's leaders in developing advanced clean 
energy technologies, but we are really struggling at the moment 
to deploy these innovations, and we are missing out, in my 
view, on the very real economic and sustainability 
opportunities they represent to benefit our country and our 
communities, in part because of the absence of a reliable 
source of long-term financing.
    To advance, our technology needs a catalyst, the catalyst 
of a clearer and stronger regulatory and statutory structure 
that allows efficient access to long-term financing.
    Today's energy market is defined broadly by narrowing 
profit margins in established technologies that are supported 
by low-cost, long-term financing. If clean and renewable 
sources of energy are to grow and compete in the American 
energy marketplace and around the world as well, we have to 
make sure they are given a level playing field on which to 
operate.
    But the Master Limited Partnerships Parity Act of 2013--
that is a mouthful--S. 795, which I re-introduced in April 
along with you, Senator Stabenow, Senator Moran, and Senator 
Murkowski, would do just that. It is, I think, a strikingly 
simple, broadly bipartisan bill that modernizes a section of 
our tax code, harmonizing it with the all-of-the-above energy 
strategy for American energy independence that so many of us 
have endorsed as the blueprint for our country's energy future.
    The MLP Parity Act would allow clean energy projects to 
utilize a beneficial tax structure that taxes a project like a 
partnership, a pass-through, but that allows its interest to be 
traded like a C-corp, a corporate stock. So it allows access to 
the liquidity of equity markets, prevents double taxation, and 
leaves more cash on the table available for distribution back 
to the investors.
    For the last 30 years, MLPs have given natural gas, oil, 
and coal access to private capital on a lower-cost, long-term 
basis, something other capital-intensive projects badly need. 
It is a well-developed, well-established financing vehicle that 
currently has a market cap of about $450 billion, spread across 
roughly 100 currently traded MLPs.
    The extension of access to this financing vehicle to a very 
wide range of energy sources--energy efficiency, energy 
storage, carbon capture and storage, and a wide range of 
renewable energy sources--has the real potential to bring a 
significant wave of private capital off the sidelines and into 
the potentially burgeoning renewable energy marketplace. It 
would not only level the playing field, but it would increase 
access to low-cost capital for all energy sources in our 
marketplace on an equal basis.
    Again, I am thankful to you, Chairman Stabenow, to Senator 
Moran and Senator Murkowski, for your tireless partnership in 
this effort, and for working closely with me on this bill. 
Bipartisan companion legislation is being led by Congressmen 
Ted Poe, Mike Thompson, Peter Welch, Cory Gardener, and Chris 
Gibson, which is three Republicans and two Democrats, for those 
of you scoring at home, and was recently re-introduced in the 
House at the same time as the bill here in the Senate.
    In summary, I think access to low-cost financing will 
define our Nation's energy future and will determine how, when, 
and which energy sources emerge as central players in our 
energy marketplace in the long term. I believe it is up to us 
to ensure that our vast supply of energy of all types, but, in 
particular for me, of renewable types, is a vital part of that 
equation.
    Thank you.
    Senator Stabenow. Thank you very much.
    [The prepared statement of Senator Coons appears in the 
appendix.]
    Senator Stabenow. I do not know if any members have any 
questions for Senator Coons at this point.
    [No response.]
    Senator Stabenow. If not, we would thank you very much. We 
will save the tough questions, and we will submit those in 
writing.
    Senator Coons. Thank you. I welcome your questions, and I 
appreciate the opportunity to join you today.
    Senator Stabenow. Thank you very much. You are certainly 
welcome to stay, but we certainly understand your schedule, and 
we are appreciative that you were able to get here before the 
meeting was over. So, thank you very much.
    Let us move now to questions. I think the fundamental 
question for me, in listening to all of your testimonies, 
really relates to the broad picture that we look at when we 
talk about this question of picking winners and losers. We hear 
that a lot, we should not pick winners and losers, but our tax 
code, in fact, has. It started 100 years ago, and I am sure I 
would have supported that 100 years ago.
    We have proceeded, not only with a series of benefits and 
policies to spur the oil, gas, and coal industries over that 
time period, but they have been consistent. They have been 
imbedded in the tax code. They do not have to be put in tax 
extenders every year, so there is the ability to plan, to make 
investments, and it has paid off.
    We invested, we picked winners, and they have won. It has 
been good for the economy. I mean, we certainly have many 
challenges now as it relates to other issues, but in the last 
30 years we have given fossil energy companies support, Federal 
taxpayer support, worth about $166 billion adjusted for 
inflation.
    We are now at a point where certainly our oil companies are 
the most profitable companies in the history of the world. They 
are the five top companies, making $112 billion in profits in 
2012. I do not say that in any disparaging way except to say 
the question is, is it appropriate, is it needed, to continue, 
with limited dollars in a time of trying to balance budgets, 
with that?
    So I guess I would ask each of the panelists in some way to 
respond to this in terms of what approach is best for us right 
now in the area of the ITC, the production tax credit, 48C. As 
the author of 48C, I look at the fact that in 2009 we put in 
place an advanced manufacturing technology credit for 30 
percent of the costs of retooling equipment and so on for clean 
energies, and we had 3 times as many requests as we had 
dollars. It was capped at $2.3 billion. We had 3 times as many 
requests as we had available dollars, so each one of the three 
at the top had been stop-start, stop-start, or just stop in the 
case of 48C.
    So when we look at all of this, in the age of clean slate 
tax reform, which the chairman and ranking member have asked us 
to do, we certainly would not have, I do not think, designed 
this 100 years ago to look like this. So here we are at this 
point in time, and what is the approach that we ought to be 
using at this point to fix this?
    Ms. Cuttino?
    Ms. Cuttino. Well, in terms of principles, I think I can 
sum it up in just a few words, which are certainty, diversity 
of supply--we should not put our eggs all in one basket--
innovation--it is critical to the future--fairness, and then 
finally clean, because there are other imperatives outside 
economic imperatives.
    So those are the principles that I would look to. I think, 
in talking to our industry roundtable participants, those in 
the energy industry, they have been quite clear about, those 
are the kinds of things they need. So again, I would go back to 
the six steps, including renewal of 48C, a renewal of the ITC 
and PTC, and certainty across the board.
    Senator Stabenow. Mr. Reicher, could you respond? And in 
responding, if you could also answer, can we be competitive 
with this kind of an approach here, an unequal playing field?
    Mr. Reicher. Madam Chairman, I think it makes it quite 
difficult to compete internationally with this very 
complicated, fairly unreliable system that we have. I encourage 
you to go back to the 1980s when the Master Limited Partnership 
legislation was adopted.
    There was actually a decision made not to include what were 
called non-depletable resources, that is, renewables and 
related technologies. It would be interesting to say to 
yourself, if they had been included back in the 1980s when this 
law was adopted, I think we would be in a very different place.
    Instead, what we have had to rely on is this very much on-
again/off-again system of tax credits, the production tax 
credit, for example, for wind, over a period of 15 years, 
having to be reauthorized and at several points running out and 
having to be retroactively put back on the books.
    I was an investor in this industry for a period of time, 
and this was a very difficult place to want to put money when 
you were looking at a system of incentives built on such an 
unreliable set of tax credits, as opposed to the ability of the 
oil and gas industry to make an investment through the Master 
Limited Partnership structure and know that that incentive was 
there and you could move forward with it.
    So, beyond its greater simplicity, which I think is one of 
its great attributes, its greater reliability than what we have 
had with tax credits is a real hallmark. If we could put that 
sort of reliable system in place, I think we would be doing a 
great deal of service to the renewable energy industry in this 
country.
    Senator Stabenow. Thank you.
    My time is up, but I am going to ask Mr. Coleman and Dr. 
Thorning to briefly comment, and we will add a minute to 
everyone's questions as well.
    So, Mr. Coleman?
    Mr. Coleman. Thanks. Yes, I think that, obviously, we need 
more innovation as sort of the driving force behind energy 
policy, and particularly tax policy. The reason is, we need to 
drive down cost. I think that the challenge is that, currently, 
the tax code focuses on individual technologies and allocates 
very specific credits to each of them.
    The challenge there is that things change. I think the 
whole point of your chart is that they change pretty 
dramatically over time. If it was 1908 and we were looking at 
what things we need to support, we would probably say faster 
horses, but that is not what we needed 20 years from then.
    And I think we need to create a tax code that allows the 
flexibility to be able to adapt over time. The only way you are 
going to be able to do that is if you do not have to say, this 
industry gets this credit, this industry gets that credit, this 
industry gets another credit. And, if you treat all those 
industries the same, i.e, if the tax incentives are permanent, 
that is the only way we are going to invest upstream.
    Senator Stabenow. Dr. Thorning?
    Dr. Thorning. I would suggest we let markets decide which 
technologies are going to survive and thrive. I think 
expensing, as I mentioned, for all types of energy investment 
would be optimal. It puts everybody on the same playing field.
    I would like to point out the reason for our manufacturing 
renaissance: most people think the low-priced natural gas has 
been a huge factor in that, and the resurgence in U.S. oil 
production is certainly reducing our dependence. So, as we look 
at tax reform, we ought to be very careful not to harm the 
incentives that have been responsible for this very strong help 
in our economic recovery.
    Senator Stabenow. Thank you.
    Senator Cornyn?
    Senator Cornyn. Well, thank you all for being here and for 
your testimony.
    I want to start with Dr. Thorning, because I think there is 
a major misunderstanding here in Congress, and perhaps around 
the country, in terms of what sort of tax treatment different 
forms of energy receive.
    I have heard some people suggest that oil and gas receives 
special tax treatment that is unavailable to other industries 
or other businesses. I am sure there are some specialized ones 
and you will mention those, but I was struck by your testimony 
that, of the tax benefits available to the energy sector, 80 
percent of them flow to renewables already. Would you care to 
put a little meat on that bone for us?
    Dr. Thorning. Yes. The tax provisions that are used by the 
oil and gas industry are primarily things like accelerated 
depreciation, LIFO. All of that is certainly available to every 
industry. The bonus depreciation was cut back for the oil and 
gas industry to 6 percent versus 9 percent for other 
manufacturing industries.
    The geological and geophysical expenses, the intangible 
drilling costs, are really labor costs. It is engineering 
costs, it is finding the sites, it is drilling the well. Those 
are analogous to the costs that a Google or an Apple incurs 
when they are developing a product, so most analysts feel that 
expensing those costs is the right way to treat them, because 
they are not assets with a depreciable value. So I think it is 
important to look at the whole picture and consider that the 
oil and gas industry really does not have any particular 
advantage over other industries.
    Another thing I wanted to bring out is, the oil and gas 
industry over time is no more profitable than any other 
industry. If you look at the data, their rate of return on 
assets is about the same as others', so we want to be careful 
as we think about tax reform not to do things that will hurt 
the cash flow that is used, especially by the independent 
producers, for finding oil and gas here in the U.S.
    Senator Cornyn. Well, I certainly support Senator Baucus's 
and Senator Hatch's blank sheet approach to tax reform, because 
I think it would be very instructive, not just to members of 
the committee and Congress, but to the American people, to see 
what the relationship is between marginal tax rates and tax 
credits.
    In other words, I think that Chairman Baucus's approach, a 
blank slate, will tell us--first of all, we will have to figure 
out how much revenue needs to be generated by the Federal 
Government, what would that rate be, and, if you are going to 
add back in various tax credits, subsidies, and expenditures, 
how much you would have to raise the marginal rate in order to 
accommodate that tax expenditure.
    Now, I am confident there are many--or let us just say 
some--tax expenditures that will have strong bipartisan 
support, but hopefully everyone will have to compete and will 
have to make their case.
    Just one more question, Dr. Thorning. I am intrigued by 
your table 5 on page 20. This is something else that I think is 
not well-understood. In other words, there are some who would 
suggest, again, that the oil and gas industry actually gets tax 
dollars, and my experience is, while they are subject to much 
of the same tax treatment as other similar enterprises, that 
they actually pay taxes, unlike many of these other 
enterprises. Can you explain the effective tax rate on energy-
related capital investments and how that relates to the tax 
treatment by the Federal Government of different forms of 
energy?
    Dr. Thorning. Well, as you can see in table 5, which I drew 
from a Congressional Research Service testimony by Molly 
Sherlock, the integrated oil drilling companies, the refiners, 
are actually paying effective rates of between 15.2 and 19 
percent, whereas the renewable energy sector is benefitting in 
many cases because of the production credits and the other 
incentives, and they are experiencing highly negative tax 
rates. In other words----
    Senator Cornyn. They are getting a check from the 
government?
    Dr. Thorning. Yes. The wind industry's effective tax rate 
is minus 164 percent, and the solar/thermal industry is minus 
245. So these industries are benefitting from taxpayer 
subsidies. Then, when you look at the costs and the benefits of 
that energy, you have to wonder if those incentives are really 
justified.
    Senator Cornyn. I appreciate your clarifying that. I agree 
with, I think, every member of the committee or all the 
witnesses who said that we need greater certainty in our tax 
code, but I do think it is important to do a little fact check 
against preconceptions about different forms of energy and the 
benefits they receive from the taxpayer.
    I would stipulate that it is important, particularly for 
new forms of energy that need some help along the way, to get 
some help to see whether they can be commercially viable. Mr. 
Reicher, my time is about up. Let me just ask you, you could 
probably hit this one out of the park.
    On the production tax credit, one of the reasons why 
Congress has periodically renewed it is because I think, 
initially, no one thought that it would be a permanent tax 
credit, that it would be important to early developments of 
wind energy, it would be important to subsidize it with a tax 
credit, but at some point there would be a need to wean that 
form of energy off of the tax credit in order to let it compete 
with other forms of energy in the marketplace.
    Would you share your thoughts on that?
    Mr. Reicher. Senator, I think, in fact, done in the right 
way, that is probably the moment where we have arrived. We need 
a transition period, a significant transition period, with 
respect to the production tax credit. It needs to be 
reauthorized for several years.
    But I think, in addition to that, we can move this system 
of finance towards Master Limited Partnerships and Real Estate 
Investment Trusts and therefore have the reliability, the 
stability, that the traditional energy industry has long 
enjoyed, not having to go back to Congress every couple of 
years and say, please renew this form of finance.
    If we could make that transition, I think we would be a lot 
further ahead in terms of this industry, which is growing very 
fast, and where there is a highly competitive global industry. 
We really risk losing out on a major opportunity in renewable 
energy technology in this global race that we are facing right 
now.
    Senator Cornyn. If I could just ask a quick follow-up to 
that, Mr. Reicher. Would MLPs be more effective for these 
renewable energy projects than targeted tax credits?
    Mr. Reicher. You have to look at this project by project. I 
think, in a significant majority of cases, you probably will 
cut the cost of capital in a renewable energy project, the cost 
of financing that project--not in all cases, but in many cases. 
The point is, let us move in a smart transition.
    Let us give these industries a transitional period under 
the production tax credit and the investment tax credit, but 
ultimately let us end up with these finance mechanisms that the 
rest of the energy industry has long used, and I think we are 
going to be all the better for it.
    Senator Cornyn. Thank you, Madam Chairman.
    Senator Stabenow. Thank you very much.
    Senator Portman?
    Senator Portman. Thank you, Madam Chairman. Thank you for 
allowing me to join you today, even though I am not on the 
subcommittee. I was interested in the testimony, and I have 
learned a lot, and I appreciated the last question that Senator 
Cornyn asked and Mr. Reicher's response. As you know, we have 
an energy efficiency bill that is wending its way to the floor. 
In fact, it looks like it will be up tomorrow, and then maybe 
we will have votes on amendments as soon as we get back in 
September.
    There are a number of interesting ideas for energy 
efficiency that are being proposed in the tax code, some of 
which are already part of our law, others that are new ideas. 
Energy services agreements, for instance, and energy savings 
performance contracts are something that a number of us have a 
strong interest in.
    On the SAVE Act, I thought Mr. Reicher's testimony was very 
interesting, and I wonder if he could elaborate a little on 
that. He talks about how buildings, which use 40 percent of the 
energy in the United States and therefore are a big part of our 
energy bill, can be upgraded with relatively simple changes 
that would result in huge savings, but there are not a lot of 
incentives. He thinks that the SAVE Act that Senator Bennet, 
who was here earlier, and Senator Isakson have introduced would 
be helpful in that regard.
    If you could talk a little about how this would work for 
the typical homeowner in terms of their mortgage payment, and 
also just a little bit more about how this would work in terms 
of non-Federal Government guaranteed loans.
    In other words, most loans are guaranteed now, but, moving 
forward, many of us are interested in seeing how we can get 
Fannie and Freddie and the Federal Government to pull back some 
on their secondary mortgage position. So how would this work 
outside of the Federal Government?
    Mr. Reicher. Well, thank you, Senator Portman. First, the 
energy savings opportunities are vast in buildings. It really 
is an extraordinary number: 40 percent of U.S. energy use is in 
buildings. The opportunities, as Deutsche Bank has said, are 
huge. It has really been a challenge, though, to move private 
capital into retrofitting commercial and residential buildings.
    The investment industry is concerned about credit risk and 
performance risk: will they get paid back, and will the 
buildings perform as predicted? The good news is, there are 
some mechanisms. You alluded to energy savings performance 
contracts, energy services agreements, property assessed clean 
energy, on-bill repayment. There are a whole host of 
mechanisms. Those are moving forward. I think they each have 
promise. The jury is out, though. We still do not know that.
    I think what you can do, sitting here today, and what the 
Bennet-Isakson approach would do, is to look at something very 
simple, which is people going at this important moment to buy a 
home and going to get a mortgage, to get that energy savings 
cranked into the mortgage underwriting.
    The mortgage underwriter looks at the cost of taxes, the 
cost of insurance, but often does not look at the cost of 
energy, which can be larger than those other two. If that got 
added into the formula, people would be strongly encouraged to 
be looking at more energy-efficient homes.
    I think the home builders are supporting it, and the 
National Association of Realtors is supporting it, because they 
know this could be a big step forward. I think your bill would 
be a great vehicle for moving this forward.
    Senator Portman. Well, thank you. I appreciate that. In 
terms of, again, the number of mortgages that would be affected 
by it, my question about governmental or Federal loans or 
guaranteed loans versus those that were not guaranteed, do you 
have a thought on that?
    Mr. Reicher. About 90 percent, as I understand it, of 
Federal mortgages are under the Federal Housing Administration, 
so about 90 percent of those mortgages issued today would be 
covered by this bill. I am not sure if I can take it any 
further than that.
    Senator Portman. Yes. Again, the notion is to move away 
from that over time, as has been talked about in the context of 
the appointment of the new Director, so it is just something to 
think about, how the private sector might take this on, too, 
because it is in their own interests, probably, when you look 
at the actual costs.
    Mr. Reicher. Absolutely.
    Senator Portman. I am going to embarrass him, but I see 
Senator Warner is getting up to leave. I was going to 
acknowledge him and thank him for being here today. Whatever he 
is supporting today is going to have a much better chance of 
being pursued. I do not know what it is, but he is a good 
friend of this committee and a good friend of mine. Thank you 
for being here, Senator.
    And thank you, Mr. Reicher. I really appreciated your 
testimony, and thank you to the other witnesses as well. This 
is a topic that we will be taking up again on the energy-
efficiency front soon, but also with regard to tax reform. 
Obviously, this is an issue that is timely.
    So, thank you all. Thank you, Madam Chairman.
    Senator Stabenow. Thank you very much. We look forward to 
having your legislation on the floor and working on it.
    Senator Cantwell?
    Senator Cantwell. Thank you, Madam Chairman. Thank you for 
holding this hearing. One of the things I know that was in part 
of The Pew's work was, who is winning the clean energy race. 
Obviously your discussion about China--specifically you stated, 
last year Asia and Oceana became the leading destination for 
clean energy investment, attracting $101 billion in private 
investment and 42 percent of the global total.
    So that is a concern to me in the context of, we want to 
not only have green energy solutions, but we would also like to 
have the supply chain that goes with it so all the money is 
going in one direction, and obviously, a lot of the long-term 
job creation will go there too.
    So I wanted to get your thoughts on how we counter that. I 
am all for clean energy solutions in China. In fact, I think we 
should have a zero tariff on all clean energy products around 
the globe because, if we did, they would all be cheaper for 
everybody to implement. But I wonder if you could, Ms. Cuttino, 
comment on that and what we need to do in the race to win on 
the investment side. Mr. Coleman and Mr. Reicher, comment on 
that as well.
    Then also if the panel could comment on a technology-
neutral energy incentive program. Obviously, as we have 
discussed ITC and PTC over time, the complexity of both, one 
concept that has emerged as a way to not have to figure out 
every piece of the puzzle--whether it is biodiesel, wind, 
solar, biomass, or storage capacity, what have you--is to come 
up with an incentive that is 
technology-neutral, either based on Btu or kilowatt production 
or something of that nature, and if people could talk about 
that idea and give us your comments----
    Ms. Cuttino. Great. Well, Senator Cantwell, we certainly 
share your concern about the United States slipping to second 
in the global clean energy race. We have seen investment 
flowing to Asia. In fact, investment flows to nations that have 
policy certainty, and that is why we repeat time and time again 
that policy matters.
    Those countries that have pulled back on policy, whether it 
is subsidies or whether it is targets or whatever, have seen 
investment decline. Those countries that have strengthened 
their targets or put them in place, no matter what the policy 
is, have seen investment flow in their direction. Certainly, 
when it comes to China, there is a competition afoot. We have 
been trading our leadership with China when it comes to 
attracting investment, and we need more policy certainty in 
this country, whether it is in the tax code or energy policy.
    When it comes to different approaches, certainly an 
interesting approach would be a tiered technology-neutral 
approach that would be based on emissions or other measures. 
That is something that I know a lot of folks are looking at, so 
it is very interesting. There could be capacity goals that are 
set, so there are a variety of approaches that I think are very 
interesting that Congress could consider.
    Senator Cantwell. Mr. Reicher or Mr. Coleman, do you have 
any ideas about technology-neutral solutions as a way to 
include everything?
    Mr. Coleman. Yes. So I think, in terms of the 
competitiveness issue, obviously, if you look at what has been 
happening in the marketplace, we have been developing quite a 
few technologies and we have a lot of investment through our 
National Labs and other places in these technologies, but we 
fail to commercialize them here.
    In a lot of cases, they are being commercialized elsewhere, 
and they are being manufactured elsewhere and deployed around 
the world. So I think we really need to figure out how to solve 
this commercialization gap, which is what I was testifying 
about, because, until we do that, we will not be able to get 
early-stage innovations into the marketplace.
    And, in terms of the technology neutrality part of it, we 
need to do it in such a way, obviously, that allows us, as the 
market, to try to pick these different technologies based on 
their competitiveness in the marketplace at the time. I think 
an MMBtu-based process is one approach.
    I also think though that, if you can figure out how to do 
it based on criteria that we agree we need to accomplish--i.e., 
whether it is innovation or improvement in various criteria--
that is something that can drive the way we think about 
investing in a category so that we are not just investing in 
the next technology, we are investing in better technology.
    Senator Cantwell. All right.
    Mr. Reicher. Senator, I would just quickly add, there is an 
extraordinary number that an international energy agency has 
said that we are going to be spending--$38 trillion--between 
now and 2035 on global energy infrastructure. It might be clean 
or less clean, but, however it happens, that is the sort of 
number we are looking at in terms of what we are going to have 
to build out globally in energy infrastructure. That is an 
extraordinary number; it is an extraordinary market. I have to 
say, I think the Chinese have said, we are going to own--the 
Chinese are going to own--a very large proportion of that 
market. That is their plan.
    They are moving forward, not only in low-cost 
manufacturing, but increasingly in R&D increasingly, as Mr. 
Coleman just said, in commercialization. Many technologies 
invented here, often at government expense, are in fact being 
commercialized in China. The intellectual property is 
increasingly owned in China. So I think we really face a real 
race here.
    There are ways to collaborate with the Chinese, but I think 
we also have to be smarter about competition as well. This is a 
vast, vast market with extraordinary numbers of jobs, and I do 
not think we are well-organized to seize a reasonable fraction 
of that for our own country.
    Senator Cantwell. All right.
    Dr. Thorning, when you were talking about the amount of 
money spent on renewable energy versus fossil fuel energy, were 
you talking about section 1603?
    Dr. Thorning. No, I was talking about the entire tax code. 
The Congressional Research tabulation of all the incentives in 
the code shows that 80 percent of them are going right now to 
the renewable sector.
    Senator Cantwell. I think there are something like $40 
billion in tax incentives for the fossil fuel industry in 
various forms, so I definitely do not think we are spending $40 
billion on renewable energy. So maybe we could compare notes 
and come up with a----
    Dr. Thorning. Yes, I would love to. Because if you are 
counting accelerated depreciation and other expenses, other 
deductions, those are allowed for all industry, not just oil 
and gas.
    So I believe it is the case that the renewable sector is 
benefitting, as I showed in table 5, from the quite negative 
effective tax rates, and so it is a question of whether the 
cost to the American taxpayer is worth what we are getting.
    Senator Cantwell. Well, I would love to compare notes, 
because I definitely think we are spending a lot more on fossil 
fuel incentives today than we are on renewable energy, but 
maybe we can compare notes and come up with something, and we 
can at least agree on the facts of what those things are. So, 
that would be helpful. Thank you so much.
    Did you want to say anything about a technology-neutral 
approach?
    Dr. Thorning. Well, I think, as I said in my opening 
statement, allowing expensing for all energy investments is the 
most neutral way to go, and let the market decide what is going 
to be put in place.
    Senator Cantwell. Thank you.
    Thank you, Madam Chairman.
    Senator Stabenow. Senator Wyden, welcome, the distinguished 
chair of the Energy Committee. We are so glad to have you.
    Senator Wyden. Thank you, Madam Chairman. I so much 
appreciate your leadership on this. Senator Cornyn and I have 
teamed up on a whole host of issues over the years, and I 
appreciate the chance to be with both of you.
    Let me start this way. Historically in the Senate, energy 
policy has been about region versus region. Senators from one 
region or another come on in and duke it out, and you have one 
kind of energy source battling against another, where somebody 
comes in and says, I am a gas person, somebody says, I am a 
renewables person. The consumer barely gets mentioned in all of 
this. The consumer is the one who gets short shrift.
    When Chairman Bingaman retired, I said, this is one of the 
areas I want to really be part of: trying to focus on the 
consumer, the consumer's well-being. So I want to start, and I 
am going to try to get all four of you in with a couple of 
questions, but let us try this one for Ms. Cuttino and Mr. 
Reicher.
    We have a situation here where crude oil production is 
booming. We are glad to see that. Gas prices keep soaring. The 
consumer pulls up at the pump and just feels like they are 
getting mugged. I mean, prices just keep going up and up.
    What are all these tax breaks that we are talking about 
going to do to provide some relief for that consumer? Because 
that is a big focus of what I have been looking at, and I know 
Senator Stabenow and our committee have been looking at it. For 
you, Mr. Reicher, what are these tax breaks doing to try to get 
some help to the consumer, if anything?
    Mr. Reicher. Great question, Senator Wyden. Clearly, these 
tax breaks have encouraged significant new development of these 
fossil energy resources, but those energy resources are being 
developed in an international market where we do not have a 
separate domestic price for oil. We compete in a global market 
for oil.
    So we have encouraged greater production. We are in fact 
reducing our dependence on foreign sources of oil, but we work 
in a market that is an international one, where the price is 
not determined here. As you know, natural gas is a little bit 
different.
    What I would say is--and this is really where I think 
policy comes into this--we have taken some extraordinary steps 
to help people deal with the price at the pump, and that is the 
fuel efficiency of vehicles. I think the President's fuel 
economy standards that he set----
    Senator Wyden. But that is not a tax area, primarily.
    Mr. Reicher. Understood. It is regulatory.
    Senator Wyden. It is regulatory. I want to just get on this 
tax issue, because the tax code--and all three of us are going 
to be very involved in reform. I have had a bipartisan proposal 
for years with Senator Gregg formerly, then Senator Coates. So 
we are talking about tax expenditures. That is why what Senator 
Stabenow and Senator Cornyn are doing is so important: they are 
looking at expenditures. Just, if you would, tell me what these 
expenditures are doing to help the consumer at the pump.
    Mr. Reicher. I think the answer is, they are helping in 
terms of production. They are not primarily oriented towards 
helping the cost at the pump. That is something that, as you 
look at the tax code, there are other ways to do that.
    Senator Wyden. Ms. Cuttino, unless you want to add 
something to this, and you are welcome to, I will just kind of 
move on. We will just hold the record open, because I would 
like to get into another area that I would welcome any of you 
to flesh out. I want the production. It is a very good thing. 
The fact is--and I am going to North Dakota with Senator Hoeven 
here in a few weeks--natural gas is 50 percent cleaner than the 
other fossil fuels, so this production is good.
    But it has to translate to the consumer at the pump who 
feels like they are getting shellacked in this, and they are 
just kind of mystified. They turn on the news and production is 
up and jobs are being created, and they are saying, how is this 
going to translate to me? Of course, this also bumps up against 
what they have been told all these years, that if you just 
produced more, this would be good for the consumer, but it is 
not getting to them.
    So here is my other question for the panel. Why do we not 
just start at the other end with you, Dr. Thorning and Mr. 
Coleman. Is there, in your view, any kind of measure--I guess 
the fancy word is to call it a metric; it probably does not 
count in Washington unless you call it a metric, but to me it 
is just kind of a plain, old measure--that a technology is 
competitive in the marketplace and would no longer be in need 
of government assistance?
    Let me start with you on this one, Dr. Thorning. Is there 
any such creature here, a measure or a metric that would help 
us look at how we can have the innovation we want, a role for 
government, but recognize that the real challenge is to make 
sure we are generating the growth and the vitality in the 
private sector? Is there any measure that you know of?
    Dr. Thorning. Well, that is a wonderful question, and I may 
have to reflect on it. But it seems to me if you look at market 
prices--for example, LNG, liquified natural gas, compressed 
natural gas, is making inroads into the transportation sector 
with fleet vehicles and so forth. The price per unit of Btu 
maybe is as good a metric as any, but I think it is important 
to again let the market decide which technology is best for 
transportation fuel.
    Let me just go back quickly to the question about, why are 
consumers not seeing much benefit at the pump in terms of 
reductions in gasoline prices. As Mr. Reicher said, it is 
determined in international markets. Most analysts feel that 
the U.S.'s extra billion barrels of oil produced last year has 
had some helpful impact in terms of keeping the price from 
rising even faster. Another issue is whether the renewable fuel 
standards are raising the price of gas. So these are all things 
that are in addition to tax policy that I think we all should 
be aware of.
    Senator Wyden. I know I am over my time. Maybe the chairman 
will let Mr. Coleman respond.
    Senator Stabenow. Please respond.
    Mr. Coleman. It is a great question. Thank you. It is a 
great question because it gets right to the heart of the 
challenge round, saying we are going to renew things like the 
PTC or the ITC or other provisions until the industry is ready 
to roll off. I think one of the false premises there has always 
been that these industries are somehow homogeneous, that solar 
is at some point going to be ready to roll off of these 
credits.
    I think the reality is, if you look inside the solar 
industry, there are companies like First Solar which have 
iterated on technologies over and over again and they have 
gotten down the cost curve and they are at a scale point, and 
there are other technologies that are much earlier in the chain 
which are nowhere near that. They have not even built the first 
plant.
    So I think the reality is, we have to create structures 
that allow that to be accommodated over time. If you look at a 
lot of the oil and gas credits, part of the reason that they 
are permanent is to do that, and part of the reason that there 
are things like depletion allowances is they basically say, 
when you go into the marketplace and you take a risk, you will 
be rewarded by being able to write off the CapEx of that risk. 
That is the kind of thing that we are trying to get into place 
with this provision that we have proposed.
    Senator Wyden. My colleagues have been kind to give me the 
extra time, and I thank them.
    Senator Stabenow. Thank you very much.
    I had one question, and I am now going to do two in 
conclusion. Thank you all again for being here.
    Dr. Thorning, you have twice now talked about the renewable 
fuel standard, and I just have to put my chair of the 
Agriculture Committee hat on and let you know I have a very 
different view on this. As we look at how we level a playing 
field and create competition, I think we would all start by 
saying competition is a good thing; it brings prices down if it 
is fair competition.
    We certainly do not see that at the pump in terms of 
availability of biofuels or other kinds of fuels at the pump--
to be able to get real competition to bring prices down. But 
what is important, I think, when we look at biofuel producers, 
is this whole discussion that has gone on about the renewable 
identification number, or RIN, that is a part of what folks 
have said is a cost of this industry.
    It is my understanding that, when a biofuel producer sells 
biofuel, they get this credit, this RIN, and they give it to 
the buyer, which is the oil company, for free. There is no cost 
to them; it is given free. Is that true, it is given free as 
part of buying the biofuel?
    Dr. Thorning. Well, you have to buy the biofuel.
    Senator Stabenow. You buy it.
    Dr. Thorning. The RIN price, I think, has gone up to maybe 
$1.33 recently, so it is a cost that has to be passed forward.
    Senator Stabenow. I guess the point is, I would just say--
and it is important for the record that I make it, so I want to 
speak to this a minute--is that the purchaser buys the biofuel, 
they get the credit, there is no cost for that, and then the 
oil companies trade this and create the value back and forth.
    There is a small group that trades all of this, and the 
cost goes up and up and up based on how they trade it. As I 
understand it, there are 2.5 billion unassigned credits, RINs, 
coming into 2013, and I am not sure how we know how the RINs 
get valued. Do you have any idea?
    Dr. Thorning. I am not an expert on RINs either, but to me, 
as an economist, when I see the ever ramped-up EPA requirements 
for blending renewable fuels with gasoline, and we see that 
gasoline consumption is down in the U.S., there is going to be 
a blend wall hit, perhaps as soon as this year, according to a 
recent Bloomberg article, and that is bound to impact prices 
and the supply of gasoline.
    So I am just saying we ought to take a look at this 
renewable portfolio, renewable fuel standard, and see if it is 
still making economic sense, especially since the National 
Academy of Sciences report indicated it actually increases 
GHGs.
    Lastly, because ethanol does add octane to gasoline, even 
if the renewable fuel standards were cut back or eliminated, 
there would still be a market for biofuels. It would not 
disappear.
    Senator Stabenow. Well, we are looking forward, in the 
Agriculture Committee, to getting into this more. But I would 
just say that we do not have a transparent market at all to 
determine the value of something given free to the companies 
that they then trade with each other and then goes up and up 
and up in value, and then there is a complaint about how high 
it is--it is an interesting system that has been put in place.
    But I would just suggest that if we were blending more 
biofuels, if we had more access at the pump, then it would 
alleviate the price in terms of the RIN and so on. It is 
interesting that those controlling the access are creating a 
system and then arguing that it is not working to create 
competition at the pump. It just is a very interesting system.
    So we are going to get more into that, but I would just 
suggest that if we had more competition--with the little bit 
that we have from biofuels, it is estimated that the price of 
gas is 80 cents to a dollar lower, just with the little bit of 
E85 we have, and we do not have that much access to it. So I am 
looking forward to broader hearings on that one.
    Senator Cornyn. Madam Chairman, can I ask just one 
question?
    Senator Stabenow. Yes, you may. Yes, you may.
    Senator Cornyn. Did you say ``blend wall''?
    Dr. Thorning. Yes.
    Senator Cornyn. What is that?
    Dr. Thorning. Well, right now, gasoline consumption is 
falling in the U.S., in part because of fuel efficiency for 
cars and so forth. So the fact that the EPA regulation mandates 
ever more use of renewable fuels each year, if you are not 
selling more gasoline but you have to use the renewable fuel, 
you are going to hit a blend wall.
    It is like you have a coffee cup and you have to keep 
pouring more cream into it and less and less coffee, which is 
the gasoline at the bottom. So there is a National Economic 
Research Associates study, which I would be pleased to share 
with you, that looks at the economics of this and projects it 
will inflict significant costs on U.S. consumers.
    Senator Cornyn. Thank you.
    Senator Stabenow. The challenge is that more could be 
blended if there were more pumps and if there were more access 
to service stations--if there was more willingness to have it 
available. So that is really the larger debate in terms of 
whether or not it is available.
    In conclusion, I would like to ask each of you, and 
particularly Mr. Coleman, because you mentioned this in your 
testimony: when we look at this broad question of how we go 
forward on tax policy, how do we create a level playing field, 
make it technology-neutral, let the market decide, create more 
competition for consumers, all of those things, jobs, address 
issues of a cleaner environment--there is a whole range of 
things that are very, very important?
    I feel like we go round and round about which preferences 
are what or who is successful enough to be paying taxes and so 
on, and we do not look at the fact that we are comparing one 
group that is at the 50-yard line with others who are back just 
getting started, and we are not comparing this the same way.
    I was interested that in your testimony you referenced a 
2011 report by DBL Investors, noting that Federal spending on 
oil in the first 15 years of deployment was 5 times greater 
than what we have spent on renewables. From your investment 
experience, I know you know it takes about 15 years or more for 
some technologies to move from R&D to initial 
commercialization.
    So we have mature industries, successful industries in 
America. Clearly, we want them to be successful, certainly we 
want the jobs and so on, but we are comparing a mature industry 
that has gone through all the beginnings of it, they do not 
need to worry about a refundable tax credit, they are at a 
point where they have gone through all those stages, and they 
are now paying taxes and so on. Then you have all these new 
technologies that are in the interests of our country to 
develop, and so these debates go on, but these new technologies 
are not all at the same stage as we debate all of this.
    So I am wondering if you could speak to that, any of you 
who would like to speak to that in terms of, again, how we look 
at these technologies, how we determine the policy, and how far 
along are we in the development of our clean energy 
technologies. What are the technologies that you think are 
going to become most competitive with conventional sources?
    How do we wrap this all together? Because we can argue 
either side using lots of numbers that show a lot of different 
things, but we are talking about a mature industry versus new 
promising industries and the challenge of making sure that we 
can be competitive in those industries in a global marketplace 
and do the right thing for our country. Mr. Coleman?
    Mr. Coleman. I think it is a complex issue to get your head 
around because--as evidenced by all of our testimonies; they 
can turn into dissertations in a hurry--the solution is not 
necessarily that complicated. So I think at the highest level 
the issue is that, even when you look at solar versus wind 
versus oil versus nuclear, it is absolutely true that some are 
really in the early stages of development and others are 
further along.
    The numbers from the DBL report are really about those 
sectors as a whole, and the kind of support those sectors as a 
whole have gotten. But there is another layer to it, which is, 
even within those sectors, when you look at--just take solar as 
an example. When you look at this range of technology, you have 
some technology companies that are creating technologies that 
are at the very, very beginning, they are still in the lab, and 
they have not moved down the cost curve yet.
    Cost curves are something that are really important in this 
debate, because what happens with the cost curve is you 
basically have a portion, a steep portion of the curve as you 
come down, which is really about fundamental innovation. Then 
the other portion of it, where you get this tipping point, 
where you get competitive and you can actually compete on your 
own two feet in the marketplace, is really about scale. It is 
really about actually producing at scale, because you get 
enormous economies of scale as you get more and more mature and 
iterate.
    So the challenge is, how do you create a support that 
encourages the early innovation to happen and then also drives 
the scale in the marketplace, but does it in a way where we 
have continuous innovation over time? If you just look at solar 
versus oil, versus wind, you would see very different levels of 
support over time, and that is an issue.
    But, if you get to the next layer, you also need to create 
these permanent credits, something that is a permanent 
structure that actually says, for new innovation, we are going 
to support the risk that is taken to go and do that, and we are 
going to help them get to the point where they are competitive 
in a marketplace.
    That marketplace might not be you versus some other 
technology, it might be you versus other technologies in the 
market that are exactly the same but have a variation. How do 
we continue to do that so that we drive costs down for the 
entire sector and then for the entire energy industry as a 
whole? That is the only way we are going to get to a point 
where we have an evergreen innovation process in this country.
    Senator Stabenow. Would anyone else like to comment about 
that as well? Mr. Reicher, would you like to?
    Mr. Reicher. Senator, I would just add that there are an 
array of maturities among these technologies, from nuclear 
power, which has been here and well-established for decades and 
decades, fracking has arrived recently, solar still has a long 
distance to go, particularly certain aspects of solar, and how 
we treat each of these is quite different.
    The loan guarantee programs that you put in place in the 
2005, 2007, and 2009 acts have been an attempt to help that 
commercialization process, and we have seen some good results 
from those. We have seen some failures as well, but for the 
most part most of those investments have done reasonably well, 
and I think the taxpayer, looking back a few years from now, is 
going to see a pretty successful portfolio of investments in 
commercialization.
    The Energy Department is moving on right now to begin to 
put some of that loan guarantee funding into advanced fossil 
technologies, into carbon capture, various things we need to 
improve the fossil energy industry. That should move forward.
    But let me say this. If you, as members of Congress, decide 
not to ultimately recapitalize those loan guarantee programs 
which you put in place in 2005, 2007, and 2009, I would 
strongly encourage you to go back and take a look at something 
that you had very good bipartisan support for a few years ago, 
and that was the Clean Energy Deployment Administration. 
Senator Wyden, Senator Murkowski, Senator Bingaman, when he was 
here, were all strong supporters of this.
    The beauty of that approach is that we would have put 
something into place with a very broad array of investment 
tools, not just loan guarantees and loans, but a whole set of 
other tools: the ability to issue bonds, the ability of this 
new entity to actually profit from the up-side, pay itself back 
and keep going, not to have to go back to Congress for new 
funding.
    I would encourage you to go back and take a look at that if 
you decide not to recapitalize these loan guarantee programs, 
because I think that would be a way, in a very technology-
neutral fashion, to support these earlier-stage technologies 
that in fact do struggle across what we call the Valley of 
Death. I think the Clean Energy Deployment Administration would 
be worth a strong second look.
    Senator Stabenow. Yes, Dr. Thorning?
    Dr. Thorning. I would just like to suggest that it might be 
better to have the government have taxpayer money going into 
R&D more than trying to pick the technologies and fund them. I 
mean, we have seen what happened after the 2009 act and the 
series of losses of taxpayer money from picking the technology.
    I just want to bring you back to 1832. That is when the 
first electric car was developed in Scotland. It was a battery-
powered electric car. By 1910 or so in New York City, the 
electric vehicles had a quarter of the market. But as we know, 
since 1910 in New York City, the electric vehicle, because of 
failure to come up with a satisfactory range in battery, has 
just not made it.
    So the electric vehicle has been in place for 180 years in 
one form or another, and it is still not really commercially 
viable. So I think picking winners is not the government's long 
suit. I would rather see money going into R&D to keep the tax 
code neutral so that each technology has the same ability to 
write off its investments as the other.
    Ms. Cuttino. We really need to invest in new technologies 
until they get to cost-competitiveness, at the very least. 
Senator Wyden asked, what is good for the consumer? That is 
good for the consumer, and it is good for our security, 
diversity in the mix, and also consumer choice.
    But there are not only new technologies that we need to 
incentivize--we talked about the electric car--but for 
instance, combined heat and power. Currently in 48C, for 
instance, industrial energy efficiency is treated differently 
than solar power. There are technical fixes that need to happen 
to that for our industrial base to seize the benefits of 
industrial energy efficiency, which again would make them more 
competitive, would save energy, and would reduce costs. Now we 
know, after Hurricane Sandy, it would also provide resiliency.
    So we do need to have some measures, and cost-
competitiveness is certainly one, but other measures that would 
support these new, or in some cases older, technologies that 
just need a little more time to get over the hump.
    Senator Stabenow. Well, thank you all very much. We 
appreciate your time and expertise, and we look forward to 
moving forward. This is a very important part of, I believe, 
growing the economy, creating jobs, and addressing many of our 
challenges.
    So we would ask that any additional questions for the 
record should be submitted to the committee clerk within 5 
business days from today. That is 5 p.m. on Wednesday, August 
7th.
    The hearing is adjourned.
    [Whereupon, at 5 p.m., the hearing was concluded.]



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