[Senate Hearing 113-623]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 113-623
 
                U.S. SECURITY IMPLICATIONS OF INTERNATIONAL 
                  ENERGY AND CLIMATE POLICIES AND ISSUES

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

                                HEARING

                               BEFORE THE

                     SUBCOMMITTEE ON INTERNATIONAL
                  DEVELOPMENT AND FOREIGN ASSISTANCE,
                    ECONOMIC AFFAIRS, INTERNATIONAL
                       ENVIRONMENTAL PROTECTION,
                            AND PEACE CORPS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 22, 2014

                               __________

       Printed for the use of the Committee on Foreign Relations
       
       
     
   
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                COMMITTEE ON FOREIGN RELATIONS         

             ROBERT MENENDEZ, New Jersey, Chairman        
BARBARA BOXER, California            BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
JEANNE SHAHEEN, New Hampshire        MARCO RUBIO, Florida
CHRISTOPHER A. COONS, Delaware       RON JOHNSON, Wisconsin
RICHARD J. DURBIN, Illinois          JEFF FLAKE, Arizona
TOM UDALL, New Mexico                JOHN McCAIN, Arizona
CHRISTOPHER MURPHY, Connecticut      JOHN BARRASSO, Wyoming
TIM KAINE, Virginia                  RAND PAUL, Kentucky
EDWARD J. MARKEY, Massachusetts
               Daniel E. O'Brien, Staff Director        
        Lester E. Munson III, Republican Staff Director        

                         ------------          

           SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT        
           AND FOREIGN ASSISTANCE, ECONOMIC AFFAIRS,        
            INTERNATIONAL ENVIRONMENTAL PROTECTION,        
                        AND PEACE CORPS        

           EDWARD J. MARKEY, Massachusetts, Chairman        

TOM UDALL, New Mexico                JOHN BARRASSO, Wyoming
CHRISTOPHER A. COONS, Delaware       JAMES E. RISCH, Idaho
CHRISTOPHER MURPHY, Connecticut      JEFF FLAKE, Arizona
TIM KAINE, Virginia                  RAND PAUL, Kentucky

                              (ii)        

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Barrasso, Hon. John, U.S. Senator from Wyoming, opening statement     2
Breen, Michael, executive director, Truman National Security 
  Project & Center for National Policy, Washington, DC...........    42
    Prepared statement...........................................    43
    Response to question submitted for the record by Senator 
      Edward J. Markey...........................................    82
Chiu, Daniel Y., Deputy Assistant Secretary of Defense for 
  Strategy and Force Development, U.S. Department of Defense, 
  Washington, DC.................................................     4
    Prepared statement...........................................     6
    Responses to questions submitted for the record by Senator 
      Edward J. Markey...........................................    75
Goldwyn, David L., nonresident senior fellow, Energy Security 
  Initiative at the Brookings Institution, Washington, DC........    35
    Prepared statement...........................................    37
Hochstein, Amos J., Deputy Assistant Secretary of State for 
  Energy Diplomacy, U.S. Department of State, Washington, DC.....    11
    Prepared statement...........................................    13
    Responses to questions submitted for the record by Senator 
      Edward J. Markey...........................................    73
    Responses to questions submitted for the record by Senator 
      John Barrasso..............................................    87
Hutzler, Mary, distinguished senior fellow, Institute for Energy 
  Research, Berlin, MD...........................................    46
    Prepared statement...........................................    48
    Responses to questions submitted for the record by Senator 
      Edward J. Markey...........................................    77
Markey, Hon. Edward J., U.S. Senator from Massachusetts, opening 
  statement......................................................     1
Postel, Eric G., Assistant Administrator for the Bureau of 
  Economic Growth, Education and Enviroment, U.S. Agency for 
  International Development, Washington, DC......................    16
    Prepared statement...........................................    18
    Responses to questions submitted for the record by Senator 
      Edward J. Markey...........................................    83
    Responses to questions submitted for the record by Senator 
      John Barrasso..............................................    88
Titley, RADM David W., USN (ret.), member, CNA Military Advisory 
  Board, and director, Center for Solutions to Weather and 
  Climate Risk, the Pennsylvania State University, Arlington, VA.    29
    Prepared statement...........................................    31
    Responses to questions submitted for the record by Senator 
      Edward J. Markey...........................................    76

              Additional Material Submitted for the Record

Prepared statement of Hon. James M. Inhofe, U.S. Senator from 
  Oklahoma.......................................................    72
Study by Jeff Kueter, President of The George Marshall Institute, 
  submitted by Senator John Barrasso.............................    91

                                 (iii)

  


U.S. SECURITY IMPLICATIONS OF INTERNATIONAL ENERGY AND CLIMATE POLICIES 
                               AND ISSUES

                              ----------                              


                         TUESDAY, JULY 22, 2014

        U.S. Senate, Subcommittee on International 
            Development and Foreign Assistance, Economic 
            Affairs, International Environmental 
            Protection, and Peace Corps, Committee on 
            Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 3:11 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Edward J. 
Markey (chairman of the subcommittee) presiding.
    Present: Senators Markey, Murphy, and Barrasso.

          OPENING STATEMENT OF HON. EDWARD J. MARKEY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Markey. Welcome to this very important hearing and 
we thank all of you for being here. Right now dozens of wars 
and conflicts dot our world map, from the Sudanese desert to 
America's longest war in Afghanistan. The root causes of war 
are diverse and rarely simple, from religious divisions to 
democratic yearnings. But two major factors have emerged in the 
modern era that act to strain the strands of stability until 
they snap--climate change and energy security.
    In two regions of our world, climate and energy have 
recently played major roles in exacerbating what were already 
tense times. In December 2010, a Tunisian street food vendor 
lit himself on fire in protest of government corruption and 
extreme poverty. That spark spread in Tunisia and ignited the 
Arab Spring.
    Yet, feeding this anger over years of corruption and 
autocratic rule was a more immediate hunger. In 2010, terrible 
droughts in Russia, in China, and floods in Pakistan decimated 
wheat harvests and created a global shortage. The price of 
wheat increased dramatically. The Middle East, home to the 
world's top nine wheat importers, felt it acutely, especially 
since the region's farmers struggled with their own parched 
fields. Much of Syria was gripped with the worst drought it had 
ever experienced. The price of bread skyrocketed across the 
region and demands for regime change were not far behind.
    About 600 miles north of the Syrian border, the ashes of 
Malaysia Airline Flight 17 blanket a wheat field in pro-Russia 
separatist-controlled eastern Ukraine. A surface-to-air missile 
apparently split the plane and snatched nearly 300 lives. But 
another weapon has already been deployed in the Russian-Ukraine 
conflict and in wars across the globe--energy. Russia has 
already shut off the natural gas spigots to Ukraine. That is 
more than half of Ukraine's gas supply gone. When winter 
arrives and natural gas demand spikes, this could become 
another political and humanitarian crisis, bringing suffering 
to Ukrainian families and challenges to the new government. 
Because of Europe's reliance on Russian gas, Putin's energy 
weapon gives him unparalleled leverage to continue his bullying 
tactics.
    Energy profits can also inflict damage. ISIS, the rebel 
group destabilizing Iraq, was funded initially by Sunni oil 
sheiks. ISIS is no longer an upstart insurgency. They are a 
legitimate threat, consolidating their power around energy 
holdings as much as sectarian alliances. They have captured 
Iraqi oil fields. They control much of Syrian oil production, 
and now they are selling this oil on the black market. Revenues 
from these operations buy them credibility, weapons, and 
loyalty--valuable commodities for building a so-called 
``caliphate'' in this volatile region.
    Since the Industrial Revolution, our world has burned 
fossil fuels, increasing temperatures and destabilizing our 
climate. Since that time, we have become more dependent on 
these same fuels that have destabilized countries and drawn 
America into international conflicts.
    Tunisia is not the first time famine has played a role in a 
regional conflict. In a 2007 congressional hearing of mine, one 
general told the story of Somalia, how drought had caused 
famine, famine had encouraged conflict, how U.S. military 
forces were sent to ensure food reached those people who needed 
it and was not used by warlords to gain further power, and how 
18 U.S. soldiers lost their lives in what we now call Blackhawk 
Down. The general believed all went back to the drought that 
led to the famine.
    Russia is not the first country to use energy as a weapon 
in geopolitics. Much has changed in the U.S. energy sector 
since OPEC's devastating embargo four decades ago. The shale 
revolution has boosted U.S. oil production to record levels. 
Yet much remains the same. Oil still commands a monopoly over 
our transportation sector. We remain dependent on foreign 
suppliers to meet nearly one-third of our needs, roughly the 
same share as 1975, when we banned the export of American oil.
    Today we have two panels of experts to help us examine how 
the twin challenges of climate change and energy security are 
driving conflicts now and what new conflagrations could be on 
the horizon. We must do everything in our power today to 
mitigate the threats that will require military intervention 
tomorrow. If we fail in our responsibility, it is our men and 
our women in uniform that will get called upon to try to clean 
up the mess.
    Now I turn to recognize the ranking member of the 
subcommittee, the Senator from Wyoming, Senator Barrasso.

           OPENING STATEMENT OF HON. JOHN BARRASSO, 
                   U.S. SENATOR FROM WYOMING

    Senator Barrasso. Thank you very much, Mr. Chairman. Mr. 
Chairman, the United States is facing serious national security 
threats across the globe. Americans understand the real direct 
threats to our national security--aggressive regimes in Syria, 
Russia, and North Korea, Iran's nuclear weapons program, 
expanding terrorist threats from al-Qaeda, ISIS, and Hamas, and 
the unfolding emergency at our borders.
    Despite the fact that the administration's foreign policies 
have led to a more unstable and more dangerous world, the White 
House last week said that the administration has, 
``substantially improved the tranquility of the global 
community.'' In the face of a growing number of global 
disasters, Secretary of State Kerry believes that climate 
change is one of the greatest threats facing our Nation. 
Secretary Kerry has called climate change the world's most 
fearsome weapon of mass destruction.
    While the rest of the world is looking to the United States 
to focus and lead on multiple threats to our security, to their 
security and to ours, as terrorists wage war, as a resurgent 
Russia invades its neighbors, as commercial airlines are shot 
down in cold blood, the administration is focused on climate 
change. Why? Because, according to the White House, the world 
is tranquil.
    The world is far from safe, far from save to preserve our 
national security. To preserve our national security, we need 
to spend taxpayer dollars where they are needed the most. 
Unfortunately, the Obama administration spent $7.5 billion in 
scarce U.S. taxpayer funds, funds that could have been used to 
fight terrorism and aggression in the Middle East or in Eastern 
Europe, to support international climate change programs 
between fiscal year 2010 and 2012. Folks in my home State of 
Wyoming would call this spending wasteful and irresponsible at 
best, especially as our friends and allies struggle with 
violent, deadly crises that have real implications for our 
security.
    I believe taxpayer money would be better spent improving 
the security of U.S. embassies, protecting our servicemembers 
who are serving this Nation in often dangerous locations across 
the globe, and fighting terrorism and bad actors that wish to 
do us harm.
    The U.S. share of the world's carbon emission has been 
declining for nearly a decade before President Obama took 
office. Meanwhile, China's emissions grew by 173 percent from 
1998 to 2011 and shows no end in sight.
    The drastic steps President Obama wants to take and the 
damage it will do to our economy would have no impact on global 
temperatures. That is, unless the President can convince other 
countries that their economies should stop growing, too. Given 
the President's current foreign policy record, the chances of 
that happening are slim.
    Countries are starting to realize these policies are 
hurting their economies and their competitiveness, while 
yielding few environmental benefits. European Union countries 
like Germany are abandoning restrictive energy policies in 
favor of reliable fossil fuels like coal. Just last week, 
Australia repealed their carbon tax and plans for an emissions 
trading scheme. Prime Minister Abbott called the carbon tax ``a 
$9 billion hand brake on our economy.'' He also called it ``a 
useless, destructive tax'' which damaged jobs, which hurt 
families' cost of living, and did not actually help the 
environment.
    If President Obama cannot succeed in Paris, all he will 
have accomplished with his climate change policies will be to 
have pulled the hand brake on the American economy. He will 
have no environmental or security benefit to show for it.
    This hearing is entitled the ``U.S. Security Implications 
of International Energy and Climate Policies and Issues.'' I am 
here to tell you there are serious implications of this 
administration's energy and climate policies. They have an 
implication on our economy well-being and most especially on 
our national security. These policies, already adopted in 
Europe, have led to crime and to poverty. They have weakened 
our allies and they will weaken us.
    What is needed is an ``all of the above'' energy strategy 
that creates American jobs, grows our economy, and strengthens 
our national security. Energy security, not restrictions, will 
provide the peace and tranquility the global community wants 
and our Nation deserves.
    Thank you, Mr. Chairman. I look forward to the testimony.
    Senator Markey. I thank the gentleman, and we will turn to 
our panel. We will hear first from Dr. Daniel Chiu, Deputy 
Assistant Secretary of Defense for Strategy and Force 
Development, from the U.S. Department of Defense. We welcome 
you, doctor. Whenever you are ready, please begin.

STATEMENT OF DANIEL Y. CHIU, PH.D., DEPUTY ASSISTANT SECRETARY 
OF DEFENSE FOR STRATEGY AND FORCE DEVELOPMENT, U.S. DEPARTMENT 
                   OF DEFENSE, WASHINGTON, DC

    Dr. Chiu. Thank you, Chairman Markey and Ranking Member 
Barrasso. Thank you for this opportunity to testify before you 
today on how DOD is considering the implications of climate 
change on national security in our war to protect the Nation 
both in the near and the longer terms.
    As you know, the Department of Defense's primary 
responsibility is to protect our national security interests 
around the world. To do this, we need to consider all aspects 
of the global security environment and plan appropriately for 
the range of potential challenges and prepare for the 
possibility of unexpected developments, both in the near and 
long terms.
    It is in this context that the Department of Defense must 
consider a wide range of global trends, to include the effects 
of climate change, such as sea level rise, shifting climate 
zones, and more severe weather events, and how these effects 
could impact our national security. Some of these effects are 
already being seen today on military bases, installations, and 
other DOD infrastructure, such as increased flooding from sea 
level rise and storm surge. We are also seeing the potential 
for decreased capacity of DOD properties to support training, 
as well as implications for our supply chains, for the 
requirements in terms of equipments, vehicles, weapons systems, 
and other assets that the Department buys.
    As a result, we have already found the need to adapt much 
of our infrastructure, including, for example, building more 
wind-resistant structures, protecting water supplies, and 
improving 
fire breaks at DOD installations. DOD is currently conducting a 
baseline study, to be completed later this year, to identify 
what infrastructure is vulnerable to extreme weather events and 
sea level rise, so that we can ensure that these challenges are 
addressed appropriately.
    In the longer term, the impacts of climate change may have 
an effect on, and alter, the environments in which our military 
will be operating. For example, sea level rise may lead us to 
rethink where and when executing amphibious operations may be 
appropriate, while changing temperatures and changes in 
seasonal patterns could impact our assumptions about when and 
where military operations--certain types of military 
operations--can take place.
    The effects of climate change may also compound instability 
in other countries and regions by affecting things like the 
availability of food, water, by instigating human migration and 
competition for natural resources. This could create 
significant instabilities and potentially provide an avenue for 
extremist ideologies and conditions that could foster terrorism 
or other challenges to U.S. national security.
    Therefore, as a Department we are working to better 
understand how these impacts of climate change can affect our 
planning and operations in the United States and abroad. We are 
currently working to take into consideration the impacts of 
climate change in, for example, our longer term planning 
scenarios. We are thinking about how the effects of climate 
change may affect the frequency or severity of events that 
might lead to the need for humanitarian assistance and disaster 
relief activities over time. We are looking at our efforts to 
plan and enhance the capacity of partner militaries to respond 
to natural disasters, to enable them to effect these 
operations.
    We are also working to address the implications for 
potentially higher demands for defense support to U.S. civil 
authorities due to extreme weather events in the United States. 
The effects of climate change are particularly clear in the 
Arctic region, where diminishing sea ice will make the Arctic 
Oceans increasingly accessible. This is a decades-long dynamic, 
but we must monitor and account for it today. This is why 
Secretary Hagel released the Department of Defense's Arctic 
Strategy in November of 2013, which, in support of the National 
Arctic Strategy released earlier in 2013, seeks through U.S. 
leadership and collaboration to preserve an Arctic region that 
remains free of military conflict, in which nations act 
responsibly and cooperatively, and where economic and energy 
resources are developed in a safe and sustainable manner.
    In order to do so, DOD will focus on ensuring security, 
support, and safety, promoting defense cooperation, and 
preparing for a wide range of challenges and contingencies that 
includes consideration of Arctic contingencies. We do this in 
the meantime by maintaining domain awareness to ensure that we 
are prepared for any changes in either Arctic conditions or 
activities in the Arctic.
    The Department currently assesses that the Arctic is a 
relatively low military threat environment and that existing 
and planned DOD infrastructure and capabilities in the region 
are adequate to meet U.S. defense needs in the near and mid-
term futures. We will of course continue to reevaluate 
capabilities and requirements as conditions and regional 
activities change and will be prepared to address any changes 
or gaps that could emerge.
    Given the nature of climate change, in particular in the 
Arctic, the United States response to these challenges requires 
a whole-of-government approach, as well as international 
collaboration, both of which are the bedrock of our efforts in 
these areas. By taking a proactive approach to assessment, 
analysis, and adaptation, DOD believes it can manage the risks 
posed by the impacts of climate change and minimize the effects 
to the Department's missions, while continuing to protect 
national security interests around the world through strong 
leadership.
    Thank you again for this opportunity to speak and I look 
forward to answering your questions.
    [The prepared statement of Dr. Chiu follows:]

                Prepared Statement of Dr. Daniel Y. Chiu

                              introduction
    The Department of Defense (DOD)'s primary responsibility is to 
protect our Nation's security interests around the world. This includes 
building security globally through assurance of allies, engagement with 
partners, and deterrence of adversaries; prevailing in conflicts should 
they arise; and supporting civil authorities and others around the 
world in times of emergency. To ensure DOD is adequately prepared to 
accomplish our missions, we need to consider all aspects of the global 
security environment and plan appropriately for potential contingencies 
and the possibility of unexpected developments in both the near and 
longer terms.
    As such, the Department tracks, analyzes, and considers a range of 
current and future trends and changes, including political-military, 
economics, demographics, technology, and the environment. All of these 
issue areas have the potential to significantly impact U.S. national 
security interests in both positive and negative ways. DOD must take 
into account these trends to ensure we are able to create and pursue 
opportunities when they serve our national interests and that we are 
ready for a wide range of challenges now and into the future.
    This is why climate change is included in the 2014 Quadrennial 
Defense Review. In particular, we noted that: ``The impacts of climate 
change may increase the frequency, scale, and complexity of future 
missions, including defense support to civil authorities, while at the 
same time undermining the capacity of our domestic installations to 
support training activities.'' The effects of climate change--such as 
sea-level rise, shifting climate zones, and more severe weather 
events--will have an impact on our bases and installations at home and 
overseas; on the operating environment for our troops, ships, and 
aircraft; and on the global security environment itself as climate 
change affects other countries around the world.
    While all projections contain a degree of uncertainty, the 
Department considers risk across a wide spectrum of possibilities to 
ensure DOD is appropriately prepared for the range of possible 
contingencies. In considering the effects of climate change, scientific 
data and studies are used to further refine projections and planning. 
The Department also continues to update and assess this work to ensure 
that changes are taken into consideration so that plans and 
capabilities can be adapted, when needed.
            near term: infrastructure, training, and testing
    The National Climate Assessment, released by the White House 
earlier this month, noted that the world's climate is already rapidly 
changing. Certain types of weather events are already occurring more 
frequently and intensely, including heat waves, heavy downpours, 
hurricanes, floods, and droughts. Glaciers and Arctic sea ice are 
melting at a relatively rapid rate, sea levels are rising, and oceans 
are becoming warmer and more acidic. Moreover, scientists predict that 
some of these changes will increase in frequency, duration, and 
intensity over the next 100 years.
    Some of these current effects of climate change are being seen on 
the military bases, installations, and other infrastructure that DOD 
manages. Our infrastructure serves as the staging platform for the 
Department's national defense and humanitarian missions, and the 
natural landscape supports military combat readiness by providing 
realistic combat conditions and vital resources to personnel. For 
example, an installation may need a forest or desert landscape for 
maneuvers, coastal waters for amphibious assault training, or wetlands 
to prevent flooding and erosion. The effects of climate change will 
have serious implications for the Department's ability to maintain both 
its infrastructure and the landscape around it, and to ensure military 
readiness in the future.
    Our coastal installations are already experiencing increased 
flooding and damage from sea-level rise and increased storm surge; 
longer term impacts could include increased inundation and erosion. 
Rising temperature and extreme weather will increase building heating 
and cooling demand, raising installation energy requirements and 
operating costs. Those conditions will also increase maintenance 
requirements for runways and roads, as well as cause disruption to, and 
competition for, reliable energy and fresh water supplies. Thawing 
permafrost and melting sea ice are damaging our infrastructure in 
Alaska and the Arctic region. Changed disease vector distribution, 
particularly exposure to diseases in regions in which they are not 
routinely encountered, will increase the complexity and cost of on-
going disease management efforts, and may have acute and long-term 
impacts on personnel health and safety.
    The Department also needs to be able to train our forces to meet 
the evolving nature of the operational environment by training in the 
field environment to achieve and sustain proficiency in mission 
requirements. The Department conducts testing in the field environment 
in anticipation of the military's use of weapons, equipment, munitions, 
systems, or their components. As such, access to the land, air, and sea 
space that replicate the operational environment for training and 
testing is critical to the readiness of the Force.
    The impacts of climate change may decrease the capacity of DOD 
properties to support current testing and training rotation types or 
levels. Some training and testing lands may lose their carrying 
capacity altogether. Rising temperatures could lead to an increased 
number of ``black flag'' (suspended outdoor training) or fire hazard 
days. Increased dust generation during training activities may 
interfere with sensitive equipment, resulting in greater repairs, or 
may require more extensive dust control measures to meet environmental 
compliance requirements. These conditions could also lead to increased 
health and safety risks to the Department's personnel.
    Climate change also impacts may affect the supplies, equipment, 
vehicles, and weapons systems the Department buys, where and from whom 
we buy them, how they are transported and distributed, and how and 
where they are stockpiled and stored. Changes to the operating 
environment may require changes to operational parameters for current 
and planned weapons and equipment, resulting in increased associated 
maintenance requirements or requirements for new equipment.
    Environmental changes may introduce supply-chain vulnerabilities, 
reducing the availability of, or access to, the materials, resources, 
and industrial infrastructure needed to manufacture the Department's 
weapon systems and supplies. They may also cause the interruption of 
shipment, delivery, or storage and stockpile of materials or 
manufactured equipment and supplies. Many major corporations have 
recognized the potential effects of climate change on their operations 
and are aggressively pursuing manufacturing/supply resiliency efforts. 
As appropriate, the Department will seek refinements to existing 
processes and develop new climate-specific plans and guidance.
    Because of these current and ongoing concerns, the Department 
initiated in 2013 a review of existing directives, policies, manuals, 
and associated guidance documents and criteria to identify which ones 
should incorporate considerations of a changing climate. The initial 
screen reviewed 58 documents and identified 28 policies, programs and 
procedures for update; 5 have already been updated, all dealing with 
installations. During 2014, the Department will work within the 
existing review and update cycle to establish a plan for incorporating 
appropriate consideration of climate change into the relevant 
documents.
    Many infrastructure managers are already adapting to changing 
climate factors. Reported rebuilding efforts after extreme storms 
include upgrading to more wind-resistant structures, burying utility 
lines underground, changing storage locations for chemicals used in 
low-lying wastewater treatment plants, protecting water supply wells, 
and removing vulnerable trees. In preparation for the possibility of 
more wildfires, installations reported preparing better firebreaks and 
making timber stand improvements to reduce fire fuel loads.
    The Department has updated our master planning criteria for 
installations to require the consideration of climatic conditions, as 
well as mandating the consideration of changing climate conditions when 
designing buildings, including potential increased heating or cooling 
requirements. We also issued a Floodplain Management Policy in February 
2014 that establishes requirements to minimize risks when military 
assets must be located within flood plains.
    The Department is exploring the expansion of applications of risk 
management schemes already in use, primarily within the Defense 
Critical Infrastructure Program. Decisions on where and how to locate 
future infrastructure will become increasingly reliant on robust risk 
management processes that account for dynamic factors associated with 
the effects of climate change. While the initial modifications to risk 
management methodologies are focused on critical infrastructure, it is 
anticipated that the Department will utilize them across all 
decisionmaking in the future.
    The Department has initiated several research and survey efforts to 
more fully identify and characterize vulnerabilities, impacts, and 
risks posed by climate change. The Department is implementing a phased 
installation-level vulnerability assessment approach to: develop 
methodologies for conducting consistent screening-level vulnerability 
assessments of military installations worldwide (starting with coastal 
and tidal installations); leverage recent scientific advancements 
regarding coastal assessment; and provide a platform to build upon 
prior to conducting more comprehensive and detailed assessments, 
whether coastal installations or otherwise.
    A screening level survey assessment tool was piloted in the fall of 
2013 and was deployed in 2014 to assess current installation-specific 
vulnerability to the impacts of climate-related events. Data from these 
screening-level assessments will be used to identify areas and 
installations where more detailed vulnerability assessments may be 
needed. The Department is using a whole-of government approach to 
develop recommendations on regional sea-level rise for use in more 
detailed coastal vulnerability and impact assessments of military 
installations worldwide, to ensure consistency in conducting these 
assessments.
    As climate science advances, the Department will regularly 
reevaluate climate change risks and opportunities in order to develop 
policies and plans to manage its effects on the Department's operating 
environment, missions, and facilities. Research organizations within 
the Department, including the Strategic Environmental Research and 
Development Program (SERDP), are planning and completing studies to 
characterize climate change impacts in specific regions of the world 
and develop and pilot vulnerability assessment and adaptation 
methodologies and strategies.
    Research to develop coastal assessment methods is scheduled for 
completion during 2014. Work in other regions is still underway, 
including research designed to understand how increased temperature 
trends and changes in the fire regime in the interior of Alaska will 
impact the dynamics of thawing permafrost and the subsequent effects on 
hydrology, access to training lands, and infrastructure; and how 
changes in storm patterns and sea levels will impact the Department's 
Pacific Island installations, including their water supplies.
    The Department is actively conducting research that will support 
further integration of climate change into our considerations. This 
includes projects that: assess potential changes in the intensity, 
duration, and frequency of extreme precipitation events, including 
changes in the timing and intensity of snowmelt and subsequent runoff 
events; include development of adaptive decision frameworks; and 
address understanding the characteristics of species that are either 
conservation reliant or adaptable to potential changes in climate and 
human activities.
                   longer term: plans and operations
    The longer term impacts of climate change may alter, limit, or 
constrain the environments in which our military will be operating. For 
example, sea level rise may impact the execution of amphibious 
landings; changing temperatures and lengthened seasons could impact 
timing windows for operations; and increased frequency of extreme 
weather could impact assumptions about flight conditions that could 
affect intelligence, surveillance, and reconnaissance capabilities.
    The impacts of climate change may aggravate existing or trigger new 
risks to U.S. interests. Maintaining stability within and among other 
nations is an important means of avoiding full-scale military 
conflicts. The impacts of climate change may cause instability in other 
countries by impairing access to food and water, damaging 
infrastructure, spreading disease, uprooting and displacing large 
numbers of people, compelling mass migration, increasing competition 
for natural resources, interrupting commercial activity, or restricting 
electricity availability.
    As Secretary of Defense Chuck Hagel said at the 2013 Halifax 
International Security Forum, ``Climate change does not directly cause 
conflict, but it can significantly add to the challenges of global 
instability, hunger, poverty, and conflict. Food and water shortages, 
pandemic disease, disputes over refugees and resources, more severe 
natural disasters--all place additional burdens on economies, 
societies, and institutions around the world.''
    These developments could undermine already fragile governments that 
are unable to respond effectively or challenge currently stable 
governments, as well as increasing competition and tension between 
countries vying for limited resources. These gaps in governance can 
create an avenue for extremist ideologies and the conditions that 
foster terrorism.
    As a Department, we are working to better understand how the 
impacts of climate change will affect plans and operations in the U.S. 
and abroad. The Department's unique capability to provide logistical, 
material, and security assistance on a massive scale or in rapid 
fashion may be called upon with increasing frequency. We are looking to 
identify early warning indicators for those areas critical to DOD's 
mission set, as well as conduct systematic regional and localized 
impact assessments to identify trends and where our resources should be 
focused.
    The Department will be monitoring these developments and deciding 
which situations will require intervention based on U.S. security 
interests--either preemptively through security cooperation and 
capacity-building, or through stability operations if conditions 
escalate. We are exploring ways for the combatant commands to include 
in their missions noncombat support to address serious climate change-
related U.S. national security vulnerabilities and to include climate 
considerations in their theater campaign plans.
    We are currently working to integrate the impacts of climate change 
into our longer term planning scenarios, which articulate a range of 
future challenges that U.S. military forces must be prepared to 
confront. These scenarios support deliberations by DOD senior 
leadership on strategy and planning, programming, budgeting, and 
execution (PPBE) matters, including force sizing, shaping, and 
capability development.
    We also plan to more fully integrate the impacts of climate change 
into our humanitarian assistance/disaster relief and other exercise 
plans, and are working to enhance the capacity of partner militaries 
and civil response readiness groups to plan for, and respond to, 
natural disasters. As noted in the 2014 QDR, ``Climate change also 
creates both a need and an opportunity for nations to work together, 
which the Department will seize through a range of initiatives.''
    We also hope to more systematically harness resources beyond the 
traditional combatant command structure. This included the National 
Guard, and its State Partnership Program, service engineering units 
such as the U.S. Army Corps of Engineers and Naval Facilities Command, 
and OSD-led programs such as the Defense Environmental International 
Cooperation Program and the Strategic Environmental Research and 
Development Program.
    To the extent that we are engaged in the construction of military 
and civilian infrastructure for partner nations, we are working to 
include consideration of climate change impacts on all our projects, 
ranging from site selection to resiliency planning.
    Here in the U.S., State and local governments responding to the 
effects of extreme weather may seek increased defense support to civil 
authorities. The heightened demand, particularly on the National Guard 
and Reserve Component, could impact their availability for other 
contingencies or operations. We are in the process of exploring these 
implications and finding the right balance to ensure that our domestic 
needs can be met.
The Arctic
    The effects of climate change are particularly acute in the Arctic 
region. Profound changes are already occurring that are having, and 
will continue to have, significant and long-lasting consequences. Over 
the coming decades, the Arctic will remain a remote, isolated, and 
complex environment; but over time, diminishing sea ice will make the 
Arctic Ocean increasingly accessible and used by Arctic as well as non-
Arctic nations. At the same time, land access--which depends on frozen 
ground in much of the Arctic--will diminish as permafrost thaws.
    Although some recent media reporting overstates the nature of 
current human activity and potential for military conflict in the near 
term, the U.S. Government, including DOD, must account for and closely 
monitor the long-term dynamics in the Arctic. Regardless of the rate 
and scale of change, we must be ready to contribute to national efforts 
in pursuit of strategic objectives in the region.
    In response to these changing dynamics, the Department released a 
DOD Arctic Strategy in November 2013. The DOD Strategy supports the 
overarching national approach to the Arctic, embodied in the National 
Strategy for the Arctic region (released in May 2013): advancing U.S. 
security interests, pursuing responsible Arctic region stewardship, and 
strengthening international cooperation.
    In accordance with the National strategy, the DOD Strategy seeks to 
preserve an Arctic region that is free of conflict, in which nations 
act responsibly and cooperatively, and where economic and energy 
resources are developed in a sustainable manner. In order to do so, we 
will ensure security, support safety, promote defense cooperation, and 
prepare for a wide range of challenges and contingencies.
    The DOD Strategy recognizes that the U.S. Government response to 
changes in the Arctic requires a whole-of-government approach. In terms 
of preserving security, the U.S. Coast Guard in particular faces 
distinct near-term challenges. DOD continues to seek opportunities to 
coordinate our responses with the Coast Guard to leverage existing 
resources and avoid duplication of effort. We also continue to prepare 
ourselves to provide defense support for civil authorities when 
directed.
    Our Arctic strategy will enable us to take a balanced approach to 
improving human and environmental security. Our challenge is to balance 
the risk of having inadequate capabilities or insufficient capacity 
appropriate for this changing region with the opportunity cost of 
making premature and/or unnecessary investments. We assess that the 
Arctic is a relatively low threat environment, and that existing DOD 
infrastructure and capabilities in the region are adequate to meet 
current U.S. defense needs in the near and midterm future.
    Capabilities and requirements will need to reevaluated as 
conditions and regional activity change, and any gaps will need to be 
addressed. Given the low potential for armed conflict in the region, a 
buildup beyond what is required for existing DOD missions could send 
the wrong signal about our intentions for the region. We will continue 
to train and operate routinely in the region as we monitor the changing 
environment, revisit threat assessments, and take appropriate action as 
conditions change.
    Given the nature of the Arctic, our approach to the region requires 
more than just interagency cooperation, it requires international 
cooperation. As we highlight in the 2014 QDR, relationships with allies 
and partners are important enablers for meeting our security and 
defense commitments. Our strategic approach to the Arctic reflects the 
relatively low level of military threat in a region bounded by nations 
that have not only publically committed to working within a common 
framework of international law and diplomatic engagement, but have also 
demonstrated the ability and commitment to do so.
    We engage in frequent consultations with our Arctic partners, 
including through the Arctic Council, Northern Chiefs of Defense 
conference, the Arctic Security Forces Roundtable, and in Service-to-
Service dialogues and exercises. Russia, one of five coastal Arctic 
states, has historically played a collaborative role in these forums. 
Although our near-term cooperation with Russia has been impacted by 
Russia's ongoing intervention in Ukraine, we continue to work with 
other Arctic partners and remain committed to the long-term objectives, 
approaches, and capabilities outlined in the Arctic Strategy.
              interagency collaboration on climate change
    Partnerships are needed to fully ensure the Department's mission is 
sustainable given the effects of climate change. The Department cannot 
effectively assess its vulnerabilities and implement adaptive responses 
at its installations if neighbors and stakeholders are not part of the 
process. The Department's decisions and those of neighboring 
communities are intrinsically interconnected. Aspects of our mission, 
such as Force deployment, may be affected by assets outside our 
control, such as transportation infrastructure.
    Understanding the complexities and uncertainties of climate change 
require a whole-of-government approach as well. Therefore, the 
Department already participates in nationwide efforts such as the U.S. 
Global Change Research Program, including the National Climate 
Assessment. It also partners with individual agencies such as the 
National Oceanic and Atmospheric Administration on, for example, the 
development and operational implementation of a national Earth System 
Prediction Capability.
    The Department is also represented on interagency climate change 
councils and working groups and will continue to participate in federal 
climate partnerships and other interagency processes. The Department, 
through the Air Force Weather Agency, contributes earth-space 
environmental data, receiving nearly 500,000 weather observations and 
satellite-derived wind profiles each day and sharing these data with 
the National Climatic Data Center and the Navy's Fleet Numerical 
Meteorological and Oceanographic Center.
    Climate change is an inherently global problem, and will require us 
to work closely with our allies, partners, and other countries across 
the world. As such, the State Department is leading our efforts to 
engage with the international community on these issues in multilateral 
forums and in bilateral relations. DOD is collaborating with and 
supporting the State Department in many of these initiatives, and we 
are continuing to develop new mechanisms and avenues for cooperation.
                               conclusion
    The effects of the changing climate affect the full range of 
Department activities, including plans, operations, training, 
infrastructure, acquisition, and longer term investments. The 
direction, degree, and rates of the physical changes will differ by 
region, as will the effects to the Department's mission and operations. 
By taking a proactive, flexible approach to assessment, analysis, and 
adaptation, the Department can keep pace with the impacts of changing 
climate patterns, minimize effects on the Department, and continue to 
protect our national security interests.

    Senator Markey. Thank you.
    Our next witness is Mr. Amos Hochstein, Deputy Assistant 
Secretary of State for Energy Diplomacy at the Department of 
State. Welcome.

 STATEMENT OF AMOS J. HOCHSTEIN, DEPUTY ASSISTANT SECRETARY OF 
     STATE FOR ENERGY DIPLOMACY, U.S. DEPARTMENT OF STATE, 
                         WASHINGTON, DC

    Mr. Hochstein. Thank you, Mr. Chairman, Senator Murphy, for 
inviting me here to talk. I will summarize my testimony and, 
with your permission, have it submitted for the record in the 
longer version.
    Mr. Chairman, as you said, recent developments that have 
been splashed across the front pages of newspapers across the 
globe serve as the latest reminders of the interplay between 
energy security, foreign policy, and our own national security. 
The critical nature of the geopolitics of energy is easily on 
display when you look at the global oil supply disruptions 
today, which are at historic levels of over 3 million barrels 
per day. Due to reduced output in Libya, Sudan, and South Sudan 
caused by political instability, politically induced declines 
in Nigeria and Venezuela, and reductions in Iran's exports by 
over 50 percent due to effective United States sanctions, it is 
now more important than ever that the United States and the 
State Department's Bureau of Energy Resources work diligently 
to ensure that energy resources are used to drive economic 
growth, prosperity, stability, and cooperation, rather than 
conflict.
    Today's hearing is timely. Competition for access to, and 
control of, energy sources and supply routes can indeed be a 
source of conflict and revenues from energy sales can fuel and 
provide funds that prolong conflict. Poor governance of natural 
resources can also contribute to conflict. As you mentioned, 
Mr. Chairman, in your opening remarks about corruption, Senator 
Lugar, former chairman of this committee, said in sponsoring 
his legislation, ``The resource curse affects the United States 
as well as producing countries. It exacerbates global poverty, 
which can be a seedbed for terrorism. It empowers autocrats and 
dictators, and it can crimp world petroleum supplies by 
breeding instability.''
    It is important to look at the global context. We are in 
the middle of a global energy transformation. On the demand 
side, we are seeing a historic shift where already non-OECD 
economies are surpassing and overtaking the OECD in total 
demand today and into the foreseeable future. On the supply 
side, production and delivery of energy is also changing 
dramatically. Energy supply is no longer concentrated in a 
small number of OPEC countries. New producers are joining their 
ranks.
    As you said, nowhere is this transformation more evident 
than here in the United States. The dramatic shift in the 
United States energy balance has significantly impacted our 
national energy markets, as vast quantities of imported energy 
once destined for the United States have become available to 
other economies in Europe and in Asia.
    Ukraine and Europe's dependence on Russian gas is a clear 
example of the risk of relying on any one dominant suppliers. 
The situation is urgent for Ukraine. While Ukrainian production 
is sufficient to cover summer demand, without Russian gas 
Ukraine will not be able to meet its consumption needs when the 
winter heating season resumes if those supplies from Russia are 
not continued. The short-term impact of this cutoff has been 
relatively small in Europe because it is not in the gas-
intensive heating season and because last winter was mild, 
leaving stocks unseasonably high.
    Our European energy security efforts intensified after 
Russia cut off gas supplies to Ukraine and European customers 
in 2009, advocating energy diversification across the European 
Continent. We work hand in hand with the EU Commission as well 
as with energy envoys in Eastern and Central European 
countries, meeting often with the ``V-4 Plus'' states. Second 
is diversity of import routes. Europe must build interconnected 
pipeline systems that allow gas to flow freely throughout the 
continent, unlike today. Finally, European countries must 
pursue diversification of sources, away from a dependence on 
any single supplier.
    We are supporting Europe with actions as well as words. It 
is unlikely the Southern corridor would have become a reality 
without State Department engagement. We strongly support the 
creation of the Greece-Bulgaria Interconnector, which will 
allow gas from the Southern corridor from Azerbaijan to supply 
Southeast Europe, rather than just enter Central and Western 
Europe via Italy.
    We support the EU's regulatory efforts in what is referred 
to as the Third Energy Package, which promotes market-based 
rules and fair competition, reducing Russia's ability to use 
its monopoly status as a weapon against its neighbors.
    The value of energy diversification does not stop in 
Eastern Europe. Most of the Caribbean island states are 
significantly reliant on a single source for energy and 
European finance and similarly suffer from corruption and an 
inadequate investment climate. I recently joined Vice President 
Biden in Columbia and the Dominican Republic as he announced a 
new Caribbean Energy Security Initiative.
    Existing offshore hydrocarbon discoveries in Israel and 
Cyprus, as well as potential offshore discoveries in Lebanon 
and Egypt, are transforming countries. I spend a lot of my time 
in the region helping to facilitate discussions between Israel, 
Cyprus, Lebanon, Jordan, and Egypt as these discoveries 
continue to play a role in redefining previous geopolitical 
relationships. Energy cooperation has significantly warmed 
relations between Israel and Cyprus, a point that was 
underscored by President Anastasiades when I was in Nicosia 
with Vice President Biden in May.
    In Egypt, over the past 2 years I have made--in Egypt, 
similarly we expect to see deals potentially announced with 
Israel in the coming months. Over the past 2 years, I have made 
16 trips to Jordan to help facilitate solutions to Jordan's 
energy crisis, which was a result of terrorist bombings of the 
natural gas pipelines through Israel and Jordan. These efforts 
recently culminated in a historic deal for regionally 
competitive prices signed between Houston-based Noble Energy, 
operating offshore Israel, and the Jordanian industrial 
complex, saving Jordan billions and helping to stabilize its 
future economy.
    Competing exclusive economic zone claims by Israel and 
Lebanon present a potential flashpoint for conflict as Lebanon 
continues to move forward with its first offshore exploration 
bid.
    Closer to home, the State Department has brought 
negotiation to a successful completion and saw the U.S.-Mexico 
Transboundary Hydrocarbons Agreement enter into force with the 
support of the U.S. Senate.
    Mr. Chairman, in conclusion, the energy diplomacy I have 
discussed today does not include all of our engagements around 
the world. The role of the State Department and the Energy 
Bureau in engaging these key energy security issues is now an 
integral part of our overall foreign policy and diplomacy. With 
wise stewardship of resources and by fostering private 
innovation and investment to expand energy access, we can 
ensure that the world's energy resources develop into a 
sustained driver of growth and stability, as opposed to 
conflict.
    Thank you and I look forward to your questions.
    [The prepared statement of Mr. Hochstein follows:]

                Prepared Statement of Amos J. Hochstein

    Thank you Chairman Markey, Senator Barrasso, and members of the 
subcommittee. I appreciate the opportunity to be here today to discuss 
energy security and conflict and how we are using our foreign policy 
tools to strengthen U.S. national security and global energy security. 
It is a privilege to be joined by my colleagues from the Department of 
Defense and the United States Agency for International Development 
(USAID).
    Recent developments splashed across the front pages of newspapers 
around the globe serve as the latest reminders of the interplay between 
energy security and foreign policy. The critical nature of the 
geopolitics of energy is easily on display when you look at global oil 
supply disruptions, which are at historic levels of over 3 million 
barrels per day due to reduced output in Libya, Sudan and South Sudan 
caused by political instability, politically motivated declines in 
Nigeria and Venezuela, and reductions in Iran's exports by over 50 
percent due to effective U.S. sanctions. It is now more important than 
ever that the United States and the State Department's Bureau of Energy 
Resources work diligently to ensure that energy resources are used to 
drive economic growth, stability, and cooperation, rather than 
conflict.
    Today's hearing is timely. Competition for access to and control of 
energy sources and supply routes can indeed be a source of conflict, 
and revenues from energy sales can provide funds that prolong conflict. 
Poor governance of natural resources can also contribute to conflict by 
allowing pervasive corruption to undermine accountability, deprive 
economic growth, and encourage civil unrest. As your former colleague 
Senator Lugar said in sponsoring his legislation, ``the `resource 
curse' affects [the United States] as well as producing countries. It 
exacerbates global poverty, which can be a seedbed for terrorism, it 
empowers autocrats and dictators, and it can crimp world petroleum 
supplies by breeding instability.''
    We are in the middle of a global energy transformation that is 
affecting both supply and demand at the very same time. On the demand 
side, we are seeing a historic shift where already non-OECD economies 
have overtaken the OECD economies in total energy consumption. On the 
supply side, production and delivery of energy is also changing 
dramatically. Energy supply is no longer concentrated in a small number 
of OPEC countries--new producers are joining the ranks of major energy 
suppliers. We are seeing traditional and unconventional sources 
growing. We are seeing the growth of renewable energy. We are 
witnessing regional linkages, regional power lines, and the growing 
ability to move natural gas by ship, making energy markets increasingly 
global and competitive.
    Nowhere is this transformation more evident than in the United 
States. The United States has increased oil production by 1 million 
barrels per day (bpd) in each of the last 2 years, and we are on track 
to replicate that this year. At the same time, the phase-in of 
increasingly robust efficiency efforts, such as Corporate Average Fuel 
Efficiency standards in the transportation sector, has reduced our oil 
demand, and helped slash net imports' share of U.S. oil consumption 
from 60 percent in 2005 to just over 30 percent today. Similarly, the 
United States has increased natural gas production by over 20 percent 
since 2007 because of growth from shale basins. This overall sea change 
in U.S. energy balances has had significant international energy market 
implications as vast quantities of imported energy once destined for 
the United States are now consumed elsewhere in the world markets.
          today's ukraine crisis and the energy crisis of 2009
    Ukraine and Europe's dependence on Russian gas is a clear example 
of the danger of relying on a dominant supplier.
    After weeks of negotiations, Russia unfortunately ceased supplying 
gas to Ukraine on June 16, showing little willingness to continue 
negotiations until Ukraine pays its debt. The situation is urgent for 
Ukraine. While Ukrainian production is sufficient to cover summer 
demand, without Russian gas Ukraine will not be able to meet its 
consumption needs when the heating season resumes. The short-term 
impact of this cutoff has been relatively small in Europe because it is 
not in the gas-intensive heating season and because last year's winter 
was mild, leaving stocks unseasonably high. However, while there is no 
crisis in Europe today, it may be just around the corner. On an annual 
basis, Russia supplies more than half the gas consumed in Ukraine and 
more than a quarter of the gas consumed in the EU.
    So where does that leave us today? While the media and others have 
focused on European energy security only for the last several months, 
the United States Government has been focused on this issue for several 
years.
    Our European energy security efforts intensified after Russia cut 
off gas supplies to Ukraine and European customers in 2009. Since then, 
the State Department, now spearheaded by the Bureau of Energy 
Resources, has been intensely focused on energy security in Europe, 
advocating energy diversification across the European continent, 
particularly in Central and Eastern Europe. We work hand in hand with 
the EU Commission as well as with the Energy Envoys in Eastern/Central 
European countries meeting often with the ``V4 plus'' states.
    When we talk about supply diversification in a European context, 
there are several components that must be addressed. First is fuel 
mix--including other energy sources like renewables and nuclear, as 
well as pursuing additional production from conventional and 
unconventional sources, potentially including shale basins.
    Second is diversity of import routes. Europe must build an 
interconnected pipeline system that allows gas to flow freely 
throughout the continent. Finally, European countries must pursue 
diversification of sources away from a dependence on a single supplier. 
I am not suggesting that countries should eliminate Russian imports--
that is neither necessary nor reasonable and Russia will remain a 
central player in the region--but introduction of alternative supplies 
will promote competition in the energy market. This will ultimately 
increase energy security while also benefiting consumers.
    The United States is supporting Europe in actions as well as words. 
It is unlikely the Southern corridor would become a reality without 
State Department engagement. We strongly support the creation of the 
Greece-Bulgaria Interconnector, which will allow gas from the Southern 
corridor to supply Southeast Europe rather than just enter Central and 
Western Europe via Italy. For the same reason we support proposals to 
build an extension of the Southern corridor from Albania all the way to 
Croatia, once enough gas becomes available, ultimately supplying 
neighbors Hungary, Ukraine, and others.
    We are working closely with colleagues in the EU Commission to 
advance interconnections of infrastructure in Central and Eastern 
Europe. These efforts are already producing successful projects such as 
the recent announcement of the Hungary-Slovakia interconnector. We also 
support proposals to build LNG terminals at critical points on European 
coasts, from Poland to Croatia to the Baltics. In short, Mr. Chairman, 
we agree with our European allies on the critical need for Europe to 
improve its energy infrastructure by constructing new pipelines, 
upgrading interconnectors to allow bidirectional flow, and building new 
LNG terminals to diversify fuel sources.
    We support the EU's regulatory effort in what is referred to as the 
Third Energy Package, which has reduced Russia's ability to use its 
monopoly as a weapon against its neighbors. But more must be done to 
enforce these rules and their intent.
    Part of the answer for Ukraine's energy security is its integration 
into the EU's energy market. However, before this integration can 
happen successfully, it is essential that Ukraine reform its energy 
sector. If it does not, and if corruption and inefficiency continue 
along with crippling energy subsidies for consumers, Ukraine will be 
right back where it started before long.
    That is why the Bureau of Energy Resources and others in the U.S. 
Government are working with Ukraine on internal reform, governance, and 
efficiency improvements, as well as increasing their own gas production 
including by exploring their shale resource potential.
    We have worked closely with the Governments of Ukraine, Hungary, 
Poland, and Slovakia and with European energy companies to see gas 
flowing from Europe into Ukraine. Thanks in part to these efforts, gas 
is now flowing from both Poland and Hungary into Ukraine. In late 
April, the Governments of Ukraine and Slovakia also signed an MOU on 
reverse-flow--an agreement which will allow gas to begin to flow from 
Slovakia into Ukraine as soon as September. Although the volumes will 
be small initially, they could increase significantly over the next 
year.
                       caribbean energy security
    The value of energy diversification does not stop in Eastern 
Europe. Most of the Caribbean island states are significantly reliant 
on a single source for energy and energy finance. Additionally, several 
suffer from inefficiency and aging infrastructure, corruption, and an 
investment climate that deters rather than encourages investment. As 
this is critical not only for the region as a whole, but also for our 
own national security, I recently joined Vice President Biden in 
Colombia and the Dominican Republic as he announced a new Caribbean 
Energy Security Initiative. The initiative will seek to address the 
barriers specific to this region and take actions to encourage the 
private sector to make the necessary investments.
    No country in the world should rely on a single supplier whether in 
Europe, the Western Hemisphere, or Asia.
       mediterranean energy as an anchor for regional cooperation
    The Eastern Mediterranean is an example of where, with active U.S. 
engagement, energy can serve as a catalyst to increase regional 
cooperation and avoid conflict.
    Exciting offshore hydrocarbon discoveries in Israel and Cyprus, as 
well as potential offshore discoveries in Lebanon and Egypt, are 
transforming countries that were previously energy importers into 
countries that have the ability to both supply domestic demand, and 
export to regional and global markets where demand is high.
    I have spent a lot of my time in the region helping to facilitate 
discussions between Israel, Cyprus, Lebanon, Jordan, and Egypt as these 
discoveries continue to play a pivotal role in redefining previous 
geopolitical relationships. Energy cooperation has significantly warmed 
relations between Israel and Cyprus--a point that was underscored by 
President Anastasiades when I was in Nicosia with Vice President Biden 
in May. Energy can also serve as an incentive to reaching a 
comprehensive settlement to the Cyprus question.
    Also, repeated terrorist bombings of the Egyptian gas pipeline to 
Israel and Jordan forced Jordan to import expensive fuel oil to meet 
its energy needs--costing Jordan nearly $4 billion each year. Over the 
past 2 years I made 16 trips to Jordan to help facilitate solutions to 
Jordan's energy crisis. These efforts recently culminated in a historic 
deal signed between Houston-based Noble Energy operating offshore 
Israel, and a Jordanian industrial complex at regionally competitive 
prices, saving Jordan billions and helping to stabilize Jordan's future 
economy.
    While the export of energy resources from Israel and Cyprus has the 
potential to forge stronger economic, and by extension diplomatic, 
ties, if managed poorly these resources could become the flash point 
for conflict.
    Competing exclusive economic zone claims by Israel and Lebanon 
present a potential flash point for conflict if left unresolved. 
However, the United States continues to work closely with Israel and 
Lebanon to find a solution that will allow both countries to explore 
and exploit their offshore resources. We remain optimistic that a 
solution is possible because it is in the interest of both sides.
    If countries in the region work together, the Eastern Mediterranean 
can become an important energy hub, promoting regional prosperity and 
supporting Europe's energy security. The United States will continue to 
support this effort.
    Closer to home, the State Department was able to lead, with the 
Department of the Interior, an important international negotiation to 
defuse neighborly concerns over potential cross-boundary oil reserves 
in the Gulf of Mexico. We were able to see the negotiation to its 
successful completion and bring the United States-Mexico Transboundary 
Hydrocarbons Agreement into force with the support of the Congress.
    Thanks to the increased certainty that this agreement brings, the 
United States was able to lease additional offshore Gulf of Mexico 
exploration blocks this year, earning the taxpayer some $21 million in 
bid payments that would not have accrued without this energy diplomacy.
                               conclusion
    Mr. Chairman, the energy diplomacy I have discussed today does not 
include all of ENR's global engagement. ENR's diplomacy spans the globe 
and extends from addressing oil and gas related-issues to advancing 
renewables and energy efficiency. With global oil supply outages at 
historic highs, patterns of energy production, consumption and trade 
fundamentally altered, and the sound energy supply footing of the 
United States, we have a historic opportunity to engage across the 
energy spectrum to address the many challenges that lie ahead. The role 
of the State Department and the Bureau of Energy Resources in engaging 
on these key energy security issues is now an integral part of our 
overall diplomacy. We have learned that in an interconnected world, we 
advance our own energy security and prosperity when our friends and 
allies advance with us. With the wise stewardship of resources, and by 
fostering private innovation and investment to expand energy access, we 
can ensure that the world's energy resources become a sustained driver 
of growth and stability, and not conflict.

    Senator Markey. We thank you, Mr. Hochstein.
    Finally, we are going to hear from Mr. Eric Postel, who is 
the Assistant Administrator for the Bureau of Economic Growth, 
Education and Environment for USAID. Welcome, Mr. Postel.

 STATEMENT OF ERIC G. POSTEL, ASSISTANT ADMINISTRATOR FOR THE 
  BUREAU OF ECONOMIC GROWTH, EDUCATION AND ENVIRONMENT, U.S. 
      AGENCY FOR INTERNATIONAL DEVELOPMENT, WASHINGTON, DC

    Mr. Postel. Thank you. On behalf of USAID, I would like to 
thank you, Chairman Markey, Ranking Member Barrasso, and 
Senator Murphy, for holding today's hearing and giving me the 
opportunity to testify. I request that my full statement be 
submitted for the record.
    Senator Markey. Without objection.
    Mr. Postel. Today I will highlight how a lack of clean 
energy access and/or an inability to address climate change 
risk can have a destabilizing effect on a country's economy, 
security, and the well-being of its citizens. Stability and 
well-being overseas often directly helps ensure U.S. national 
security. Today about 1.6 billion people, most of them living 
in developing countries, lack access 
to a reliable source of electricity. As a result, President 
Obama launched the Power Africa Initiative to promote a private 
sector solution to this shortage.
    Expanding reliable energy access requires getting 
regulatory structures right while protecting vulnerable 
populations. Distortionary policies like fossil fuel subsidies 
can reduce incentives for energy efficiency, hamper low or no-
carbon energy production, raise dependence on energy imports, 
and create unsustainable fiscal liabilities. One striking 
example is a country that several have already mentioned today, 
which is the Ukraine, where the U.S. Government is now working 
with Ukrainians to bring electric rates to a level that covers 
costs, to protect the most vulnerable from the impact of gas 
and heating rate increases, to strengthen payment discipline, 
to improve energy efficiency in the heating sector, and to 
increase transparency.
    For many countries, renewable energy such as solar or wind 
has begun to play an important role in meeting their energy 
needs. As the cost of renewable energy declines, many countries 
are scaling up renewables for a variety of reasons, including 
cost, domestic energy security, and addressing climate change. 
As a result, USAID is working to expand the use of renewables 
in countries such as India, Philippines, South Africa, and 
Ethiopia. In Ethiopia, Power Africa, for example, is helping 
develop Corbetti, a 1,000-megawatt geothermal plant that will 
be the largest geothermal plant in East Africa and the 
country's first privately owned energy project.
    Improving a country's resilience to adverse climate change 
impacts is essential to economic growth, stability, and 
security. It also protects our development assistance 
investments. Floods, droughts, cyclones, and extreme 
temperature constitute 75 percent of natural disasters globally 
and affect more than 200 million people annually.
    Focusing on building resilience also saves money. Disaster 
planning efforts are cheaper than relief efforts and 
reconstruction. The World Bank estimates that every dollar used 
for disaster risk reduction has a $7.00-savings in disaster 
recovery costs. So, for example, USAID and NASA are helping 
Bangladesh adopt a new flood forecasting system to reduce the 
losses associated with the large-scale flooding that occurs in 
that country most years.
    In many of the world's poorest countries, agriculture plays 
a substantial role in their economies, but adverse climate 
impacts can reduce agricultural productivity and output and in 
extreme cases cause widespread food insecurity.
    USAID has begun working to make our agriculture investments 
more resilient to weather variability. In Ethiopia we are 
working to increase agricultural incomes and enhance resilience 
to climate change for up to 15 million people. In Senegal and 
the Dominican Republic, we are working with the local insurance 
companies to help them build the expertise to design and market 
affordable weather-based insurance that can reach small rural 
households whose livelihoods depend on that weather.
    Improving and sustaining access to water in the face of 
more frequent and severe droughts is another important element 
of our approach. Our programs in the Sahel work to increase 
access to water by repairing and improving water access points, 
building appropriate irrigation infrastructure, and introducing 
practices to improve water conservation and filtration.
    USAID is also working to reduce greenhouse gas emissions by 
addressing deforestation and land use change.
    For example, we are working with the Tropical Forest 
Alliance 2020, a public-private partnership of more than 400 
companies, to reduce deforestation associated with key global 
commodities.
    In conclusion, we see a clear set of linkages between our 
efforts to improve energy access and address the impacts of 
climate change with our national security. Thank you for the 
opportunity to testify this afternoon and I look forward to 
your questions.
    [The prepared statement of Mr. Postel follows:]

                  Prepared Statement of Eric G. Postel

    Chairman Markey, Ranking Member Barrasso, and members of the 
subcommittee, on behalf of the U.S. Agency for International 
Development (USAID), I would like to thank you for holding today's 
hearing and giving me the opportunity to testify.
    President Obama set forth a new vision of a results-driven USAID 
that would lead the world in development. We have risen to this 
challenge, pioneering a new model of development that emphasizes 
partnerships, innovation, and results. We are guided in these efforts 
by our new mission statement: we partner to end extreme poverty and 
promote resilient democratic societies while advancing our security and 
prosperity.
    In today's global economy, America's well-being and economic growth 
are closely linked to economic growth in the developing world. Growth 
in developing countries helps to create new and better markets for U.S. 
goods and services. Equally important, stable, secure, and resilient 
nations are less vulnerable to crises, illegal activity, and 
international crime, which directly impacts U.S. national security.
    Two factors that are critical to spurring and maintaining economic 
growth and stability in developing countries are access to affordable, 
clean energy and the existence of social and institutional capacity to 
adapt to, mitigate and recover from shocks and stresses such as 
economic downturns and the adverse impacts of climate change. In 
particular, working with developing countries to help them deal with 
destabilizing climate change consequences, including water supply 
shortages, coastal flooding and droughts, is critical. Such work also 
protects our current and future development investments.
    Today, I will highlight how the lack of clean energy access and the 
inability to address climate change risks can have a destabilizing 
effect on a country's economy, security, and the well-being of its 
citizens. I will describe USAID's efforts to address these challenges 
and discuss how our work on adaptation to climate change, water 
security, food security, and sustainable landscapes impacts security. 
Much of this work is embodied in USAID's Climate Change and Development 
Strategy, which seeks to help developing countries speed their 
transition to climate resilient, low emission, sustainable economic 
growth. Stability and well-being overseas often directly helps ensure 
U.S. national security.
                             energy access
    Today, about 1.6 billion people, most of them living in the 
developing world, lack access to a reliable source of electricity. The 
economic consequences of this are enormous. The availability and 
reliability of affordable energy--especially electricity--is critical 
to growing businesses, both large and small, creating jobs, developing 
markets, and providing a range of social services such as health care, 
education and public security.
    This was clearly seen when the U.S. Government assessed constraints 
to economic growth in Africa 2 years ago. As a result, the 
administration launched the Power Africa initiative to promote a 
private-sector solution to improved electricity services. This 
initiative has made considerable progress already, with nearly 2,800 
megawatts (MW) of new generation projects financially closed, and 
another 5,000 MW in the planning stages.
    Expanding reliable energy access requires getting regulatory 
structures right while protecting vulnerable populations. Distortionary 
policies like fossil fuel subsidies can reduce incentives for energy 
efficiency, hamper low and no carbon energy production, raise 
dependence on energy imports, and create unsustainable fiscal 
liabilities. One striking example is in Ukraine, where the U.S. 
Government is now working with Ukrainian Government to bring electric 
rates to a level that covers costs, protect the most vulnerable from 
the impact of gas and heating rate increases, strengthen payment 
discipline, improve energy efficiency in the heating sector, and 
increase transparency.
    For many countries, renewable energy, such as solar, wind and 
hydropower, has begun to play an important role in meeting emerging 
energy needs. USAID is supporting these efforts through our development 
programs. Around the world, the cost of renewables is becoming 
competitive with hydrocarbon-based power generation, while also helping 
to mitigate the destabilizing effects of high-priced hydrocarbons. As 
the cost of renewable energy declines, many countries are scaling up 
renewables for a variety of reasons, including cost, domestic energy 
security and addressing climate change. We will work with the 
Department of State and other agencies to ensure relevant U.S. 
renewable energy solutions contribute to these developments.
    With USAID support a number of countries are scaling up renewables. 
For example, India is scaling up wind and solar energy generation. 
USAID's partnership with India in this area is focused on energy sector 
reform, energy access, and clean energy programming, and has helped 
India develop 30,000 MW of wind, solar and small hydro generation 
capacity with a goal of adding another 30,000 MW between 2012 and 2017. 
This will be almost 25 percent of India's total generation capacity in 
2017. Renewables not only help India to increase power generation and 
weather the shock of volatile hydrocarbon prices, but also help reduce 
the country's greenhouse gas emissions.
    South Africa is another example where affordable electricity plays 
a critical role in supporting economic growth and stability. South 
Africa has recently begun to scale up wind and solar generation through 
private investment. Between 2011 and 2013, South Africa's national 
power company, Eskom, signed purchase agreements for almost 3,600 MW of 
renewable energy generation. South Africa is addressing its electricity 
crisis by diversifying its energy mix, and USAID is supporting several 
programs that will help South Africa in this important effort with a 
new program that focuses on renewable energy development.
    In Ethiopia, Power Africa is helping develop Corbetti, a 1,000 MW 
geothermal plant in Ethiopia's Rift Valley. When complete, Corbetti 
will be the largest geothermal project in East Africa and the first 
privately owned energy project in Ethiopia, paving the way for other 
private sector investors looking at Ethiopia for opportunities. 
Corbetti and the development of Ethiopia's rich geothermal resources 
will help the country diversify beyond hydro.
    In the Philippines, USAID has been working successfully on scaling 
up renewable energy and energy sector reform. These two areas are 
closely interrelated as reformed energy systems are more capable of 
providing the funds and people needed to increase modern energy access 
and scale-up clean energy. USAID supported the Philippines by helping 
them to pass a biofuels law that allowed them to utilize coconut oils 
as a mix to their fuel supplies. More recently, USAID helped the 
government to put into place a National Renewable Energy Plan and 
establish feed in tariffs that are designed to be sustainable, which 
will help the government to achieve a significant scaling up of 
renewable energy in the coming decades.
    For the Philippines, the development of renewable energy sources is 
increasingly important given the rising tensions in areas through which 
fuel supplies must flow. The southern island of Mindanao, one of the 
Philippines' fastest growing regions, historically plagued by 
insurgency and instability, is dependent on hydropower generated by a 
limited number of dams. Long-term climate forecasts suggest this region 
will experience decreased rainfall in the future if climate trends 
continue, thus reducing the availability of water to power the dams. 
Risks to hydropower supplies are a crucial energy security issue for 
the region. Diversification of energy supplies is therefore essential 
for prosperity in the region and USAID is working to help increase the 
role of renewables in the island's overall power supply.
    Scaling up renewable energy in countries like the India, 
Philippines, and South Africa serves multiple objectives, supporting 
economic growth, and serving the U.S. interest in stability and 
sustainable growth, and mitigating the risks of climate change.
                             climate change
    Improving a country's resilience to adverse climate change impacts 
is essential to its economic growth, stability, and security. It also 
protects our development assistance investments. Focusing on building 
resilience also saves money: disaster planning efforts that reduce 
storm damages are cheaper than relief efforts and infrastructure 
reconstruction. The World Bank estimates indicate that every dollar 
used for disaster risk reduction has a seven dollar savings in disaster 
recovery costs.
    I would like to discuss some of the destabilizing effects climate 
change can have in terms of creating national disasters, reducing 
agricultural productivity and causing food insecurity, and depleting 
water supplies and how USAID is addressing them, particularly through 
USAID's Climate Change and Development Strategy.
    Floods, droughts, cyclones and extreme temperatures constitute 75 
percent of natural disasters globally and affect more than 200 million 
people annually. These types of disasters are expected to intensify 
with climate change.
    In Bangladesh, more than 20 percent of the country is flooded in a 
normal year, leading to lives lost and the destruction property. 
Shifting monsoon patterns are expected to increase discharge of the 
rivers into Bangladesh, worsening flooding; this will be particularly 
problematic in combination with sea level rise. To improve the 
country's ability to mitigate the impact of flooding, USAID and NASA, 
through a joint effort called SERVIR, are helping Bangladesh adopt a 
new flood forecasting system. Under SERVIR, data gathered is enabling 
Bangladesh to provide an additional 5 days of warning about impending 
floods. Before this program, flood warnings were issued 3 days in 
advance, which does not provide adequate time for farmers and their 
families to prepare. USAID is also working with the U.S. Army Corps of 
Engineers to ensure that storm shelters are built well and 
appropriately to reduce loss of life.
    In the Philippines, USAID worked to restore water services in the 
wake of Typhoon Haiyan and is now supporting local water utilities and 
the national government in undertaking long-term planning that can help 
to ensure reliable water supplies in the context of increasing climate 
stress. We are also working in partnership with local Philippine 
institutions on the sustainability of these projects.
    In many of the world's poorest countries agriculture plays a 
substantial role in the nation's economy and employs a large portion of 
its workforce. Adverse climate impacts such as erratic weather 
patterns, drought, and flooding can reduce agricultural productivity 
and output, severely challenging traditional agricultural livelihoods 
and in extreme cases causing widespread food insecurity and 
contributing to famine, as seen in the large scale humanitarian 
emergencies in the Horn of Africa and Sahel in 2011 and 2012. Improving 
local-level resilience to the impacts of climate change can protect and 
enhance agricultural production for local, regional and global benefit, 
and mitigate the disruptive influence of climate-related shocks.
    USAID has begun working to make our food security investments more 
resilient to the impacts of current weather variability and longer term 
changes in climate. In Ethiopia, USAID is supporting an effort to 
increase household incomes and enhance resilience to climate change in 
the country's southern and eastern pastoralist regions, home to about 
15 million people. The pastoralist population chiefly raises livestock 
in arid lowlands, which are susceptible to frequent, and often severe, 
droughts that put millions of people at increased risk of food 
scarcity. The range of activities supported includes: increasing 
climate change awareness and early warning of droughts, mapping 
rangelands, rehabilitating damaged grazing grounds, building water 
storage, improving animal health and nutrition, and increasing 
pastoralist access to finance. Programs help develop innovative 
approaches that link scientific and local knowledge by tailoring 
information to the needs of both pastoralist communities and government 
stakeholders to improve decision making and reduce risk.
    USAID also supports partners that are developing and testing 
weather-index insurance. Index insurance is a tool that can help 
populations whose livelihoods depend on the weather--such as small 
farmers and pastoralist herders--to manage changing climate risks. In 
Ethiopia, Senegal, and the Dominican Republic, USAID is working with 
local insurance companies to help them build the expertise to design 
and market affordable, weather-based insurance that can reach rural 
households.
    Climate change also impacts water availability, quality and access. 
Where there is weak institutional capacity to constructively adapt to 
changes in water variability or to respond to extreme events like 
droughts, conflict risks are heightened.
    Improving and sustaining access to water in the face of more 
frequent and severe droughts is an important element of USAID's 
approach to building resilience in areas affected by fragility like the 
Sahel, where many depend on rain-fed agriculture and pasture for their 
livelihoods. USAID's programs in the Sahel work to increase access to 
water through repairing and improving water access points, building 
appropriate irrigation infrastructure, and introducing practices to 
improve water conservation and filtration. Our programs help 
communities to better manage their natural resources and reduce the 
potential for conflict over water and other scarce resources. These 
investments are intended to increase the ability of people, 
communities, and countries to better cope with shocks and stresses 
including climate variability and change, and ultimately, reduces the 
need for humanitarian interventions.
    Another aspect of USAID's climate change efforts--promoting 
sustainable landscapes--also addresses drivers of instability and 
insecurity. Deforestation and degradation of forests, coastal wetlands 
and other landscapes, not only increase greenhouse gas emissions, but 
also deplete natural resource assets over the long term and hurt 
economic activities that depend on healthy ecosystems. Deforestation 
can also be a destabilizing force in many forest-dependent communities, 
and illegal deforestation has been associated with corruption or 
criminal activity in a range of countries.
    USAID is working to reduce greenhouse gas emissions by addressing 
the drivers of deforestation and land-use change: unsustainable forest 
clearing for agriculture, illegal logging, poor governance of land and 
forests, and a failure to ensure that local communities benefit 
economically from sustainable forest and land management. For example, 
in Colombia, USAID is working to improve the national government's 
management of biodiversity-rich forests, helping to ensure that 
Colombia's natural resources will not be used for illicit purposes. 
Another example of USAID's work in this area is the Tropical Forest 
Alliance 2020, a public-private partnership with a network of more than 
400 companies. The Tropical Forest Alliance's goal is to reduce 
tropical deforestation associated with key global commodities, such as 
palm oil, soy, beef, and paper and pulp. Also, the Coral Triangle 
Initiative with USAID support is working to conserve imperiled coral 
reef ecosystems.
                           concluding remarks
    We see a clear set of linkages between USAID's efforts to improve 
energy access and address the impacts of climate change and regional 
security, which in turn benefits our national security. Heavy 
dependence on imported energy is often a major economic challenge due 
to fluctuating prices and pressures on foreign exchange reserves. Many 
countries--especially those with limited domestic hydrocarbon 
resources--are finding that scaling up renewables is a viable option, 
particularly as the costs of wind and solar decline. And reducing 
reliance of vulnerable economies to energy supplies from volatile 
regions has multiple development, diplomatic and security benefits for 
the United States.
    USAID's work in our climate programs is about smarter development--
investments that avoid future costs and crises, use modern technology 
and innovations to leapfrog development stages, and leverage local 
actors and the private sector to help scale our investments and ensure 
sustainability. Preventing or mitigating tomorrow's disasters--whether 
famine, drought, water shortages, or damage from severe weather 
events--enhances regional security, reduces hits to economic growth, 
and benefits the United States.

    Senator Markey. Thank you, Mr. Postel.
    The chair will recognize himself. Let me ask you this, Dr. 
Chiu. Does the Defense Department take a wait and see attitude 
on climate change and the risks that it poses, or does it 
integrate climate change into its future planning in terms of 
our ability to be able to properly anticipate the challenges to 
our country?
    Dr. Chiu. I believe the answer is the latter. We are 
integrating it into our future planning. Let me give you an 
example of how we are thinking about that. We have a lot of 
experience doing humanitarian assistance and disaster relief 
operations. Commander PACCOM, for example, speaks a lot about 
the demands that he has for providing that kind of assistance 
to our allies and partners in the Asia-Pacific region. 
Currently our ability to plan for these has been--or in the 
past our ability to plan for these has largely been an 
extrapolation of past efforts, and we have literally looked 
backward, for example, at the last 10 years and kind of 
projected the same incidents and severity going forward to plan 
for our activities.
    We have increasingly found that that is not an appropriate 
methodology for looking at future challenges. We are now taking 
into account the variability provided to us by the data that 
NOAA, the Navy's Oceanographer's Office and other scientific 
sources provide us for then looking at the potential for 
increased incidents of extreme weather and what that will do 
for the demand signal. So that is one example of how we are 
beginning to integrate into our future planning.
    Senator Markey. Thank you.
    Mr. Postel, a lot of people say that energy is just another 
commodity and we should just treat it that way; it is no 
different than anything else; it is like a watch or a computer 
chip. But when I look at USAID I see a lot of focus on food, on 
agriculture, on energy. Can you talk a little bit about how 
important it is for a country to have their own energy capacity 
so that they are not dependent upon other countries?
    Mr. Postel. Thank you for your question, Senator, and thank 
you for your support of a number of USAID's activities.
    The thing is about energy is that it is used across all 
sectors. So even if we are talking about a health clinic in 
Haiti where the lights go out because there is insufficient 
energy supply, putting the doctors in a real difficult 
situation in terms of the patients who may be on the operating 
table, to agriculture, where you need energy in a variety of 
aspects of that, across all sectors of economies and human 
endeavor, you need energy. How do we study in classrooms if we 
do not have energy in a lot of aspects of that?
    So we feel that the energy requirement is needed as it 
affects all aspects of development. Then you start to get into 
the issue of energy diversification and not necessarily relying 
on just one source, as one of the witnesses talked about, and 
lastly in terms of affordability, that when countries are able 
to diversify away from strictly imported sources of energy we 
see a lot of advantages of that economically for the country.
    Senator Markey. Thank you.
    Mr. Hochstein, do you agree with that? Do you agree that 
energy plays such a significant role that it has to be treated 
differently than any other commodity in the world?
    Mr. Hochstein. I think I would. Energy is--I think there 
are a lot of commodities--there are a number of commodities 
that probably would fit into categories where we would want to 
take particular care, but energy clearly has an impact across 
the broader economy, as Eric Postel just said. Without 
reliable, affordable access to electricity and energy 
resources, it is difficult to see economies grow and develop 
and lower businesses develop into mid-sized businesses and so 
on, without that kind of access to affordable and reliable 
energy.
    Senator Markey. The bottom line is that we fight trade wars 
over automobiles or over computer chips. We fight real wars 
over food and energy. That is just the bottom line and what 
differentiates those commodities. We just have to keep that 
always in the front of our mind.
    Mr. Hochstein, do you agree that there is a real problem 
that is taking place with ISIS in terms of the supply of oil to 
the global market potentially in Iraq and across that region?
    Mr. Hochstein. Let me limit my comments to what we can say 
in this forum, sir. Clearly, we are very troubled by everything 
about ISIS, including the fact that they have been able to 
secure energy resources and energy fields, refineries, on both 
sides of the Syria-Iraq border. I think it is very troubling.
    Senator Markey. Well, there have been news reports that 
ISIS is raising about $1 million per day selling Iraqi and 
Syrian oil on the black market. Can you confirm those figures?
    Mr. Hochstein. I have seen those stories and probably in 
this hearing, in this session, I probably cannot go into 
greater detail. But I think there is no doubt that they are in 
control of some of the energy resources in Iraq.
    Senator Markey. Iraqi oil production recently rose to 3 
million barrels per day, a level higher actually than the pre-
United States invasion levels, making it the eighth-largest oil 
producer in the world. Most of the oil is exported. For the 
moment, ISIS has not pushed into southern Iraq, where the 
majority of the country's oil is produced. If they did, even if 
they threatened to, there could be a major impact in production 
from southern Iraq, some have estimated potentially a loss of 
upward of 1.5 million barrels per day. That could raise prices 
dramatically all across the planet. Can you talk a little bit 
about that?
    Mr. Hochstein. Yes. As you said, Mr. Chairman, Iraq's oil 
production is largely in two places. One is in the south in the 
Basra region, which is the southern tip of Iraq on the Persian 
or the Arabian Gulf. Its production has risen consistently over 
the last few years, to some degree against the odds, and its 
exports stand today at about 2.6, 2.7 million barrels a day. So 
they are a tremendous contributor to global oil supplies and to 
stability in the oil markets.
    Especially, the substantial rise in oil supplies out of 
Iraq came at the same time that we were restricting a lot of 
oil supplies out of Iran. So it very much supplied that kind of 
balance.
    The other area where it is an emerging area for oil 
production is in the north, in the Kurdistan region, the KRG. 
Both of those areas are still under the control of the Iraqi 
Government and the government of the KRG.
    Senator Markey. Thank you.
    Senator Barrasso.
    Senator Barrasso. Thank you, Mr. Chairman.
    Secretary Chiu, today's hearing focuses on U.S. security 
implications of energy and climate policy. And I agree, there 
are serious implications for our national security, and you see 
them by the climate policies being implemented in places like 
Europe. Global international crime syndicates are manipulating 
these policies for profit. These groups use funds from 
manipulating these green policies to aid and support terrorist 
organizations and drug cartels that wish to do us and our 
allies harm.
    Europol, the European Union's law enforcement agency that 
handles criminal intelligence, issued a threat assessment in 
June of 2013. Now, I have asked that this threat assessment be 
entered into the record, Mr. Chairman.
    Senator Markey. Without objection.

[Editor's note.--The threat assessment article mentioned above 
was too voluminous to include in the printed hearing. It will 
be retained in the permanent record of the committee.]

    Senator Barrasso. The threat assessment states that, 
``There are increasing reports of Italian organized crime 
groups engaging in a so-called alternative or green energy 
market.'' The threat assessment highlights a mafia in Italy 
which it calls one of the most threatening organized crime 
groups at the global level. They state in the report--they cite 
a study that says the crime group earns 44 billion euros a year 
in income from its illicit activities. The group has forged 
close alliances with Mexican and Colombian drug cartels, has 
gained a foothold in the United States and Canada, recently 
been implicated in money laundering, a well-known terrorist 
organization. The Europol threat assessment clearly states this 
group is, ``involved in environmental crime.''
    I have similar assessments from Canada, from the Canadian 
Government, on money-laundering and terrorist activity 
financing watch; also from Interpol; and I would like those 
also entered into the record, Mr. Chairman.
    Senator Markey. Without objection.

[Editor's note.--The Canadian Government assessment mentioned 
above was too voluminous to include in the printed hearing. It 
will be retained in the permanent record of the committee.]

    Senator Barrasso. So I ask you, Mr. Secretary: Are there 
serious unintended consequences to our national security if we 
go down this path, as Europe has done, in adopting such 
policies that can be so easily exploited to fund nonstate 
criminal or terrorist elements; folks that wish to do us harm?
    Dr. Chiu. Senator, my interpretation of the facts that you 
have presented is that transnational crime, as we have seen in 
many different sectors, is attracted to where the money is, and 
we see that across many different types of sectors. 
Transnational crime as an element of concern for our national 
security, you are absolutely correct, is something that we have 
to pay attention to. But I believe it is the economic 
incentives for this, rather than climate change or the effects 
of climate change, which the Department is focused on, that are 
the causes of this.
    Senator Barrasso. So the solution offered of a similar 
scheme like that can run itself into significant problems from 
the standpoint of organized crime, with the solution that those 
countries have come up with.
    Next, in October 2003 Peter Schwartz and Doug Randall 
released a report, ``An Abrupt Climate Change Scenario and Its 
Implications for the United States National Security.'' This is 
a number of years ago, which was commissioned by Andrew 
Marshall, Director of the United States Department of Defense 
Office of Net Assessment. I ask, Mr. Chairman, this be put in 
the record as well.
    Senator Markey. Without objection.

[Editor's note.--The report mentioned above was too voluminous 
to include in the printed hearing. It will be retained in the 
permanent record of the committee.]

    Senator Barrasso. It states that ``Even the most 
sophisticated models cannot predict the details of how the 
climate change will unfold, which regions will be impacted in 
which ways, and how governments and societies might respond.''
    So I say, why should we then spend billions of taxpayer 
dollars, defense dollars specifically, on climate change 
predictions about future conflicts due to drought and famine 
that the Department's own studies say that we cannot predict? 
Is this not just wasteful spending based on faulty predictions, 
given all of our other defense needs to fight terrorism abroad?
    Dr. Chiu. In totality, that particular report, which was 
done to look at a very long-term timeframe, decades-out 
timeframe, says it is difficult to predict, but we must 
consider the range of possibilities, which is exactly what we 
do in the Department of Defense. 
I am not aware of any billions of dollars of U.S. Department of 
Defense money that are being spent on predictions. In fact, 
what I am talking about here is mostly taking into 
consideration, like many other trends that we take into 
consideration, to ensure that we are prepared should these 
events occur.
    In some of these cases, we are recommending, frankly, 
monitoring to additionally consider those trends. In some of 
these cases, there will be specific activities, particularly in 
the near term the installation pieces that I have already 
mentioned that we do have to manage and adapt to today.
    Senator Barrasso. But it is interesting, because the DOD-
commissioned report, as you say, it is very difficult to make 
these clear predictions, and what do you protect and prevent 
against. It says in 2007 a particular severe storm could cause 
the ocean to break through levies in the Netherlands, making a 
few key coastal cities such as The Hague unlivable. The report 
also predicts that between 2010-2020 Europe, ``struggles to 
stem emigration out of Scandinavian and Northern European 
nations in search of warmth.''
    So it would be interesting--there is a prediction that by 
2018 Russia will join the European Union. So if we had spent 
our defense dollars based on these types of predictions--and 
you talked about using defense dollars to protect ourselves as 
we look at all of these potential predictions--we would have 
wasted billions of scarce defense dollars.
    My point is, are we not just betting our scarce national 
security dollars on a risky bet by making predictions about 
weather, climate, years into the future a major national 
security priority?
    Dr. Chiu. As I have said, Senator, we have not done that. 
We have not either made those predictions or invested in those 
scenarios. Moreover, sir, as you said yourself, the report 
points out that one cannot predict those events. I believe they 
were trying to represent kind of the range of possible severe 
events, which is what they did, but that is all that they did. 
It painted a range of possibilities that we needed to take into 
consideration. I think we have effectively, and I think you 
have seen our investments with regard to those.
    Senator Barrasso. In March of this year, Jeff Kueter, 
President of the George Marshall Institute, released a study 
called ``The Climate of Insecurity.'' Mr. Chairman, I ask that 
this be entered into the record.
    Senator Markey. Without objection.

[Editor's note.--The study mentioned above can be found in the 
``Material Submitted for the Record'' section of this hearing.]

    Senator Barrasso. Thank you, Mr. Chairman.
    The report says: ``Efforts to link climate change to the 
deterioration of U.S. national security rely on improbable 
scenarios, imprecise and speculative methods, and scant 
empirical support.'' The report goes on to say--and this is 
just March of this year. It says: ``Accepting the connection 
can lead to the dangerous expansion of U.S. security concerns, 
inappropriately applied resources, and diversion of attention 
from more effective responses to known environmental 
problems.''
    It also provides information to show that factors other 
than the environment were much more significant in explaining 
the onset of conflict. A recent survey cited in the report 
found that primary causes of interstate conflict and civil war 
are political, not environmental.
    So do you disagree that the primary cause of conflict and 
war is political, not environmental?
    Dr. Chiu. No, sir, I do not disagree with that. But I do 
believe that a lot of the politics can be driven by the effects 
of climate change, including, as we have mentioned today, 
things like water shortages, food shortages, extreme weather, 
mass migration as a result of these.
    I would point out, I am not familiar with that very 
specific report, but the work that I am describing here is not 
so much thinking of climate change as in, and of itself, 
deteriorating U.S. national security, but really that the 
effects of climate change need to be taken into consideration 
as we seek to protect U.S. national security interests, along 
with the many other trends and drivers of these types of 
phenomena that you have suggested.
    Senator Barrasso. Because it is interesting, when you take 
a look at what the Secretary of State has talked about as kind 
of the greatest, the most--``the world's most fearsome weapon 
of mass destruction'' is what Secretary of State Kerry has 
called climate change. But you are agreeing that the primary 
cause of conflict and war is political, not environmental.
    Thank you, Mr. Chairman.
    Senator Markey. The Senator from Connecticut.
    Senator Murphy. Thank you very much, Mr. Chairman.
    Thank you to the witnesses for being here today. Just a 
quick comment on the beginning of the line of questioning from 
Senator Barrasso. I think we all appreciate the caution about 
the ability of criminals to infiltrate renewable energy 
markets. As a representative of a State that has lost hundreds 
of millions of dollars in bad investments with Enron, one 
particular conventional energy company, we know that fraud is 
not limited to the renewable energy markets, and in fact, 
criminals have found their way into virtually every industry in 
which you could make some money and across the globe. That is 
an invitation to go after the criminals and the syndicates 
rather than to divest our interest and money from those 
particular industries.
    Let me start with you, Mr. Hochstein, and talk a little bit 
about Ukraine and Russia again. We have had a heck of a time 
getting an energy efficiency bill, a fairly modest piece of 
legislation, through the United States Senate. It strikes me as 
an imperative for this country to get serious about using less 
energy, which is a win-win. We make ourselves less dependent on 
foreign sources and we save the government and private industry 
some money along the way.
    But this is a big part of the story about why Ukraine has 
gotten in as much trouble as they have gotten into. Their 
dependency on Russia is due to the fact that they do not have 
domestic resources or alternative sources, but also because 
they waste an enormous amount of energy. If you sort of talk 
about what really is compromising Ukrainian national 
sovereignty today, you would put energy efficiency at the top 
of the list--these old Soviet distribution systems by which one 
giant boiler, set of boilers, is responsible for heating and 
transmitting heat to an entire neighborhood, in which the 
majority of that heat is lost along the way.
    When you talk about national security for Ukraine right 
now, well, they want to look for shale oil and they want to be 
able to bring in new energy resources. When you talk to the 
Ukrainian leadership themselves, at the top of their list is 
energy efficiency, is that not right?
    Mr. Hochstein. Yes, sir. I think, Senator, you articulated 
it quite right. I think that--there is a number of issues that 
we need to work with Ukraine and that we would like to help 
them with. But you are correct that before you can get to the 
point of looking at some of the financial issues there is two 
base points that have to be addressed. The first is protecting 
this industry and this sector from corruption, as has been the 
case for the last several decades, which has contributed to 
where they are today.
    The inefficiency of the system, as you have just described, 
is right on the mark. The easiest dollar to save is the one 
that you do not spend. If you can get the systems to be far 
more efficient and to address the subsidies that, in a gradual 
way, that encourage inefficiency in the system, and if we can 
address all these fundamental issues in the sector, plus have 
the advantage of increasing production from unconventional 
sources, conventional sources, and looking at some of the other 
work, that would go a long way to solving their dependence on 
the single source on Russia.
    To that end, we are working. Already we have identified 
areas that we will be giving some technical expertise. We are 
working as a whole-of-government approach on this. We work 
closely with our colleagues from USAID in some of the efforts 
on efficiency, on introduction of other sources of energy, like 
renewables, into the system. I am looking, working with the 
Department of Energy on the areas of technical advice to 
increase the amount of conventional gas that they can produce 
in the short term, short to medium term, and in the longer term 
looking at what we can do on the unconventional side.
    Senator Murphy. As we look to the ways in which countries 
would comply with a new global agreement on carbon emissions, 
efficiency is the quickest and easiest way to get there. So if 
we are looking at ways to try to provide some incentives for 
countries that are far behind the curve in terms of energy 
efficiency, which compromises their security, as is the case 
with Ukraine, a global carbon reduction agreement is going to 
be one of the fastest ways to try to prompt countries to get 
serious about energy efficiency.
    Mr. Hochstein. I would presume that is correct. I would 
note that we have a special envoy on climate change and he 
works on a lot of those areas and I do not. But the baseline 
where we work together and we all come together is on the areas 
of efficiency. It clearly is something that we need to 
encourage more of because it will get us towards those goals 
that you described just now.
    Senator Murphy. I pose this question to Mr. Postel, but 
either of the other panel members can comment on this. Let us 
try to look ahead to what some of the next global scarcity 
crises are. You talked a little bit in your presentation about 
water scarcity. I think about India and Bangladesh, where you 
do a lot of work at the top of the list. These are countries, 
India in particular, which rely on the Tibetan Plateau in order 
to receive the majority of the natural water resources that 
they use. Reports are that in the northern portion of India the 
glaciers have retreated over the last three to five decades by 
25 to 35 percent, that they may be gone by 2050.
    This is a crisis waiting to happen, a country with 
simmering instability to begin with, a bursting population. I 
am talking about India is on the verge of potentially losing 
the major source of natural water, the Tibetan Plateau 
glaciers.
    I know you are doing a lot of work on this issue, USAID is, 
something I am sure the Department of State worries about. Talk 
about the potential for water instability in a country like 
India should we not reverse the damage done to the biggest 
source of their water?
    Mr. Postel. Thank you for your question, Senator, and thank 
you for your support of USAID's development work. As you just 
described, in that situation and some other situations if you 
have these big changes that affect water, which could occur for 
any number of reasons, but if you lose those glaciers, you 
could have a whole series of things initially. As all that snow 
starts and ice starts converting into water, you could actually 
have an abundance of water, and there are issues that have 
happened. Then afterward, of course, once it is gone it is 
gone, and then we have to look at things like water 
conservation and what are the other possibilities, because you 
could have many, many people without water.
    So I do not want to speculate about--I am not familiar with 
specific modeling, but we see this in several different places 
around the world where there are these possibilities and we are 
trying to think through how can we respond in those 
circumstances, how can we be more efficient with water and so 
forth.
    Senator Murphy. One of the ways, as you know because again 
USAID has done an enormous amount of work on this--and if you 
allow me, Mr. Chairman, I will just make this one final 
comment--is around the issue of clean cook stoves. There are 3 
billion people worldwide who do their cooking on rudimentary 
stoves using wood or some other form of biomass. That is a 
particular issue in India and much of that black carbon, which 
is a super pollutant, is essentially landing in the region that 
is heating up those glaciers.
    Senator Collins and I have a piece of legislation that we 
have just introduced which would help to supplement the work 
that USAID and State and others have done on this initiative. 
But I applaud all of your work. This is a crisis happening and 
waiting to happen at an even greater level and this is a quick 
way to try to address it.
    Thank you, Mr. Chairman.
    Senator Markey. Thank you. I thank the Senators. I thank 
the panel. This is actually a panel we could not have had 5 
years ago. The State Department did not have an Energy Bureau 
and the Department of Defense and USAID did not nearly as fully 
integrate climate into any of their strategizing 5 years ago. 
But the world has changed and we are just trying to be 
realistic about what is happening out there.
    Again, I think that Blackhawk Down in Somalia, with 11 and 
12 three- and four-star admirals and generals saying that was 
the cause, is enough for us to pay close attention to the 
threats that could emerge in the future. I congratulate 
President Obama for his focus on this, and we thank this panel 
for their great work.
    I tell you what. I will ask each of you to give us the 30 
seconds you want us to remember from your testimony, and that 
would be I think very helpful to us. So, Mr. Hochstein.
    Mr. Hochstein. I think, just as you said, that the integral 
interplay of geopolitics and energy security are going to 
continue to be interwoven and will have effects one on the 
other. We need to have a clearer and better and deeper 
understanding of the role that energy is playing in 
decisionmaking around the world and how that affects our own 
national security and global national security.
    Senator Markey. Mr. Postel.
    Mr. Postel. For USAID, climate variability has the 
potential to affect our entire portfolio of work on 
development, affecting billions of people. So we are working 
hard to try to factor this in and make sure that we are good 
stewards of taxpayer money with all our investments across the 
board.
    Senator Markey. Dr. Chiu.
    Dr. Chiu. For DOD, the emphasis I would highlight is on 
planning for the effects of climate change, not to make 
predictions, but to be prepared so that we are not caught off 
guard.
    Senator Markey. Thank you. Thank you all for your service 
to our country, and we will take a minute here and just change 
the name plates and ask for the second panel to move up to the 
table.

[Pause.]

    Senator Markey. We welcome the second panel and we have 
just as distinguished a group on the second panel as was on the 
first, and the subject deserves it. We are going to begin by 
recognizing Rear Admiral David Titley, Retired, who is a Board 
Member of CNA Military Advisory Board. We welcome you, Admiral. 
Whenever you are ready, please begin.

 STATEMENT OF RADM DAVID W. TITLEY, USN [RETIRED], MEMBER, CNA 
MILITARY ADVISORY BOARD, AND DIRECTOR, CENTER FOR SOLUTIONS TO 
 WEATHER AND CLIMATE RISK, THE PENNSYLVANIA STATE UNIVERSITY, 
                         ARLINGTON, VA

    Admiral Titley. Thank you very much, Mr. Chairman. Chairman 
Markey, Ranking Member Barrasso, and distinguished members of 
the subcommittee, thanks for the opportunity to discuss the 
implications of climate change on geopolitical security. It is 
a privilege to come before you today and discuss this very 
important topic.
    Before I begin with my oral statement, I would request, 
sir, that we can submit the MAB report for the record.
    Senator Markey. Without objection.

[Editor's note.--The MAB report mentioned above was too 
voluminous to include in the printed hearing. It will be 
retained in the permanent record of the committee.]

    Admiral Titley. I am David Titley. I currently serve as a 
member of CNA's Military Advisory Board, or MAB for short. In 
this capacity, I am here today not only representing my views 
on security implications of climate change, but on the 
collective wisdom of 16 admirals and generals who also serve on 
CNA's MAB. I am also the director for the Center for Solutions 
to Weather and Climate Risk at the Pennsylvania State 
University.
    I had the honor of serving in the United States Navy for 32 
years, where my capstone assignment was Oceanographer and 
Navigator of the Navy, and under ADM Gary Roughead's direction, 
I assumed leadership of the U.S. Navy's Task Force on Climate 
Change.
    Sir, our collective bottom-line judgment is that climate 
change is an accelerating risk to our Nation's future. Although 
we have seen some movement in climate mitigation and 
adaptation, the MAB felt compelled to issue our latest report 
because of the lack of sufficient comprehensive action by both 
the United States and the international community. 
Strengthening resilience to climate impacts is critical, but to 
ultimately reduce the long-term risk, we must take action to 
stabilize the climate.
    Climate does not change in a vacuum. It impacts and in turn 
is affected by our food, energy, and most of all water demands. 
The world has added over half a billion people since our first 
climate report in 2007 and increasingly people are moving to 
coastal urban areas, where the impacts of a changing climate 
and sea level rise will be the greatest. We will deal with all 
of this in a very fiscally constrained environment. Failure to 
think about how climate change might impact our globally 
interconnected systems and all elements of U.S. power and 
security is, frankly, a failure of imagination.
    If there is a canary in the climate coal mine, if I can mix 
my metaphors, it is the Arctic. Arguably, there has been no 
region on Earth where the climate has changed faster in recent 
decades than the Arctic. Those changes are making the region 
more accessible to a wide variety of human activities, 
including shipping, resource extraction, fishing, and tourism.
    While the MAB is encouraged to see U.S. policymakers 
planning for the Arctic and for climate change in general--the 
2014 Department of Defense Quadrennial Defense Review, U.S. 
Navy's recently updated Arctic Road Map, and the Senate's 
Fiscal Year 2015 Defense Appropriations Act report are all good 
examples of that--the MAB does believe that the United States 
and the international community could accelerate continued 
development of Arctic capacity and capability to match the 
speed of observed changes in that critical region.
    Climate change will affect our military in very real ways, 
by creating new mission sets, just as I discussed with the 
Arctic, by placing our bases under stress from sea level rise, 
droughts, floods, wildfires, and heat stress, and by stretching 
overall capacity by adding additional domestic disaster relief 
missions to our guard forces at a time when we are downsizing 
our ground forces.
    Mr. Chairman, we know you understand these changes and 
their risks. As you already mentioned in your opening 
statement, 7 years ago when you were a Member of the U.S. 
House, General Sullivan, then chair of the MAB, testified 
before your committee about the impact of climate and drought 
in Somalia and the cascading effect of poor governance, famine, 
forced migration, and the consequences that we only, frankly, 
understood in hindsight.
    I wish I could tell you today that such weather and 
climate-related impacts were an aberration. Unfortunately, my 
professional assessment, along with that of my MAB colleagues, 
is that these increasingly serious impacts to our security will 
only continue to increase in both frequency and consequence 
barring meaningful action to both adapt to the changes in 
climate and ultimately to stabilize a system on which mankind 
has literally built civilization.
    ADM Skip Bowman, fellow MAB member and former Director of 
Naval Reactors, shared with us his key tenets. They are: face 
the facts; respect even small amounts of risk, especially when 
that risk has large consequence; seek total responsibility; and 
require continually rising performance. I believe Admiral 
Bowman's tenets are an excellent framework to think through not 
only the planning, but the required actions needed to adapt to 
and stabilize the climate.
    In closing, Senator, the potential security ramifications 
of global climate change should serve as catalysts for 
cooperation and change. Instead, climate change impacts are 
already accelerating instability in vulnerable areas of the 
world and are serving as catalysts for conflict. We believe, 
though, that continued leadership and tangible pragmatic 
actions of the United States are critical to minimizing the 
worst outcomes and maximizing our opportunities for a better 
world.
    I will be happy to take your questions, sir.
    [The prepared statement of Admiral Titley follows:]

           Prepared Statement by RADM (ret.) David W. Titley

    Chairman Markey, Ranking Member Barrasso, and distinguished members 
of the committee, thank you for the opportunity to discuss the 
implications of climate change on geopolitical security. It is a 
privilege to come before you today and discuss this very important 
topic.
                              introduction
    I am David Titley and I currently serve as the Director of the 
Center for Solutions to Weather and Climate Risk at the Pennsylvania 
State University. I had the honor of serving in the United States Navy 
for 32 years where my capstone assignment was Oceanographer and 
Navigator of the Navy, Director of U.S. Navy Task Force Climate Change, 
and Assistant Deputy Chief of Naval Operations for Information 
Dominance. Subsequent to my time in the Navy, I served as Chief 
Operating Officer at the National Oceanic and Atmospheric 
Administration (NOAA).
    My Center at Penn State currently receives no Federal funding and 
my views do not necessarily represent those of the Pennsylvania State 
University.
    You invited me here today in my position as a member of CNA's 
Military Advisory Board--MAB for short. In this capacity I am here 
today not only representing my views on the security implications of 
climate change, but the collective wisdom of the 16 Admirals and 
Generals who also serve on CNA's MAB.
I. Global Trends: Accelerating Risks
    Since we published our first report in 2007 on the national 
security implications of climate change, we have witnessed nearly a 
decade of scientific discoveries in environmental science, burgeoning 
scholarly literature on complex global interdependence associated with 
climate change, and a series of reactions, or in many cases failure to 
react, to the impacts of climate change. In the 7 years that have 
passed since our initial assessment we have witnessed more frequent 
and/or intense weather events, including heat waves, sustained heavy 
downpours, floods in some regions, and droughts in others areas. Nine 
of the ten costliest storms to hit the United States have occurred in 
the past 10 years, including Hurricane Katrina and Superstorm Sandy. 
Speaking for the MAB, we assess that the nature and pace of observed 
climate changes--and an emerging scientific consensus on their 
projected consequences--pose severe risks for our national security. 
Still, there those who remain skeptical about the observed changes, the 
causes, and debate on the magnitude of the risk.
    When I was on Active Duty, both serving as the Senior Military 
Assistant to the Direcot of Net Assessment and particularly as a Flag 
Officer was how to think about risk and uncertainty. Managing risk is 
seldom about dealing with absolute certainties but, rather, involves 
careful analysis of the probability of an event and the consequences 
should the event occur. When it comes to our national security, even 
very low probability events with dire consequences must be considered 
and mitigation/adaptation schemes developed and employed. Rather than 
assessing a range of estimates as proof of disagreement that can be 
used to justify inaction, military leaders view such evidence through 
the lens of varying degrees of risk the estimates could represent. 
Military leaders evaluate the probability and possible consequences of 
events in determining overall risk. Today, the risks posed by predicted 
climate change, in the MAB's judgment, represent even graver potential 
than they did 7 years ago and require action today to reduce risk 
tomorrow.
            A. Four important global trends
    There are four import global trends, worthy of note, which will 
provide additional fuel to the accelerating risks of climate change. 
First is global population growth. Half a billion people have been 
added since the MAB completed its first report in 2007 and another half 
billion will be added by 2025. Most of this growth is in Africa and 
Asia, two of the areas likely to be most impacted by climate change. 
The second trend is urbanization. Nearly half of the world now lives in 
urban areas with 16 out of 20 of the largest urban areas being near 
coastlines. The result is more of the world's population is at risk 
from extreme weather events and sea level rise. The next trend is a 
global increase in the middle class with an accompanying growth in 
demand for food, water, and energy. The National Intelligence Community 
predicts that by 2030 demand for food would increase by 35 percent, 
fresh water by 40 percent, and energy 50 percent. Even without the 
climate changing, it will be a challenge to meet these growth targets. 
Climate change will further stress the world's ability to produce food 
and drinkable water at levels necessary to meet demand. A 2012 National 
Intelligence Council assessment found that water challenges will likely 
increase the risk of instability and state failure, exacerbate regional 
tensions, and divert attention from working with the United States and 
other key allies on important policy objectives. The final trend notes 
that the world is becoming more politically complex and economically 
and financially interdependent. As such, we believe it is no longer 
adequate to think of the projected climate impacts to any one region of 
the world in isolation. Climate change impacts, combined with 
globalization, transcend international borders and geographic areas of 
responsibility.
            B. Accelerating risks around the world affect U.S. National 
                    Security
    The world around us is changing. In recent years we have observed 
changing weather patterns manifest by prolonged drought in some areas 
and heavier precipitation in others. In the last few years we have seen 
unprecedented wildfires threaten homes, habitats, and food supplies, 
not only across the United States, but also across Australia, Europe, 
Central Russia, and China. Low-lying island nations are preparing for 
complete evacuation to escape rising sea levels. Globally, we have seen 
recent prolonged drought act as a factor driving both spikes in food 
prices and mass displacement of populations, each contributing to 
instability and eventual conflict. For example in Syria, 5 years of 
drought decimated farms and forced millions to migrate to urban areas. 
In overpopulated cities, these climate refugees found little in the way 
of jobs and were quickly disenfranchised with the government. The 
ongoing strife in Syria has been exacerbated by drought and rural to 
urban migration. In this way climate change has exacerbated a region 
already torn by political and ethnic tensions, serving as a catalyst 
for conflict. Over the coming decades we are concerned about the 
projected impacts of climate change on those areas already stressed by 
water and food shortage and poor governance--these span the globe, but 
present the greatest short-term threat. In the longer term it is those 
areas that will be threatened by rising sea level that are most at 
risk. There will be only so much we can do to keep the sea out, and in 
some areas the sea will not flow over the walls we build, it will flow 
under or around and make the land and aquifers not useable. We are 
concerned about low lying islands in the Pacific and great deltas 
including the Mekong, the delta of Bangladesh, the Nile delta in Egypt, 
the Mississippi delta and whole regions like the Everglades. Seawater 
inundation will drastically cut food production in many of these areas 
and cause millions to lose their ability to live on these retreating 
areas. Migration will become a larger form of adaptation. We will need 
to learn how to accept large transnational migration of people 
peacefully.
II. Accelerating Climate Risks to the U.S. Homeland
            A. Arctic is rapidly changing--U.S. needs to prepare
    While all of the areas of increased population, stresses on food 
and water resource are of growing concern, one of the areas about which 
we have the greatest immediate concern is the Arctic. Over the past few 
years, we have seen an almost exponential rise in the activity in the 
Arctic; more shipping, more resource extraction and more posturing for 
control over the resources. The Arctic is an example of where climate 
change should serve as a catalyst for international cooperation. The 
world is not yet prepared to respond to an accident or disaster that 
could occur with increasing shipping and energy exploration in this 
fragile region with limited infrastructure and extreme operating 
conditions. Some great work has been done across the U.S. Government in 
putting together plans for increased future operation in the Arctic, 
with the Navy's 2014 Arctic Roadmap as one example. The challenge is 
that the increase is happening now. Seventy-three ships sailed through 
the Northwest Passage in 2013, up from 4 in 2007; meanwhile the 
Russians planted a flag on the sea bottom near the North Pole. 
Preparations for energy exploration are well underway. We assess that 
today we do not have the communications equipment, navigation aids, and 
sufficient ice hardened ships to respond to natural or manmade 
disasters in that fragile area or to protect our vital interests. In 
other words, we are not prepared in the short term for the rate of 
increase and we must invest today in increasing our capability and 
capacity.
            B. Growing awareness of climate risks and planning in the 
                    U.S.
    On the positive side, we have seen increased awareness of climate 
risks in communities around the U.S., and constructive planning 
underway in various regions, regardless of whether the state or region 
is ``red'' or ``blue.'' Two examples are worth noting.
    The first example is Hampton Roads, Virginia, where the military 
and the local community are jointly addressing sea level rise. Rising 
sea levels, natural subsidence, and storms pose risks to the many 
military facilities, related commercial shipyards, and community in 
this critically important region. The area has hundreds of miles of 
waterfront from three major rivers that flow into the Chesapeake Bay. 
The DOD realizes that sea level rise will affect both the Hampton Roads 
installations and the surrounding civilian community. DOD, working with 
other Federal, State, and local agencies, as well as the Climate Change 
and Sea Level Rise Institute at Old Dominion University has launched an 
aggressive effort to develop plans and measures to sustain the vital 
missions of this region and protect the surrounding communities. Our 
report specifically highlights the initiatives of the Hampton Road area 
as a positive case study.
    Second, and very recently, the Pensacola Florida region is 
considering how to build and rebuild in a future climate that is very 
different than what we experience today. Spurred on by the historic 
floods this past April as well as the projections in the National 
Climate Assessment, many scientists, citizens and government leaders in 
the Pensacola area understand that the time to act is now, and that 
prudent planning and preparation will save lives, money, and economic 
opportunities in the long run.
III. Increasing Impacts on Military Readiness
    Along with planning for increased Arctic operations, the MAB was 
pleased to see that the changing climate is reflected throughout the 
2014 Defense Department Quadrennial Defense Review (QDR). The MAB holds 
that projected climate change will have three major impacts on the 
military: more demand; challenges to readiness; and new and harsher 
operating environments.
    The MAB expects to see an increased demand for forces across the 
full spectrum of operations. Domestically, response to extreme weather 
events and wildfires in the U.S. will increase demand for National 
Guard, and Reserves. The frequency, severity, and probability that 
these events may happen simultaneously will also likely increase demand 
for Active Duty Forces to provide defense support for civilian 
authority (DSCA). This causes us concern because, in a leaner military, 
many of our capabilities reside in the Guard and Reserve and if they 
are being used domestically they are less available to respond to 
worldwide crisis. We saw this impact following tropical storm Sandy.
    Globally there will be increased demand for humanitarian response 
and disaster relief in response to extreme weather. Witness more than 
13,000 military troops that responded to Typhoon Haiyan in the 
Philippines late last year. As importantly, climate change will be a 
catalyst for conflict in fragile areas and U.S. military involvement 
could be an option in response to the conflicts.
    In addition to more demand, which in itself will stress readiness, 
our bases will be increasingly at risk from the effects of climate 
change. Our bases are where we generate readiness. It is where we 
train, garrison, repair, maintain and prepare to deploy. Our bases are 
vulnerable to sea level rise, extreme weather including drought, which 
restricts training because of the threat of wildfire, and in the future 
increased precipitation in the form of rain and snow may limit 
training. It is not just the bases, but also the surrounding 
communities, which house and support the military. If our sailors, 
soldiers airmen and marines can't get to the base because the road is 
flooded then we can't generate readiness.
    Finally, climate change will cause the military to be deployed to 
harsher environments. Higher temperatures will stress equipment and 
people, while at the same time the opening of the Arctic present a 
whole new set of challenges where the military will be expected to 
respond to everything from search and rescue, to disasters (weather and 
man-made) to resolution of conflict and protection of vital interests.
IV. National Power Affected by Climate Risks
    The final area I want to cover is how climate change will impact 
the elements of national power, here at home.
    National security is more than just having a strong or capable 
military. American's security is determined by multiple elements of 
national power: diplomacy, information, military and economic, at a 
minimum. When deployed strategically, they can constitute ``smart 
power.'' On the vulnerability side, National Power can also be assessed 
by degradations to a nation's political, military, economic, social, 
infrastructure, and information systems. The MAB has addressed how 
projected climate change could degrade our National Power and 
particularly focused on military, infrastructure, economic, and social 
support systems.
    Strain on Military Readiness and Base Resiliency. As discussed 
earlier, the projected impacts of climate change could be detrimental 
to military readiness, strain base resilience both at home and abroad, 
and may limit our ability to respond to future demands. The projected 
impacts of climate change will strain our military forces in the coming 
decades. More forces will be called on to respond in the wake of 
extreme weather events at home and abroad, limiting their ability to 
respond to other contingencies. Projected climate change will make 
training more difficult, while at the same time, putting at greater 
risk critical military logistics, transportation systems, and 
infrastructure, both on and off base.
    Risks to Critical Infrastructure. The impacts of projected climate 
change can be detrimental to the physical components of our national 
critical infrastructure, while also limiting their capacities.
    The Nation depends on critical infrastructure for economic 
prosperity, safety, and the essentials of everyday life. Projected 
climate change will impact all 16 critical infrastructure sectors 
identified in Homeland Security planning directives. We are already 
seeing how extreme heat is damaging the national transportation 
infrastructure such as roads, rail lines, and airport runways. We also 
note that much of the Nation's energy infrastructure--including oil and 
gas refineries, storage tanks, power plants, and electricity 
transmission lines--are located in coastal floodplains, where they are 
increasingly threatened by more intense storms, extreme flooding, and 
rising sea levels. Projected increased temperatures and drought across 
much of the nation will strain energy systems with more demand for 
cooling, possibly dislocate and reduce food production, and result in 
water scarcity. Since much of the critical infrastructure is owned or 
operated by the private sector, government solutions alone will not be 
able to address the full range of climate-related challenges.
    Economic Costs. The projected impacts of climate change will 
threaten major sections of the U.S. economy.
    According to the 2014 National Climate Assessment, ``The observed 
warming and other climatic changes are triggering wide-ranging impacts 
in every region of our country and throughout our economy. . . .'' Most 
of the U.S. economic sectors, including international trade, will be 
negatively affected by projected climate change. Major storms, such as 
Superstorm Sandy, cost the U.S. an estimated $50 billion in damages.
    On the other hand, as we recognize these risks, communities such as 
New York and New Jersey are adapting and making this region more 
resilient to extreme events in the future.
    Local Communities Affected Too. The projected impacts of climate 
change will affect major sections of our society and stress social 
support systems such as first responders. As coastal regions become 
increasingly populated and developed, more frequent or severe storms 
will threaten vulnerable populations in these areas and increase the 
requirements for emergency responders in terms of frequency and 
severity of storms. Simultaneous or widespread extreme weather events 
and/or wildfires, accompanied by mass evacuations, and degraded 
critical infrastructure could outstrip local and Federal Government 
resources, and require the increased use of military and private sector 
support.
                               conclusion
    The time for action is NOW. Projected climate change may cause 
increased instability around the world; we are not prepared for the 
pace of climate change as evidenced by our lack of capability and 
capacity to respond to the opening of the Arctic; climate change will 
likely impact our military readiness and support systems as well as 
cause increased demand for forces, both at home and abroad, and finally 
climate change will impact elements of our national power here at home. 
Let me leave you with these comments by my fellow MAB General and Flag 
Officers:

          At the end of the day, we validate the findings of our first 
        report and find that in many cases the risks we identified are 
        advancing noticeably faster than we anticipated. We also find 
        the world becoming more complex in terms of the problems that 
        plague its various regions. Yet thinking about climate change 
        as just a regional problem or--worse yet--someone else's 
        problem may limit the ability to fully understand its 
        consequences and cascading effects. We see more clearly now 
        that while projected climate change should serve as catalyst 
        for change and cooperation, it can also be a catalyst for 
        conflict. We are dismayed that discussions of climate change 
        have become so polarizing and have receded from the arena of 
        informed public discourse and debate. Political posturing and 
        budgetary woes cannot be allowed to inhibit discussion and 
        debate over what so many believe to be a salient national 
        security concern for our Nation.

    In their forward to the CNA MAB report, former Secretary of Defense 
Panetta and former Secretary of Homeland Security Michael Chertoff 
summarized our most important message for the committee: ``The update 
serves as a bipartisan call to action. It makes a compelling case that 
climate change is no longer a future threat--it is taking place now. . 
. . actions to build resilience against the project impacts of climate 
are required today. We no longer have the option to wait and see.''
    Thank you for your attention and focus on what is one of the most 
important issues to our Nation's future security and well-being.

    Senator Markey. Thank you, Admiral, very much.
    Our next witness, Mr. David Goldwyn, is a nonresident 
senior fellow at the Energy Security Initiative at the 
Brookings Institution. Welcome, sir.

   STATEMENT OF DAVID L. GOLDWYN, NONRESIDENT SENIOR FELLOW, 
   ENERGY SECURITY INITIATIVE AT THE BROOKINGS INSTITUTION, 
                         WASHINGTON, DC

    Mr. Goldwyn. Thank you, Mr. Chairman, Mr. Ranking Member. I 
will summarize my statement. I would be grateful if the full 
statement was entered into the record.
    It is really an honor for me to talk to you today about the 
foreign policy challenges facing the United States and how we 
can respond to protect both energy security and climate change. 
We really face even historically an unprecedented amount of 
uncertainty in energy markets. We are looking at supply 
disruptions in Iraq, possibly Russia, Nigeria, Sudan, and 
Venezuela. We have policy risks. Things could go either way 
with negotiations with Iran and with Russia, which could lead 
to significant displacement of supply or increased supply. And 
as many of my fellow panelists have talked about, the growing 
risk of conflict driven by climate change.
    We have a lot of tools at our disposal to address these 
risks. One of them is helping ourselves through our own 
production. As Amos Hochstein said, our ability to grow our 
production has helped mitigate that nearly 3 million barrels a 
day in displaced oil that conflict has presented the global 
economy. The fact that we have increased gas production has 
allowed LNG supplies to flow to other countries, which has 
decreased the cost for them and decreased Russia's revenues.
    The question is whether we are doing all that we can, with 
all the tools that we have, to mitigate the risks that we are 
facing today. The four key tools that we have are: first, 
energy diplomacy, and that really means policy reform, talking 
to other countries about how to get prices right so energy 
efficiency and other technologies can be deployed.
    The second is technical assistance, helping countries grow 
their own supplies, whether it is oil, gas, or renewables, or 
how to introduce tariffs that will allow renewable energy into 
their electricity systems.
    The third is the promotion of deep and liquid energy 
markets. Part of that is the fourth tool, which is exports, 
which is how do we connect our providence to the global economy 
in a way that can reduce prices and increase availability 
overall. I think that we can deploy all these tools in a way 
that both reduces greenhouse gas emissions and increases energy 
security by giving other countries access to lower carbon 
resources, whether those are natural gas or renewables or some 
combination of the two, or coal with carbon sequestration.
    So to give an example, in Ukraine the number one job we 
have, as Senator Murphy said earlier, is getting prices right. 
No one wants to buy energy efficiency equipment unless you are 
saving money. You cannot save money if the price is below the 
cost of the electricity itself. So getting prices right is job 
one. Growing their own supply is probably job two. Diversifying 
their supply and having more energy storage is job three. So 
there is a lot that we can do with Ukraine to help them get 
access to more diverse supplies.
    Europe overall, we need the entire suite. Europe needs an 
integrated gas market so you can move LNG from Spain all the 
way to Ukraine. They do not have that right now. They need to 
reduce monopolies and enforce antitrust laws so that Gazprom 
does not own all the infrastructure inside of Europe. They need 
to provide more LNG access so they can access more gas. They 
need better interconnections, they need indigenous gas, they 
need to rethink nuclear European as well.
    Even in the Caribbean and Central America--I made reference 
in my testimony to a report I put out with the Atlantic Council 
last week which talks about the ways that the Caribbean and 
Central America can get off of fuel oil and diesel, reduce 
their electricity costs, reduce their carbon footprint, by 
accessing natural gas, because they will get to renewables, but 
they have serious policy obstacles.
    So we could make the cheapest natural gas available, which 
comes from the U.S. gulf coast, enable them to cut their costs 
in half, be more competitive, and address our own security 
challenges as well.
    So in nearly every case we can add to our own security by 
signaling that we will be helpful with supply as well. We can 
do policy reform, we can do technical assistance, but the 
reality is is that we have natural gas in abundance and we have 
certain grades of crude oil in abundance as well, light oil 
that we need less and condensates that we need less than we 
need heavy oil. And simply by signaling that we will make those 
supplies available to the global market, we can help impact 
price formation, and by impacting price formation we can make 
the cost of that lower carbon energy more accessible, whether 
that is cheaper European for Ukraine, whether that is cheaper 
natural gas for the Caribbean, or whether that is even easier 
gas access for parts of Africa that are now using diesel or 
fuel oil or even biomass.
    So I think there are things that we can do. I do not 
profess that it is a simple question, but I think there are a 
lot of studies going on. Right now there have been many on LNG, 
some going on crude oil which show that we can do this without 
impacting domestic prices and we can manage the climate impacts 
as well.
    So all I would say now is that we should take energy 
security and climate security with equal seriousness, that we 
need to look at the options about how we can advance both of 
these agendas. I think there are options that involve 
diplomacy, that involve technical assistance, and that involve 
more competitive markets, and I would just urge the committee 
to give all of them a fair hearing.
    Thank you.
    [The prepared statement of Mr. Goldwyn follows:]

                 Prepared Statement of David L. Goldwyn

    Mr. Chairman and members of the subcommittee, it is an honor to 
speak with you today about challenges to U.S. national security 
interests and their impact on both our energy security and climate 
change. We are experiencing a period of great instability in the 
world's major energy producing regions. We have been able to mitigate 
the impacts of this instability due largely to unprecedented growth in 
U.S. and more broadly North American energy supply. Going forward we 
will need to use a variety of tools to enhance our security, including 
promotion of competitive energy markets, advocacy of energy policy 
reform in other countries, technical assistance to help countries 
produce their own energy and promotion of energy exports. I believe we 
can harmonize our interests in mitigating global climate change-- 
a national security risk itself--and advancing our energy security. In 
many cases the alternative sources of energy supply the United States 
should promote are lower in carbon than those that vulnerable countries 
rely on today. In Europe, in the Caribbean and Central America, in 
Africa and elsewhere, the U.S. can make lower carbon energy, especially 
natural gas, more available and affordable, through effective diplomacy 
and promotion of open markets.
                  challenges to u.s. national security
    The national security challenges the United States faces across the 
globe have inherent energy components. The most prominent issues 
include the threat posed by Iran's nuclear program, continued Russian 
efforts to foment instability in Ukraine, the emergence of the Islamic 
State of Iraq and the Levant (ISIL) as a destabilizing force in Syria 
and Iraq, continued instability in North Africa, and the recent 
acceleration of the Israeli-Palestinian conflict. These are conflicts 
involving a great percentage of the world's major energy suppliers. We 
face additional challenges to the stability of Central America and the 
Caribbean, as Venezuela's economic deterioration puts its ability to 
provide credit support for regional energy purchases through 
Petrocaribe at increasing risk. Energy poverty in Africa and South Asia 
pose risks to stability in those regions. The way in which each of 
these issues is managed or resolved has implications for global energy 
markets and by extension our own economic growth and prosperity.
    Climate change itself poses a significant risk to national 
security. The Pentagon's Quadrennial Defense Review, released in March 
2014, identifies climate change as a threat multiplier capable of 
exacerbating poverty, environmental degradation, political instability, 
and social tensions--all of which contribute to terrorist activity and 
other forms of violence.\1\ A report issued by the government-funded 
CNA Military Advisory Board, released in May 2014, drew similar 
conclusions and discussed, among other issues, the contributions of 
climate-induced drought toward fomenting regional and ethnic tensions 
in the Middle East and Africa.\2\
                        the u.s. policy toolkit
    The U.S. has multiple tools at its disposal to mitigate the impacts 
of energy supply disruptions, help countries enhance their own energy 
security and mitigate global climate change. In ``Energy and Security: 
Strategies for a World in Transition,'' a book that I coedited and was 
published last year, we argue that these tools include using diplomacy 
to advocate policy reform, providing technical assistance to other 
nations to help propagate the unconventional oil and gas revolution 
abroad, and promoting deep and competitive energy markets by embracing 
energy exports as means of making energy more affordable and accessible 
to friends and allies.\3\
Energy diplomacy
    As in every area of foreign policy, diplomacy is our first line of 
defense. Diplomacy is the means by which we produced multilateral 
sanctions to bring Iran to the negotiating table. It will also be 
required to keep Iraq from fragmenting, and facilitating unity among 
stakeholders so that ISIS is repelled and Iraq's contribution to global 
energy supply is sustained. In many regions the U.S. needs to advocate 
for the policy reforms required to attract energy investment, reduce 
subsidies, reduce dependency on a single fuel or supplier or open 
markets to U.S. exports or investment. The new Energy Bureau at the 
State Department that I helped to design when I served under Secretary 
Clinton has a leading role in this mission. One of the best historical 
examples of this work is U.S. policy on European energy security. Over 
the past two decades the U.S. has been more vigorous in advocating the 
need for Europe to have an integrated gas market, more energy storage, 
more diverse production, and stronger antitrust policy. The U.S. has 
shared advancements we made in energy efficiency and renewable energy 
with Europe, including building and appliance standards that have 
helped Europe greatly diversify its energy supply base and better 
weather Russian gas supply interruptions.
Technical assistance
    The U.S. can also help other countries grow their own energy supply 
through technical assistance. Two examples of this are all of 
government programs led by Department of State Bureau of Energy 
Resources (ENR): the Unconventional Gas Technical Engagement Program 
(UGTEP) and the Energy Governance and Capacity Initiative (EGCI). UGTEP 
takes many forms, from U.S. Geological Survey resource assessments to 
help countries understand if they have recoverable resources, to 
visitor programs where country delegations can meet with Federal, State 
and local regulators to understand how to protect air, water, and land 
and see first hand how an operation looks on the ground. The EGCI 
program helps countries considering energy development avoid the 
resource curse by teaching their Central Banks and Finance Ministries 
how to manage the income from energy production, while teaching their 
petroleum ministries how to understand their resource base, and use 
licensing to protect the environment.
Competitive markets and free trade
    A major pillar of American foreign policy since the Second World 
War has been the promotion of open markets to promote economic growth 
and bind nations together. We have worked for decades to encourage 
those with resources--oil, gas, coal or rare earth materials, to 
produce what they can, use what they need, and make the rest available 
for trade. We have benefited enormously from this system whenever we 
needed imports of energy, and commodities flowed easily and efficiently 
to our shores in times of crisis, like the days after Hurricanes Rita 
and Katrina. We fight against restrictions on rare earth minerals in 
the WTO to ensure that energy efficient products can be produced and 
then made available to the global market.
    For the U.S. today this means that our contribution to our own 
energy security and that of the planet is to produce our own energy, 
use what we need and export the balance. For our own sake we need to 
produce our own new resources with safety and the environment as top 
priorities. All companies--including the smaller independents--need a 
strong safety culture, from ensuring well bore integrity in deepwater 
or deep shale beds, to securing the safe disposal of water produced 
from ``tight'' hydrocarbon plays.
    But the reality is that, we can dramatically enhance our own 
security and that of others by connecting ourselves to the global 
market we have spend decades developing and benefiting from. First, we 
can enhance our own prosperity. The United States and other stable, 
democratic countries, such as Canada and Australia, are well poised to 
meet a considerable share of the world's growing oil and gas demand and 
attain the associated export revenues. From a geopolitical perspective, 
increased LNG exports from the U.S. and its allies would shift rents 
away from traditional, autocratic suppliers, including Russia, that 
have used the proceeds to finance policies at odds with U.S. national 
security interests. U.S. supply also promotes price competition and 
stability in global oil and gas markets. Price stability benefits U.S. 
economic growth, and also better ensures that U.S. adversaries that are 
major oil and gas exporters are less able to enjoy higher export 
revenues stemming from major global supply disruptions. Numerous 
studies have shown the U.S. enjoys net benefits from exports, with 
minimal domestic price impacts from LNG exports and potential decreases 
in domestic gasoline prices from crude oil exports.\4\
    Second, building a more competitive LNG market can help mitigate 
global climate change. In the coming decades, the greatest risk of 
greenhouse gas emissions growth comes from non-OECD Asia, which is 
forecast to account for 65 percent of total energy demand growth 
through 2035. China and India alone are expected to build nearly 40 
percent of the world's new generation capacity, and both countries are 
currently heavily reliant on coal as a base load fuel.\5\ While work on 
creating commercial scale carbon sequestration continues, the best way 
to address emission growth is to help these countries meet incremental 
demand through lower carbon alternatives. These alternative sources 
need to be able to supply base load electricity supply at scale. The 
currently available, scalable options are petroleum products such as 
fuel oil or diesel, nuclear power, and natural gas. Petroleum products 
are an inefficient, expensive and high carbon means of electricity 
generation. Nuclear energy is a complex technology, and safe 
infrastructure takes over a decade to build.
    U.S. LNG exports help make gas more affordable for Europe and Asia 
where, unlike the U.S., natural gas is now much more expensive than 
coal. U.S. natural gas production has already lowered global LNG prices 
by displacing supplies meant for the U.S. market. The increased 
availability of natural gas on global energy markets from future LNG 
exports makes it increasingly cost effective for the largest emerging 
energy consumers, including China and India, to convert their electric 
power infrastructure to natural gas. The growing adoption of natural 
gas as a fuel for electricity generation in the Chinese and Indian 
markets would render considerable positive climate impacts. It would 
also have a multiplier effect, as increased adoption of natural gas by 
these large energy consumers would leave smaller yet still important 
consumers better positioned to attain financing of their own to build 
or convert infrastructure to accommodate more natural gas in their own 
energy mixes.
    Natural gas thus remains the obvious fuel choice to serve as a 
bridge to scalable renewable energy. While we should continue to pursue 
a future with abundant use of renewable energy, renewables will not be 
able to be adopted for grid based systems at scale in the developing 
world until the battery storage challenge is addressed. Ensuring that 
renewables are significant source of longer term supply, and embracing 
natural gas as a bridge fuel to cut emissions now, are not mutually 
exclusive goals. Even at their current limited scalability, the U.S. 
should support efforts to integrate renewables into the energy mix 
where they are viable. Additionally, the fact that most energy demand 
growth is expected to come from the non-OECD does not absolve the U.S. 
from embracing policies that will reduce our own carbon emissions. 
Indeed, U.S. efforts to lead by example and in cooperation with our 
allies are likely to facilitate more international buy-in of such 
policies.
                     meeting our current challenges
    We will need to use all the tools in our tool kit to meet the 
energy and security challenges we face today.
Ukraine
    The most obvious national security challenge where energy security 
issues are explicitly at play is Russia's continued aggression in 
Ukraine. Russia continues to lend material support to separatists 
operating in Eastern Ukraine and last month stopped supplying natural 
gas to Kiev. While this is yet to bring about a critical gas shortage 
in Europe or Ukraine, there are justifiable fears that such shortages 
will ensue if the Russian cutoff persists into this winter, when the 
seasonal heating period begins and demand increases considerably.\6\
    The U.S. needs to use diplomacy, technical assistance and support 
exports to help not only the the efforts of Ukraine, but also other 
countries proximate to Russia, including those in Western Europe, to 
diversify their sources of supply. The diplomatic agenda is pressing 
for a divided Europe to finish the work of integrating its gas market, 
promoting internal market reform in member countries, developing 
further infrastructure to support alternative gas supplies and 
interconnections among member countries, and encouraging indigenous gas 
development. However, there is also ample space where the United States 
has and can continue to provide assistance. In the past the U.S. 
promoted infrastructure projects, such as the Baku-Tbilisi-Ceyhan and 
the Southern corridor. More recently the U.S., led by the ENR Bureau, 
has advocated ``reverse flows'' of gas, including from Europe to 
Ukraine. Earlier this month Slovak gas pipeline operator Eustream 
indicated that it would have a route transiting EU gas to Ukraine 
running at full capacity before the winter heating season begins. 
Reverse flows are also reaching Ukraine from both Poland and 
Hungary.\7\ Additionally, ENR, under the auspices of both UGTEP and 
EGCI, has engaged with countries in the region on potential paths 
forward in developing their shale resources to boost their domestic 
energy production and provide new regional sources of supply. This 
advocacy should be elevated to higher levels.
    Export policy can help as well. A clear signal from the U.S. that 
LNG exports will be available to European allies for future purchase 
would put immediate pressure on Russia's market share and export 
revenues, and would also provide a market signal to help accelerate 
investment in, and construction of, gas transportation infrastructure 
in Europe. The new policy change suggested by the Department of Energy 
for considering LNG exports should help provide certainty to the market 
in this regard.\8\ Price expectations matter. The U.S. shale boom, 
through freeing up LNG cargoes originally destined for the U.S. to 
instead reach Europe, has already put downward pressure on European gas 
prices. These developments contributed to the increased leverage that 
Gazprom's European customers have enjoyed in recent years, enabling 
them to renegotiate contracts for the purchase of natural gas from 
Gazprom to their advantage. While many skeptics question whether Europe 
would receive U.S. LNG due to the expected higher prices in Asian 
markets, the fact remains that European prices could easily approach 
Asian levels in the event of a Russian supply cutoff. Additionally, 
purchasers consider not only price, but also the diversity of supply 
source and the likelihood of timely project completion, which may leave 
at least some European purchasers predisposed to paying a premium price 
for U.S. gas that rivals the market price Asian purchasers are willing 
to pay.\9\
    A robust U.S. market share in the Asian gas market offers 
geopolitical advantages to the United States, and has positive 
implications for the future of our climate, as well.
Iraq
    Geopolitical tensions also continue to plague the Middle East, as 
the Islamic State of Iraq and the Levant's (ISIL) takeover of large 
shares of territory in western Iraq marks the first major spillover of 
the Syrian civil war that threatens the free flow of oil from the 
region. To date, the violence has not affected Iraq's key export 
infrastructure, which is located in the heavily Shiite far south of the 
country. But the July 20 ISIS takeover of gas fields in Syria and its 
efforts to gain control of the Baiji refinery in Iraq signal its intent 
to disrupt energy infrastructure. Iraq's geography does not entirely 
mitigate the risk of a supply disruption. Violence in the far south 
could induce international companies to pull out larger shares of their 
foreign personnel, which would have negative implications for Iraqi 
production.
    The U.S. approach in Iraq should primarily comprise efforts to 
foster reconciliation among Iraqi stakeholders. Yet the U.S. should 
also be prepared to continue supporting the stability of the global oil 
market should a supply disruption occur. U.S. domestic production 
growth has helped keep the global market well supplied and prices 
stable even as unplanned supply disruptions, including in places likes 
Libya, South Sudan, and Yemen, have emerged.\10\ However, the U.S. 
could do more, including taking steps to authorize the export of light 
sweet crude grades that we have in excess, to help keep the global 
market stable. While promoting global market stability is among the 
goals of strategic reserves, the United States does not need to tap the 
Strategic Petroleum Reserve at this time. Instead, it only needs to 
signal very clearly that it is prepared to export grades of excess 
crude if disruptions worsen and the global market requires more supply. 
Numerous studies emerging this fall, including one from Brookings to be 
released this September, will closely examine the impacts of such 
action on the U.S. economy.
Central America and the Caribbean
    One major opportunity the U.S. has to promote regional security and 
climate change mitigation is in our own neighborhood. Last week the 
Atlantic Council published a report \11\ I authored on the Caribbean 
region's dependence on Petrocaribe, a Venezuelan-backed program that 
allows cash-strapped Caribbean and Central American countries to 
purchase Venezuelan crude oil and petroleum products on generous 
financing terms. While this program once provided these countries with 
immediate-term budget support, it left them increasingly indebted to 
Venezuela, and reliant on high-carbon, expensive fuel oil and diesel 
for electricity generation. The high cost of this fuel has made these 
economies uncompetitive: a recent Inter-American Development Bank Study 
\12\ found that the average retail tariff for 10 major Caribbean 
utilities in 2012 at $0.33 per kilowatt-hour, compared to $0.10 across 
all sectors of the U.S. in April 2014.\13\
    A recent IDB Pre-Feasibility Study found that replacing liquid 
fuels with natural gas, in combination with energy efficiency and 
renewable energy measures, produced net benefits to every surveyed 
Caribbean country, lowering the cost of fuel and the price of power, as 
well as substantially reducing carbon emissions. We recommended that 
the U.S. build on Vice President Biden's recent visit to the region, 
and its Caribbean Energy Security Initiative (CESI), by expanding CESI 
to promote credit incentives to attract investment to make natural gas 
a more considerable share of the Caribbean's shorter- and medium-term 
energy mix. The IDB study determined that U.S. Gulf Coast LNG was the 
cheapest form of delivery, and that small-scale regasification 
technology could provide every country with appropriate infrastructure 
at a reasonable long-term cost.
    These findings suggest that the U.S. could facilitate a natural gas 
bridge in the Caribbean by providing credit enhancements through CESI 
and declaring LNG exports to all Caribbean nations reliant on 
Petrocaribe, with the exception of Cuba, to be in the national 
interest. This would contribute to facilitating the marketing of supply 
to these nations. U.S. LNG is in close proximity to the Caribbean 
market, and will be cost competitive.
    Promoting the adoption of gas in the Caribbean and Central American 
energy mix would bring about several benefits for U.S. interests. The 
risk of harm to the region's economies from a Venezuelan interruption 
of credit support would decrease. Electricity costs for industrial and 
residential consumers would decline as cheaper natural gas replaces 
more expensive fuel oil and diesel for electricity generation. Finally, 
cleaner burning natural gas would reduce the region's carbon footprint.
                               conclusion
    The acknowledgement that national security and climate security 
concerns are inherently linked is a crucial development for the 
evolution of U.S. policy both at home and in the national security 
sphere. This strategic conception of the problems we face should 
provide policymakers with space to develop policies that maximize 
global energy supply, promote low-carbon sources, support price 
stability, and provide our allies and partners with secure sources of 
supply, either through global markets or their own domestic production, 
to ensure that their energy security is not at the mercy of a single 
supplier.
    I believe that Congress also has a role to play in accelerating the 
leveling of the energy playing field. Congress can support the State 
Department's role in energy diplomacy, expand our technical assistance 
programs, and consider thoughtfully the role of energy exports in 
advancing energy security and promoting access to lower carbon fuels.

----------------
End Notes

    \1\ ``Quadrennial Defense Review 2014,'' United States Department 
of Defense, March 2014, p. 8.
    \2\ ``National Security and the Accelerating Risks of Climate 
Change,'' CNA Military Advisory Board, May 2014.
    \3\ Jan H. Kalicki and David L. Goldwyn, ``Energy and Security: 
Strategies for a World in Transition,'' Woodrow Wilson Center Press and 
Johns Hopkins University Press, 2013 (Kalicki and Goldwyn, 2013).
    \4\ W. David Montgomery, Robert Baron, Paul Bernstein, Sugandha D. 
Tuladhar, Shirley Xiong and Mei Yuan, ``Macroeconomic Impacts of LNG 
Exports from the United States,'' NERA Economic Consulting, December 
2012; Daniel Yergin, Kurt Barrow, James Fallon, Mohsen Bonakdarpour, 
Sandeep Sayal, Curtis Smith and Jamie Webster, ``U.S. Crude Oil Export 
Decision: Assessing the impact of the export ban and free trade on the 
U.S. economy,'' IHS Global Insight, May 2014.
    \5\ ``World Energy Outlook 2013,'' International Energy Agency, 
November, 2013.
    \6\ Peggy Hollinger, Christian Oliver, and Jack Farchy, ``Europe 
risks `significant' gas shortages this winter,'' Financial Times, July 
11, 2014.
    \7\ Tim Gosling, ``Slovak gas link to give Ukraine `chance of 
lasting through the winter','' Financial Times, July 8, 2014.
    \8\ For more information about this issue see: David L. Goldwyn, 
``DOE's New Procedure for Approving LNG Export Permits: A More Sensible 
Approach,'' Brookings Institution, June 2014.
    \9\ David L. Goldwyn, ``Refreshing European Energy Security Policy: 
How the U.S. Can Help,'' Brookings Institution, March 2014.
    \10\ Conglin Xu, ``Global Oil Market Well Supplied Despite 
Disruptions to Producers,'' Oil and Gas Journal, July 47 2014.
    \11\ David L. Goldwyn and Cory R. Gill, ``Uncertain Energy: The 
Caribbean's Gamble with Venezuela,'' Brookings Institution, July 2014.
    \12\ Jed Bailey, Nils Janson, and Ramon Espinasa, Pre-Feasibility 
Study of the Potential Market for Natural Gas as a Fuel for Power 
Generation in the Caribbean, Inter-American Development Bank, December 
2013.
    \13\ EIA Electric Power Monthly, June 23, 2014.

    Senator Markey. Thank you, Mr. Goldwyn.
    Next we are going to hear from Mr. Michael Breen, who is 
the executive director of the Truman National Security Project 
& Center for National Policy. Welcome, sir.

STATEMENT OF MICHAEL BREEN, EXECUTIVE DIRECTOR, TRUMAN NATIONAL 
 SECURITY PROJECT & CENTER FOR NATIONAL POLICY, WASHINGTON, DC

    Mr. Breen. Thank you, Mr. Chairman, Chairman Markey, 
Ranking Member Barrasso. Thank you for the opportunity to 
testify today.
    Although we find ourselves in a considerably better 
position with regard to energy than that of several years ago, 
the lack of diversified energy sources around the world 
continues to create vulnerabilities for the United States and 
our allies and opportunities for many of our rivals and 
adversaries.
    Unfolding events in Iraq exemplify the ways in which energy 
and security are intertwined. Iraq is where I personally first 
came to understand energy security as a young Army officer 
fighting to defend fuel convoys against insurgent attack. A 
decade later, those same desert roads are once again a combat 
zone, with fuel supplies once again at the center of the fight. 
As is the case in other conflicts, nonstate actors in Iraq seek 
to capture and exploit energy resources as a source of funding.
    One of ISIL's primary objectives during its recent 
offensive was the refinery at Baiji, which is the largest in 
Iraq. Reporting indicates that ISIL is raising as much as a 
million dollars a day from selling crude oil from fields it 
controls which is smuggled through Turkey and Iran. Revenues 
are then directed to purchase weapons, pay insurgent fighters, 
and help buy the loyalties of local tribal leaders and 
government officials.
    Meanwhile, continued conflict in Iraq has a destabilizing 
effect on the global market. Dramatic increases in Iraq's oil 
production are an essential element in most projections of 
global supply growth. In IEA's World Energy Outlook, for 
example, the most likely scenario projects that Iraq will 
double its oil production by 2035. But that projected progress 
is currently at risk.
    In the short term, some estimate that the loss of just a 
third of Iraqi oil production would cause a $37 a barrel rise 
in the price of oil. Longer term, though, investments in the 
Middle East may fall short of projections if regional conflict 
persists, which could lead to a potential supply shortfall into 
the 2020s.
    Conflict in Ukraine also illustrates the increasingly 
dangerous use of energy as a geopolitical weapon, in this case 
with respect to natural gas. Russia has repeatedly used 
Ukraine's energy dependence and lack of diversification as 
leverage, cutting off natural gas exports. Meanwhile, about 16 
percent of Europe's total natural gas consumption comes from 
Russia through Ukraine. Russia's manipulations of Ukraine's 
energy markets have created concerns about natural gas 
shortages in the European Union. Up to this point, EU sanctions 
against Russia and other responses to aggression in Crimea have 
fallen well short of United States action.
    Despite dramatic advances in extractive technology, the 
geopolitical dynamics of energy are unlikely to move in 
America's favor beyond the short term, especially with regard 
to oil. Fundamentally, this is because demand in the developing 
world is projected to increase dramatically, offsetting 
increases in U.S. production. Oil demand is projected to grow 
to about 109 million barrels a day by 2035, with China becoming 
the world's largest consumer by about 2030.
    Meanwhile, IEA projects that U.S. tight oil production will 
plateau in the 2020s before dropping to 9.2 million barrels a 
day by 2035, leaving us in roughly the same geopolitical 
position we were in before the shale revolution.
    In addition, climate change makes our current energy system 
unsustainable, creating cascading risks and impacts around the 
globe.
    Given these dynamics, a singular focus on fossil fuels 
production and export simply plays into the strengths of our 
competitors, while leaving the United States and our allies 
with continued long-term vulnerabilities. Ukraine again 
provides an excellent example. Many advocate United States LNG 
exports as a path to reducing Russian leverage. Such a policy 
has limited but clear benefits. However, LNG exports probably 
will not begin in substantial volume until 2017 at the earliest 
and reaching Ukraine will be difficult.
    Meanwhile, Ukraine is so reliant on Russian natural gas in 
large part because it is the second-least efficient nation in 
Europe. If Ukraine were simply as energy efficiency as the 
average European country, it would reduce its natural gas 
consumption by more than 50 percent. That is why, as proposed 
by Chairman Markey earlier this year, the U.S. Government 
should leverage its full resources in assisting Ukraine to 
improve its energy efficiency, increase its domestic 
production, and reform its energy markets.
    This approach applies more broadly as well. The United 
States should place greater emphasis on encouraging efficiency 
along with the development of renewable sources and more 
resilient distributed energy systems. The Department of Defense 
has been a clear leader in this respect, prioritizing critical 
investments in more diverse, resilient, and reliable energy 
sources in order to maximize freedom of action and minimize 
risk. The rest of government, along with the Nation as a whole, 
would do well to follow a similar approach.
    Thank you.
    [The prepared statement of Mr. Breen follows:]

                  Prepared Statement of Michael Breen

    Chairman Markey, Ranking Member Barrasso, distinguished members of 
the committee, thank you for the opportunity to testify today on the 
relationships between American foreign policy, energy policy, and 
climate change. I will focus my remarks today on the linkage between 
energy issues and America's most pressing geopolitical challenges.
    The United States finds itself in a considerably better position 
with regard to energy than several years ago. Natural gas production in 
particular has expanded dramatically, putting the U.S. in a position to 
become a net exporter within the next several years. This is a positive 
development to be sure, and provides both strategic and economic 
opportunities. Energy continues to play a central role in many 
flashpoints around the world, however, including as a driver of armed 
conflict. While advances in technology have improved America's energy 
posture in the short term, many of our long-standing vulnerabilities 
persist and are likely to worsen in the longer term.
             lack of energy diversity creates security risk
    The lack of diversified energy sources around the world continues 
to create undue risk to American national security, the security of our 
key allies, and global stability and prosperity. In geopolitical terms, 
this lack of diversification creates vulnerabilities for the U.S. and 
our allies, and opportunities for many of our rivals and adversaries.
    This dynamic is especially pronounced with regard to petroleum, 
since most major economies are overwhelmingly reliant on oil as a 
transportation fuel. The United States relies on oil for more than 93 
percent of our transportation sector, and most advanced economies are 
in a roughly similar position. Given that oil is a globally traded 
fungible commodity, this single-source dependence on oil as a 
transportation fuel exposes the U.S. and our allies to the full range 
of risk associated with a complex and frequently manipulated global 
petroleum supply system. In other words, security and oil are deeply 
intertwined, with largely negative effects.
Iraq
    Unfolding events in Iraq exemplify the ways in which energy and 
security are intertwined at every level of conflict. Iraq is where I 
first came to understand the security implications of energy 
dependence, as a young Army officer fighting to defend fuel convoys 
against insurgent attack. A decade later, those same desert roads 
outside of Baghdad are once again a combat zone, with fuel supplies 
still at the center of the fight.
    As is the case in other conflicts, nonstate actors in Iraq exploit 
energy resources as a source of funding. Reporting indicates that ISIL 
is raising as much as $1 million a day from selling crude oil from oil 
fields in territory it controls, which is then smuggled into Turkey and 
Iran. In Syria, the Assad government is reportedly supplementing oil 
from Iran by purchasing oil from ISIL insurgents, even as its military 
fights them. Revenues are then directed to purchase weapons, pay 
insurgent fighters, and help buy the loyalties of local tribal leaders 
and government officials.
    Oil resources and infrastructure are therefore key strategic points 
on the battlefield, shaping the course of the conflict at the tactical 
and operational levels of war. In one well-known example, one of ISIL's 
primary objectives during its recent offensive in Iraq was the refinery 
in Baiji, the largest in Iraq. Meanwhile, Kurdish military action in 
the conflict to date has been almost entirely defensive, with the sole 
exception of an early push to secure oil fields. KRG's seizure of 
Kirkuk oil province, in part intended to establish defense in depth for 
Kurdish areas, will also give the Kurds even greater financial and 
political autonomy from Baghdad.
    This points to a third way in which access to oil supplies drives 
and shapes the ongoing conflict in Iraq. Regional instability and 
conflict within and between states across the MENA region is driven, in 
part, because of the uneven distribution of energy resources. This is 
certainly true in Iraq. Nearly 75 percent of Iraqi oil production is 
focused in the Shia-majority south, and the main export terminal in 
Basra is located there as well. Baghdad's failure to redistribute 
revenue from that oil production evenly across Iraq has been a major 
driver of sectarian and regional conflict.
    Prized oil fields in the south currently remain productive, but are 
vulnerable to insurgent attacks and remain an important military prize 
for all parties to the conflict. Companies will most likely evacuate 
workers, and quickly, if there are serious security concerns in Basra. 
In the current climate, this continues to be a real possibility.
    This is critical, because continued conflict in Iraq has a 
significant destabilizing effect on the deeply interdependent global 
oil market. This instability is already leading to economic and 
geopolitical consequences around the world, and could impact our 
economic recovery here at home given sufficient time. Dramatic 
increases in Iraq's oil production are an essential element in most 
projections of global supply growth. In IEA's World Energy Outlook, for 
example, the most likely scenario projects Iraq to double its oil 
production to 6.1mb/d by 2020, and 8.3 mb/d by 2035. According to IEA 
projections, Iraq makes up nearly 45 percent of anticipated global 
supply growth over the next decade.
    All of that projected progress is currently at risk. In the short 
term, some estimate that the loss of just a third of Iraqi oil 
production would cause a $37 a barrel rise in the price of oil. Saudi 
Arabia, home to nearly the entire world's spare capacity, is already 
stretched due to unanticipated short-term global demand growth. Longer 
term dynamics, while more difficult to predict, are potentially even 
more disturbing. Investments in the Middle East may fall short of 
projections if armed conflict and cascading instability across the 
region persist, leading to a potential supply shortfall in the 2020s.
Ukraine
    Conflict in the Ukraine also illustrates the increasingly dangerous 
use of energy as a geopolitical weapon, in this case with respect to 
natural gas. Russia has repeatedly used Ukraine's energy dependence as 
leverage to disrupt the Ukrainian economy and exacerbate political 
rifts in the country. In 2012, about 60 percent of Ukraine's natural 
gas consumption and nearly 75 percent of its liquid fuels were imported 
from Russia. As tensions smoldered in Crimea and Eastern Ukraine this 
spring, Russia did not hesitate to capitalize on its dominant energy 
position for geopolitical ends, renouncing agreements establishing a 
natural gas energy giant, Gazprom.
    Even as Russia has used energy dependence as a sword against 
Ukraine, it has employed similar dynamics as a shield against Western 
European interference in the conflict. Sixteen percent of Europe's 
total natural gas consumption comes from Russia through Ukraine. 
Russia's manipulations of Ukraine's energy markets have created 
concerns about natural gas shortages in the European Union. Up to this 
point, EU sanctions against Russia and other responses to aggression in 
Crimea have fallen well short of U.S. action. Instead, as proposed by 
Chairman Markey earlier this year, the U.S. government should leverage 
its full resources in assisting Ukraine to improve its energy 
efficiency, increase its domestic production, and reform its energy 
markets.
Northeast Asia
    Despite rising tensions between Japan and China over possession of 
offshore islands and the continuing threat posed by North Korea, the 
security situation in the North China Sea region is not currently as 
dire as that in the Middle East and Eastern Europe. However, ongoing 
dynamics with respect to energy have a negative impact on U.S. 
interests and allies' security there as well. Earlier this year, Russia 
and China signed a 30-year gas supply agreement worth approximately 
$400 billion. This agreement may draw the two great powers into deeper 
alignment, with negative repercussions for the U.S. and our allies.
    Meanwhile, Japan's energy situation continues to evolve amid 
considerable uncertainty. More than a quarter (26 percent) of Japan's 
electricity came from nuclear power plants before the Fukushima 
disaster. Now, with all of its nuclear plants on indefinite suspension, 
Japan is the world's leading importer of liquefied natural gas. Japan 
alone consumed over a third (37 percent) of global LNG in 2012. In an 
effort to meet this need, Japan is reportedly considering a natural gas 
pipeline to Russia to bring in LNG from Siberia. While this would have 
some benefits for Japan, Russia's demonstrated willingness to use 
energy supplies for coercion should give us pause.
                             future trends
    Despite dramatic advances in extractive technology, the 
geopolitical dynamics of energy are unlikely to move in America's favor 
beyond the short term, especially with regard to oil. Fundamentally, 
this is because demand in the developing world is projected to increase 
dramatically, offsetting increases in U.S. production. Oil demand is 
projected to grow by 19 mb/d to 109 mb/d by 2035. Virtually all of this 
increased demand is expected to come from non-OECD countries. China is 
projected to become the world's largest consumer in 2029, growing to 
18mb/d by 2035, while demand from India and the Middle East will likely 
grow even more rapidly than China's.
    Meanwhile, IEA projects that U.S. tight oil production will reach a 
plateau in the 2020s, before dropping to 9.2 mb/d by 2035 mb/d by 
2035--leaving us in much the same position we were in before the shale 
revolution. The global market is projected to remain fairly tight 
overall along the way, meaning price volatility will continue to be a 
problem over the next several decades. This places the U.S. and our 
allies at risk of continued overreliance on the same large-scale 
holders of conventional resources who energy system unsustainable, 
creating cascading risks and impacts around the globe and across the 
full range of human activity.
                      implications for u.s. policy
    Given these dynamics, a singular focus on fossil fuels production 
and export simply plays into the strengths of our competitors while 
leaving the U.S. and our allies with continued vulnerabilities. The 
U.S. should also encourage investments in renewable energy and energy 
efficiency through technology sharing and targeted loans.
    Ukraine provides an excellent example. Many advocate U.S. LNG 
exports as a path to reducing Russian leverage. Such a policy has 
limited but clear benefits, and should be pursued. However, LNG exports 
probably won't begin at substantial volume until 2017 at the earliest, 
and reaching Ukraine will be difficult. Turkey in particular is likely 
to resist allowing LNG tankers through the Bosphorus, due to safety, 
environmental, and economic concerns.
    Meanwhile, Ukraine is so reliant on Russian natural gas in large 
part because it is the second most energy inefficient nation in Europe, 
with energy subsidies making up nearly 8 percent of GDP. If Ukraine 
were simply as energy efficient as the average European country, it 
would reduce its natural gas consumption by more than 50 percent. The 
U.S. should seize the opportunity to improve Ukraine's position by 
prioritizing investments in energy efficiency. We should also tap 
existing U.S. and international expertise to increase and diversify 
Ukraine's domestic energy production, including renewables.
    This approach applies more broadly as well. The U.S. should place 
greater emphasis on encouraging efficiency, along with the development 
of renewable sources and more resilient distributed energy systems. The 
Department of Defense has been a clear leader in this respect, teaming 
with partner nations to improve fuel efficiency and reduce energy 
demand across our combined forces. At the same time, DOD has 
prioritized critical investments in more diverse, resilient, and 
reliable energy sources in order to maximize freedom of action and 
minimize risk. The rest of government, along with the nation as a 
whole, would do well to follow a similar approach.

    Senator Markey. Thank you, Mr. Breen.
    Our final witness, Ms. Mary Hutzler, is distinguished 
senior fellow for the Institute of Energy Research. We welcome 
you.

    STATEMENT OF MARY HUTZLER, DISTINGUISHED SENIOR FELLOW, 
           INSTITUTE FOR ENERGY RESEARCH, BERLIN, MD

    Ms. Hutzler. Chairman Markey, Dr. Barrasso, and members of 
the committee, thank you for the invitation to testify today 
concerning the prospect of greater energy security and 
particularly how the contours of various climate policies are 
shaping our own domestic energy future and that of our allies.
    I want to begin by congratulating you, Chairman Markey, for 
your successful bid to fill the seat vacated by Secretary of 
State John Kerry. I have had many opportunities through the 
years to testify before you during your nearly four decades of 
service in the House of Representatives and I welcome the 
opportunity to continue that dialogue.
    For more than 7 years I have served IER and before that I 
held several management positions at the Energy Information 
Administration, including as Acting Administrator. In all that 
time, neither energy analysts at EIA nor policymakers in the 
U.S. Congress were able to predict the transformation of 
America's domestic energy frontier that occurred over the last 
few years. For decades, U.S. energy policy had been guided by 
the ever-elusive quest for diminishing energy resources. Our 
allies around the world also felt the squeeze of perceived 
energy scarcity. Meanwhile, climate alarm intensified a 
political push for renewable energy.
    Data now exists to examine the effects of these policies, 
both on the climate and on the economies of the nations who 
adopted aggressive agendas for decarbonization. Over the course 
of the last decade, countries across the European Union have 
pursued the specter of a green energy future with unparalleled 
enthusiasm. Through various tax measures, taxpayer-funded 
subsidies, mandates, surcharges, and feed-in tariffs, our 
allies across the Atlantic have provided us an instructive 
lesson.
    Today industrial electricity prices in the EU are two to 
five times higher than in the United States. According to the 
European Commission, electricity prices in Europe have risen 37 
percent more than those in the United States when indexed 
against 2005 prices. By 2020, as many as 1.4 million additional 
European households are expected to be in what some analysts 
refer to as ``energy poverty.''
    The EU system of cap and trade, a variation of which 
narrowly passed the U.S. House of Representatives in June 2009 
but never became law, has proven fertile terrain for 
fraudsters, tax cheats, market manipulators, and various cyber 
criminals who exploit the inherent weaknesses of carbon trading 
schemes. According to the market analysts at Bloomberg, as much 
as 7 percent of the total carbon market is based on fraudulent 
trading in a given year.
    Additionally, some of our European allies are now facing 
the steep decline of their economies and a dramatic rise in 
their unemployment rolls as they struggle under a heavy green 
energy burden. In Spain, for each megawatt of wind energy 
installed more than four jobs were lost. For each megawatt of 
solar, nearly 13 jobs were lost. And in the past 7 years, 
Spain's unemployment rate has jumped from 9 percent to more 
than 25 percent. Fortunately, Spain's policymakers are trying 
to stop the hemorrhage that their quest for green energy has 
exasperated.
    Wind and solar cannot sustain a growing, vibrant economy. 
These technologies do not create long-term jobs and they cannot 
supply reliable electricity when consumers need it most. In 
Germany, where utilities have been ordered to generate 50 
percent of their electricity from renewable sources by 2030, 
the EU's largest economy is now risking what their own energy 
minister called ``de-industrialization.'' Germany's green 
energy agenda, phase-out of its nuclear units, and restrictions 
on development of its domestic resources have resulted in high 
electricity prices, dependence on Russia for natural gas 
supplies, and increased greenhouse gas emissions.
    In the U.K., nearly one-fifth of the nation's population is 
now in energy poverty, up from 6 percent just a decade ago. In 
Australia, where a short-lived carbon tax threatened to set the 
world's 12th-largest economy back decades, the government has 
repealed it to mitigate the harm caused by a tax that neither 
helped the environment nor the economy.
    The policies of these countries have followed a similar 
pattern. The government passes ambitious green energy laws, 
electricity rates rise as subsidies increase out of control, 
job losses pile up, and the government is forced to consider 
amending or repealing its misguided policies.
    Europe's green energy policies have contributed to its 
economic slowdown, where Europe is now unable to meet its 
minimal NATO commitments to fund defense. And because Russia is 
an important energy supplier, Europe is increasingly reluctant 
to act against aggression.
    The United States must not follow a similar course. The 
bright horizon of America's domestic energy future is not 
guaranteed and policymakers should temper their enthusiasm for 
renewables with the real world facts, now observed with 
undeniable effects for those who have pursued the green energy 
dream.
    Thank you for the opportunity to testify. I am happy to 
answer any questions.
    [The prepared statement of Ms. Hutzler follows:]

                 Prepared Statement of Mary J. Hutzler

    The Institute for Energy Research (IER) is a nonprofit organization 
that conducts research and evaluates public policies in energy markets. 
IER articulates free market positions that respect private property 
rights and promote efficient outcomes for energy consumers and 
producers. IER staff and scholars educate policymakers and the general 
public on the economic and environmental benefits of free market 
energy. The organization was founded in 1989 as a public foundation 
under Section 501(c)(3) of the Internal Revenue Code. Funding for the 
institute comes from tax-deductible contributions of individuals, 
foundations, and corporations.
    Thank you for the opportunity to supply this testimony for the 
committee's use.
    The United States is in the midst of a domestic energy renaissance 
that has lowered our import dependency and increased our security. 
However, there are many policymakers that seek to restrict the 
availability of our natural resources and make energy less affordable 
for Americans. Lessons can be learned from many of our allies that have 
tried carbon restriction policies and have had poor results.
    Europe, for example, has pursued some of the most aggressive 
``green'' energy policies in the world. Countries across the European 
Union have passed laws to promote renewable energy technologies, curb 
greenhouse gas (GHG) emissions, and decrease energy consumption. To 
achieve these goals, European governments have imposed various schemes, 
taxes, subsidies, and mandates, including cap and trade, feed-in 
tariffs and surcharges that force consumers to foot the bill for 
expensive green energy technologies.
    Carbon restriction and other ``green'' policies have slowed the 
economies of these allies, moved industries offshore, made jobs more 
difficult to obtain, and lowered the income power of their citizens. 
While each country has had a somewhat unique experience, all follow a 
similar pattern: the government passes ambitious green energy laws; 
electricity prices rise as subsidies increase; and then the government 
considers amending or repealing its misguided policies.
    Australia, for example, having imposed a carbon tax, has now 
approved legislation to remove it. And, other countries that have 
subsidized renewable energy are slashing those subsidies due to the 
impact on their economies, electricity rates, and energy poverty 
levels. This testimony will highlight carbon restriction policies in 
the European Union (EU) and Australia and their resulting impact.
                european union emissions trading scheme
    The Emissions Trading Scheme (ETS) was launched by the EU in 
January 2005 as an attempt to comply with the 1997 Kyoto Protocol. It 
was the world's first cross-border greenhouse gas emissions (GHG) 
trading program, regulating more than 11,500 installations and about 45 
percent of total EU carbon dioxide emissions. Under the ETS, European 
companies must hold permits to allow them to emit carbon dioxide. A 
certain number of those permits were distributed at no cost to the 
industries that must reduce their output of carbon dioxide emissions. 
If businesses emit less carbon dioxide than the permits they hold, they 
can either keep the excess permits for future use or sell the excess 
permits and make a profit on them.
    The early results of the program were that EU emissions were not 
significantly lowered until the global recession hit in 2008, which 
lowered emissions for all countries. There were also misuses and abuses 
in the system because of its complexity, politicized decisionmaking, 
and the incentive to manipulate it.
    Before the global recession hit, some EU countries saw faster 
carbon dioxide emissions growth than the United States which was not 
subject to the policy. From 2000 to 2006, the rate of growth of 
European emissions under the cap-and-trade policy was almost 5 times 
higher than the rate of growth in emissions in the United States.\1\ 
After the global recession, however, EU carbon dioxide emissions in 
2009 were almost 8 percent below 2008 levels.\2\ Due to the global 
recession, carbon dioxide emissions, in many cases, were lowered below 
the targets set by the cap-and-trade policy, so companies did not have 
to take further actions to reduce their emissions.\3\ Severe downturns 
in economic activity result in significant reductions in emissions. 
Because the free allocation of permits was based on future estimates of 
higher emissions levels, which did not materialize, there were too many 
free government-issued permits. As a result, companies hit hard by the 
recession were able to make profits by selling the excess permits but 
chose not to pass those savings onto their customers. Consumers ended 
up paying higher energy and commodity costs; taxpayers paid for the 
program's implementation; and a new middleman was created to run the 
carbon permit trading program.\4\
    Europe found the costs of the program to be large. In 2006, 
individual business and sectors had to pay =24.9 billion for permits 
totaling over 1 billion tons. In 2011, the global carbon markets were 
valued at US$176 billion, with 10.3 billion carbon credits traded.\5\ 
The World Watch Institute estimated the costs of running a trading 
system designed to meet the EU's Kyoto obligations at about $5 billion. 
The costs of a trading system to meet the EU's commitments of a 20-
percent reduction by 2020 (against a 1990 baseline) were estimated to 
be about $80 billion annually.\6\
    Unlike traditional commodities, which at some time during the 
course of their market exchange must be physically delivered to 
someone, carbon credits do not represent a physical commodity, which 
makes them particularly vulnerable to fraud and other illegal activity. 
Carbon markets, like other financial markets, are at risk of 
exploitation by criminals due to the large amount of money invested, 
the immaturity of the regulations and lack of oversight and 
transparency. The illegal activities identified include \7\:

   Fraudulent manipulation of measurements to claim more carbon 
        credits from a project than were actually obtained;
   Sale of carbon credits that either do not exist or belong to 
        someone else;
   False or misleading claims with respect to the environmental 
        or financial benefits of carbon market investments;
   Exploitation of weak regulations in the carbon market to 
        commit financial crimes, such as money laundering, securities 
        fraud or tax fraud; and
   Computer hacking/ phishing to steal carbon credits and theft 
        of personal information.

    German prosecutors, for example, searched 230 offices and homes of 
Deutsche Bank, Germany's largest bank, and RWE, Germany's second-
biggest utility, to investigate 180 million euros ($238 million U.S.) 
of tax evasion linked to emissions trading. The U.K., France, and the 
Netherlands also investigated carbon traders, who committed fraud by 
collecting the tax, and disappearing without returning the tax funds. 
According to estimates from Bloomberg New Energy Finance, about 400 
million metric tons of emission trades may have been fraudulent in 
2009, or about 7 percent of the total market.\8\ Tax evasion linked to 
emissions trading is still a problem. This year, for example, Frankfurt 
prosecutors sought the arrest of a British national in connection with 
suspected tax fraud worth 58 million euros ($80 million).\9\
    Another problem is with the lack of predictability regarding the 
emissions permit price. Companies need to know the price for long-term 
planning to decide on what actions they should take. The EU permit 
price ranged by a factor of 3, but even at the higher price range, it 
was insufficient to meet the emission reduction targets before the 
global recession hit.\10\ A cap-and-trade policy is a highly complex 
system to implement because there are a large number of participants 
and the components of the system are difficult to get right as EU's 
experience has shown.
    Last year, the EU commenced phase three of the ETS toward meeting 
their target of a 40-percent reduction in greenhouse gas emissions 
below 1990 levels by 2030.\11\ Phase 3, which has a number of 
significant rule changes, will continue until 2020. As of 2011, carbon 
dioxide emissions of the original 27 member EU were just 8 percent 
below 1990 levels, and the majority of the reduction was achieved by 
the global recession. That means the EU has a long way to go to meet 
its target. In the meantime, energy prices have increased and more and 
more Europeans are facing fuel poverty, meaning they pay more than 10 
percent of their household income for energy.
    For example, industrial electricity prices are two to five times 
higher in the EU than in the United States and are expected to increase 
more.

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    Europe's once comfortable middle class is being pushed into energy 
poverty as a result of the carbon reduction measures and EU's renewable 
programs (discussed later). According to the European Commission, 
electricity prices in the Organization for Economic Cooperation (OECD) 
Europe have risen 37 percent more than those in the United States when 
indexed against 2005 prices. By 2020, at least 1.4 million additional 
European households are expected to be in energy poverty.
    EU's ETS and clean energy programs have not significantly reduced 
emissions, but rather have dramatically raised energy prices, increased 
national debt, driven businesses out of Europe, led to massive job 
losses and unemployment, greatly increased energy poverty, and have 
been plagued by fraud and corruption. This economic malaise, in turn, 
has made Europe less capable of expending funds for their national 
defense needs and has contributed to the weakening of multilateral 
defense organizations like NATO. The European members of NATO are now 
spending less than 2 percent of their GDP on defense spending, which is 
below NATO guidance.\12\
                         australia's carbon tax
    Australia implemented a carbon tax in 2012. Below is a schematic of 
Australia's plans, beginning in 2009, for a cap-and-trade program and 
carbon tax. The carbon tax, which is currently set at $24.15 Australian 
currency ($22.70 U.S.) per metric ton, was initially implemented in 
July 2012 and was designed as a precursor to a cap and trade scheme, 
with the transition to a flexible carbon price as part of the trading 
program beginning in 2015. The tax applies directly to around 370 
Australian businesses. But the September 7, 2013, election put a damper 
on the program.


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    Australia's new government wants to dismantle the legislation that 
levies fees on carbon emissions and replace it with taxpayer funded 
grants to companies and projects that reduce emissions. The Emissions 
Reduction Fund would be funded at A$2.55 billion ($2.4 billion 
U.S.).\13\ Repealing Australia's carbon tax on July 1, 2014, is 
estimated to \14\:

   Reduce the cost of living of its citizens--the Australian 
        Treasury estimates that removing the carbon tax in 2014 to 2015 
        will reduce the average costs of living across all households 
        by about $550 more than they would otherwise be in 2014 to 
        2015.
   Lower the cost of retail electricity by around 9 percent and 
        retail gas prices by around 7 percent than they would otherwise 
        be in 2014 to 2015.
   Boost Australia's economic growth, increase jobs and enhance 
        Australia's international competitiveness by removing an 
        unnecessary tax, which hurts businesses and families.
   Reduce annual ongoing compliance costs for around 370 
        entities by almost $90 million per annum.
   Remove over 1,000 pages of primary and subordinate 
        legislation.

    Australia's lower House of Parliament voted to scrap the carbon tax 
on July 14, and the Australian Senate voted in favor on July 17, 
2014.\15\ According to Tony Abbott, Australian Prime Minister speaking 
at a news conference, ``Today the tax that you voted to get rid of is 
finally gone, a useless destructive tax which damaged jobs, which hurt 
families' cost of living and which didn't actually help the environment 
is finally gone.'' The repeal will save Australian voters and business 
around A$9 billion ($8.4 billion U.S.) a year.\16\
    Australia's residents found the carbon tax experience to include 
soaring electricity prices, rising unemployment, income tax hikes, and 
additional command-and-control regulations. Electricity prices 
increased 15 percent over the course of a year (which included the 
highest quarterly increase on record), and companies laid off workers 
because of the tax.

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    Further, government data shows that the tax had not reduced the 
level of Australia's domestically produced carbon dioxide emissions, 
which is not surprising, since under the carbon tax Australia's 
domestic emissions were not expected to fall below current levels until 
2045.\17\
                     renewable subsidies in europe
    As part of Europe's effort to reduce greenhouse gas emissions to 
comply with the Kyoto Protocol, EU set mandates for renewable 
generation (20 percent of its electricity to be generated by renewable 
energy by 2020) coupled with hefty renewable subsidies as enticements. 
The Europeans have found that these subsidies have grown too large, are 
hurting their economies, and as a result, they are now slashing the 
subsidies. In fact, the costs have become so enormous that governments 
in European countries are unilaterally rewriting their contracts with 
renewable generating firms and reneging on the generous deals they 
initially provided. Spain, for example, ended its feed-in tariff, which 
guaranteed an extremely high price for renewable power, replacing it 
with either a much lower subsidy or no subsidy, depending on the 
circumstance.
Spain
    In order to enhance renewable energy sources in Spain, the 
Government enacted legislation to reach 20 percent of electric 
production from qualified renewable energy by 2010. To meet this 
target, the government found it needed to provide incentives to ensure 
the market penetration of renewable energy, including providing above-
market rates for renewable-generated electricity and requiring that 
electric utility companies purchase all renewable energy produced.
    In 1994, Spain implemented feed-in tariffs to jump start its 
renewable industry by providing long-term contracts that pay the owners 
of renewable projects above-market rates for the electricity 
produced.\18\ Because renewable technologies generally cost more than 
conventional fossil fuel technologies, the government guaranteed that 
renewable firms would get a higher cost for their technologies. But, 
because the true costs of renewable energy were never passed on to the 
consumers of electricity in Spain, the government needed to find a way 
to make renewable power payments and electricity revenues meet.
    Since 2000, Spain provided renewable producers $41 billion more for 
their power than it received from its consumers.\19\ (For reference, 
Spain's economy is about one-twelfth the size of the U.S. economy.) In 
2012, the discrepancy between utility payments to renewable power 
producers and the revenue they collected from customers was 5.6 billion 
euros ($7.3 billion), despite the introduction of a 7-percent tax on 
generation.\20\ The 2012 gap represented a 46-percent increase over the 
previous year's shortfall.
    This massive rate deficit should not come as a surprise. For 5 
years, IER has warned of this problem beginning when Dr. Gabriel 
Calzada released his paper on the situation in Spain and testified 
before Congress.\21\ He found that Spain's ``green jobs'' agenda 
resulted in job losses elsewhere in the country's economy. For each 
``green'' megawatt installed, 5.28 jobs on average were lost in the 
Spanish economy; for each megawatt of wind energy installed, 4.27 jobs 
were lost; and for each megawatt of solar installed, 12.7 jobs were 
lost. Although solar energy may appear to employ many workers in the 
plant's construction, in reality it consumes a large amount of capital 
that would have created many more jobs in other parts of the economy. 
The study also found that 9 out of 10 jobs in the renewable industry 
were temporary.\22\, \23\
    Spain's unemployment rate has more than doubled between 2008 and 
2013. In January 2013, Spain's unemployment rate was 26 percent, the 
highest among EU member states.\24\ Spain's youth unemployment (under 
the age of 25) reached 57.7 percent in November 2013, surpassing 
Greece's youth unemployment rate of 54.8 percent in September 2013.\25\

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    The Spanish Government did not believe Dr. Calzada 5 years ago, but 
they have now been hit in the face with reality. To recover the lost 
revenues from the extravagant subsidies, the Spanish Government ended 
its feed-in tariff program for renewables, which paid the renewable 
owners an extremely high guaranteed price for their power as can be 
seen by the deficit. Currently, renewable power in Spain gets the 
market price plus a subsidy which the country deems more 
``reasonable.'' Companies' profits are capped at a 7.4-percent return, 
after which renewable owners must sell their power at market rates. The 
measure is retroactive to when the renewable plant was first built.\26\ 
Therefore, some renewable plants, if they have already received the 7.4 
percent return, are receiving only the market price for their 
electricity.
    Further, wind projects built before 2005 will no longer receive any 
form of subsidy, which affects more than a third of Spain's wind 
projects. As a consequence of the government's actions to rein in their 
subsidies and supports, Spain's wind sector is estimated to have laid 
off 20,000 workers.
    The Spanish Government also slashed subsidies to solar power, 
subsidizing just 500 megawatts of new solar projects, down from 2,400 
megawatts in 2008.\27\ Its solar sector, which once employed 60,000 
workers, now employs just 5,000. In 2013, solar investment in Spain 
dropped by 90 percent from its 2011 level of $10 billion.
    Spain's 20 percent renewable energy share of generation from wind 
and solar power has come at a very high cost to the nation.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

Germany
    In Germany, as part of the country's ``Energiewende,'' or ``energy 
transformation,'' electric utilities have been ordered to generate 35 
percent of their electricity from renewable sources by 2020, 50 percent 
by 2030, 65 percent by 2040, and 80 percent by 2050. To encourage 
production of renewable energy, the German government instituted a 
feed-in tariff early, even before Spain.
    In 1991, Germany established the Electricity Feed-in Act, which 
mandated that renewables ``have priority on the grid and that investors 
in renewables must receive sufficient compensation to provide a return 
on their investment irrespective of electricity prices on the power 
exchange.'' \28\ In other words, utilities are required to purchase 
electricity from renewable sources they may not want or need at above-
market rates. For example, solar photovoltaics had a feed-in tariff of 
43 euro cents per kilowatt hour ($0.59 U.S. per kilowatt hour), over 8 
times the wholesale price of electricity and over four times the feed-
in tariff for onshore wind power. A subsequent law passed in 2000, the 
Renewable Energy Act (EEG), extended feed-in tariffs for 20 years.\29\
    Originally, to allow for wind and solar generation technologies to 
mature into competitive industries, Germany planned to extend the 
operating lives of its existing nuclear fleet by an average of 12 
years. But, the Fukushima nuclear accident in Japan caused by a tsunami 
changed Germany's plans and the country quickly shuttered eight nuclear 
reactors and is phasing out its other nine reactors by 2022, leaving 
the country's future electricity production mostly to renewable energy 
and coal.\30\
    Coal consumption in Germany in 2012 was the highest it has been 
since 2008, and electricity from brown coal (lignite) in 2013 reached 
the highest level since 1990 when East Germany's Soviet-era coal plants 
began to be shut down. German electricity generation from coal 
increased to compensate for the loss of the hastily shuttered nuclear 
facilities. Germany is now building new coal capacity at a rapid rate, 
approving 10 new coal plants to come on line within the next 2 years to 
deal with expensive natural gas generation and the high costs and 
unreliability of renewable energy.\31\ As a result, carbon dioxide 
emissions are increasing.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    In 2013, Germany's carbon dioxide emissions increased by 2.4 
percent over 2012 levels.\32\

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    While the United States is using low cost domestic natural gas to 
lower coal-fired generation, in Germany, the cost of natural gas is 
high since it is purchased at rates competitive with oil. Also, Germany 
is worried about its natural gas supplies since it gets a sizable 
amount from Russia. While domestic shale gas resources are an 
alternative, particularly since the Germans are hydraulic fracturing 
pioneers and have used the technology to extract tight gas since the 
1960s, Germany's Environment Minister has proposed a prohibition on 
hydraulic fracturing until 2021 in response to opposition from the 
Green Party.\33\ According to the Energy Information Administration, 
Germany has 17 trillion cubic feet of technically recoverable shale gas 
resources.\34\
    Germany has some of the highest costs of electricity in Europe and 
its consumers are becoming energy poor. In 2012, the average price of 
electricity in Germany was 36.25 cents per kilowatt hour,\35\ compared 
to just 11.88 cents for U.S. households, triple the U.S. average 
residential price.\36\ These prices led Germany's Energy Minister to 
recently caution that they risk the ``deindustrialization'' of the 
economy.
    In addition to high electricity prices, Germans are paying higher 
taxes to subsidize expensive green energy. The surcharge for Germany's 
Renewable Energy Levy that taxes households to subsidize renewable 
energy production increased by 50 percent between 2012 and 2013--from 
=3.6 cents (4.97 U.S. cents) to =5.28 cents (6.7 cents) per kilowatt 
hour, costing a German family of four about =250 ($324) per year, 
including sales tax.\37\ The German Government raised the surcharge 
again at the start of this year by 18 percent to =6.24 cents per 
kilowatt hour (8.61 U.S. cents) representing about a fifth of 
residential utility bills,\38\ making the total feed-in tariff support 
for 2014 equal to =21.5 billion ($29.6 billion).\39\ As a result, 80 
German utilities had to raise electricity rates by 4 percent, on 
average, in February, March, and April of this year.
    The poor suffer disproportionately from higher energy costs because 
they spend a higher percentage of their income on energy. As many as 
800,000 Germans have had their power cut off because of an inability to 
pay for rising energy costs, including 200,000 of Germany's long-term 
unemployed.\40\
    Adding to this is a further disaster. Large offshore wind farms 
have been built in Germany's less populated north and the electricity 
must be transported to consumers in the south. But, 30 wind turbines 
off the North Sea island of Borkum are operating without being 
connected to the grid because the connection cable is not expected to 
be completed until sometime later this year. Further, the seafloor must 
be swept for abandoned World War II ordnance before a cable can be run 
to shore. The delay will add $27 million to the $608 million cost of 
the wind park. And, in order to keep the turbines from rusting, the 
turbines are being run with diesel.\41\ \42\
    Germany's power grid has been strained by new wind and solar 
projects both on and offshore, making the government invest up to $27 
billion over the next decade to build about 1,700 miles of high-
capacity power lines and to upgrade existing lines. The reality is that 
not only is renewable energy more expensive, but it also requires 
expensive transmission investments that existing sources do not, thus 
compounding the impact on consumers and businesses.
    Germany knows reforms are necessary. On January 29, the German 
Cabinet backed a plan for new commercial and industrial renewable power 
generators to pay a charge on the electricity they consume. As part of 
the reform of the Renewable Energy Sources Act, the proposal would 
charge self generators 70 percent of the renewable subsidy surcharge, 
(i.e. the =6.24 cents per kilowatt hour). Under the proposal, the first 
10 megawatt hours would be exempt for owners of solar photovoltaic 
projects that are less than 10 kilowatts. According to the German Solar 
Energy Industry Association, about 83 percent of solar self generators 
would be subject to the new charge. Another reform being considered is 
a reduction in the feed-in tariff from the current average of =17 cents 
(23.47 U.S. cents) per kilowatt hour to =12 cents (16.56 U.S. cents) 
per kilowatt hour.\43\
    On July 11, Germany's upper House of Parliament passed changes to 
the Renewable Energy Sources Act, which will take effect as planned on 
August 1. The law lowers subsidies for new green power plants and 
spreads the power-price surcharge more equally among businesses.\44\
United Kingdom
    Unlike Spain and Germany, the United Kingdom (U.K.) started its 
feed-in-tariff program to incentivize renewable energy relatively late, 
in 2010.\45\ Hydroelectric, solar, and wind units all have specified 
tariffs that electric utilities must pay for their energy, which are 
above market rates. Like the other countries, the U.K. has a mandate 
for renewable energy. The United Kingdom is targeting a 15-percent 
share of energy generated from renewable sources in gross final energy 
consumption and a 31-percent share of electricity demand from 
electricity generated from renewable sources by 2020.\46\ The U.K. 
generates about 12 percent of its electricity from renewable energy 
today. The increased renewable power will cost consumers 120 pounds a 
year (about $200) above their current average energy bill of 1,420 
pounds ($2,362).\47\
    The U.K. is closing coal-fired power plants to reduce carbon 
dioxide emissions in favor of renewable energy. In the U.K., 8,200 
megawatts of coal-fired power plants have been shuttered, with an 
additional 13,000 megawatts at risk over the next 5 years, according to 
the Confederation of U.K. Coal Producers.\48\ The U.K.'s energy 
regulator is worried that the amount of capacity over-peak demand this 
winter will be under 2 percent--a very low, scary amount for those 
charged with keeping the lights on--and the lowest in Western Europe.
    Beginning in January 2016, the European Union will require electric 
utilities to add further emission reduction equipment to plants or 
close them by either 2023 or when they have run for 17,500 hours. 
Because the equipment is expensive, costing over 100 million pounds 
($167 million) per gigawatt of capacity, only one U.K. electricity 
producer has chosen to install the required technology. Most of the 
existing coal-fired plants are expected to be shuttered since only one 
coal-fired power plant has been built in the U.K. since the early 
1970s.
    To deal with the reliability issue, the U.K. Government is hosting 
an auction for backup power, but it is unclear how it will work. 
According to the Department for Energy and Climate Change, electricity 
producers will be able to bid in an auction to take place this December 
to provide backup power for 2018. The program, called a capacity 
market, is expected to ensure sufficient capacity and security of 
supply. The Department estimates that the U.K. power industry needs 
around 110 billion pounds ($184 billion) of investment over the next 10 
years.
    The Renewable Energy Foundation (REF) estimates that consumers 
currently pay more than 1 billion ($1.66 billion) a year in 
subsidies to renewable energy producers--twice the wholesale cost of 
electricity. Those subsidies are expected to increase to 6 
billion ($10 billion) a year by 2020 to meet a 30 percent target of 
providing electricity from renewable energy.\49\ As a result, a growing 
number of U.K. households are in energy poverty. In 2003, roughly 6 
percent of the United Kingdom's population was in energy poverty; a 
decade later, nearly one-fifth of the nation's population is in energy 
poverty.
              percent of u.k. households in energy poverty

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    As a result, the government has proposed that renewable companies 
sell their electricity to the national grid under a competitive bidding 
system. The new proposal limits the total amount of subsidies available 
for green energy, which were previously effectively limitless. The 
reduction in subsidies has led to renewable developers scrapping plans 
amid claims that the proposal will make future renewable development 
unprofitable.\50\
    The U.K. is both cutting the level of their feed-in tariffs and the 
length of time they are available. Effective July 1, 2013, the feed-in 
tariff for solar generated electricity was reduced from 15.44 pence (24 
cents U.S.) to 14.90 pence per kilowatt hour. In October 2011, it was 
43.3 pence (67.5 cents U.S.) per kilowatt hour--almost three times the 
reduced level.\51\ Also, the length of time for the subsidy entitlement 
is being reduced--for example, it will be 15 years instead of 20 years 
for wind farms built after 2017. The reductions indicate that the 
original subsidies were overgenerous and that wind turbines are 
unlikely to have an economic life of 20 years.\52\
    But, according to the Climate Change Committee (CCC), without 
tougher action, Britain will miss its 31 percent target of cutting 
emissions, managing only a 21-percent reduction instead, which will 
hinder meeting its commitment to cut greenhouse gas emissions by 80 
percent of 1990 levels by 2050. The CCC called for more progress on 
insulating homes, promoting the uptake of ground source and air source 
heat pumps, and investment in support for electric vehicles. It also 
urged the U.K. to end the ``high degree of uncertainty'' about its 
support for renewable energy and provide funding for commercializing 
offshore wind.\53\
Italy
    Similar to Germany and Spain, Italy also used feed-in tariffs to 
spur renewable development, and found it too costly. In 2005, Italy 
introduced its solar subsidy plan, providing solar power with premiums 
ranging from Euro 0.445 ($0.60 U.S.) per kilowatt hour to euro 0.490 
($0.66 U.S.) per kilowatt hour.\54\ That subsidy resulted in the 
construction of more than 17,000 megawatts of solar capacity. In 2011, 
Italy's solar market was the world's largest, but that market has 
slowed due to the removal of subsidies.
    Italy ceased granting feed-in tariffs for new installations after 
July 6, 2013, because its subsidy program had reached its budget cap--a 
limit of 6.7 billion euros ($8.9 billion) as of June 6, 2013. The law 
restricts above-market rates for solar energy a month after the 
threshold is reached. Without tariffs, the Italian solar market will 
need to depend on net metering (where consumers can sell the power they 
generate themselves to the grid) and income tax deductions for 
support.\55\
    Italy also undertook other measures. In 2012, the government 
charged all solar producers a five-cent tax per kilowatt hour on all 
self-consumed energy. The government also curtailed purchasing power 
from solar self generators when their output exceeded the amount the 
system needed. Those provisions were followed in 2013 by the government 
instituting a ``Robin Hood tax'' of 10.5 percent to renewable energy 
producers with more than =3 million ($4.14 million) in revenue and 
income greater than =300,000 ($414,000).\56\
    According to Italy's solar industry, the result of these and other 
changes has been a surge in bankruptcies and a massive decrease in 
solar investment.
                       europe's wood consumption
    Besides incentivizing wind and solar generation, EU is also 
consuming wood to satisfy its renewable mandate of 20 percent of 
generation from renewable energy by 2020. According to the Economist, 
wood, the fuel of preindustrial societies, represents about half of all 
renewable energy consumed in the European Union in some form or 
another--sticks, pellets, sawdust.\57\ In Poland and Finland, for 
example, wood supplies more than 80 percent of renewable energy demand. 
In Germany, despite its push and subsidization of wind and solar power, 
38 percent of nonfossil fuel consumption comes from wood.
    According to the International Wood Markets Group, Europe consumed 
13 million metric tons of wood pellets in 2012 and its demand is 
expected to increase to 25 to 30 million tons a year by 2020. According 
to the National Firewood Association, the 2012 European consumption of 
wood pellets is equivalent to over 4 million cords of wood, which 
equates to over 4 million ``big'' trees and over 8 million ``average 
size'' trees.\58\
    Because Europe does not produce enough timber to meet this demand, 
imports of wood pellets are increasing. They increased by 50 percent in 
2010. According to the European Pellet Council, global trade in wood 
pellets is expected to increase five- or six-fold to 60 million metric 
tons by 2020. Much of that will come from new wood-exporting businesses 
that are booming in western Canada and the southern United States. 
According to a report by Wood Resources International, the southern 
United States surpassed Canada last year as the leading exporter of 
wood pellets to Europe, exporting in excess of 1.5 million tons. Those 
exports are expected to reach 5.7 million tons in 2015. During the 
third quarter of 2012, three companies announced plans for new pellet 
plants in Georgia and six others were under construction in the south, 
together adding as much as 4.2 million tons of capacity by 2015.\59\
    The increase in wood consumption has caused an escalation in 
prices. According to data published by Argus Biomass Markets, an index 
of wood-pellet prices increased by 11 percent, from 116 euros ($152) a 
metric ton in August 2010 to 129 euros ($169) a metric ton at the end 
of 2012. Since the end of 2011, prices for hardwood from western Canada 
increased by about 60 percent.\60\
    Wood use in Europe, however, is not carbon neutral. In theory, if 
the biomass used to power electricity comes from energy crops, the 
carbon generated from combustion would be offset by the carbon that is 
captured and stored in the newly planted crops, making the process 
carbon-neutral. The wood that Europe is using produces carbon through 
combustion at the power station and in the manufacture of the pellets 
that includes grinding the wood up, turning it into dough and 
submitting it under pressure. The process of producing the pellets, 
combusting them, and transporting them produces carbon--about 200 
kilograms of carbon dioxide for each megawatt hour of electricity 
generated.
    A researcher at Princeton University calculated that if whole trees 
are used to produce energy, they would increase carbon emissions 
compared with coal by 79 percent over 20 years and 49 percent over 40 
years and that there would be no carbon reduction for 100 years until 
the replacement trees have matured.
                     europe's natural gas supplies
    Europe is worried about continually receiving the 30 percent of its 
natural gas supplies that it receives from Russia, but instead of 
embracing hydraulic fracturing and horizontal drilling on domestic 
soil, it is looking toward the United States to export LNG to them. 
According to a leaked document, the European Union is making its desire 
to import more oil and natural gas from the United States very clear in 
the discussions over the Transatlantic Trade and Investment Partnership 
(TTIP) trade deal. The EU is pressuring the United States to lift its 
ban on crude oil exports and make it easier to export natural gas to 
Europe. The EU emphasizes the TTIP's role in ``reinforcing the security 
of supply'' of energy for the member countries, pointing to the 
political situation in the Ukraine as a key reason to relax rules 
against U.S. exports. ``The current crisis in Ukraine confirms the 
delicate situation faced by the EU with regard to energy dependence,'' 
the document states. ``Of course the EU will continue working on its 
own energy security and broaden its strategy of diversification. But 
such an effort begins with its closest allies.'' \61\
    EU could start by developing its shale gas resources throughout its 
member countries. According to the Energy Information Administration, 
Europe has an estimated 470 trillion cubic feet of technically 
recoverable shale gas resources, around 80 percent of the U.S. 
estimated endowment of 567 trillion cubic feet.\62\ As previously 
mentioned, Germany has proposed a prohibition against hydraulic 
fracturing through 2021. France, which has the second-largest estimated 
shale gas resources in Europe, has a hydraulic fracturing ban through 
at least 2017 and Bulgaria also forbids hydraulic fracturing. Poland, 
which has Europe's largest technically recoverable shale gas resources 
at 148 trillion cubic feet, is interested in developing those 
resources, but has geology problems demonstrated by poor results from 
exploratory drilling. Several other European countries are now 
interested in developing their shale gas resources, such as the U.K., 
the Netherlands, Denmark, and Romania, but none of the European shale-
gas exploration efforts are close to being ready for commercial 
development.\63\
                               conclusion
    As the Washington Post indicated: ``Cap-and-trade regimes have 
advantages, notably the ability to set a limit on emissions and to 
integrate with other countries. But they are complex and vulnerable to 
lobbying and special pleading, and they do not guarantee success.'' 
\64\
    The European Union has found this to be the case, for their cap-
and-trade program did not achieve the intended targets, but made many 
companies wealthier which in turn resulted in higher energy prices for 
consumers. Other ``green'' energy programs have had similar results in 
producing higher electricity prices and large subsidies for 
technologies that contribute only small amounts to their countries' 
electricity needs. Countries that have enacted these programs have 
found them to be very costly and are now slashing those subsidies 
because the governments and the consumers cannot afford them.
    It is unclear what benefit the EU and Australia's climate and 
``green'' energy policies have achieved. Any reduction in carbon 
dioxide emissions that developed countries make will just be a ``drop 
in the bucket'' because total global greenhouse gas emissions will 
increase as China, the world's largest emitter of carbon dioxide 
emissions, and other developing countries continue to improve their 
economies by using fossil fuels. These developing countries believe it 
is their turn to develop their economies and to provide energy to their 
citizens, many of which do not even have electricity. As a result, they 
either refuse to participate in global climate change programs or have 
track records of not enforcing such programs.
    The climate policies of both Europe and Australia have not only 
driven up their energy prices, but have also harmed their economies and 
reduced their security capabilities. Because Europe is dependent on 
natural gas from Russia, it has secretly asked the United States to 
speed up its review of LNG applications. Europe is clearly worried 
about further Russian aggression and availability of its natural gas 
supplies.
    Australia has learned and repealed its carbon tax with Senate 
approval on July 17. According to Tony Abbott, Australia's Prime 
Minister, in releasing the news of the passage of the repeal 
legislation to Australia's citizens, ``We are honoring our commitments 
to you and building a strong and prosperous economy for a safe and 
secure Australia.'' \65\
    Europe and the United States need to learn that energy security 
requires energy diversity. For example, during the cold spell in the 
U.S. Northeast this past winter, natural gas prices spiked because of 
lack of infrastructure. Lights were kept on due to the availability of 
coal and nuclear units. But many of those units are now being 
shuttered, which means that during next winter, the lights may go out 
in the Northeast.

----------------
End Notes

    \1\ Energy Information Administration, International Energy Data 
Base.
    \2\ Ibid.
    \3\ The Wall Street Journal, Cap and Trade Doesn't Work, June 25, 
2009.
    \4\ The Wall Street Journal, Cap and Trade Doesn't Work, June 25, 
2009.
    \5\ Interpol, Guide to Carbon Trading Crime, June 2013.
    \6\ The Wall Street Journal, Cap and Trade Doesn't Work, June 25, 
2009.
    \7\ Interpol, Guide to Carbon Trading Crime, June 2013.
    \8\ Bloomberg, Deutsche Bank, RWE raided in German probe of CO2 
tax, April 28, 2010.
    \9\ Reuters, Germany seeks arrest of Briton in carbon trading scam, 
April 10, 2014.
    \10\ Bloomberg, Deutsche Bank, RWE raided in German probe of CO2 
tax, April 28, 2010.
    \11\ European Commission, The EU Emissions Trading System.
    \12\ Defense News, U.S. Pushes NATO Allies to Boost Defense 
Spending, May 3, 2014.
    \13\ Huffington Post, Australia's Carbon Tax Set for Final 
Showdown, July 14, 2014.
    \14\ Department of the Environment, Australian Government, 
Repealing the Carbon Tax.
    \15\ ABC, Senate Passes Legislation to Repeal Carbon Tax, July 17, 
2014.
    \16\ Wall Street Journal, Australia Becomes First Developed Nation 
to Repeal Carbon Tax, July 17, 2014.
    \17\ Australia's Carbon Tax: An Economic Evaluation, September 
2013.
    \18\ Institute for Building Efficiency, Feed-In Tariffs: A Brief 
History.
    \19\ Financial Post, Governments Rip Up Renewable Contracts, March 
19, 2014.
    \20\ Bloomberg, Spain's Power Deficit Widens by 46 Percent as Steps 
to Close Gap Founder, April 25, 2014.
    \21\ Institute for Energy Research, August 6, 2009.
    \22\ Study of the effects on employment of public aid to renewable 
energy sources, Universidad Rey Juan Carlos, March 2009.
    \23\ Eagle Tribune, Cap-and-trade bill is an economy-killer, June 
28, 2009.
    \24\ The Failure of Global Carbon Policies, June 11, 2014.
    \25\ Spain Youth Unemployment Rises to Record 57.7 Percent, 
Surpasses Greece, January 8, 2014.
    \26\ Financial Post, Governments Rip Up Renewable Contracts, March 
19, 2014.
    \27\ Wall Street Journal, ``Darker Times for Solar-Power 
Industry,'' May 11, 2009.
    \28\ Heinrich Booll Foundation, Energy Transition: The German 
Energiewende.
    \29\ Institute for Building Efficiency, Feed-In Tariffs: A Brief 
History, Aug. 2010.
    \30\ German Federal Ministry of Economics and Technology and 
Ministry for the Environment, Nature Conservation and Nuclear Safety.
    \31\ Forbes, ``Germany's Energy Goes Kaput, Threatening Economic 
Stability,'' December 30, 2013.
    \32\ BP Statistical Review of World Energy 2014.
    \33\ Wall Street Journal, Germany's fracking follies, July 7, 2014.
    \34\ Energy Information Administration, Technically Recoverable 
Shale Oil and Shale Gas Resources: An Assessment of 137 Shale 
Formations in 41 Countries Outside the United States, June 2013.
    \35\ Europe's Energy Portal Germany Energy Prices Report.
    \36\ U.S. Energy Information Administration, Monthly Energy Review.
    \37\ Tree Hugger, German Electricity Tax Rises 50 Percent to 
Support Renewable Energy, October 17, 2012.
    \38\ Reuters, Five million German families faced with higher power 
bills, February 24, 2014.
    \39\ Frontier Economics, German renewable energy levy will rise in 
2014.
    \40\ The Australian, Europe Pulls the Plug on its Green Energy 
Future, August 10, 2013.
    \41\ New York Times, Germany's Effort at Clean Energy Proves 
Complex, September 18, 2013.
    \42\ Renewables International, First municipal offshore wind farm 
awaits grid connection, June 25, 2014.
    \43\ Bloomberg, Germany moots levy on renewable power use, February 
4, 2014.
    \44\ Wall Street Journal, Germany's Upper House Passes Renewable 
Energy Law, July 11, 2014.
    \45\ Institute for Building Efficiency, Feed-In Tariffs: A Brief 
History, Aug. 2010.
    \46\ International Energy Agency, Global Renewable Energy, National 
Renewable Energy Action Plan.
    \47\ Bloomberg, Green Rules Shuttering Power Plants Threaten UK 
Shortage, March 19, 2014.
    \48\ Bloomberg, Green Rules Shuttering Power Plants Threaten UK 
Shortage, March 19, 2014.
    \49\ The Telegraph, Wind farms subsidies cut by 25 percent, July 
14, 2013.
    \50\ The Telegraph, Wind farm plans in tatters after subsidy 
rethink, March 2, 2014.
    \51\ Mail Online, Solar panel payments are about to fall again but 
the cost of buying them is falling too--so is it still worth 
investing?, June 14, 2013.
    \52\ The Telegraph, Wind farms subsidies cut by 25 percent, July 
14, 2013.
    \53\ The Global Warming Policy Foundation, Proposals to Step up 
Unilateral Climate Policy Will Trigger ``Astronomical Costs,'' Peiser 
Warns, July 15, 2014.
    \54\ International Energy Agency, Global Renewable Energy, ``Old'' 
Feed In Premium for Photovoltaic Systems.
    \55\ Bloomberg, Italy Set to Cease Granting Tariffs for New Solar 
Projects, June 11, 2013.
    \56\ Financial Post, Governments Rip Up Renewable Contracts, March 
18, 2014.
    \57\ Economist, Wood The Fuel of the Future, April 6, 2013.
    \58\ National Firewood Association, Biomass Called Environmental 
Lunacy, April 10, 2013.
    \59\ Dogwood Alliance, The Use of Whole Trees in Wood Pellet 
Manufacturing, November 13, 2012.
    \60\ Argus Biomass Markets.
    \61\ Huffington Post, Secret Trade Doc Calls for More Oil and Gas 
Exports to Europe, July 8, 2014.
    \62\ Energy Information Administration, Technically Recoverable 
Shale Oil and Shale Gas Resources: An Assessment of 137 Shale 
Formations in 41 Countries Outside the United States, June 2013.
    \63\ Europe wants the energy, but not the fracking, July 15, 2014.
    \64\ The Washington Post, Climate Change Solutions, February 16, 
2009.
    \65\ Australia's carbon tax has been axed as repeal bills clear the 
Senate, July 17, 2014.

    Senator Markey. Thank you, Ms. Hutzler. Good to see you 
again.
    She did not say that she agreed with me on everything, but 
we are old pals from these debates in the past.
    Let me just begin by saying I think Senator Murphy and I 
agree that if there is any crook in any part of the energy 
sector anywhere in the world, that they should be cuffed, 
tried, and jailed. So we can agree with that, and it does not 
make any difference if we are talking about Gazprom or we are 
talking about Enron or we are talking about anything else that 
has fraudsters in it. The surest and certain way of policing 
that is to just make sure that the cops come in and arrest them 
in front of everybody else, and then the mothers of everyone 
else are just so ashamed they call their son or daughter and 
just say: I hope you are not doing the same thing in the energy 
market. So let us just hope we have cops on the beat.
    In addition, I think what I would just like to say is we do 
have a cap-and-trade system in the United States. We call it 
the Regional Greenhouse Gas Initiative. It is all of New 
England plus New York and Maryland and Delaware. There has not 
been any accusations of rampant corruption. Moreover, we have 
actually seen a 40-percent reduction in greenhouse gases in 
that sector over the last 8 years. And, very interestingly, 
electricity prices have gone down over that same period of 
time. So I would just like to stipulate that.
    Let me begin with you, Admiral Titley. Could you talk a 
little bit about your own views on climate change and its 
interrelationship with defense policy? What has happened over 
the years, in your own thinking?
    Admiral Titley. Thanks very much, Senator, for that 
question. It is, I think, a matter of public record: it is on a 
TED Talk and a number of other places, I actually started out 
as a pretty big skeptic regarding climate change. I was trained 
as a meteorologist. I sometimes tell people I am a recovering 
forecaster. And I lived and died by the computer models. Back 
when I was going to college, they frankly were not much good 
more than about 2, maybe 3 days out, probably 2 days out.
    When you were running naval oceanography, it was really all 
weather and it was the tactical side of the ocean. So that is 
pretty much what I did for quite a long time. The climate 
continued to change and, by the 2000s, as I was becoming a 
senior officer, you start looking--we call it looking a little 
bit beyond the horizon--and you start seeing these issues. ADM 
Gary Roughead, then Chief of Naval Operations, asked me to come 
up to Washington from my current job and start running a task 
force on climate change.
    The first thing I did is I kind of fell back on my training 
as a navigator. I probably have to remind half the people in 
here, there was a time that we did not have Global Positioning 
Systems, so I actually had to use a sextant, and you had to use 
all the data. So that is what I did; I wanted to look at all 
the data, not trusting any one piece of data entirely.
    So I looked at how much radiation are we getting from the 
sun, how much heat and energy are we getting from the sun? What 
else could be causing this? Scientists sort of wanted to try to 
disprove the theory. And you would look at these independent 
lines of evidence, very similar to how you would navigate a 
ship: air temperatures, sea temperatures, ocean ice melting, 
land ice melting, ecosystems moving either Pole-ward or north-
ward.
    All of this came to support what I call cutting edge, 19th 
century science, a bunch of old dead white guys. Fourier, 
Tindall, Arnhus basically had kind of figured out the theory 
back between 1842 and 1895. We are simply refining that, but 
that is what it is. And I came to my independent conclusion 
that that is what we are doing.
    So I am sort of like the reformed smoker. I am probably the 
worst type of climate person here because I started out really 
not seeing that. If somebody else wants to ask, I can tell 
people why climate models are good for 30 or 50 years or more, 
but weather models still have trouble after a few days.
    Thank you, sir.
    Senator Markey. But do you have to be a weatherman to 
predict that the defense of our Nation is going to be affected 
by the changes in the climate?
    Admiral Titley. No, sir, and that is the beauty of the 
Military Advisory Board: it is comprised of 16 admirals and 
generals, all except for myself and Royal Navy ADM Neil 
Morisetti are three and four stars, and none of those three and 
four stars are either weather or oceanography experts. They are 
war-fighting admirals and generals. So they deal with the 
specialty branches, be it logistics, intelligence, and so forth 
every day in their professional lives. They are paid to make 
assessments.
    What they see is a change in our physical battle space. 
And, just like the Department of Defense looks at, and war-
fighting commanders look at, changes in demographics, 
economics, political environments, we would frankly be 
negligent if we did not plan for the chance and for the risk of 
these changes in the climate. Large consequence, not exactly 
known probability, but we would be negligent if we said, well, 
it is not going to happen.
    Senator Markey. Mr. Breen, a lot of people again say that 
oil and gas are just the same as any other commodity; it is no 
different from a computer chip or a watch. And I suppose the 
Swiss Army might go to war over watches, but I am not sure many 
other countries would. Can you talk a little bit about that and 
the special role that oil and gas do play and how we should be 
viewing that from the perspective of the United States?
    Mr. Breen. Sure, Mr. Chairman. Thanks for the question. I 
think the difference between oil and gas and other commodities 
is these energy commodities are strategic commodities. They are 
things that every advanced economy in the world is dependent on 
in order to function and survive, that every advanced military 
needs in order to fight.
    For example, oil is a great example of this. The U.S. 
transportation sector, over 93 percent of our transportation 
sector is dependent on oil to move. This is, as we all know, it 
is a globally traded, fungible commodity. There is a highly 
integrated global market for it, which means that events that 
happen anywhere in the world affect our supply, which affects 
in turn, because we are not diversified, I would argue, because 
we are single source dependent on this one commodity, we are 
stuck. Whatever happens to the price around the world, whatever 
happens to supply, we need to respond to that.
    That is, frankly, the nightmare that Ukraine finds itself 
in now. They are dependent on a single massive supplier of 
resources. As the gentleman from the State Department testified 
earlier, sir, they are asking themselves if they are going to 
make it through the winter because they are so dependent on a 
single strategic commodity for the welfare of their people. 
That is a geopolitical, strategic, and ultimately military 
problem, not an economic one.
    Senator Markey. Thank you.
    Senator Barrasso.
    Senator Barrasso. Thank you, Mr. Chairman. Mr. Chairman, 
Senator Inhofe had a statement that he would like to have 
included in the record and I ask unanimous consent that I could 
submit that on his behalf.
    Senator Markey. Without objection.
    Senator Barrasso. Thank you, Mr. Chairman.
    Ms. Hutzler, you cited a number of examples of failed 
climate policies in Europe, including Germany, Spain, the 
United Kingdom, Italy. Would you like to elaborate further on 
these examples? Are there other examples not included in your 
testimony that you could highlight for us?
    Ms. Hutzler. Certainly. As I mentioned, in each of these 
cases the government enacted green energy laws, and in order to 
get the mandates that they wanted they had to subsidize these 
technologies to a great extent. That increased electricity 
prices, it hurt their economies, and they lost jobs. So they 
ended up amending or repealing some of these laws.
    The specifics of the different policies are different 
across the countries, but essentially, like Germany had their 
residential customers pay more for the subsidies than their 
industrial customers. They were protecting some of them. In 
Spain, the government actually took up some of the difference 
in the subsidies because they did not get enough money from the 
consumers. In fact, since 2000 Spain paid $41 billion more for 
the power that they received than their consumers actually paid 
for. So that puts them pretty much into national debt.
    But in each of these cases what we see happening is that 
they are slashing these subsidies. In Germany's case they are 
trying to spread the subsidies over more of the businesses 
rather than just the residential customers.
    Senator Barrasso. Can you tell me how successful the Kyoto 
Protocol was in making countries that signed the treaty more 
energy independent and secure from countries or foreign 
entities that did not share their strategic interests?
    Ms. Hutzler. Well, I do not think that they are more energy 
independent and secure. It is just the opposite. If you take a 
look at their energy prices, their electricity price, for 
instance, as I mentioned, it is 37 percent higher than the U.S. 
price indexed to 2005 levels. So their policies, in fact, have 
hurt them.
    In one case that I mentioned, they are actually spending 
less on defense now than they did prior to the Kyoto Protocol. 
They are spending only 1.6 percent of their GDP. NATO guidance 
says that they should be spending 2 percent. And we are 
spending as much as 2.5 percent. In fact, Secretary of Defense 
Hagel has called on the EU to spend more because of the crisis 
in the Ukraine.
    Senator Barrasso. Well, that is what I heard when I was in 
Latvia and Lithuania, that the concerns are that they were 
supposed to get to 2 percent, but they are unable to, and a lot 
of it has to do with the expenses that you have outlined. You 
mentioned them specifically in your report when you talk about 
the impact on the economies, that they are having to not have 
the available funds to spend on defense, which is putting a 
specific additional stress on NATO.
    If the United States had adopted a cap-and-trade system, do 
you think it would have helped or hurt our strategic interests?
    Ms. Hutzler. I personally think that it would hurt them 
because of the same thing that happened in the European Union. 
In fact, you can take a look at Australia, who just repealed 
its carbon tax because it was not globally competitive. 
Electricity prices increased 15 percent, unemployment went down 
10 percent, and it just made them not globally competitive, 
which is an important part of being energy secure.
    Senator Barrasso. I think it was an interesting discussion 
and then decision in Australia to repeal because of the 
specific impacts of it on the economy. Anything else that you 
kind of gained from that Australian decision?
    Ms. Hutzler. I find it very interesting that it was just in 
place for 2 years and they recognized this. Their citizens were 
very unhappy about the fact that they could not compete 
globally.
    Senator Barrasso. Thank you
    Mr. Goldwyn, thanks so much for your report on uncertain 
energy. In your testimony you state that the United States and 
other stable democratic countries, such as Canada and 
Australia, are well poised to meet a considerable share of the 
world's growing oil and gas demand and attain the associated 
export revenues. From a geopolitical perspective, you say, 
increased LNG exports from the United States and its allies 
would shift rents away from traditional autocratic suppliers, 
including Russia, that have used the proceeds to finance 
policies at odds with United States national security 
interests.
    You went on to say a clear signal from the United States 
that LNG exports will be available to European allies for 
future purchase would put immediate pressure on Russia's market 
share and export revenues.
    Do you believe United States liquified natural gas exports 
can serve as this important diplomatic tool for the United 
States to strengthen our national security and to assist the 
security of our allies and helping to alleviate manipulations 
and threats from Russia, and could you expand on that a little 
bit?
    Mr. Goldwyn. Yes, sir, I do. I think that our ability to 
export LNG is an important foreign policy tool. First, we 
increase the global supply of LNG. We bring down the price. We 
make it more accessible. When the price goes down, our 
competitors will lose revenue, and right now Russia is a major, 
major exporter of gas. We saw the historical example of this 
when over the last few years, when the displacement of LNG 
meant for the U.S. forced Gazprom to renegotiate most of its 
contracts with Europe and forced them to power prices.
    It is also forcing the delinkage between the pricing of gas 
correlating to the price of oil and having gas correlate to its 
more natural competitor, which is coal. So I think there is a 
price benefit and there is also a supply benefit. Both 
countries in Europe and Asia want secure suppliers. Often they 
will pay a premium for knowing that they have a secure source 
of supply. So our willingness to export to them, as seen by the 
initial contracts even for the projects right now, show that 
countries in Europe and Asia are interested in that.
    Third, to the extent that they buy from us and they do not 
buy from somebody else, those rents go here, they do not go 
elsewhere. Numerous studies, the study on net benefits for the 
Department of Energy, the Brookings study on LNG exports, the 
DeLoitte study which is cited in I think the testimony I had 
before the Energy and Natural Resources, show that just the 
swap on LNG is almost a $4 billion shift away from Russia to 
European consumers by bringing down those prices.
    So there is a lot of benefits, and it is a little bit of 
practicing what we preach, too. For years we have been building 
a system based on global trade. We have relied on that to get 
resources when we need them. It is just a little bit of 
practice what you preach.
    Senator Barrasso. Thank you.
    Thank you very much, Mr. Chairman. My time has expired.
    Senator Markey. Thank you.
    Well, we will go to a second round. We just have an 
incredible panel here. I think it is important--thank you, Mr. 
Breen, for raising the question of what happens with oil 
production in the United States, because even though we still 
import 30 percent of the oil that we consume in the United 
States, there are advocates for us to start exporting, even 
though we still import 30 percent and even though, as you are 
saying, the Energy Information Agency is saying we are going to 
plateau relatively soon in terms of our total oil production.
    So that goes to a national security issue, too: How wise 
are we to be exporting our own oil and natural gas when we do 
not have a surplus today and production is going to slow down 
and plateau in the relatively near future? Can you talk about 
that?
    Mr. Breen. Sure, Chairman, and thank you. I think the 
question really to me is how do you make use of opportunity. If 
you end up in a situation where you have, as Ms. Hutzler said, 
an unexpected increase in supply, which is likely to increase 
in production, which is unlikely to last all that long into the 
future, how do you make use of that? I would argue that there 
are a number of things we could do domestically with natural 
gas supplies that might be extremely beneficial.
    For example, transitioning municipal truck fleets, garbage 
trucks, buses, things like that to natural gas might help 
alleviate our single-source dependence on oil to fuel our 
transportation sector, which I would argue is a strategic risk, 
being so dependent on oil for that purpose.
    Senator Markey. I think that there is another canard out 
there that renewable electricity is not working on the planet, 
whereas the reality is that last year 50 percent--listen to 
this: 50 percent of all new electrical generating capacity for 
the world was renewable, 50 percent of all new capacity 
installed last year. So we can pick out individual places if we 
want, but that is a pretty big trend across the planet, even in 
the United States.
    We can go back--you can talk about Spain, but let us talk 
about the United States. When President Bush left office the 
Dow was at 7,000, unemployment was at 10 percent. Since 
President Obama's been in office, we have installed 70,000 
megawatts of wind and solar in our country and by the end of 
next year we could be--maybe the end of 2016, we will have 
100,000 megawatts of wind and solar in the United States, which 
is equal to the nuclear power industry after 60 years. And over 
that same period of time, during the Obama administration, the 
Dow went from 7,000 to 17,000, the unemployment rate has gone 
from 10 percent down to 6 percent.
    So I do not think we should be looking at Spain. We should 
be looking at ourselves. The same thing is true with the 
Regional Greenhouse Gas Initiative, the cap-and-trade system we 
have for the utility sector across the Northeast. Greenhouse 
gases went down by 40 percent, electricity rates went down, and 
we saw a massive installation actually of renewable energy plus 
conservation, energy efficiency.
    So can you talk about that global perspective, Admiral 
Titley, and how you view this revolution and what we should be 
doing as a nation to kind of encourage that indigenous 
installation of renewables, energy efficiency, self-sufficiency 
in other words, in other countries of the world?
    Admiral Titley. Thanks, Senator. Really, the way I take a 
look at this as a risk-based issue, so how do we mitigate the 
risks of the climate change? We talk in our MAB report about 
stabilizing the climate. Clearly, one way to help stabilize the 
climate is to reduce the amount of carbon that you are putting 
into the air. It is kind of like for 150 years we have just 
been sort of dumping the trash out in the road and nobody has 
picked it up, so we do not either stop dumping trash and we do 
not even put it back in the ground.
    So the more we can do on these types of renewables, I think 
we are in good shape. I am often asked, do I believe in climate 
change? And I tell people, no, I do not believe in climate 
change. I am convinced by the evidence that it is happening. 
What I do believe in is American ingenuity. I think that--and I 
end just about every talk I give with, actually it is a slide 
out of the Tom Hanks' Apollo 13 movie, where we get the guys 
back against all odds--this country, when focused, can do 
incredible things.
    So if we can, through the help of the Congress, Sir, set 
the right incentives, set the right certainty, the ingenuity in 
the academic, private, and government sectors will come 
together and we will fix this problem. We really can fix this 
problem. The examples you gave, sir, are just the leading edge 
of how we can do this. We will get there. It is how much pain 
are we going to suffer.
    Ms. Hutzler. Senator Markey----
    Senator Markey. Excuse me just a minute. The reality is 
that Tom Hanks was right in the Apollo movie. Failure is not an 
option. They had to innovate. They had to be imaginative. They 
had to figure out a way of improvising in order to get that 
capsule back to Earth.
    The same thing is true for us right now, except it is the 
entire planet, and failure is not an option because we know 
that the worst, most catastrophic impacts are coming and it is 
going to have a devastating impact upon our national security 
and the globe's.
    I do believe they are weapons of mass destruction, these 
storms. I mean, when the U.S. Congress is talking about 
appropriately $60 billion in the aftermath of Hurricane Sandy. 
That is quite a catastrophe that we had to appropriate money in 
order to deal with. It would have been in a lot of ways smarter 
to spend the money up front in avoiding the worst consequences, 
because we would have jobs, we would have industries, and we 
would have things that we could export around the world as 
well.
    So from my perspective--and I will just give you one final 
shot at this, Admiral. Can you just talk a little bit about how 
concerned should the Nation be about this issue? Can you just 
go to that? How do these 16 admirals and generals that you 
represent here today view this as a threat to us?
    Admiral Titley. Yes, Sir, thank you. We see this, frankly, 
as an accelerating risk for national security. It is like, 
well, what does that mean? Really, what we see is this change 
on which we have literally built human civilization. If you 
take a look at how the climate has varied, and it varies a 
tremendous amount--people say, well, it changed before, it will 
change again. Absolutely. But about 8 to 10,000 years ago, 
after we came out of the Ice Age, it stabilized. When did we 
get agriculture? When did we literally get the first 
civilization? And the next thing you know we are all carrying 
around iPhones and looking at them. That all happened on the 
basis of our not having had to spend effort to move about.
    That is, we have done tremendous things with fossil fuels. 
Look at the kind of life these have given us. The unintended 
byproduct, though, is that those have, in fact, jeopardized 
that very foundational basis on which we have built our 
civilization. So we have got to figure out how to at least keep 
or improve our life. And we can do that. We can have a better 
life even than what we have right now, but at the same time 
stop this harmful effect.
    And if we do not do that, that is where we see these risks. 
Some people talk about humanitarian assistance, disaster 
relief, and that is all well and good. I am more concerned 
about these varsity-level impacts, what we are starting to see 
now in North Africa, ISIS--we have already talked about this. 
These really unintended scary consequences come out that can be 
traced back to a thread, not the cause but a thread, going back 
to climate, Sir.
    Senator Markey. Thank you very much.
    Senator Barrasso.
    Senator Barrasso. Ms. Hutzler, I think there were some 
things you might have wanted to add in on that?
    Ms. Hutzler. Yes. I wanted to address some of the remarks 
that Senator Markey made. He talked about a certain measure in 
electricity generation and that is capacity. He did not talk 
about generation. And he compared 100 gigawatts of renewables 
to 100 gigawatts of nuclear. Well, if you take nuclear, it has 
a capacity factor of 90 percent. Renewables have a capacity 
factor, such as wind, around 30 percent.
    So in that 100 gigawatts capacity, you are going to be 
generating three times as much more electricity from nuclear 
than you are from renewables. They are just not comparable.
    I also wanted to address his comments regarding the 
Regional Greenhouse Gas Initiative, lowering greenhouse gas 
emissions 
and lowering electricity prices. Well, first of all, greenhouse 
gas emissions were lowered after 2008 because of the global 
recession. That was one of the biggest impacts of lowering 
carbon dioxide emissions.
    Another is the whole shale revolution, where we used 
hydraulic fracturing and horizontal drilling to get natural 
gas. That dropped natural gas prices down to about a fourth and 
that really reduced the cost of generating electricity. So 
actually natural gas combined cycle units are the cheapest form 
of technology that you can use to generate electricity and 
actually get electricity from it.
    But I also wanted to mention the issue in Senator Markey's 
home State of Cape Wind, offshore wind. Cape Wind has been 
trying to get both the financing and the customers to build the 
wind farm offshore for now over a decade. They think they 
finally have it together. But that wind is going to cost the 
people in Massachusetts 18 cents per kilowatt hour just to 
start. Then under the 15-year contract it goes up by 3.5 
percent a year, so it is going to end up 25 cents a kilowatt 
hour. That is two and a half times what we pay for the average 
cost of electricity in this country.
    So you have to be very cautious about which renewable 
technologies you pick, both in terms of the amount of 
generation you can get from them and from their cost.
    Senator Barrasso. I wanted to ask one other thing. You 
heard my questioning of the first panel about this increasing 
manipulation of the European carbon reduction policies and the 
funding of international crime groups. Do you view this as a 
serious flaw in carbon trading schemes and other climate-
inspired policies, and do you see some serious unintended 
consequences to our own national security if the United States 
adopts such policies as those that were taken in Europe?
    Ms. Hutzler. Well, carbon trading policies are very 
complex. They are complex because of the number of participants 
and they are complex because they have components that are very 
difficult to implement right. As a result, you can get a lot of 
unintended consequences, as I mentioned in my testimony. 
Certainly one of the criminal activities--and yes, there are 
criminal activities everywhere, but I think you see a lot more 
in a carbon trading scheme than you do in a carbon tax, as in 
Australia's situation. The complexity is very different.
    Another place where we have seen abuse in the United States 
is with renewable identification numbers. Refiners have to use 
so much biofuels when they produce gasoline, and so on and so 
forth, their products, and there has been abuse there where 
there have been fake RIN's that these people have purchased and 
we have actually gotten these people--we have found most of 
this fraud. So it is happening in this country, too, when you 
have a policy like that.
    Senator Barrasso. Thank you.
    Mr. Goldwyn, if I could just get back to our Latin American 
energy needs. In your report, Latin America and the Caribbean 
region have incredibly high energy costs and insufficient rates 
of investment. Many of the countries rely upon energy sources 
such as Venezuela oil which may not be sustainable in the long 
run. So we see greater energy diversification for these 
countries as something that would be important for them.
    U.S. natural gas exports as part of that broader energy 
strategy I believe can help nations in the Western Hemisphere 
as well, to help them lower energy costs to consumers, to 
businesses, to enhance competitiveness, promote economic 
growth, provide jobs here at home as well. In your testimony 
you noted that, ``Promoting the adoption of gas in the 
Caribbean and Central American energy mix would bring about 
several benefits for U.S. interests.'' Could you just expand a 
little bit about what are the benefits to the United States and 
what impacts U.S. exports of liquified natural gas would have 
on the region and its energy needs?
    Mr. Goldwyn. Sure. Thank you, Senator, and I want to give 
credit to the Inter-American Development Bank. They actually 
did a prefeasibility study on the availability of gas for the 
region and they are the ones that came up with these 
calculations that the average price of electricity in the top 
12 economies is over 30 cents per kilowatt, the average in the 
United States is about a dime, and seeing the climate and 
economic benefits of substituting gas for fuel oil and diesel.
    So the benefits are several. The region is important to us. 
Economically, it is closely tied to South Florida's tourism 
industry. For migration purposes, stable populations are 
important. Certainly if there was instability in that region, 
Jamaica, Dominican Republic, they would be much more vulnerable 
to transnational crime. And for moral reasons, these are our 
neighbors.
    So for them to have competitive economies they have to have 
affordable electricity. For them to deal with climate change, 
they need to have a smaller carbon footprint than they have 
right now. And for them to have political autonomy, they need 
to have liberation from dependence on Venezuela for the credit 
with which they buy all of their oil and their product. So all 
of those are tremendous benefits to the United States if we are 
able to help them and we can do it at a relatively low cost.
    The long-term solution for these countries--and they have 
great potential for renewable energy, some geothermal, some 
wind, some solar. But the intermittency problem is significant 
for them. They have to have baseload electricity. This is the 
problem worldwide, is where do you get baseload electricity? 
You have got coal, oil, nuclear, and gas. And for significant 
near-term greenhouse gas reduction, gas is actually the most 
cost-effective scaleable alternative.
    If I could, Senator, there has been a lot of talk about 
whether oil is a strategic commodity and what we should do 
about it. I would just like to address that. There is no 
question that oil and good are both strategic commodities. We 
would never think of banning the export of food, particularly 
to other countries, because we needed to, it was a strategic 
commodity and we needed to keep it at home. I think the same is 
true of oil and of gas. If we--the fact that we import some and 
we do not--and we import basically heavy oil, which matches our 
refineries, but we no longer import light oil because we 
produce so much we have it in surplus, does not mean that we 
should not export it.
    It is the basic principle of comparative advantage. If we 
can sell something and make more money and put that into the 
economy, then why not? And if the day comes, frankly, when we 
do not have it in surplus, the economics will not justify 
exporting it and we will go back to doing what we have done for 
decades, which is asking other countries to produce as much as 
they can and not to restrict the export, to allow the global 
market to move it to its most efficient source.
    So we will need that insurance. The question is now, today, 
when we have a surplus, why should we not do what we have asked 
every other country in the world to do and when we can do it in 
an efficient way and benefit ourselves? I think that is an 
element of contradiction, is a nice word. But we are in the 
middle of negotiating two major trade agreements. I think it is 
really important that we practice what we preach.
    Senator Barrasso. Thank you.
    Thank you, Mr. Chairman.
    Senator Markey. The chair would recognize himself again, 
just to say this: that if we had a 30-percent shortage of wheat 
in the United States, and people said, well, we should export 
part of that 70 percent that we still have, I do not think 
America would be happy with that. I do not think they would 
say, let us export wheat even though we are importing 30 
percent of the wheat that we use in our country right now, and 
there might be a little part of the country that has a little 
surplus, let us send it out of the country. I think that we 
would not export it, Mr. Goldwyn. That is what I think.
    I agree with you that food and oil are in the same 
category, but the fact that we have a surplus of food puts us 
in a different category than we have with our energy resources, 
where we do not have a surplus. We are still importing. So it 
is just a different situation.
    If you remember, Russia stopped exporting wheat when they 
had a problem, when they had a drought. They just stopped 
exporting it, because wheat is like oil. They are not sending 
their extra wheat into the Ukraine. They are sending extra 
wheat into the Ukraine when they had a shortage.
    So from my perspective, I put those two in the same 
category. And I think it is a good analogy, food and oil and 
natural gas. In each instance, when we do not have a surplus 
and when it is a big deficit, which it is with oil, then I do 
not think that we should be exporting it.
    So here is what I think we should do, give each of you 1 
minute to summarize what it is that you want the committee to 
know. We will go in reverse order from the opening statements. 
So we will begin with you, Ms. Hutzler. Give us your 1-minute 
summary that you would like the committee to remember.
    Ms. Hutzler. I want the committee to remember that Europe's 
policies in these areas have failed, that they have enacted 
green energy laws that needed huge subsidies and that their 
electricity prices increased, that they have lost jobs, and 
that they have had to amend these laws, and that it has cost 
them national debt, it has caused corruption and fraud to 
occur; and that Australia, too, had a carbon tax that they have 
repealed because of not being competitive in the global 
marketplace.
    Senator Markey. Thank you, Ms. Hutzler.
    Mr. Breen, you have 1 minute.
    Mr. Breen. Thank you, Mr. Chairman. If I were to summarize, 
I would say simply that the subject of this hearing and the 
timing of it are quite appropriate. Energy and security are 
inextricably intertwined, and the lack of diversification of 
U.S. supplies and global supplies and sources continues to 
create opportunities for rivals and adversaries and 
vulnerabilities for ourselves; that in the face of that and in 
the face of the reality that in the long term almost all 
projections that I am aware of do not see increasing U.S. 
production keeping up with global demand to the extent that it 
changes the geopolitical calculus for the United States, that 
in that world the soundest investments are investments in 
efficiency and investments in more diversified sources of 
energy, both for ourselves and as a tool of foreign policy for 
our allies.
    I think it is all well and good to export, if you happen to 
have it, an excess of natural resources. But America's truest 
contribution to the world, to our allies, and our best export 
is technical knowledge and innovation.
    Senator Markey. Thank you, Mr. Breen.
    Mr. Goldwyn.
    Mr. Goldwyn. Thank you, Mr. Chairman. Four points. First, 
we have lots of tools at our disposal to address these energy 
and climate issues: diplomacy, technical assistance, and open 
trade. We are going to need to use all of them to address the 
security challenges we face overseas.
    Third, I would say that many of the challenges that we face 
can be addressed in ways that will both reduce greenhouse gas 
emissions and increase our security.
    But fourth, we need to consider open trade as part of that. 
Not all is the same and not all--so there are elements that we 
do not need, which we can export and share with others. The 
question 
is when we have something in surplus will we share it with 
our friends and allies. No country has ever grown its supply of 
anything by restricting its export. So I think it is something 
that requires some study, but I urge you to consider.
    Senator Markey. Thank you, Mr. Goldwyn.
    Admiral Titley.
    Admiral Titley. Thank you, Senator. I would say, as far as 
the science of climate goes, we do not know everything, but we 
know an awful lot. If the intelligence community could tell us 
as much as the climate community can about the next 30 to 50 
years, we would find General Clapper and his Agency heads and 
we would give them all Medals of Freedom today. That is how 
much we know about climate.
    In the military, as General Sullivan famously says, we do 
not wait for 100 percent certainty to tackle any issue. If you 
wait for that on the battlefield, you will probably be dead.
    With respect to climate, this is really about the food, 
energy, water, and the nexus of the three very, very critical 
issues. If they are mishandled in other countries and other 
regions, that produces stress and that almost always ends up in 
a poor security situation that the United States usually gets 
to deal with in some way, shape, or form. We can deal with this 
in risk management and ultimately, sir, America can lead the 
way. We can fix this.
    Thank you.
    Senator Markey. Thank you, Admiral.
    Thank you each for your service here in the Congress. We 
very much appreciate your testimony here today.
    I ask unanimous consent that the record remain open for 
written questions from committee members to our witnesses until 
Friday at noon. Without objection, that will be put in the 
record and any of the answers which you give us in writing to 
those questions will be seen in the record.
    We thank each of you for your testimony today, and we thank 
everybody else for participating. This hearing is adjourned.
    [Whereupon, at 5:05 p.m., the hearing was adjourned.]
                              ----------                              


              Additional Material Submitted for the Record


 Prepared Statement of Hon. James M. Inhofe, U.S. Senator From Oklahoma

    President Obama and his administration have been aggressively 
pursuing regulations that are damaging to our economy and put future 
job opportunities at risk for all Americans. The President has also 
been encouraging the international adoption of these same regulations, 
particularly as they relate to reducing emissions of greenhouse gases.
    Of all the regulations being pursued by the President, these are 
the most expensive and damaging to economic growth. Study after study 
has shown that widespread regulation of greenhouse gases in the United 
States would cost the economy anywhere from $300 billion to $400 
billion per year. The administration's recently proposed greenhouse gas 
regulations for power plants are estimated to cost tens of billions of 
dollars per year, but because these represent only the beginning of the 
President's regulatory plans, their cost represents only the tip of the 
iceberg.
    Regulations by the Environmental Protection Agency threaten the 
reality and affordability of our electricity grid, will weaken our 
economy, and drive more people into the unemployment lines. In a Senate 
Environment and Public Works Committee hearing on May 14, 2014, 
committee witness, Marvin Fertel, president and chief executive officer 
of the Nuclear Energy Institute, testified that government regulations 
are ``shutting down the backbone of our electricity system.'' With 
these facts in mind, it is no surprise that recent polls, such as those 
by Gallup and Pew showing that Americans are uninterested in climate 
change policy issues.
    The U.S. economy is already well developed, and we know how badly 
these policies will hurt us. If we force the same regulations on 
underdeveloped nations, like those in Africa, the impact will be 
devastating. They will not be able to grow their way out of poverty, as 
many are doing today with access to inexpensive, reliable electricity.
    Giving developing countries greater access to inexpensive power was 
the driving force behind bills in Congress that reformed our 
international assistance programs. These impoverished countries want to 
build power plants, but right now that has been made more difficult by 
existing policies at the Export-Import Bank and the Overseas Private 
Investment Corporation, which limit their ability to support projects 
that may increase greenhouse gas emissions. Few developing countries 
have the technology and money needed to support a growing economy, 
thirsty for power, while abiding by these regulations and competing in 
the global marketplace. It should be our policy to help these nations 
develop--we should not shackle them with environmental regulations the 
developed world is not itself willing to follow.
    Earlier this year the Obama administration submitted its liberal 
agenda for the United Nations Climate Change Conference in Paris in 
2015, which would require all governments to set new targets to drive 
down greenhouse gas emissions after 2020. This treaty, however, would 
rely on countries' domestic authorities to enforce their contributions, 
and we know that countries such as China, Russia, and India will not do 
anything about it. They are understandably unwilling to sacrifice their 
economies for the sake of global warming. This unwillingness to 
implement economically damaging policies is also extending to the 
developed world. Just last week Australia repealed its much-hated 
carbon tax, and because of the Australian Prime Minister's leadership 
to help the poor and those on fixed incomes (who suffer when energy 
prices needlessly rise), the Australian economy will now save $9 
billion AUD per year. This will help spur economic growth there, create 
jobs and improve the lives of everyone.
    We are seeing that there is no real political will--here or 
abroad--to implement global warming policies. Rather than pushing these 
unappealing policies on our friends across the globe, when thinking 
about international energy policy, the President and his administration 
should be looking to solve real problems by expanding Liquefied Natural 
Gas (LNG) exports and ramping up energy development at home to bolster 
the supplies of our allies abroad. These are the things that need to be 
done in the midst of an increasingly aggressive world. For example, the 
European Union's ability to apply strong sanctions against the oil and 
gas industry in Russia, in response to its aggressive actions in 
Ukraine and Eastern Europe, is restrained by their dependence on the 
Russian oil and gas industry to supply their energy needs. The United 
States is the largest natural gas producer in the world; LNG exports 
from the United States to the European Union could free the European 
Union of these chains, allowing them to place real economic pressure on 
Russia to discourage their continued aggression in the region.
    The President's willingness to follow through on climate change 
policies, despite the widespread unpopularity across the globe, 
underscore the real motivation behind his actions: pleasing his donor 
base. The Obama administration's agenda must be seen for what it is: a 
scheme motivated solely by politics with little regard for the American 
or global consumers. The United States has long been a nation of 
abundant domestic energy in all its forms, and because of that we have 
held tremendous advantages over the rest of the world. Instead of 
regulating and placing impossible restrictions on the undeveloped 
energy sectors of the developing nations, we should be encouraging 
growth so that they may compete in the international marketplace, 
create jobs, and emerge out of poverty.
                                 ______
                                 

               Responses of Amos Hochstein to Questions 
                 Submitted by Senator Edward J. Markey

    Question. Does your agency have the information and resources 
needed to understand and integrate the impacts of climate change on its 
mission? If not, what is needed?

    Answer. The mission of the Bureau of Energy Resources crosses 
multiple timeframes, from the short-term imperatives of today's 
geopolitics and ensuring global energy markets are well supplied, to 
the long-term issues surrounding energy transformation. To the extent 
that each of these issues is impacted by climate change, our 
informational limits are analogous to those of the broader scientific 
community as it continually strives to improve knowledge of discrete 
climate impacts.

    Question. How does the Bureau of Energy Resources incorporate the 
carbon pollution profile of energy sources into its energy diplomacy 
work?

    Answer. The Bureau of Energy Resources' (ENR) diplomacy focuses on 
issues that facilitate deployment of low carbon and renewable energy 
production worldwide in several distinct ways:

          (1) ENR supports governments that wish to improve their 
        energy security through energy policy dialogues and technical 
        assistance. Both are aimed at diversifying fuel mix, and 
        encouraging incorporation of low carbon fuels, renewable energy 
        and energy efficiency measures;
          (2) ENR supports sharing U.S. experiences and best practices 
        with emerging hydrocarbon producers to develop economically 
        sustainable natural gas resources;
          (3) ENR addresses policy and regulatory barriers that inhibit 
        investment in clean energy, while working with development and 
        commercial banks to mobilize finance in the clean energy sector 
        and assist U.S. clean energy companies and equipment suppliers 
        better compete in emerging markets.

    Question. How does the Bureau of Energy Resources incorporate the 
water use profile of energy sources and climate change impacts on water 
sources into its energy diplomacy work?

    Answer. The Bureau of Energy Resources (ENR) works closely with the 
Bureau of Oceans and International Environmental and Scientific Affairs 
(OES) Office of Conservation and Water (ECW) to incorporate resource 
and environmental considerations into our diplomatic engagement. Water 
availability and management is critical to the function and economic 
viability of many energy projects, and we address those issues on a 
case-by-case basis.
    When water availability and management is identified as an 
important issue affecting project or regional success, ENR works with 
ECW to recommend actions aligned with international best practices. To 
date, this guidance has ranged from encouraging reinjection of 
condensed steam at geothermal sites to ensure long-term stability of 
the thermal reservoir while mitigating the impact of energy development 
on local surface-water supplies, to advocating for dry-cooling of large 
thermal cycles.

    Question. Your testimony noted that new non-OPEC oil producers are 
becoming major energy suppliers. But does not OPEC still control most 
or all spare oil production capacity in the world? What does that mean 
in terms of OPEC's ability to continue to influence supply and global 
oil prices?

    Answer. It is true that the Organization of Petroleum Exporting 
Countries (OPEC) still controls about 2 million barrels per day of 
spare production capacity, according to U.S. Energy Information 
Administration estimates. Almost all of this capacity is in Saudi 
Arabia. However, burgeoning non-OPEC supply tests OPEC's ability to 
work in concert to decrease rather than increase production. OPEC's 
unity has recently been shaken as major producers have proven unwilling 
to unilaterally decrease output and lose market share. This has caused 
prices to be determined more by market forces rather than OPEC 
decisions on quotas.

    Question. Does the State Department look at the overlap of climate 
vulnerability/impact and political stability? For example, does the 
agency look at scenarios like the 2011 wheat crop failures and consider 
the ramifications in terms of the unrest it could generate in wheat 
importing nations? Is this the change of regional bureaus or who is 
responsible for considering these types of issues?

    Answer. There are multiple bureaus with the Department of State 
that examine the relationship between climate vulnerability/impact and 
political stability. The Department's Office of the Special Envoy for 
Climate Change (S/SECC) and Bureau of Oceans and International 
Environmental and Scientific Affairs (OES) look at the overlap between 
climate change vulnerability and political stability, keeping up to 
date on emerging scientific issues, and considering these when 
designing programs and working with partners. The Office of the Chief 
Economist works closely with the Under Secretary for Economic Growth, 
Energy and the Environment to examine economic policies that reduce 
climate vulnerability. The Bureau of Intelligence and Research (INR) 
also looks at the overlap between climate and political stability, in 
the context of a range of factors, as part of its engagement with the 
broader intelligence community.
    S/SECC, OES, the Office of the Chief Economist and INR also draw on 
expertise outside the State Department. Through the new QDDR, and in 
response to the President's Executive order issued in September 2014 to 
mainstream climate resilience into agency planning, programs and 
strategies, the Department has an opportunity to further improve its 
capacity to consider climate change impacts on security and stability.

    Question. Ukraine's reliance on Russian natural gas to meet half of 
its domestic needs has left it vulnerable to predatory Russian 
practices in terms of energy supply manipulation. Yet Ukraine has vast 
untapped domestic natural gas supplies and it is also the second least 
energy efficient country in the world. I have introduced legislation--
S. 2433--that aims to double U.S. governmentwide energy assistance to 
Ukraine to help them increase efficiency, develop their own resources, 
and get off Russian gas.

   Do you support this legislation? Please provide any 
        thoughts or technical feedback about this legislation.

    Answer. The State Department agrees that Ukraine's reliance on 
Russian natural gas has left it vulnerable; Ukraine has significant 
untapped natural gas resources and is woefully energy inefficient. In 
response to the crisis stemming from Russian aggression in eastern 
Ukraine, the United States Government has nearly tripled our energy 
assistance to Ukraine over the past year. This assistance is focused on 
promoting energy security through support for energy efficiency and 
diversification of energy sources, as well as improving transparency in 
the energy sector, which will be crucial to Ukraine establishing a 
modern, productive energy sector.
    The Bureau of Energy Resources' assistance programs are helping 
Ukraine to sustainably develop its conventional and unconventional gas 
resources. Specific current engagement includes providing an 
engineering assessment of gas field surface facilities to eliminate 
bottlenecks and improve efficiency in existing gas production and 
instilling best practices in legal, regulatory, environmental, 
permitting and sustainable development of unconventional gas resources. 
Planned future engagement includes supporting a competitive 
international tender for rehabilitation of existing gas fields and 
advising on a seismic survey in western Ukraine and a subsequent tender 
for the new oil and gas fields identified Not only will this assistance 
potentially increase production and reduce dependence on Russian 
resources, but it will also reduce the gas import bill and the costs of 
gas production inefficieny, while boosting domestic economic growth and 
incentivizing foreign direct investment. In parallel the Bureau is 
currently assisting in the reform of Ukraine's national oil and gas 
company, Naftogaz, to improve corporate governance and transparency, 
including at Naftogaz's upstream gas subsidiary, Ukrgasvydobuvannya. It 
is hoped that this assistance and the reforms and energy efficiency 
they support will strengthen Ukrainian energy security in the near term 
and long term. We support efforts to provide additional U.S. foreign 
assistance to improve energy security in Ukraine.
                                 ______
                                 

             Responses of Dr. Daniel Y. Chiu to Questions 
                 Submitted by Senator Edward J. Markey

             access to necessary information and resources
    Question. Does your agency have the information and resources 
needed to understand and integrate the impacts of climate change on its 
mission? If not, what is needed?

    Answer. The Department bases our response to the effects of climate 
change on the best data available; as the scientific community's 
understanding of climate trends develops, we will continue to monitor 
these changes. The Department has the resources that we need at 
present. To be best prepared, we are conducting a baseline survey of 
all DOD sites to identify areas that are mostly likely to be affected 
by climate change. This survey will enable the Military Departments and 
defense agencies to identify sites that require additional assessment. 
As we build on our understanding and identify solutions, we look 
forward to working with Congress to address any gaps that emerge.
    integrating climate change impacts into allied military planning
    Question. To what extent are the impacts of climate change being 
incorporated into the military planning of our allies and military 
cooperation organizations like NATO?

    Answer. Many U.S. allies and partners have identified climate 
change as a security threat and are conducting a range of planning and 
resilience activities to address it. The form these preparations take 
varies by country, given the different effect climate change has in 
different parts of the world. Some allies and partners have integrated 
climate change into their national planning documents, some have 
established dedicated climate change offices, and others address 
climate change as one key issue among many. Dialogue with our allies 
and partners has revealed that many view climate change as an emerging 
and significant challenge, and the Department is committed to further 
international cooperation on adaptation and planning to meet that 
challenge.
     training for environmental security and disaster preparedness 
                              cooperation
    Question. Does DOD incorporate environmental security and disaster 
preparedness into their training cooperation efforts with other 
countries' militaries?

    Answer. Yes. The Department has long engaged with foreign 
militaries to enhance resilience and improve our collective readiness 
for disasters. These efforts include DOD meetings with military 
planners from Australia, Canada, Korea, Thailand, the Philippines, as 
well as with military planners from South and Central America. For some 
countries, planning for natural disasters is an existential issue, 
while for others it is a form of due diligence. We will continue this 
cooperation and share best practices to enhance environmental security 
and plan for disasters.
               ukrainian reliance on russian natural gas
    Question. Ukraine's reliance on Russian natural gas to meet half of 
its domestic needs has left it vulnerable to predatory Russian 
practices in terms of energy supply manipulation. Yet Ukraine has vast 
untapped domestic natural gas supplies and it is also the second least 
energy efficient country in the world. I have introduced legislation--
S. 2433--that aims to double U.S. Government-wide energy assistance to 
Ukraine to help them increase efficiency, develop their own resources, 
and get off Russian gas.

   Do you support this legislation? Please provide any 
        thoughts or technical feedback about this legislation.

    Answer. As the provisions of your bill are beyond the purview of 
the Defense Department, I defer to other U.S. departments and agencies 
to assess the bill's technical aspects. In terms of security, Russia 
has acted in disruptive and irresponsible ways, and the Department 
broadly supports efforts--including changes in the supply and use of 
energy--to mitigate the harmful effects of Russia's actions and to 
enhance Ukraine's energy security.
                                 ______
                                 

              Responses of RAD David Titley to Questions 
                 Submitted by Senator Edward J. Markey

    Question. In your testimony you noted that the U.S. needs to 
prepare for the rapid changes happening in the Arctic. What 
capabilities and capacities should the United States be prioritizing to 
be ready for the ongoing changes in the Arctic?

    Answer. First and foremost, CNA's Military Advisory Board (MAB) 
recommends that, in order to expedite crisis response and requirements 
generation, the Arctic region should be assigned to one Combatant 
Commander. Second, to provide the United States with better standing to 
resolve future disputes in the Arctic, the U.S. should become a 
signatory to the U.N. Convention on the Law of the Sea (UNCLOS).
    Although the MAB did not take a position or prioritize specific 
capabilities, it is ``particularly concerned that increased capability 
is required today to communicate reliably and to conduct search and 
rescue. We need better charts and aids for navigation, communications 
capability, enhanced disaster response capabilities, and the ability to 
exercise freedom of navigation,'' (i.e., hardened combatants and ice 
breakers), as noted in its most recent report.

    Question. During the hearing, you briefly mentioned that you have 
more confidence in long-term climate models than in weather forecasts 
that go beyond 10 days or so. Can you explain why that is?

    Answer. Weather forecasts and weather forecasting models are 
generated with the goal of predicting the exact temperatures, 
precipitation type and amount, and other weather at a precise point and 
time. When we assess these forecasts, we compare these predictions to 
the average weather (climatology) to determine which came closer for 
that location and time. In general, in the short term, weather 
forecasts outperform climatology. However, beyond roughly 10 days, 
these forecasts and forecast models become less accurate than 
climatology.
    Weather forecasts are critically dependent on exact ``starting'' 
(or initial) conditions of the atmosphere. For example, to predict the 
temperature or rainfall in Washington, DC, 1 or 2 days in advance, it 
is extremely important to know today's weather conditions in the 
Midwest and southern U.S.
    Climate forecasts, by contrast, have virtually no dependence on the 
exact weather conditions of any given location or day. It would be 
possible to start a climate model with today's temperatures in 
Washington, DC, whether 50 degrees or 90 degrees, and still get the 
correct answer for average summer temperatures--years and decades 
hence, providing the model correctly represents the amount of heat (or 
boundary conditions) received by the sun, and how that heat is then 
distributed and redistributed between the ocean, atmosphere, land, and 
ice.
    Climate models and forecasts are generated with the goal of 
accurately representing the statistics of the weather (climate) over a 
broad region. When we assess these models, we are determining if the 
models can reproduce the average weather as well as the frequency of 
rare or extreme weather events. In essence, we are not looking to see 
whether the models can reproduce the precise temperatures at one 
location on August 5, but whether the models can reproduce the average 
August temperatures over the last 150 years, as well as the change in 
average August temperatures over the last 150 years over a large 
region. In general, the climate models do an accurate job of 
representing the mean, trends, and other statistics over the past 150 
years, so we have confidence that the future model predictions are 
accurate.
References
    AMS Policy Statement on Weather Analysis and Forecasting. Bull. 
Amer. Met. Soc., 79, 2161-2163 (https://www.ametsoc.org/policy/
statewaf.html).
    Flato, G., J. Marotzke, B. Abiodun, P. Braconnot, S.C. Chou, W. 
Collins, P. Cox, F. Driouech, S. Emori, V. Eyring, C. Forest, P. 
Gleckler, E. Guilyardi, C. Jakob, V. Kattsov, C. Reason and M. 
Rummukainen, 2013: Evaluation of Climate Models. In: Climate Change 
2013: The Physical Science Basis. Contribution of Working Group I to 
the Fifth Assessment Report of the Intergovernmental Panel on Climate 
Change [Stocker, T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, 
J. Boschung, A. Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)]. 
Cambridge University Press, Cambridge, United Kingdom and New York, NY, 
USA.

    Question. Ukraine's reliance on Russian natural gas to meet half of 
its domestic needs has left it vulnerable to predatory Russian 
practices in terms of energy supply manipulation. Yet Ukraine has vast 
untapped domestic natural gas supplies and it is also the second-least 
energy efficient country in the world. I have introduced legislation--
S. 2433--that aims to double U.S. Government-wide energy assistance to 
Ukraine to help them increase efficiency, develop their own resources, 
and get off Russian gas. Do you support this legislation? Please 
provide any thoughts or technical feedback about this legislation.

    Answer. This question is beyond the scope of the work conducted by 
CNA's Military Advisory Board.
                                 ______
                                 

               Responses of Mary J. Hutzler to Questions 
                 Submitted by Senator Edward J. Markey

    I have responded to each of the questions from Senator Markey 
below. I would like to make it clear at the outset that I am in favor 
of all energy technologies. However, I believe that the energy 
marketplace should determine the market penetration of each technology, 
not government policies that distort the economics of the technologies 
and end up costing the American public more than necessary to pay for 
the power that they need.
    Further, I would note that some of the policies that Senator Markey 
seems to advocate in his questions below would reduce U.S. energy 
production, increase oil imports and our trade deficit, and have the 
effect of reducing U.S. energy security. Senator Markey should 
understand the implications of ending the tax deductions mentioned 
below, which is essentially a tax increase on the oil and gas industry 
resulting in a reduction in domestic energy production, which would 
result in an increase of oil from overseas suppliers. That said, in 
regard to tax policy, I believe that all industries should be treated 
the same, irrespective of the product that the industry produces.
    There are those who complain about the earnings of the oil and gas 
companies without understanding the nature of the business, which is 
the most capital-intensive in the world. The oil and natural gas 
industry must make large investments in new technology, new production, 
and environmental and product quality improvements to meet future U.S. 
energy needs. These investments are not only in the oil and gas sector 
but in alternate forms of energy (e.g., biofuels). For example, an 
Ernst & Young study shows the five major oil companies had $765 billion 
of new investment between 1992 and 2006, compared to net income of $662 
billion during the same period. The 57 largest U.S. oil and natural gas 
companies had new investments of $1.25 trillion over the same period, 
compared to net income of $900 billion and cash flows of $1.77 
trillion. In another Ernst and Young report, the 50 largest oil and gas 
companies spent over $106 billion in exploration and development costs 
in 2011, an increase of 38 percent over those capital investments in 
2010. Without these investments, the U.S. oil and gas industry would 
not have been able to make the strides in increased oil and gas 
production that they have made and continue to make in this country.\1\ 
Earnings allow companies to reinvest in facilities, infrastructure and 
new technologies, and when those investments are in the United States, 
it means many more jobs, directly and indirectly. It also means more 
revenues for federal, state and local governments.

    Question. Ukraine's reliance on Russian natural gas to meet half of 
its domestic needs has left it vulnerable to predatory Russian 
practices in terms of energy supply manipulation. Yet Ukraine has vast 
untapped domestic natural gas supplies and it is also the second-least 
energy efficient country in the world. I have introduced legislation--
S. 2433--that aims to double U.S. Government-wide energy assistance to 
Ukraine to help them increase efficiency, develop their own resources, 
and get off Russian gas.

   Do you support this legislation? Please provide any 
        thoughts or technical feedback about this legislation.

    Answer. For years, the United States experienced declining natural 
gas production and was constructing terminals for liquefied natural gas 
(LNG) imports to ensure that the United States had an adequate supply 
of natural gas in the future. The reason the United States now produces 
the most natural gas in the world and no longer needs to rely on LNG 
imports is not because of government programs, but because of 
technological improvements in the market place, private property 
rights, and prudent regulations by state regulators. Policymakers 
should promote these proven avenues that have led to natural gas energy 
independence and growing market power for the United States. If Senator 
Markey believes that Ukraine is vulnerable to hostile governments 
because it has not fully tapped its domestic gas supplies, Senator 
Markey should agree that the U.S. Government should not commit a 
similar mistake by hampering the development of American oil and gas 
supplies, as the Obama administration is currently doing.
    If it is the case that Ukrainian Government is hampering the 
development of its own domestic gas resources, then Ukrainian people 
would be served by eliminating such obstacles. However, the U.S. 
Government does not need to assist Ukrainian Government in implementing 
a policy that makes Ukrainians wealthier and more strategically secure. 
Furthermore, S. 2433 contains provisions for the U.S. Government to 
provide ``loan, lease, and bond guarantees'' to financial institutions 
to facilitate the goals of the proposed legislation.\2\ Such guarantees 
place U.S. taxpayers on the hook in the event of a default. There is no 
economic rationale for U.S. taxpayers to effectively subsidize 
Ukrainians to do what it is in their own best interest.

    Question. You made your critical views on the Cape Wind offshore 
wind project, and government support for it, very clear during the 
hearing. What are your views on the $8.3 billion loan guarantee, most 
of which has been finalized, to construct nuclear reactors?

    Answer. The Energy Information Administration (EIA) estimates the 
levelized cost of new generating technologies as part of its Annual 
Energy Outlook. The average cost of offshore wind in the agency's 2014 
outlook is 20.4 cents per kilowatt hour while the levelized cost for 
advanced nuclear is 9.6 cents per kilowatt hour, or less than half the 
cost of offshore wind.\3\ Given that EIA also expects advanced nuclear 
to have a 90-percent capacity factor while offshore wind has only a 37-
percent capacity factor on average, the amount of generation from 
nuclear power compared to wind power would be 2.4 times more for the 
same amount of generating capacity. Further, wind is an intermittent 
technology and cannot be relied on continuously to supply power when 
Americans need it most. It generates power only when the wind blows 
which is more prevalent at night when we need it the least. Because 
Cape Wind will drive up the cost of energy for Americans based on its 
contract specifications, I do not support it.
    Compared to offshore wind, which is an intermittent, inefficient, 
and expensive technology, nuclear power is reliable, efficient, and 
more affordable as the numbers from EIA above demonstrate.
    That said, I believe it is a bad idea for taxpayers to support 
either technology (or any technology for that matter). The Federal 
Government has demonstrated time and time again with companies like 
Solyndra that it is ill-suited to pick winners in the marketplace. The 
reason that the government supports specific technologies is the belief 
that consumers will not willingly pay for those technologies. When 
elected officials impose their choice of technologies on consumers and 
taxpayers, other technologies that could have made it in the 
marketplace on their own are locked out--and the consumers who would 
have preferred those technologies-- 
suffer.

    Question. Thanks to an oil company court challenge to a 1995 law, 
oil companies are able to drill on many leases in the Gulf of Mexico 
without paying any royalties to the American taxpayers. Currently, oil 
companies are paying zero royalties to taxpayers for one-quarter of all 
offshore oil production in the United States. Incentivizing companies 
to renegotiate these leases in order to pay a fair return to the public 
could save taxpayers $15.5 billion over 10 years according to the 
Department of the Interior. The Government Accountability Office has 
estimated that taxpayers could lose up to $53 billion over the life of 
these faulty leases.

   Would you support legislation to correct this problem, 
        which the Congressional Research Service has found is within 
        Congress' legal authority and would not abrogate contracts 
        between oil companies and the Federal Government?

    Answer. I am grateful for the opportunity to set the record 
straight on the deepwater royalty relief program. Oil is being produced 
in the deep water Federal Gulf of Mexico, where production just 
increased during fiscal year 2013 for the first time since the 
moratorium on drilling was imposed by the Obama administration in 2010, 
because of the royalty relief program. The program originally provided 
royalty relief for operators to develop fields in water depths greater 
than 200 meters (656 feet). The suspension of Federal royalty payments 
for new leases was limited to a certain level of production based on 
water depth. The original terms and conditions expired in November 
2000, and since that time, a revised incentive plan was adopted that is 
no longer based on volumes determined by water-depth intervals. 
Instead, the Department of Interior assigns a lease-specific volume of 
royalty suspension based on how the determined suspension amount may 
affect the economics of various development scenarios with the most 
economically risky projects receiving the most relief, while others may 
receive no relief. For example, a deep-water field might not receive 
any relief if it is adjacent to an existing gathering system. On the 
other hand, a similar field may receive a great deal of relief if it is 
located far beyond the current pipeline infrastructure.\4\
    If the royalty relief program did not exist, the technology would 
not have been developed to produce oil and natural gas in the deep 
water Gulf of Mexico and domestic oil production would be much lower--
clearly reducing America's energy security and making the United States 
more dependent on foreign imports. This is consistent with the points 
made by the Honorable Hazel O'Leary, Secretary of Energy during the 
Clinton administration.
    In a letter on page H11872 of the Congressional Record in support 
of the legislation at the time,\5\ the Secretary said, ``Comparing this 
loss (foregone royalties) with the gain from the bonus bids on a net 
present value basis, the Federal Government would be ahead by $200 
million. It is important to note that affected OCS projects would still 
pay a substantial upfront bonus and then be required to pay a royalty 
when and if production exceeds their royalty-free period. A royalty-
free period, such as that proposed in S. 395, would help enable 
marginally viable OCS projects to be developed, thus providing 
additional energy, jobs and other important benefits to the nation.''
    On the matter of national security, she went on to add, ``The 
ability to lower costs of domestic production in the central and 
western Gulf of Mexico by providing appropriate fiscal incentives will 
lead to an expansion of domestic energy resources, enhance national 
energy security, and reduce the deficit.''
    Clearly, President Clinton and his administration studied this 
matter and saw it as a significant national security benefit to the 
United States, and a benefit, not a loss, to the U.S. Treasury. Besides 
providing the American public with more oil and gas production and 
greater energy security, thousands of jobs exist today because of the 
royalty relief program.

    Question. Last-In, First-Out (LIFO) accounting allows oil companies 
to value their inventories at deeply discounted prices. Repealing this 
subsidy for the largest oil and gas companies would generate at least 
$14.1 billion over 10 years, according to the Joint Committee on 
Taxation (JCT).

   Is there any other industry that benefits from this tax 
        subsidy as much as the oil and gas sector? If so, which 
        sector(s) and how much do they benefit from this subsidy? Would 
        you support ending this accounting methodology for all 
        taxpayers?

    Answer. All U.S. taxpayers may use the LIFO (Last-In-First-Out) 
method of accounting for inventories. Repealing this provision for just 
the oil and gas industry would be particularly detrimental to refiners, 
who maintain large inventories of both crude and refined products. I 
believe that all industries should be treated the same under the U.S. 
tax law and that one industry should not be singled out for 
differential treatment. This accounting methodology should either be 
allowed for all taxpayers or repealed for all taxpayers.

    Question. Foreign tax credits allow all companies that do business 
abroad to reduce from their U.S. tax bill by any income taxes paid to 
other governments. However, these rules were not intended to allow oil 
companies to claim deductions for what amount to royalty payments to 
foreign governments. Such payments are not income taxes but fees for 
the privilege of producing valuable natural resources abroad. Yet, as a 
result of loosely drafted rules, oil companies are frequently deducting 
these payments from their U.S. tax liability. Eliminating this tax 
treatment for the largest oil companies would generate at least $6.5 
billion over 10 years, according to the JCT.

   Would you support ending this tax subsidy for the largest 
        oil companies? Is there any other industry that benefits from 
        this tax subsidy as much as the oil and gas sector? If so, 
        which sector(s) and how much do they benefit from this 
        provision?

    Answer. The above issue relates to dual capacity rules and 
according to the Joint Committee on Taxation, U.S. oil and gas 
companies are already limited in their ability to claim these 
credits.\6\ Further, the purported issue that you describe; i.e., that 
companies claim royalty payments as a foreign tax credit, is prevented 
by the current rules for this provision. Oil and gas companies are 
under constant audit by the Internal Revenue Service. As a part of 
these audits, teams of examiners focus heavily on this very issue. If 
an IRS agent feels that there is an issue related to 
mischaracterization of a tax payment, he or she need not ``prove'' the 
case, but merely needs to raise the question. The taxpayer is then 
required, under the law, to prove that the payment was, in fact, a 
payment of tax and not a royalty, and to provide that proof in court, 
if necessary. The burden of proof rests heavily on the taxpayer in this 
instance. Modifications to this provision will make U.S. companies less 
competitive and place a greater share of oil and gas reserves into the 
hands of non-U.S. companies, employing non-U.S. workers; many of which 
are foreign-government-controlled.

    Question. The section 199 domestic manufacturing deduction was 
enacted in 2004 and recategorized the oil industry as a manufacturing 
industry, thus making it eligible for this deduction. Repealing this 
provision for the largest oil companies would save $10.4 billion over 
the next 10 years, according to the JCT.

   Would you support ending this tax subsidy for the largest 
        oil companies?

    Answer. The purpose of the domestic manufacturing tax deduction is 
to incentivize companies to continue to do business in America. The 
United States now has the highest tax rate in the world among developed 
countries, and due to these high tax rates, companies have been making 
investments overseas.\7\ The domestic manufacturing tax deduction 
allows all industries and businesses (not just oil companies) to deduct 
a certain percentage of their profits. For the oil and gas industry, 
the tax deduction is 6 percent; for all other industries (software 
developers, video game developers, the motion picture industry, among 
others), it is a 9-percent deduction.\8\ Removing these tax deductions 
will result in oil companies taking capital abroad to make their 
investments, reducing U.S. oil production and tax revenues and 
increasing imports of foreign oil. Given that oil and gas production-
related employment on non-Federal lands in the United States is one of 
the few bright spots in the worst economic recovery since the Great 
Depression, such a result would undermine job creation.

    Question. The expensing of intangible drilling costs allows 
intangible drilling costs, such as wages, repairs, and supplies related 
to and necessary for drilling and preparing wells for the production of 
oil and gas, to be deducted in the year they occurred. Nonenergy 
companies must depreciate these costs over time. The JCT estimates that 
repealing this subsidy will generate $13.2 billion over 10 years.

   Are any other companies besides oil and gas production 
        companies eligible for claiming this tax provision? Would you 
        support ending this tax subsidy?

    Answer. This incentive exists to encourage small companies (less 
than 20 employees) to produce oil from marginal wells that are old or 
small and do not produce much oil individually. According to the 
Independent Petroleum Association of America, independent producers 
drill 95 percent of the oil and natural gas wells in America, producing 
54 percent of U.S. liquids--54 percent oil and 81 percent condensates. 
They reinvest 150 percent of their American cash flow back into new 
American production.\9\
    Independent oil producers are allowed to count certain costs 
associated with the drilling and development of these wells as business 
expenses. This ability to expense these costs is analogous to the 
research and development (R&D) deduction available to all taxpayers 
engaged in R&D activities. The law allows the small producers to 
expense the full value of these costs, known as intangible drilling 
costs, every year to encourage them to explore for new oil. The major 
companies get a portion of this deduction--they can expense a third of 
intangible drilling costs, but they must spread the deductions across a 
5-year period.\10\
    Again, I believe that all industries should be treated the same 
under the tax law and that one industry should not be singled out for 
differential treatment because the terminology used is different.

    Question. Certain oil companies amortize the costs of exploratory 
work in 2 years, while other companies must amortize those same costs 
over 7 years. Increasing geological and geophysical amortization 
periods for oil and gas companies to 7 years would harmonize this 
policy across industries and operators. The JCT estimates that making 
this change would save taxpayers as much as $1.1 billion over 10 years. 
Would you support this change in tax policy to eliminate a subsidy?

    Answer. Independent producers and smaller integrated companies are 
currently allowed to amortize geological and geophysical (G&G) costs 
over a 2-year period, whereas major integrated producers may only 
amortize over 7 years.\11\ According to the Joint Committee on 
Taxation, G&G costs are costs incurred for the purpose of obtaining and 
accumulating data that will serve as acquisition and retention of 
mineral properties,\12\ which are akin to research and development 
expenses that most companies can expense in one year.
    ``Research and development, or R&D, are the lifeblood of 
technological advancement, and they factor heavily in most corporate 
enterprises' planning and growth. Recognizing the importance of 
technology and business growth in the international marketplace, the 
U.S. Congress created tax breaks for companies that engage in R&D. As 
an incentive to engage in research and development, the IRS permits 
businesses to deduct all R&D expenses in a single year instead of 
amortizing as a capital expense.'' \13\
    Again, I believe that all industries should be treated the same 
under the tax law and that one industry should not be singled out for 
differential treatment because the terminology used is different.

    Question. Oil and gas properties qualify for ``percentage 
depletion,'' a tax deduction of 15 percent of gross revenues from the 
well, even if the deductions exceed the well's value over time. The JCT 
estimates that repealing this provision for the large oil companies 
would generate $11.9 billion over 10 years.

   Do you support the repeal of this tax subsidy? Are any 
        other companies besides oil and gas production companies 
        eligible for claiming this tax subsidy?

    Answer. I am grateful for the opportunity to set the record 
straight on the percentage depletion tax deduction that the small 
independent oil producers are allowed to deduct on their taxes. As the 
oil and gas in a well is depleted, the small independent producers are 
allowed a percentage depletion allowance to be deducted from their 
taxes. While the percentage depletion allowance sounds complicated, it 
is similar to the treatment given other businesses for depreciation of 
an asset. The tax code essentially treats the value of a well as it 
does the value of a newly constructed factory, allowing a percentage of 
the value to be depreciated each year. This allowance was first 
instituted in 1926 to compensate for the decreasing value of the 
resource, and was eliminated for major oil companies in 1975.\14\ This 
allowance applies only to the first 1,000 barrels of production during 
the period, so it is of little significance to large independent 
producers. It saves the independent oil and gas producers about $1 
billion in taxes per year.\15\ It is true that repealing this provision 
would extract more tax revenue from these energy producers since that 
is what tax hikes do, but it would make sense from neither an economic 
nor accounting perspective. When oil is removed from a well and sold, 
the remaining value of the well does go down. The percentage depletion 
deduction addresses this reality of oil and gas production.

    Question. Under the tax rules governing tertiary injectants, oil 
companies deduct expenses relating to the cost of tertiary injectants 
during the taxable year, instead of depreciating these costs over a 
typical cost recovery schedule. Ending this subsidy for large oil 
companies would generate $32 million over 10 years, according to the 
JCT.

   Do you support the repeal of this tax subsidy? Are any 
        other companies besides oil and gas production companies 
        eligible for claiming this tax subsidy?

    Answer. According to the Joint Committee on Taxation, oil and gas 
companies can deduct tertiary injectant expenses during the taxable 
year,\16\ similar to a business expense of other companies. This 
provision was provided to the oil and gas industry to increase domestic 
oil production, providing greater energy security for the nation. And, 
it is continuing to be effective. For example, domestic oil production 
from enhanced oil recovery is expected to increase in EIA's Annual 
Energy Outlook projections by over 160 percent between 2012 and 
2040,\17\ which shows that this tax provision is fulfilling its 
intended purpose of increasing domestic oil production, thereby 
increasing energy security.

    Question. Taxpayers can shelter active income through passive 
losses or credits associated with the production of oil and gas, a 
condition that does not apply to other sources of passive income or 
credit. Repealing the exception for passive loss limitations for oil 
and gas properties for oil companies with revenues above $50 million 
per year would generate $9 million over 10 years, according to the JCT.

   Would you support this change to harmonize tax treatment so 
        as not to favor oil and gas investments over other types of 
        energy investments?

    Answer. Although this is not a specifically energy-related topic, 
in the spirit of promoting economic efficiency and avoiding the 
government picking winners and losers, IER supports broad-based tax 
reform that would eliminate all tax credits and deductions for all 
firms, so long as marginal tax rates were reduced across-the-board to 
maintain revenue neutrality. This reform would flatten the tax code and 
consistently apply the same rules to everybody, removing the temptation 
for government officials to dole out privileges to favored groups by 
partially shielding them from the full burden of the code. IER would 
fully support Senator Markey if he chooses to promote such broad-based 
tax reform. However, if Senator Markey believes it is good policy to 
discriminate against a particular industry merely because they produce 
hydrocarbons, then Senator Markey's proposal will not provide efficient 
tax reform but instead will simply be a tax hike on one of the few 
sectors of our economy that has been consistently producing jobs since 
the recession began.

----------------
End Notes

    \1\ Ernst and Young, U.S. E&P Benchmark Study, June 2012.
    \2\ https://beta.congress.gov/bill/113th-congress/senate-bill/2433.
    \3\ Energy Information Administration, Levelized Cost and Levelized 
Avoided Cost of New Generation Resources in the Annual Energy Outlook 
2014, April 17, 2014.
    \4\ Encyclopedia of Earth, Deep Water Royalty Relief Act, July 17, 
2011.
    \5\ Congressional Record, November 8, 1995.
    \6\ Joint Committee on Taxation, Description of Present Law and 
Select Proposals Relating to the Oil and Gas Industry, May 12, 2011.
    \7\ US News, World's Highest Corporate Tax Rate Hurts U.S. 
Economically, April 2, 2012.
    \8\ Scientific American, End Oil Subsidies? The $4 Billion Dollar 
Question, February 21, 2012.
    \9\ Independent Petroleum Association of America.
    \10\ Trib.com, Obama tax changes could hit small oil and gas 
operators in Wyoming, March 30, 2012.
    \11\ Joint Committee on Taxation, Description of Present Law and 
Select Proposals Relating to the Oil and Gas Industry, May 12, 2011.
    \12\ Joint Committee on Taxation, Description of Present Law and 
Select Proposals Relating to the Oil and Gas Industry, May 12, 2011.
    \13\ Small Business, Tax Breaks for R&D.
    \14\ Star Tribune, Obama tax changes could hit small oil and gas 
operators in Wyoming, March 30, 2012.
    \15\ Scientific American, End Oil Subsidies? The $4 Billion Dollar 
Question, February 21, 2012.
    \16\ Joint Committee on Taxation, Description of Present Law and 
Select Proposals Relating to the Oil and Gas Industry, May 12, 2011.
    \17\ Energy Information Administration, Annual Energy Outlook 2014.
                                 ______
                                 

                 Response of Michael Breen to Question 
                 Submitted by Senator Edward J. Markey

    Question. Ukraine's reliance on Russian natural gas to meet half of 
its domestic needs has left it vulnerable to predatory Russian 
practices in terms of energy supply manipulation. Yet Ukraine has vast 
untapped domestic natural gas supplies and it is also the second-least 
energy efficient country in the world. I have introduced legislation--
S. 2433--that aims to double U.S. government-wide energy assistance to 
Ukraine to help them increase efficiency, develop their own resources, 
and get off Russian gas.

   Do you support this legislation? Please provide any 
        thoughts or technical feedback about this legislation.

    Answer. I strongly support S. 2433, which offers an important and 
viable path forward for Ukraine's energy security. As Chairman Markey 
noted, Ukraine is heavily reliant on Russian natural gas to meet its 
energy needs, importing more than 60 percent of its natural gas 
consumption in 2013 from Russia. Russia has consistently exploited 
Ukraine's energy reliance for geopolitical gains, most recently cutting 
off exports completely since June. Ukraine also uses far more energy 
than it should. Outmoded district heating networks, poorly insulated 
housing, leaky pipes, and ancient boilers all exacerbate Ukraine's need 
for energy, which makes the country more vulnerable.
    S. 2433 properly applies efficiency as a tool to help Ukraine 
achieve energy security. By ensuring that energy efficiency 
improvements are a priority of U.S. Government and international aid to 
Ukraine, S. 2433 will deliver the most certain reductions in Moscow's 
geopolitical leverage over Kiev. Additionally, by helping Ukraine 
develop its own energy sources, including renewable sources, S. 2433 
will help assuage concerns of a looming gas crisis in the European 
Union, as Ukraine serves as an important transit hub for natural gas.
    Most importantly, S. 2433 serves as a model for U.S. energy 
diplomacy in the future. America's greatest strength has always been 
technological innovation and technical knowledge. We should prioritize 
those assets in our foreign policy. By maximizing Ukraine's ability to 
provide for its own energy future, we will help minimize the 
vulnerabilities of our allies and the geopolitical leverage of our 
adversaries.
                                 ______
                                 

                 Responses of Eric Postel to Questions 
                 Submitted by Senator Edward J. Markey

    Question. Does your agency have the information and resources 
needed to understand and integrate the impacts of climate change on its 
mission? If not, what is needed?

    Answer. Integrating climate change in Agency programming, policy 
dialogue, and operations is one of three strategic objectives in 
USAID's Climate Change and Development Strategy, with the other two 
being mitigation and adaptation.
    Staff dedicated to helping USAID understand and integrate the 
impacts of climate change are assigned not only to the Bureau for 
Economic Growth, Education, and Environment, but also to the Bureau for 
Food Security, Bureau for Democracy, Conflict and Humanitarian 
Assistance, and the Africa, Latin America and Caribbean, and Asia 
Bureaus. These climate-change specialists lend their knowledge of, and 
experience in, climate change to inform key Agency programs and policy 
discussions.
    All USAID missions are required to fully consider climate change as 
they develop their Country Development and Cooperation Strategies. 
Supplemental guidance for climate-related programming provides missions 
with technical guidance on how they can best incorporate climate change 
into country strategies. In addition, climate-change specialists review 
and comment on draft strategy documents and, thus far, have provided 
significant support to nine missions with their strategies. More than 
half of final mission strategies substantially incorporate climate 
change.
    USAID is also working to bring climate change into sharper focus 
through the environmental compliance process--an entry point to promote 
project design that considers and integrates climate change. USAID 
policy includes ``identify[ing] impacts resulting from AID's actions 
upon the environment'' and ``defin[ing] environmental limiting factors 
that constrain development.'' This provides ample scope not only to 
avoid greenhouse gas emissions and maladaptation, but also to address 
climate change impacts as potential limiting factors on USAID's 
development work. A climate change module has been included in 
environmental compliance trainings for USAID staff and implementers, 
and information on climate change has been added to USAID's Sector 
Environmental Guidelines, a resource that helps compliance officers, 
project designers, and implementers think through environmental 
compliance in specific sectors.
    USAID's recently released Climate Resilient Development Framework 
provides guidance to USAID staff, implementers, and others on how to 
consider and address climate change impacts in development work. The 
Agency intranet and other relevant platforms, such as the Feed the 
Future knowledge management portal, AgriLinks, make this and other 
resources available to staff at their fingertips.
    Training is also an important element of USAID's climate change 
integration strategy. To date, we have trained more than 500 USAID 
employees on how to take climate change impacts into account and design 
projects that contribute to climate change adaptation, or on how to 
address climate change in specific sectors, such as agriculture, 
infrastructure, and water. Trainings take place in Washington and in 
high-priority missions.
    USAID is also expanding its knowledge of the impacts of climate 
change integration through monitoring and evaluating climate change 
integration projects. A series of performance and impact evaluations 
are underway.
    Finally, policy determinations such as Executive Order 13653 issued 
on November 1, 2013, to strengthen coordinated action on climate change 
preparedness and resilience across the Federal Government, give impetus 
to the Agency to strengthen and build on efforts in climate change. 
USAID is revising its Agency Adaptation Plan in response to Executive 
Order 13653 and implementation of the prioritized actions listed in 
that plan will further enhance the integration of climate change 
impacts into the Agency's work.

    Question. What are the impacts of hydrocarbon price volatility in 
the developing world?

    Answer. The main impacts of hydrocarbon price volatility in the 
developing world depend on whether a country is a hydrocarbon importer 
or exporter.
Importers
    For hydrocarbon importing countries, volatility of hydrocarbon 
import prices can drive a number of outcomes. For example, hydrocarbon 
imports, and increases in hydrocarbon prices, tend to put pressure on 
current account balances and drive depreciation of local currencies. 
Net importers, such as India, Kenya, and recently Egypt and Pakistan, 
face growing import bills for their coal, oil, and gas imports.
    In many cases, the problem is a combination of increasing 
hydrocarbon prices and energy subsidization that puts serious financial 
strain on government budgets in developing countries. Energy subsidies 
often crowd out public expenditures on health, education, and 
infrastructure. For example, Egypt's fuel subsidies now consume almost 
25 percent of the government's budget. In 2011, a review found energy 
subsidies were more than three times the spending by the central 
government on education, and seven times health expenditures.\1\ 
Additionally, USAID reviewed Pakistan's budget in 2009 and found fuel 
subsidies were five times the central government's expenditure on 
health and education.
---------------------------------------------------------------------------
    \1\ Energy Subsidies in the Middle East and North Africa: Lessons 
for Reform, International Monetary Fund, March 2014.
---------------------------------------------------------------------------
    As energy subsidy costs grow, many governments have tried to reduce 
the subsidy burden by raising domestic fuel and electricity prices. 
Reducing hydrocarbon subsidies--and raising prices to accommodate 
rising hydrocarbon prices--is frequently associated with civil 
disorder. Bolivia, Bulgaria, Guinea, Indonesia, Jordan, Mozambique, 
Nigeria, Pakistan, Tunisia, to name some recent examples, have had 
riots over energy costs. In 2013, the Bulgarian Government fell due to 
public objections to energy price increases.
Exporters
    One of the main effects of hydrocarbon price volatility on 
hydrocarbon exporting countries is budgetary shortfalls when prices 
decline. Many countries rely heavily on hydrocarbon revenues as both a 
source of government revenues and foreign exchange earnings. For 
example, Nigeria's Government relies on hydrocarbon exports for 75 
percent of its budget \2\ and over 95 percent of the country's foreign 
exchange earnings.\3\ Changes in global oil prices therefore have a 
major impact on Nigeria's public finances.
---------------------------------------------------------------------------
    \2\ Forbes, 7 April 2014.
    \3\ Michigan State University Broad School of Business Global Edge 
service.
---------------------------------------------------------------------------
    USAID works in a number of countries that have recently begun to 
develop significant new hydrocarbon resource finds, including Ghana, 
Tanzania, South Sudan, and Uganda. These countries will have to cope 
with the variability of global export prices when managing their 
resource revenues and budgets. Nonoil related industry can be hurt by 
the resulting volatile, and often high, foreign exchange rates.
    Another serious challenge is effective hydrocarbon sector 
governance and avoiding mismanagement of both environmental impacts and 
public revenues.

    Question. How does USAID evaluate the best way to help partner 
countries overcome these challenges?

    Answer. USAID takes a strategic approach to providing energy sector 
assistance. This approach must balance multiple objectives of the U.S. 
Government in its relationship with developing countries. Objectives 
that are considered include:

   Energy security and energy for sustainable economic growth.
   Mitigating climate change through low emissions development 
        planning and clean energy development.
   Increasing energy access for poverty reduction.
   Energy sector reconstruction in conflict and post-disaster 
        countries.

    For countries that are hydrocarbon importers, USAID programs focus 
on activities such as improving energy efficiency, scaling up renewable 
energy, and developing domestic energy resources. Afghanistan and 
Pakistan are good examples where USAID is helping to promote renewable 
energy, including hydroelectric generation. In addition, we have 
supported the development of local gas production by working closely 
with the World Bank, Asian Development Bank, and Afghan Government 
to develop the large gas fields in northern Afghanistan, near the 
border with Turkmenistan.
    USAID also views improved performance of energy service providers--
public utilities--as an important part of the solution. Helping public 
utilities perform better makes it easier for countries to cope with 
fuel price volatility. As losses go down, utilities generally become 
financially stronger, more capable of keeping up with fuel payments, 
and are better able to invest in both renewable energy and other low 
cost generation sources.
    We work with many countries with utility systems that have very low 
cost recovery and high losses in the electricity sector. USAID supports 
utility performance improvement programs in a number of countries, 
including Afghanistan, Ghana, India, Kosovo, Pakistan, South Sudan, and 
Tanzania.
    For countries with high levels of energy subsidies, subsidy reform 
can have big payoffs in terms of higher growth and greater equity; yet, 
energy subsidy reform is complex, both technically and politically. 
USAID has found that careful planning, including on the timing and pace 
of reform is essential. Likewise, consideration of social safety nets 
along with a public information campaign that raises awareness about 
the subsidy costs and benefits of reform are needed.
    Recent developments in the pricing of on-shore wind and solar 
photovoltaic generation also have an impact on countries' ability to 
cope with high fuel bills. In the past several years, these two 
renewable options have begun to reach price parity with hydrocarbon-
based generation, although this varies by country. As an example, wind 
energy in some Indian states is cheaper than electricity generated by a 
new plant using imported coal. In India, solar plants are currently 
being bid by private developers at rates that are lower than generation 
plants using imported liquefied natural gas or diesel fuel.
    Some countries that rely heavily on imported fuel for generation 
are finding it cost effective to introduce wind and solar power into 
their systems, including Indonesia, the Philippines, and many Caribbean 
and South Pacific Islands.
    Similarly, solar power prices in some of the countries where USAID 
works, including Brazil, India, Mexico, Nigeria and South Africa are 
comparable to the consumer retail electricity rate. When renewables 
reach parity with hydrocarbon-based generation, countries can invest in 
renewable generation as a means of coping with high fuel costs.
    In hydrocarbon-exporting countries, challenges are often associated 
with sector governance, protection of public revenues, and 
environmental impacts. USAID evaluates the strategic role that 
hydrocarbon exports play in a country's development, but it does not 
have large assistance programs related to hydrocarbon sector 
development. In recent years, assistance related to hydrocarbon exports 
has been provided by other U.S. Government agencies, such as the 
Department of State's Energy and Natural Resources Bureau.

    Question. Please provide us with your views of the hot spots you 
are especially concerned about in terms of the potential for climate 
change impacts to generate major destabilization in the future. As 
you're looking at the people living closest to the edge, where day-to-
day survival can be a struggle, where could a catastrophic drought or 
storm or flood or other climate change-related extreme weather event 
put communities or regions over the edge?

    Answer. USAID has conducted analysis and applied research on these 
issues from a development perspective since 2008. While the science and 
practice of analyzing the interaction of climate change risk and 
conflict risk is still evolving, we do have some topline findings in 
which we have high confidence. First, as the Intergovernmental Panel on 
Climate Change's Fifth Assessment Report finds, the presence of violent 
conflict strongly influences vulnerability to climate change impacts 
for people living in affected places. Therefore, we need to prioritize 
attention to conflict prevention and peace-building as a complement to 
climate adaptation efforts in those places.
    Conversely, there is an increasing body of evidence suggesting that 
climate impacts are a threat multiplier that significantly increases 
the potential for conflict in places with already weak institutional 
and social capacity to respond. A majority of the world's most fragile 
regions, countries, and communities--where conflict and violence is 
most likely and persistent--also will likely be highly exposed to the 
impacts of climate change. For example, in Africa, Asia, and Latin 
America we already see competition and conflict over issues such as 
deforestation and access to arable land. Water shortages are one of the 
most immediate pressing threats to lives and livelihoods in water-
stressed areas such as the Middle East, North Africa and the Horn of 
Africa, but we also see potential impacts in regions dependent on 
glaciers for water--including Asia and the Andean region.
    Conflict is certainly not a foregone conclusion when climatic 
stresses are added to these scenarios of vulnerability, but when those 
additional stresses are not met with established approaches to increase 
resilience and managed by effective institutional responses, then the 
likelihood of violence as a strategy to resolve grievances increases.

    Question. Is this sort of ongoing strategic examination part of 
your Bureau or how is it institutionalized at USAID?

    Answer. USAID's Office of Conflict Management and Mitigation within 
the Bureau for Democracy, Conflict and Humanitarian Assistance develops 
and disseminates rigorous field-relevant research, analysis, and 
guidance to better understand conflict dynamics based on a 
comprehensive knowledge management system. That office has also been 
leading the Agency's efforts to understand and respond to the risks 
associated with climate change impacts in fragile states, including 
cutting-edge research to guide conflict-sensitive climate adaptation 
and resilience approaches globally.

    Question. Ukraine's reliance on Russian natural gas to meet half of 
its domestic needs has left it vulnerable to predatory Russian 
practices in terms of energy supply manipulation. Yet Ukraine has vast 
untapped domestic natural gas supplies and it is also the second-least 
energy efficient country in the world. I have introduced legislation--
S. 2433--that aims to double U.S. Government-wide energy assistance to 
Ukraine to help them increase efficiency, develop their own resources, 
and get off Russian gas.

   Do you support this legislation? Please provide any 
        thoughts or technical feedback about this legislation.

    Answer. USAID agrees that Ukraine needs to increase energy 
efficiency and supply diversity for a more secure and resilient energy 
sector. The legislation describes several activities that, if well 
implemented and coordinated, could assist Ukraine in becoming more 
energy independent and energy efficient. To that end, USAID engages key 
stakeholders throughout Ukraine's energy sector and the donor community 
to modernize energy infrastructure, improve energy sector governance, 
and support the integration of Ukraine into the European Union.
    In Ukraine, USAID supports participation in high-level and 
technical working groups on crucial issues such as providing social 
safety nets in the face of rising tariffs, supporting municipal heating 
improvement and energy efficiency, and reforming tariffs to reflect 
appropriate cost of service. This initiative builds on past efforts 
that leveraged $225 million for energy efficiency projects, leading to 
savings of 380 million cubic meters of natural gas.
    USAID also continues to assist the National Electricity Regulatory 
Commission of Ukraine in building its capacity to oversee a market-
based energy sector, including support for developing a regulatory 
framework harmonized with European Union directives and moving toward 
cost-reflective tariffs necessary to encourage energy efficiency. 
Ukraine's transmission system operator participates in a USAID-led 
regional working group that identifies necessary infrastructure 
investments for improving cross-border electricity trade. In addition, 
USAID is fulfilling a pledge of $7.5 million to a =90 million Eastern 
Europe partnership fund that supports energy efficiency in public 
infrastructure in Ukraine and has funded several prior assessments to 
help Ukraine identify pathways to alternative energy sources.
    Given the scale of the energy challenge facing Ukraine, USAID would 
use any additional resources to leverage its current work and 
relationships within the country to increase Ukraine's energy security.
                                 ______
                                 

               Responses of Amos Hochstein to Questions 
                   Submitted by Senator John Barrasso

    Question. What is the total number of staff positions at the Bureau 
of Energy Resources?

    Answer. ENR has 65 authorized full-time equivalent (FTE) positions. 
In addition, the Bureau employs a number of nonpermanent staff and 
fellows.

    Question. What is the fiscal year 2013 and 2014 budget for the 
Bureau of Energy Resources?

    Answer. The total FY 2013 Bureau of Energy Resources budget was 
$21,613,245. The total FY 2014 budget was $23,683,000. This represents 
an increase of $2,069,755.

    Question. What percentage of the work done by the Bureau of Energy 
Resources involves international climate change projects?

    Answer. The Bureau of Energy Resources (ENR) focuses on energy 
resources including oil, gas, nuclear, coal and renewable energy 
integration. In the Department of State, the Office of the Special 
Envoy for Climate Change (S/SECC) represents the United States 
internationally at the ministerial level in all bilateral and 
multilateral negotiations regarding climate change. The Bureau of 
Oceans and International Environmental and Scientific Affairs (OES) 
handles all environment and climate programs in support of S/SECC.

    Question. Is international climate change a top priority of the 
Bureau of Energy Resources?

    Answer. The Bureau of Energy Resources is focused on issues that 
affect the security, economic competitiveness, and environmental 
sustainability of world energy supplies and markets. ENR unites U.S. 
diplomatic and programmatic efforts to build sustainable, transparent, 
and predictable international markets for oil, natural gas, coal, civil 
nuclear power, electricity, renewable energy, and energy efficiency 
that advance U.S. national security interests and a strong national and 
global economy.

    Question. Global Climate Change Programs.--The Global Climate 
Change Initiative seeks to integrate climate change considerations into 
foreign assistance programs. The fiscal year 2015 budget requests 
$506.3 million for global climate change related activities supported 
by State and USAID, a 10-percent increase over the fiscal year 2013 
level.

   Given the increasing need for humanitarian assistance, 
        democracy promotion, and embassy security measures, why is 
        $506.3 million for global climate change the best expenditure 
        of taxpayer funds?
   Since 2010, how much funding has the U.S. Department of 
        State spent on international climate change programs?

    Most aid programs are not evaluated to determine the actual impact 
of the assistance. Congress as well as the American people cannot 
determine whether taxpayer dollars are being used wisely when it is 
unclear if it succeeded or failed.

   What percentage of State's international climate change 
        programs have completed evaluations?
   Have those evaluations been made available to Congress and 
        the public? Where can they be accessed?
   What is the timeline for the completion of all of the 
        reviews assessing whether the international climate change 
        projects are meeting their goals and are having the intended 
        impact?

    Answer.
        The objective of the President's Global Climate Change 
            Initiative (GCCI) is to help countries grow their economies 
            in a way that reduces carbon pollution, builds their 
            resilience to climate impacts and disasters, and mobilizes 
            investment for the climate and clean energy solutions of 
            the future.

    Climate change is projected to have major impacts on weather-
sensitive economic sectors and water supply abroad, with especially 
adverse effects on poor and vulnerable countries, impacting their 
ability to develop and achieve prosperity. Extreme weather events such 
as drought, floods, and storms aggravate problems such as poverty, 
social tensions, and environmental degradation that reduce prospects 
for prosperity and undermine development. The Council of Economic 
Advisers estimates that warming of 3 degrees Celsius above 
preindustrial levels, instead of 2 degrees Celsius, could increase 
annual economic damages by approximately 0.9 percent of global output. 
To put this percentage in perspective for the United States, 0.9 
percent of estimated 2014 U.S. GDP is approximately $150 billion, and 
the incremental costs beyond 3 degrees Celsius would be even greater. 
The Department of Defense and independent defense assessments have 
identified climate change as a threat multiplier in vulnerable parts of 
the world, with significant national security risks for the United 
States.
    Successfully combating climate change will require decisive global 
action. It is strongly in the U.S. interest that fast-growing 
developing countries do their part to stem their emissions, even as we 
work to do the same. This initiative request comes at a pivotal moment. 
The actions countries commit to taking this year will be a major 
determinant of the trajectory of GHG emissions and associated climate 
change that will occur in coming decades, and the strength of those 
actions will consequently have a significant bearing on the severity of 
anticipated climate impacts both in the United States and abroad.
    The GCCI is essential in leveraging effective GHG reduction efforts 
from developing countries. It helps countries undertake climate 
mitigation efforts, and it will help us ensure through global 
negotiations that developing countries do their part. These investments 
ensure that the United States is a leader in helping vulnerable 
countries cope with the impacts of climate change, and in helping to 
put the globe on a path toward development that is cleaner and more 
efficient.
    GCCI programs not only benefit our efforts to protect our climate 
system, they promote our broader development objectives. Virtually all 
GCCI programs have important benefits for food security, health, 
sustainability, economic development and poverty reduction, and 
regional stability, all of which benefit the U.S. and global economy.

      [all]  The Department of State has dedicated $712.2 million to 
            international climate change programs with funds 
            appropriated in FY 2010 through FY 2014.
      [all]  The Department continually monitors and evaluates GCCI 
            activities in compliance with Department evaluation 
            policies. Prior to the January 2015 evaluation policy 
            update, the Department required that all large programs or 
            projects be evaluated at least once in their lifetime or 
            every 5 years, whichever was less. The Department actively 
            monitors all programs, including those administered through 
            multilateral mechanisms that we support, and multilateral 
            programs and funding routinely undergo independent audit 
            and evaluation.
      [all]  A majority of State GCCI programming has undergone or is 
            currently undergoing performance monitoring and evaluation 
            or assessment. For example, the Asia Pacific Partnership on 
            Clean Development and Climate (APP) evaluation reviewed the 
            APP model including the leadership, administration, and 
            resources of this public-private partnership from 2007-
            2009. Similarly, an ongoing, 3-year evaluation of the GCCI, 
            will assess the data quality of reported outcomes for all 
            State-funded GCCI projects. Other evaluations, such as the 
            completed Global Methane Initiative evaluation, and the 
            ongoing Climate Renewables and Deployment Initiative 
            (Climate REDI) evaluation, focus on large, substantive GCCI 
            programs.
      [all]  Beginning in 2015, summaries of all evaluations performed 
            with foreign assistance funds can be found at 
            www.state.gov/f/evaluations/index.htm. USAID evaluations 
            are also publicly available on the Development Experience 
            Clearinghouse Web site: https://dec.usaid.gov/dec/home/
            Default.aspx.
      [all]  Evaluations are ongoing and the design and procurement of 
            new evaluations occurs annually. Additionally, project 
            implementers provide semiannual reporting that includes 
            performance results across standard GCCI indicators to 
            allow leadership to reflect upon progress toward meeting 
            GCCI goals. These results are reported annually and 
            cumulatively through the Department's Performance Plan and 
            Report and a subset is publicly reported on through the 
            Annual Performance Plan and Report.
                                 ______
                                 

                 Responses of Eric Postel to Questions 
                   Submitted by Senator John Barrasso

                     global climate change programs
    The Global Climate Change Initiative seeks to integrate climate 
change considerations into foreign assistance programs. The fiscal year 
2015 budget requests $506.3 million for global climate change related 
activities supported by State and USAID, a 10-percent increase over the 
fiscal year 2013 level.

    Question. Given the increasing need for humanitarian assistance, 
democracy promotion, and embassy security measures, why is $506.3 
million for global climate change the best expenditure of taxpayer 
funds?

    Answer. As Secretary Kerry noted in the 2015 Congressional Budget 
Justification, we view climate-change investments as a smart way to 
promote stability and global prosperity, while protecting development 
gains that support economic growth, reduce climate-related security 
risks, and protect U.S. interests.
    The proposed fiscal year 2015 $506.3 million is a combined 
Department of State-USAID request, with USAID requesting $348 million 
of that total. State Department and USAID climate change assistance 
will help countries reduce emissions and adapt to climate change, and 
will support U.S. diplomatic efforts to negotiate a new international 
climate agreement in 2015. U.S. leadership is particularly necessary at 
this time to forge partnerships to safeguard future generations from 
the dangerous and costly repercussions of global climate change.
    U.S. investments in clean energy and sustainable landscapes help 
developing countries lower emissions. No country is isolated from the 
effects of climate change and developing countries are increasingly a 
source of greenhouse gas emissions; they likely already emit more than 
developed countries. A recently released report by the Council on 
Environmental Quality \1\ finds that an additional one degree of 
warming beyond 2 degrees Celsius above preindustrial levels could 
result in an annual loss of 0.9 percent of global economic output. As 
just one example of potential consequences due to climate change, 
scientific analyses described in the recent National Climate Assessment 
and a 2011 National Research Council report have found that the areal 
extent of forest fires in the Western United States would increase 
dramatically--by a factor of four or more in some areas--relative to 
the recent past under relatively modest warming scenarios.\2\ The 
National Climate Assessment also describes other impacts to the United 
States, including sea level rise and changes in precipitation due to 
climate change. By helping developing countries reduce their greenhouse 
gas emissions, we reduce long-term risk to the United States.
---------------------------------------------------------------------------
    \1\ The Cost of Delaying Action to Stem Climate Change, July 2014.
    \2\ Melillo, Jerry M., Terese (T.C.) Richmond, and Gary W. Yohe, 
Eds., 2014: Climate Change Impacts in the United States: The Third 
National Climate Assessment. U.S. Global Change Research Program, 841 
pp. doi:10.7930/J0Z31WJ2. National Research Council. Climate 
Stabilization Targets: Emissions, Concentrations, and Impacts over 
Decades to Millennia. Washington, DC: The National Academies Press, 
2011.
---------------------------------------------------------------------------
    U.S. investments in adaptation improve resiliency to climate change 
and help to reduce the severity of future humanitarian disasters. For 
example, as noted in my testimony, USAID, in separate collaborations 
with NASA and the U.S. Army Corps of Engineers, is helping Bangladesh 
adopt a new flood forecasting system and ensure that storm shelters are 
built appropriately. In Ethiopia, we are supporting a range of 
activities--from drought warning systems to building water storage--to 
protect against future shortages in rainfall. These are prudent 
measures to reduce the damage of future disasters. Such disasters are 
anticipated to grow as precipitation patterns change and sea levels 
rise in line with current climate projections.

    Question. Since 2010, how much funding has USAID spent on 
international climate change programs?

    Answer. From FY 2010 to FY 2013, Congress has appropriated, and 
USAID has programmed, $1.386 billion for the Global Climate Change 
Initiative at USAID.

    Question. What percentage of USAID's programs involve global 
climate change initiatives?

    Answer. The Global Climate Change Initiative represents 2 percent 
of the $14.4 billion managed by USAID in FY 2013.
Reporting
    Most aid programs are not evaluated to determine the actual impact 
of the assistance. Congress as well as the American people cannot 
determine whether taxpayer dollars are being used wisely when it is 
unclear if it succeeded or failed.
    USAID's ability to demonstrate results through performance 
management and reporting was one of the most significant challenges 
identified by the Inspector General. The Inspector General's FY 2013 
Annual Management Challenge statement said,
    ``Quality, reliability, and sufficiency of program data are 
essential to assess whether projects are making adequate progress and 
having the intended impact.''
    ``Even though USAID has extensive guidance to help manage projects, 
accurate and supported results continues to be problematic.''

    Question. What percentage of USAID's international climate change 
programs had completed impact evaluations?

    Answer. With the release of the Agency's Evaluation Policy in 
January 2011, USAID made an ambitious commitment to conduct quality 
program evaluation--the systematic collection and analysis of 
information and evidence about program performance and impact. Under 
the Evaluation Policy, missions are expected to evaluate their larger 
programs across all development areas.
    In addition, USAID's Climate Change and Development Strategy, 
released in January 2012, called for the development of a learning 
agenda, which includes impact evaluations. Impact evaluations are based 
on models of cause and effect, and require a credible and rigorously 
defined counterfactual to control for factors other than the program 
activity that might account for the observed change. The first impact 
evaluation will be complete in early 2016.
    Impact evaluations are rigorous and are conducted in parallel with 
program activities they are evaluating; they take a long time, are 
work-intensive, and are quite expensive. Therefore, only a small 
percentage of climate change programs--those that are best suited to 
help USAID answer key questions about development effectiveness--will 
be studied in this fashion.
    Performance evaluations, on the other hand, while often 
incorporating before-after comparisons, are less involved and more 
affordable. A number of mid-term and final performance evaluations of 
USAID's climate change program activities have been completed. Examples 
include a midterm-evaluation of Ecuador's Sustainable Coasts and 
Forests Project and an end-of-project evaluation of the Philippines' 
Alliance for Mindanao Off-Grid Renewable Energy.

    Question. Have those evaluations been made available to Congress 
and the public?

    Answer. Yes. To facilitate sharing of evaluation findings, 
evaluation reports must be submitted to USAID's central document 
repository, the Development Experience Clearinghouse (https://
dec.usaid.gov) within 3 months of the evaluation's conclusion.

    Question. What is the timeline for the completion of all of the 
reviews assessing whether the international climate change projects are 
meeting their goals and are having the intended impact?

    Answer. The review of USAID climate change projects is an on-going 
process that incorporates findings from both project monitoring and 
evaluation. Performance monitoring indicates whether desired results 
are occurring and whether project outcomes are on-track while 
performance and impact evaluations help determine if a project resulted 
in the intended outcomes. All USAID projects undergo performance 
monitoring and results are reported annually. In addition, a number of 
performance evaluations have been completed, and the first impact 
evaluation will be complete in early 2016.

    Question. Why should Congress and the American people believe the 
results on international climate change programs, when the Inspector 
General has stated that USAID's inability to obtain accurate and 
supported results is a significant challenge?

    Answer. With the release of USAID's Evaluation Policy and under 
USAID Forward, the Agency has reinforced its emphasis on quality 
monitoring and evaluation (M&E). We are continually working to improve 
M&E capacity as it relates to climate change initiatives. For instance, 
we have developed carbon calculators to facilitate systematic and 
comparable reporting on greenhouse gas reductions through USAID 
investments. As another example, we offer an M&E class tailored for 
climate change projects several times a year to improve performance 
monitoring and reporting by missions and their implementers. Moreover, 
we are currently updating global climate change standard indicators to 
better capture the results of our programs. In this process, we are 
working with donors and other practitioners to standardize performance 
measures, where feasible, and to share lessons learned on monitoring 
the performance of climate change assistance.
                                 ______
                                 

   Study by Jeff Kueter, President of the George Marshall Institute, 
                   Submitted by Senator John Barrasso
                   
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