<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:86611.wais]
ENERGY: MAXIMIZING RESOURCES, MEETING NEEDS AND RETAINING JOBS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ENERGY POLICY, NATURAL
RESOURCES AND REGULATORY AFFAIRS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
JUNE 17, 2002
__________
Serial No. 107-202
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
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WASHINGTON : 2003
____________________________________________________________________________
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COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California PATSY T. MINK, Hawaii
JOHN L. MICA, Florida CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania THOMAS H. ALLEN, Maine
DAVE WELDON, Florida JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia ------
JOHN J. DUNCAN, Jr., Tennessee BERNARD SANDERS, Vermont
JOHN SULLIVAN, Oklahoma (Independent)
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
James C. Wilson, Chief Counsel
Robert A. Briggs, Chief Clerk
Phil Schiliro, Minority Staff Director
Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs
DOUG OSE, California, Chairman
C.L. ``BUTCH'' OTTER, Idaho JOHN F. TIERNEY, Massachusetts
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEVEN C. LaTOURETTE, Ohio PATSY T. MINK, Hawaii
CHRIS CANNON, Utah DENNIS J. KUCINICH, Ohio
JOHN J. DUNCAN, Jr., Tennessee ROD R. BLAGOJEVICH, Illinois
JOHN SULLIVAN, Oklahoma
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Dan Skopec, Staff Director
Allison Freeman, Clerk
C O N T E N T S
----------
Page
Hearing held on June 17, 2002.................................... 1
Statement of:
Bernow, Stephen, director, Energy Group, Tellus Institute;
Byron Swift, director, Energy and Innovation Center,
Environmental Law Institute; David Fairman, vice president,
International Dispute Resolution, the Consensus Building
Institute; George Sterzinger, executive director, Renewable
Energy Policy Project; and Roger Little, CEO, Spire Corp... 17
Letters, statements, etc., submitted for the record by:
Bernow, Stephen, director, Energy Group, Tellus Institute,
prepared statement of...................................... 21
Fairman, David, vice president, International Dispute
Resolution, the Consensus Building Institute, prepared
statement of............................................... 114
Little, Roger, CEO, Spire Corp., prepared statement of....... 133
Ose, Hon. Doug, a Representative in Congress from the State
of California, prepared statement of....................... 4
Sterzinger, George, executive director, Renewable Energy
Policy Project, prepared statement of...................... 123
Swift, Byron, director, Energy and Innovation Center,
Environmental Law Institute, prepared statement of......... 98
Tierney, Hon. John F., a Representative in Congress from the
State of Massachusetts, prepared statement of.............. 11
ENERGY: MAXIMIZING RESOURCES, MEETING NEEDS AND RETAINING JOBS
----------
MONDAY, JUNE 17, 2002
House of Representatives,
Subcommittee on Energy Policy, Natural Resources
and Regulatory Affairs,
Committee on Government Reform,
Peabody, MA.
The subcommittee met, pursuant to notice, at 11 a.m., in
Wiggins Auditorium, Peabody City Hall, Peabody, MA, Hon. Doug
Ose (chairman of the subcommittee) presiding.
Present: Representatives Ose and Tierney.
Staff present: Dan Skopec, staff director; and Allison
Freeman, clerk.
Mr. Ose. Welcome to today's hearing of the Subcommittee on
Energy Policy, Natural Resources and Regulatory Affairs here in
Peabody, Massachusetts. I want to preface my opening statement
by welcoming our witnesses today and thanking Congressman
Tierney for suggesting the idea of coming up here. I have
searched for 3\1/2\ years to find some means of getting John to
lean to the right. I had no idea I just had to come up here on
the stage. [Laughter.]
The purpose of today's hearing is to consider
recommendations to address our Nation's energy challenges. A
sound energy policy is essential to all Americans, regardless
of whether we are from the East, the South, the Midwest, the
Northeast, or the West. Energy supplies are essential to
heating and cooling our homes, running our modern technology,
moving goods across the country, and fueling our economy. As a
resident of California, I have the dubious first-hand knowledge
of how important a stable and affordable energy supply is. As
you may well realize, over the past few years California has
undergone a severe energy crisis. Due to blackouts, increased
rates, and high natural gas prices, Californians have suffered
mightily as a result of our energy woes.
However, energy is a commodity that most people take for
granted, regardless of where you live. Every time you turn your
computer on or cook dinner on the stove you use energy. We use
energy in these lights; we use energy in these microphones.
Most people do not think about where it comes from or how it is
produced. However, the issues surrounding energy policy are
just as complex and important as in other major public policy
arenas. And, unfortunately, we have ignored many of these
problems for far too long.
Our current energy system is old and out of date. Most
electric utilities are structured the same way they were at the
turn of the century, and I challenge you to cite me an example
similar in nature. We still rely too much on foreign oil to
propel our economy. We have not worked hard enough to encourage
renewable energy sources or promote energy efficiency--and as
an aside, I do want to tell the people of Peabody that
Congressman Tierney is an able and staunch advocate of
renewable sources of this nature--and as a consequence, going
back to my point, our energy infrastructure is woefully
insufficient.
For the first time in a decade, we are finally attempting
to modernize our energy policy. In May of last year, President
Bush unveiled his National Energy Policy, which is a set of
recommendations and goals for Congress to follow. The
President's plan represents the most comprehensive approach to
energy policy in a generation. The plan balances the need for
creating new energy supplies with the goals of improving the
efficiency of our energy system in a way that protects the
environment and promotes economic growth.
In August 2001, the House passed H.R. 4. This legislation
encompassed most of President Bush's priorities. This spring,
the Senate passed its version of H.R. 4. The two bills have
some significant differences, and we will be looking at those
in a Conference Committee this summer and fall, the conferees
of which were just appointed this past week.
Let me now point out a few of the highlights in the House
bill. Important here in the Northeast, the bill increases
funding for the Low-Income Home Energy Assistance Program,
LIHEAP, to meet the energy needs during the winter.
Interestingly enough, in California, we use LIHEAP funds to
help people cool their houses in the summer.
The House bill also includes several provisions to improve
energy efficiency in appliances, homes, and office buildings.
It expands the Energy Star Program, which is run out of the
Department of Energy and the Environmental Protection Agency.
The Energy Star label is only awarded to products that
significantly exceed the minimum energy efficiency standards.
This bill provides tax credits for people who install such
technologies in their homes or places of business. The bill
also requires all Federal facilities to use energy efficient
products and build to the highest standards.
I am especially pleased that the House renewed the tax
credit for renewable energy products. Renewable energy, such as
geothermal, wind, biomass, and solar, show great promise in
contributing to our energy needs. Now, I want to be clear here,
I don't want to fool anybody about this, renewable energy is an
important component, but it cannot be the only piece to the
solution. Now we have an overhead slide in terms of the
electricity generation. Fact of the matter is we need to
promote biomass and wind and these others wherever we can.
In Sacramento Valley, we produce a lot of rice. Rice straw
is a waste product of the rice growing process. The reality is
we have a lot of rice straw leftover after we harvest the rice.
And one of the things in H.R. 4 that we do is we create a tax
credit for open-loop biomass products like rice straw. So
instead of burning the straw, we can convert it into energy and
produce electricity.
The House bill also increases the fuel economy of light
duty trucks in an effort to save 5 billion gallons of gasoline
over the current standards that are in place. The House bill
encourages the development of alternative fuel or hybrid
vehicles by increasing the requirement on the Federal
Government to purchase vehicles, providing grants to State and
local governments to purchase those vehicles, providing large
tax credits for individuals and businesses that do purchase
such products.
Now, these are just a few of the things that were in H.R.
4, and we are going to try to improve it in the Conference
Committee. One of the purposes of this hearing is to allow
Congressman Tierney and I to take some input back to Washington
for the purpose of engaging in that conversation.
Now, I do want to speak a little bit about one particular
facet of the Senate bill, as opposed to the House bill. The
Senate bill requires 5 billion gallons of ethanol to be used
nationwide by the year 2012. At present, even with the support
of significant Federal subsidies, the Nation only uses about
1.7 billion gallons. At a recent hearing in my subcommittee,
energy experts predicted that the Senate ethanol mandate would
increase the price of gasoline in non-attainment areas by up to
10 cents per gallon. The Northeast has many areas that are non-
attainment in terms of air quality, and that is a cost that the
people who live in the Northeast and in California will have to
bear.
The reality is that studies have shown that using ethanol
is a net energy loss. In other words, it requires about a third
more in energy to create ethanol as it does to produce. The
Senate ethanol mandate is a massive transfer of wealth from
non-ethanol producing States to ethanol producing States, and I
would hope that as we consider this provision in the Conference
Committee that we would go back to good science and good policy
rather than focus so much on politics.
And I do want to welcome our witnesses today. We have an
excellent panel, many of whom were suggested by Congressman
Tierney. Today's witnesses I will introduce in a moment, but
now I would like to yield to Congressman Tierney for the
purposes of an opening statement.
[The prepared statement of Hon. Doug Ose follows:]
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Mr. Tierney. Thank you very much, Mr. Chairman. I want to
just tell the folks from the 6th District that have showed up
here today how pleased I am that you have consented to have
this hearing in the District. This is a matter of obvious
importance to all of us throughout this entire region, and I
understand the difficulties that California has had recently,
and people here should know the role that you play in trying to
resolve some of the issues there and bring about some
solutions. We have had any number of hearings now in Washington
and in California on the issues that affect not only the State
of California but the entire Nation, and we appreciate your
commitment and your work in that area, and again appreciate
your ability to join us here.
The Senate does have a different version than the House on
H.R. 4 in the energy bill. I have to be direct and tell people
I wasn't pleased with either bill. I think that the House
version certainly needed a lot of refinement, and the Senate
bill, while it had some good aspects, like renewable portfolios
required, failed to do anything of significance with the CAFE
standards, and I think both bills certainly could have had a
better distribution of research and development moneys as well
as a greater amount of research and development moneys if we
really are going to shift our policy in this country.
Congressman Ose is right in saying that we are not
instantaneously going to move from fossil fuels to other
sources of energy, and I don't think anybody reasonably would
try to make the case that we could. But we can in this country
take a look forward and look to see where we want to be at a
certain point of time and try to move there as quickly as
possible so that we can displace as much of the fossil fuel
reliance as possible into very reliable and cheaper and cleaner
fuels.
So the energy independence, the impact of fossil fuels on
our environment and the potential of renewables, alternatives,
and energy efficiency to meet our needs while creating jobs,
that's of great importance to people here, and I think that's
another significant factor, in every change that we have,
whether it is in trade or whether it is in energy in other
areas, there are some people that will be displaced, most
notably in the energy field, there will be people in the coal
and oil industries. And we have to consider that as part of our
policy planning so that people there have a cushion for the
impact on that and get back to employment at the rates that
they are employed currently, or as near as possible for their
families and for their communities.
In this post-September 11th world, it has become more and
more important that the United States achieve independence from
the Middle East. For decades, domestic oil prices have risen
and fallen on the whim of OPEC. To protect our national
security, we cannot continue at the current level of reliance
on foreign oil. We need to reform the way we obtain, process,
and use energy resources. Each day, 48 percent of the oil
consumed by Americans comes from overseas. In fact, in 2000, we
spent $380 per person, totaling $106 billion, importing crude
oil. We rely so heavily on imports because no new oil fields
have been discovered in the United States for decades.
Even drilling in the Arctic National Wildlife Refuge will
not solve our energy needs. Experts tell us that ANWR will only
contribute a trivial 1 percent to the U.S. share of worldwide
oil reserves. That leaves us few options other than continued
reliance on foreign imports of oil. If we stay the current
course, by 2020 the percentage of oil that is important will
grow to 62 percent. And since two-thirds of the world's oil
lies in the Middle East, we will be beholden to regimes like
those in Saudi Arabia, Iraq, and Iran. And we have the charts
down there that show, I think, pretty clearly our energy
sources, also the one, the distribution of oil reserves,
showing us just from which countries we get our oil.
In addition to the situation in the Middle East, and the
large amount of oil that we import there which subjects us to
the whims of those nations, Venezuela provides a significant
amount of oil to this country and is certainly not a stable
situation that is reliable at this point, in my mind. So it is
not just the Middle East, it is elsewhere from which we take
our oil reserves that we have to be cautious of.
The type of energy that we have used, mostly fossil fuels,
has served us well over the past 150 years. We have benefited
from a tremendous economic boom and enjoy an unprecedented
quality of life. We still, however, know that it has come at
the price to our health and to our environment. At the same
time, this continued reliance on oil threatens our national
security. We are also destroying our environment through the
use of fossil fuels. Two weeks ago, the President's
Environmental Protection Agency released a report that
acknowledges the role of man-made pollutants as a significant
source of global warming. The question is no longer over
whether warming occurs but rather over the extent, the speed
and the magnitude of its effects.
We have both the means and the way to address this dual
dilemma. The means to a safe and sound energy future lie in
advanced energy-efficient and low carbon technologies, and the
way is through smart public policy.
It is time to reduce oil consumption through vehicle
efficiency in new fuels. Between 1975 and 1998, Carbon Average
Fuel Economy, known as CAFE standards, resulted in nearly
doubling new passenger car fuel economy. In 2000 alone, CAFE
standards saved the country 60 billion gallons and over $90
billion. This has had a positive effect on our environment and
a positive effect on the wallets of drivers when they pull up
to the gas pump.
We can also reduce energy consumption by improving the
efficiency standards required of commonly used appliances, like
air conditioners, refrigerators, photocopiers, and fax
machines. Just these standards already on the books are
estimated to save consumers over $150 billion in energy costs
by 2020.
Even as we improve efficiency, we can also improve our
energy independence and help the environment by increasing the
use of renewable energy sources. Renewables are available to
all Americans no matter where they live. Wind, sun, water, and
plants, which can all be converted into energy, can be found in
every region of the country, and it is a tremendously popular
idea with the public. A Gallop poll that was held in November
2001 showed support of 90 percent for investments in wind and
solar power. Electricity generated by wind turbines is the
fastest growing electricity source in the world and is growing
at the rate of 25 percent per year. The energy contained in
plants and organic matter, biomass, is used to generate
electricity, heat homes, fuel vehicles, and provide process
heat for industrial facilities, and its exploitation would be a
boon to rural economies. The cost of solar power, used to
insulate buildings and reduce heating and cooling costs, has
fallen by 90 percent since the 1970's. Once recent study
predicts that solar panel costs will plunge from $5.12 per watt
now to $1.75 per watt by 2020.
We could easily build on these successes but only with
increased investment in research and development. The private
and public sectors need to work together to achieve this
mutually beneficial result. Ultimately, energy research and
development is declining, with the U.S. Federal spending
plummeting from $6.55 billion in 1978 to under $2 billion in
1998--$6.55 billion in 1978 to $2 billion in 1998. In that
year, the President's Committee of Advisors on Science and
Technology recommended doubling research and development over 5
years. It said that our programs were, ``not commensurate in
scope and scale with the energy challenges and opportunities
the 21st century will present.''
Now, as I mentioned earlier, obviously the transition to
significant reliance on other sources of energy and the move
away from a fossil fuel dominated lifestyle won't be done
instantaneously. Today's hearing will hopefully provide
Congress with information on existing sources, their location
and quantities, as well as potential replacements and the
practical timeframe within which transition might occur.
Although some fear that transforming our energy policies
will lead to profit loss and layoffs, we know that doesn't have
to be the case. Companies like Dupont, Johnson & Johnson,
Suncor Energy, and others are making commitments to energy
efficiency and cleaner use goals. More often that not, these
goals are being met sooner than the target dates originally
set, and the companies are saving and not losing money on those
efforts. And with creativity and commitment, workers in the
coal industry and others whose livelihoods depend on
traditional energy sources can be assisted and retrained to be
a vital part of the provision of new energy sources.
So part of the debate, as I mentioned earlier, has to be
about putting in place fair and reasonable ways to sustain
impacted workers' families and getting people prepared for
comparable employment opportunities. By shifting investment to
solar, wind, geothermal, biomass, and other renewable energy
sources, we will create new job markets for skilled labor, and
our witnesses today will flush that idea out significantly.
Transforming our energy policies to best deal with
environmental and security concerns won't be easy; they won't
happen right away. Still, if we encourage the best technologies
and couple their use with implementation of sound standards
fairly applied, we can realize a clean, secure energy future.
Today's hearing should give us some valuable insight so that
our energy policy for the future should look the way it should.
I join the chairman in welcoming all of our witnesses and
thanking them for taking time out of their busy schedules to
share with us information that, as Mr. Ose said, we will be
happy to utilize as we go back with our committees and on the
floor of the House to try and shape the energy bill into a
product that we can all be proud of. Thank you.
[The prepared statement of John F. Tierney follows:]
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Mr. Ose. Thank you, Congressman Tierney. Just for
everybody's benefit, this is a subcommittee of the Committee on
Government Reform. When we have a hearing that is an
investigative hearing we always swear our witnesses, so we will
do that in a moment. We also have in the back of the room,
Kara, is that correct? During the course of the hearing, we
will have some three by five cards passed out. If you have
questions, if you would write them on the cards, we will
collect those. And, then, as time permits, we will bring them
up here and we will be able to get to them accordingly. That
was a request that Congressman Tierney made that I find
reasonable, and I concur with that suggestion. Perhaps we
should do that in more of our committee hearings, as opposed to
us.
So, gentlemen, if you would all rise, we will swear you in.
Raise your right hand.
[Witnesses sworn.]
Mr. Ose. Let the record show that the witnesses all
answered in the affirmative.
Now, we have five witnesses today. Our first--we are going
to introduce them in order. Gentlemen, you are going to be
recognized for 5 minutes to summarize your written testimony,
which we have read and reviewed. While we don't have a trap
door under your chairs, we are jealous of the time, given the
press of business today. So if you could constrain yourselves
to 5 minutes. You have in front of you a little yellow light
and a little red light. The yellow light will come on when you
have 1 minute left, and the red light will come on when there
are 5 minutes--the yellow light will be on the whole time, the
red light will come on when you have no more time.
So our first witness is Stephen Bernow. He is the director
of the Energy Group with the Tellus Institute. Mr. Bernow,
thank you for joining us. You are recognized. You will have to
push the little green button on your microphone. Would the
clerk come up here and get the material from Mr. Bernow for the
purpose of putting it on the overhead?
STATEMENTS OF STEPHEN BERNOW, DIRECTOR, ENERGY GROUP, TELLUS
INSTITUTE; BYRON SWIFT, DIRECTOR, ENERGY AND INNOVATION CENTER,
ENVIRONMENTAL LAW INSTITUTE; DAVID FAIRMAN, VICE PRESIDENT,
INTERNATIONAL DISPUTE RESOLUTION, THE CONSENSUS BUILDING
INSTITUTE; GEORGE STERZINGER, EXECUTIVE DIRECTOR, RENEWABLE
ENERGY POLICY PROJECT; AND ROGER LITTLE, CEO, SPIRE CORP.
Mr. Bernow. Thank you, Chairman Ose and Congressman
Tierney, for the opportunity to testify before the subcommittee
on the important issue of national energy policy. Recently, I
and colleagues at Tellus Institute identified and analyzed a
set of targeted national energy policies that over the next 20
years would reduce our Nation's energy demands for fossil fuels
in particular and shift to cleaner fuels while maintaining the
energy services needed for our national economy and citizens'
well-being; reducing greenhouse gas emissions; increasing
emissions of local and regional air pollutants that are harmful
to human health, the economy, and the environment; reaping net
economic benefits; stimulating the introduction of advanced
energy technologies; and maintaining our economic vitality.
These policies would also establish institutional and
technological momentum for the far greater reductions in fossil
fuel use and greenhouse gas emissions in subsequent decades
that are needed to ensure climate stability, the reliability of
our energy resources, and the protection of our environment and
human health.
The work was embodied in the report, ``The American Way to
the Kyoto Protocol,'' commissioned by the Worldwide Fund for
Nature and available on the WWF Web site. I understand that my
presentation today, ``The American Way to the Kyoto Protocol,''
in the form of overhead transparencies and the text of a paper,
``Carbon Abatement with Economic Growth: A National Strategy,''
based on that report will be incorporated as part of the record
of this hearing. Today I will speak briefly, using the overhead
transparencies submitted, about the motivation, design,
results, and implications of this national energy policy study
that we conducted.
The first overhead just gives the title of the study and my
colleagues at Tellus Institute. The second informs us, this is
the latest in a series of studies that Tellus and collaborators
have been doing over the past decade or more. Here, just
briefly, is the history of the temperature record in the
Northern Hemisphere, showing that we are already at an increase
in temperature unprecedented in 1,000 years. And, if you see at
the right end, we are going up far greater than that over the
next several decades if we don't reverse this business-as-usual
policy. By the way, this condition and the condition in which
we are entering is unprecedented for about 160,000 years.
On the left, you can see the business-as-usual trajectory
of carbon emissions over the next 100 years and the turnaround
in that trajectory that will be needed in order to stabilize
climate. That is a very daunting challenge. And we can begin to
do it now, and sustain it over the next several decades.
The objective of this particular policy study was to see
what policy measures can meet the U.S. target set by the Kyoto
Protocol for 2010, and to produce steady reductions in
greenhouse gas emissions thereafter. The focus is almost
exclusively on domestic energy-related policies, but it also
assumes some reductions from domestic land-based CO2 and non-
CO2 emissions and limited use of international allowances.
These policies, as I said earlier, result in net economic
benefits, reduction of air pollutants, and technological
innovation. They include in buildings in industrial sectors
building codes, equipment standards, and intensity targets, all
of which are policies with which we are familiar; a public
benefits fund that is a very small tie on electricity sales
that would be flowed back into the economy and to households
and businesses for energy efficient technologies; improved tax
and regulatory treatment for combined heat and power, which is
a very dramatic energy-reducing and carbon-reducing policy. In
the electric sector, the establishment of a progressive,
renewable portfolio standard, reaching 10 percent for non-
hydroelectric renewables by 2010 and 20 percent by 2020; and
cap and trade systems for criteria air pollutants, those that
affect human health and local and regional environments.
In the transportation sector for light duty vehicles,
doubling fuel efficiency of new fleets by the year 2020. That
is already on the horizon with the new hybrid vehicles. That is
increasing the Corporate Average Fuel Efficiency standard to 50
miles per gallon by the fleet that enters service in 2020 and
similarly, but not quite as dramatic, improvements in heavy
duty truck efficiency and airplane efficiency. It includes a
GHG content standard for motor fuels using cellulosic as
opposed to starch ethanol. There were comments earlier about
the poor energy performance of starch ethanol; it includes
using cellulosic ethanol as a blend in gasoline, which does
have very promising net carbon emissions, net energy use.
Reductions in automobile use associated with increased high-
speed rail, based on a DOT study that we elaborated upon, and
transit and other modes for urban movement.
This, as you can see, is--the business-as-usual trajectory
is the upper bound of that graphic, and with that series of
policies, which I have just enumerated, you can see that we can
turn energy use around from a relentlessly upward trajectory
toward a very dramatic downward trajectory with these policies
and with well-known, not exotic, but well-known technologies.
Next, please.
It is even more dramatic for carbon because in addition to
energy efficiency where these policies will cause a shift
toward low or zero carbon fuels, and again no single policy
dominates, no single sector dominates, but this suite of
policies, some of which are already under discussion in various
forms of legislation, can produce this dramatic change. This
slide shows the change within the electricity sector itself;
again, a very dramatic reduction from a sharp upward trend to a
downward trend, actually reducing electricity consumption
through energy efficiency and co-generation or combined heat
and power very dramatically by 2020, to about half of what it
otherwise would have been. Next slide.
This shows the growth, as was discussed earlier, in
renewables, under the renewable portfolio standard. The left
hand showing business as usual, and the right hand side showing
the mix, very strong contribution from wind and biomass, as was
discussed earlier. This is what the renewable energy portfolio
standard would produce.
These are the net annual costs and savings from these
policies. As you can see, the blue line show the annual
savings. Within about 2 years of the beginning of their
implementation, the annual savings will exceed the annual cost,
and that difference will be growing over time over the next 20
years. Next, please.
This shows the annual savings by 2010 and 2020, represented
on a per household basis, and you can see by 2020 the net
annual savings, that is savings in energy bills over and above
the incremental cost of these cutting-edge technologies, will
reach close to $1,200 per household in the United States by
2020. Next.
This, finally, through macroeconomic analysis, we flowed
all of these changes and energy consumption, energy bill
savings for businesses and households through an input/output
model, and the result shows that there will be small but
important increases in net jobs by the year 2020, about 1.3
million incremental jobs, and associated with that, incremental
GNP and incomes. Next, please.
This I won't go into excruciating detail. This shows the
job impact sector by sector for those of you who care to read
it following this presentation. Please, next slide. And this
shows the job impact State by State. Every single State will
experience a net job increase, and I urge you to take a look at
that in more detail as you come away.
As I said earlier, the modeling shows that not only will
energy and carbon be reduced dramatically over the next 20
years but so will each of the major so-called criteria air
pollutants which are damaging to human health, the local
environment, to crops, forests, and the like. And these show
the net result of those policies decreasing each of those
emissions. Next, please.
Finally, this is an interesting--I said earlier that we had
done a series of studies over the last 10 years. This overhead
shows the difference in the results between a study we did 3
years ago of essentially the same set of policy measures and
the updated study that we just completed. And it shows the
impact of delay, because with the original study we were
assuming policies could be implemented in the late 1990's. With
the new study that we recently released, the policies couldn't
be implemented until, well, maybe next year at the earliest.
And the consequence of that is, both with respect to carbon
reductions and the net economic savings, there's a substantial
reduction. A loss of opportunity by delaying these or similar
policies and measures, a loss of opportunity in the needed
carbon reductions to help stabilize climate, and a loss of
opportunity to begin that technological transition to cutting-
edge, modern, efficient, and clean technologies and associated
net economic benefits by delaying such policies more than we
need to. Thank you.
[The prepared statement of Mr. Bernow follows:]
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Mr. Ose. Thank you, Dr. Bernow. Our next witness, and I
apologize, Dr. Bernow, I did not do an adequate job of
introducing you prior to your remarks. I do want to add, as
evidenced by his comprehensive presentation, Dr. Bernow has a
B.S. degree from Columbia University School of Engineering and
Applied Science and a Ph.D. in Physics from Columbia
University. Again, we thank you.
Our next witness is Mr. Byron Swift. Mr. Swift is the
Environmental Law Institute's senior attorney. He is the
director of ELI's Center for Energy and Innovation. He
currently is spending much of his time investigating how
environmental regulations affect the utility sector,
particularly as it relates to the 1990 Clean Air Act. Mr.
Swift, you are recognized for 5 minutes. Thank you for joining
us.
Mr. Swift. Thank you, Congressman, and I appreciate the
invitation to be here in Peabody.
I would like to preface my remarks by suggesting that the
topic I would like to talk about is what Congressman Tierney
has just mentioned, what is smart public policy and also a
public policy that avoids some of the economic problems
mentioned by Congressman Ose.
I would like to talk about how environmental regulation,
while it creates the framework for the environmental reductions
and environmental quality, can discourage innovation and new
technology. Innovation is the motor that we want to drive lower
costs and increase environmental benefits. And also how this
problem can be solved by more effective and flexible
regulation.
I would basically like to make two points. One is that
unfortunately the way environmental laws are written has
created a strong tendency to discourage innovation, especially
in the process technologies and pollution prevention
technologies. The way environmental laws are written tends to
embody a ``control and dispose'' mentality that is opposed to a
``recycle and renew'' policy.
The second point is simply that we can design better laws
that both increase innovation and environmental quality. If you
can visualize a square with four quadrants and on the top are
mandatory laws or policies and on the bottom are voluntary, and
on the left are flexible policies, and on the right inflexible,
what you tend to have are environmentalists and State
environmental regulators who believe in mandatory but
inflexible regulation, and a business community that wants
voluntary and flexible standards. This difference stops some of
the political progress toward solving this problem. What we
want as a good government alternative are mandatory laws that
protect public health and welfare, but flexible standards that
allow businesses to comply and innovate.
I have done a considerable amount of research in various
environmental sectors that illustrate some of these problems,
and I would like to mention a few of them. They are contained
in some of the publications that are on our Web site,
Environmental Law Institute, and also those of the Progressive
Policy Institute. But just to mention some of the problems, in
the iron and steel sector, regulations under RCRA, which is our
solid waste disposal act, regarding recycling, frustrate the
ability of firms to economically recycle spent acids, which
leads to the disposal or underground injection of literally
hundreds of millions of gallons of acids annually. The culprit
is one sentence in RCRA. It is an exemption to the exception
for recycling of hazardous wastes.
In the baking sector, another inflexible rate-based
standard has forced industrial bakers to install very expensive
end-of-pipe controls instead of pollution prevention
technologies. And, in the energy sector, which is one of the
key sectors we are looking at today, New Source Review
requirements, which impose a distinction between old sources
and new sources, place disproportionate burdens on the cleanest
technologies, which hinder the transition to clean energy
sources.
Another thing I would like to mention that I find very
disturbing, and it is not given a lot of press, is the state of
venture capital finance for innovation. If you care about
innovation, you care about private finance for innovation. The
government can take up some of the burden in research and
development costs, but it is the private sector that has got to
be the motor. And as we are all aware, the nineties were the
technology decade. We saw funds for venture capital for
technology rise from a few billion dollars in 1990 to over $40
billion this past year. In contrast, venture capital for
environmental technologies started out modestly at $200 million
in 1990 and has sunk every year since to virtually nothing
today, $50 million. Data from Environmental Business
International show that environmental mutual funds have also
gone from $240 million in 1993 to zero this year.
This is a huge problem. Why isn't this funding available
for environmental technologies? My discussions with the
financiers, most of whom no longer exist, have suggested the
lack comes about because of environmental regulation. You have
a very long permitting process that very few of these
innovators can survive, and you have got a balkanization of the
permitting of your market into hundreds of permitting
districts. Again, this doesn't have to be the case. We can
design laws that don't create this permitting system or
balkanize the market, but it is a very unfortunate side light
to the current environmental regulatory landscape.
Finally, I would just like to say that I don't want to say
that environmental regulations are always a problem. In many
industries, economic factors may be a principal barrier to
innovation and cleaner production, but it is inexcusable for
environmental regulation to frustrate the very innovate process
that we hoped it would foster, because of their inflexible
design. Alternatives are available, and I and many of my
colleagues hope to help by pointing out the specific problems
and potential for remedies that will achieve greater innovation
and a cleaner environment.
[The prepared statement of Mr. Swift follows:]
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Mr. Ose. Thank you, Mr. Swift. We appreciate your being
here today.
Our next witness is Dr. David Fairman. Dr. Fairman received
his Ph.D. in political science from MIT in 1998. He has also
held research appointments at MIT in various positions,
including the Center for International Studies. He has been at
the Harvard Law School Program on Negotiation and at the
Harvard Center for International Affairs, and he has also
taught a graduate course at MIT's Department of Urban Studies
and Planning. Dr. Fairman graduated summa cum laude with a B.A.
in history and literature from the UC Berkeley of the East,
that being Harvard College, in 1987. Dr. Fairman, welcome.
Thank you for joining us.
Mr. Fairman. Thank you, Chairman Ose, and let me just say
grade inflation had hit the Berkeley of the East at that time.
[Laughter.]
Chairman Ose and Congressman Tierney, thank you very much
for the opportunity to testify here in regard to the important
issue of national energy policy. My organization, the Consensus
Building Institute, does not specialize in energy policy, we
specialize in helping build consensus to resolve conflicts on
public policy issues. Recently, we had the opportunity, in
collaboration with Rocky Mountain Institute, to facilitate a
process of expert consensus building on questions related to
national energy policy. Most of the experts who participated in
our exercise, called the National Energy Policy Initiative, are
senior people who have served in both Republican and Democratic
administrations, in the private sector and academe. Several are
currently in the private sector, having recently left public
office. You have in the report itself a list of the 22
participating experts and 12 who joined subsequently and their
consensus. And, I want to speak briefly to what they reached
consensus on.
Remarkably, given the diversity of the group and the
complexity of the issues, the participating experts were able
to reach consensus on a diagnosis of major shortcomings in our
current energy policies, a long-term vision for energy policy,
a set of top policy priorities and policy strategies for each
of those priority areas. The text of those recommendations is
in the National Energy Policy Initiative Expert Group Report,
which I understand is going to become part of the record of
this hearing. The text is theirs; that is, it is a consensus
document, the words themselves were co-drafted by the group.
And I want to just take a couple of minutes to summarize
briefly the major findings of that report.
First, just very briefly, by way of background, why did we
and Rocky Mountain Institute jointly undertake this initiative?
Primarily because we thought that in national energy
policymaking there are many opportunities for joint gains in
the area of economic, environmental, and national security
goals and that too often the political process, because it
tends to focus on the short-term costs of change, leads to
suboptimal outcomes for society. We thought that by bringing
together a group of experts who are not currently quite in the
thick of the political process but who have collectively a
great deal of experience with it, as well as with the technical
side of energy issues, we might help identify some points of
common ground that could support policymaking in the Congress
and the administration.
With that, I just want to highlight the main points from
the report, and I want to start by reading the vision statement
that the experts agreed on, because I think it is a powerful
statement of a shared sense of urgency for change. The
statement reads that ``The United States and the world must
begin a decades-long transition to an energy system that will
not run out, cannot be cutoff, supports a vibrant economy, and
safeguards our health and environment. Today's patterns of
energy production and consumption will not deliver these
benefits to our children and grandchildren. The way we produce
and use energy wastes money, threatens our environment, raises
our vulnerability to accident, terrorism and economic shocks,
and contributes to instability around the globe.
We must create a new energy system that makes our country
and the world more secure. It must be less susceptible to major
disruptions and must meet the needs of people today and of
generations to come, providing adequate, affordable, and
healthful energy services for all forever. The opportunity to
create this new energy future is here and now. New technologies
that only a few years ago seemed visionary now provide energy
services to millions and demonstrate that this energy future is
not only possible, but also commercially viable. The sooner we
begin to act on key energy policy issues, the more control we
will have over our energy future. The longer we wait, the
higher the cost of action and the less certain its success.
The opportunity and the need for energy policy change are
greatest in four areas: transportation and mobility,
electricity services, energy security, and climate change.
Redirection of government energy research, development and
demonstration programs, and procurement practices is also
needed to support policy change in these four critical areas.''
Let me just say parenthetically that much of the
presentation that you just saw from Dr. Bernow illustrates some
of the core concepts that this Expert Group reached consensus
on, the notion that transition is feasible if it begins early
and is thoughtfully balanced among a range of strategies, but
that the longer we wait the more costly it will be.
Let me speak very briefly to some of the specific
recommendations in each area, starting with a short statement
of the problem and then focusing on areas to work on for policy
solutions. For transportation and mobility, the high oil
dependence of that sector has been referenced before and the
fact that fossil fuel emissions contribute to local and global
environmental problems, more broadly that the transportation
systems and infrastructure that we have now contribute to urban
sprawl and general reduction in quality of life.
The primary focus of recommendations in this sector was on
reducing oil dependence in three ways: increasing fuel
efficiency through a combination of CAFE standards, gas taxes,
tradeable fuel efficiency credits and/or an efficiency feebate
system, promoting non-petroleum fueled automobiles, and
incentivizing and supporting urban planning and transport
systems to minimize sprawl.
Turning to electricity services, Chairman Ose has already
mentioned some of the very serious problems that the old
infrastructure and set of policies have created. The Expert
Group focused on restructuring the current regulated monopoly
system to encourage competition--I have more to say about that
if you would like to explore that further in questions--to
encourage new technologies and innovations while retaining and
maintaining environmental protection. What Mr. Swift spoke to
in terms of flexible environmental regulations is very much in
the spirit of what this group recommended. And, finally, a
little more specifically, a focus on allowing combined heat and
power and distributed generation and efficiency investments;
that is, allowing investments in efficiency distributed
generation and CHP to receive the same rate of return as
investments in new power plant generation structures.
Very briefly, with regard to energy security, the Expert
Group came back to the issue of oil dependence and the
transportation sector and spoke to the need for improvements in
the infrastructure of our energy systems, especially energy
plants, transmission and distribution lines that are vulnerable
to both accidental and planned disruption.
Finally, on climate change, the experts agreed with the
statements that have been made through the Intergovernmental
Panel on Climate Change and also recently echoed in the report
to the United States that indeed greenhouse gas emissions are a
problem that increase the risk of climate change and could have
significant negative impacts on the United States. And the
primary emphasis that the Expert Group had in the area of
solutions was to come up with a single economy-wide instrument,
either a carbon tax or a tradeable permit system, that would
send appropriate signals for efficient investment early, and
they emphasized the need for early action, as Dr. Bernow did,
in order to maximize the cost savings available. I can say a
little bit more about what the Expert Group recommended on
procurement and RD&D as well, if you would like. Thank you.
[The prepared statement of Mr. Fairman follows:]
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Mr. Ose. Thank you, Dr. Fairman. Our next witness to join
us is George Sterzinger. He is the executive director of the
Renewable Energy Policy Project. I believe you are based on
Washington, are you not? Mr. Sterzinger is responsible for
REPP's day-to-day operations. He has many years service in the
area of energy policy and regulation. He has worked in Nevada
and various other States. He has worked with a number of energy
merchants to try and develop projects for photovoltaic
production, am I right?
I do want to welcome you, and we look forward to your
testimony. You are recognized for 5 minutes. You need to turn
that on. Push the little green button. There you go.
Mr. Sterzinger. Thank you very much, Chairman Ose and
Congressman Tierney. Since it often takes me more than 5
minutes to get my audio visual equipment up and running, I
thought I would just summarize the written comments and
testimony that you have.
I would like to do four things today. One is to describe,
in general terms, part of the work that the Renewable Energy
Policy Project has been undertaking, specifically to try to
capture the job benefits and the economic development potential
that flow from renewable development. The second is to describe
what I see as the sort of long view of the energy, and
particularly the electric sector, in the United States, what it
looks like 20 years out and what the function of renewable
energy can be in that picture. Third, to talk about some of the
roadblocks to renewables that could and will prevent their
being developed unless they are addressed. And then the fourth
and final thing is to return a little bit to the work of the
Renewable Energy Policy Project that we have been doing in the
State of Nevada.
So let me go back to the first. The Renewable Energy Policy
Project works on a number of different issues related to
renewable energy. We have just finished a study for the six
Southeastern States on how they could fashion a clean and
affordable energy future. But another thing that we have a
strong commitment to is to systematically develop a very
transparent and understandable tool that people can use to
understand precisely what the job benefits will be from
renewable energy development.
Renewable energy is composed of a number of different
technologies. Geothermal, biomass, photovoltaic, solar thermal
and wind are the major ones. Each one of those different
technologies have different job requirements, job
opportunities, and skill requirements. What we have set out to
do is start with a survey of the industries that are currently
working in those areas to find out exactly what kind of jobs
are involved in putting up a megawatt of wind, or in putting up
a megawatt of photovoltaics, or in putting up a megawatt of
biomass or whatever.
We think that is a very useful tool because, to be quite
honest, I think one of the great benefits of renewable energy
is that it is modular and somewhat local so that ideally
provided with the right tools a renewable energy development
effort in a State or a locality could be seen in much the same
way that any other economic development initiative was seen. It
is going to provide a certain number of jobs; what can we do to
capture those jobs; how can we bring as many of those benefits
as possible to our State?
So we first did--we started this work under a couple of
foundation-supported grants, and we went out and basically did
an initial survey of some of the technologies, solar and wind
in particular, and looked at everything from the manufacturing
levels of jobs through the installation to the operations and
maintenance in order to get a very simple but hopefully non-
controversial number about what people could expect. We then
put that into a very straightforward and hopefully also equally
transparent economic model so that someone could see--and we
used this in the State of Nevada, which I will get to at the
end--someone could see if 100 megawatts were going to come in
or 260 megawatts of wind were to come in, just to pick a
number. You could see what to expect all the way from the
beginning manufacturing process through the installation and
through operations and maintenance. That model is available. We
have made it available on our Web site. We have made it
available to a number of other groups that are using it in
specific communities that are considering doing solar in
particular in order to show them in a very straightforward way
what they could expect.
We intend to continue to pursue that work. We would like to
do it for all renewable technologies. We would like to update
it on a regular basis, and we would like to make it available
on a very sort of as frictionless or as easily accessible
manner as possible. I think, again, it is very important that
become part of the transition in seeing renewables go from
something somewhat esoteric and very hard to comprehend to
something that can be understood, much like locating automobile
manufacturing or any other substantial economic activity would
be in a State or locality.
Let me switch now to a view of what the future looks like
as a whole. I think one of the most fascinating pictures of the
future is actually provided by the Energy Information
Administration, which recently did an analysis of, among other
things, the 10 percent renewable portfolio standard in a series
of Senate bills. And what this study found I think is
illuminating for a number of reasons. In part, it is the
Administration--it is sort of a neutral voice or at least a
somewhat neutral voice in analyzing these legislative
proposals. And what it found when it looked at the business as
usual unfolding of the energy system in the United States
versus the 10 percent renewable portfolio standard was that
moving to a 10 percent portfolio standard would lower the
Nation's energy bills by 2020 by $15 billion a year.
And it found this, I think, for a very interesting reason.
Right now the United States uses about 24.5 trillion cubic feet
of natural gas a year. That is for all uses--for industrial
processes, for electric generation, for residential and
commercial burner tip uses. When you look at the business-as-
usual scenario, the increase in the natural gas goes from about
24.5 to 30 trillion cubic feet a year. That figure cannot be
met by domestic production. It has to be met by additional
imports. Those imports, in part, will come from Canada, but a
substantial portion of them will come from liquified natural
gas coming into the United States on tankers from Algeria and a
variety of other places.
When you go to the 10 percent renewable portfolio standard
in this analysis--and I should add the Energy Information
Administration's analyses are famously conservative with
respect to the renewable technologies. I mean they themselves
will admit--I mean I talk with them all the time, they admit
that they are dealing with old characterizations of the
technology with old resource maps and so on and so forth.
Putting that aside, when you look at what a 10-percent
portfolio standard would do, it reduces the use of natural gas,
it reduces the reliance on these imports of LNG, it lowers the
price of natural gas for all users of natural gas in the United
States, industrial, commercial, and electrical as well, and
reduces the energy bills by $15 billion.
There are a number of ways of looking at the future of
renewable energy, but that to me is very telling. I mean that
shows, I think, that the technologies have reached a point
where they are very serious contenders over the long run with
fossil imports, especially of natural gas, in providing the
electrical needs of the country.
If that is the case, why are we here talking about it? Why
won't it simply happen? I mean if that is what is going to
unfold, if that is really the least expensive option? I think
there are a number of reasons for that, and I want to just flag
them. I have three major categories of reasons that operate
against what would otherwise, I think, be recognized as cost-
effective renewable resources. They have to do with the
financing, they have to do with sporadic nature of support, and
they have to do with what I call regulatory details. As a
Nation, as a whole, we have moved to a deregulated wholesale
market, which basically relies on merchant plant financing for
new generation.
You have graphs from the Energy Information Administration
in front of you. One of the most fascinating Energy Information
Administration graphs that I have ever seen is a graph of the
price of natural gas from 1930 to 2002. From 1930 to 1979, it
was virtually flat. From 1979 to 2002, it can only be described
as undertaking some of the most fantastic jumps and unplottable
movements that anyone would ever hope to see. Nevertheless,
merchant plants for natural gas can receive financing. The
technology is relatively known, natural gas combined cycle
plants.
There are often in place regulatory mechanisms to allow the
recovery of price fluctuations in natural gas that you don't
see with respect to renewables. So there have been--all of the
wholesale plants that have been developed in the last 3 or 4
years, the natural gas plants, have received merchant plant
financing. Renewables have not been able to break through that
merchant plant barrier. They are perceived as having too much
risk, they are perceived as not having the kind of cost
recovery protection that natural gas has. That in itself is a
significant barrier.
Sporadic support for renewables. The investment tax credit
has been on again/off again. If you look at the wind industry,
the sort of installations, non-installations, the development
of projects, the non-development of projects, has really hurt
the development. If you look at where most of the wind turbine
machines are coming from now, they are coming from offshore--
Denmark, Japan, and other places. If you look at the industry
itself, you find that people are hired; there is a fantastic
run-up to put projects in place, the construction project is
inefficient as a result, the next year the tax credits may end,
the industry drops, the number of installations drop, people
leave the industry. So there is no systematic support, no long-
term known support for the industry. It prevents an orderly
regulated development.
Let me quickly go through some regulatory details. I think
when you look at something as seemingly remote as the reserve
requirements of a power pool or a power exchange, what you find
is that as a result of developments over the last 20 or 25
years, the reserve requirements will systematically favor large
plants. In New England--and I was a commissioner in the Kunin
administration for the latter part of the eighties and early
nineties and had firsthand taste of this--the reserve
requirements are based, in part, on the largest plant on the
system. If that plant goes out, the reserve requirements have
to cover it.
Those reserve requirements are a social cost. Even if you
don't own a piece of that plant, even if you never get an
electron from that plant, if you are in that power pool, you
pay that cost. When you go to renewable resources, a lot of
them are perceived as intermittent, which means they are
probablistic. They come on at times, they go off at times. But
the probabilities of those resources are relatively well-known.
And yet, the reserve requirements for those projects are often
extreme. I mean oftentimes, in many parts of the country, a
wind project will receive no capacity credit. If you are a
purchaser of that power and you want to have that credited as
firm, you have to go out and buy megawatt for megawatt,
kilowatt for kilowatt capacity reserves to cover that. It is a
very expensive cost penalty.
I would submit that there is as much reason now, in the
interest of the environmental profile with the electric
generating sector and the security interests alone, reason to
consider reforming the reserve requirements to take something,
let us say, the spinning reserves, which are machines that are
kept running on an ongoing basis so that they are ready to come
online, using spinning reserves to cover the intermittency of
renewable resources as a way to give them full capacity credit.
Those are some of the examples of the kinds of minutia that I
think prevent us. I mean, we know right now that if we move
forward with this 10 percent portfolio standard, that the
likelihood--the estimates are that the Nation's bill will be
lower, our reliance on imported LNG, in part, coming from
places like Algeria, will be reduced. And yet a lot of these
barriers will prevent that from happening.
Let me briefly, briefly talk about Nevada, because it is
something that we are very pleased with. When we developed this
job creation model, the State of Nevada had just passed a law
requiring that it provide 15 percent of its energy resources by
renewables by the year 2013. But there were still
controversies. I mean, once you pass a law it has to be
implemented, and there are still controversies. How much is it
going to cost? Who is going to benefit from it? What kinds of
economic development impetus is there? We made that model
available in a cooperative agreement with the State AFL-CIO in
Nevada, and I should stress that there was in no way any
funding from the AFL-CIO. This is a completely cooperative
agreement that we entered into with them.
We wanted to do it, in part, because I think it is
important that working people understand that these kinds of
initiatives can really be an important stimulus for the local
economy. I first met with the president of the Nevada AFL-CIO
about 3 weeks after September 11th. Each week something like
10,000 or 20,000 service workers had been laid off in Las Vegas
alone, so they were very interested in economic diversification
benefits. They were very interested in precisely what a 15
percent portfolio standard could do for the State in terms of
specific job creations. We were able to provide them with at
least a transparent and understandable estimate of what those
jobs are.
Give you an example. If none of the manufacturing is
located in Nevada related to the portfolio standard, there
would be about 8,000 what are called full-time equivalent jobs
created. If all of the manufacturing were to be relocated, it
would be about 27,000 jobs. So one of our recommendations was
that as the implementation of the portfolio standards go
forward, incentives be provided to locate as much as
manufacturing as possible within the State because of the job
benefits.
If a portfolio standard is really a complicated social--not
complicated, but a multi-dimensional initiative to capture the
energy benefits, the environmental benefits, the security
benefits, and the economic diversification benefits, then it is
appropriate in the implementation of those standards to
recognize those benefits and to provide things like extra
credits depending upon the content of the local manufacturing
for projects that come online. If a project comes online and
has more local manufacturing, then that project can and should,
in my opinion, receive extra benefits for doing that.
In conclusion, let me just say that I really appreciate the
opportunity to come back and testify before you. I do think,
Chairman Ose, what you said is exactly right: We need a modern
energy infrastructure, and I think a substantial development of
the renewable portfolios and technologies can provide that.
Thank you very much.
[The prepared statement of Mr. Sterzinger follows:]
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Mr. Ose. Thank you, Mr. Sterzinger. The Chair recognizes
the gentleman from Massachusetts.
Mr. Tierney. Thank you, Mr. Chairman, for this opportunity
to introduce a gentleman who runs a corporation here in the 6th
District. Spire Corp. develops, manufactures, and markets
highly engineered photovoltaic module manufacturing equipment--
and if we can get everybody to say that three times fast, we
will be in good business--and provides advanced surface
treatments for the biomedical industry. Millions of solar cells
have been processed into modules Spire equipment. Spire's
photovoltaic production equipment has been used to manufacture
more than 90 percent of the photovoltaic modules on the market
today. Spire equipment can be found in 141 customer facilities
and 38 countries. The company was recently awarded a $2.7
million contract to provide a photovoltaic module production
line to a company in Cyprus. Spire employs 100 people in the
Bedford, Massachusetts area who manufacture equipment used to
make parts for PV equipment, and Spire also has a plant in
Chicago where it works for the city of Chicago, the
Commonwealth Edison, the Illinois Department of Commerce and
Community Affairs, and BP Solar. The company builds solar
panels, integrates them into PV systems, and maintains the
systems. To date, the company has installed 500 kilowatts of PV
systems in Chicago, and it is my understanding, Mr. Little,
that you employ about 100 people, am I right?
Mr. Little. Not in Chicago, but in Bedford we do.
Mr. Tierney. In Bedford, Massachusetts.
Mr. Little. Yes.
Mr. Tierney. Which is of much more interest to me than
Chicago, believe me. [Laughter.]
Mr. Little. Yes.
Mr. Tierney. I am happy to introduce Mr. Roger Little, the
CEO of Spire Corp.
Mr. Little. Thank you very much. This shows you solar
electric systems in the field. Solar electricity is made from
semiconductor materials. My assistant Dennis there has some
solar cells that he will pass around, and you can keep them.
They are fragile, they may break, but don't worry about it,
they are cheap. So, solar electricity--the sunlight produces
about a kilowatt per square meter, so if you have a module
about the size of one of these boards, it will produce 150
watts of electricity. And, you put them all together and you
have big systems, and they produce lots of electricity.
The market has been growing. I often say it is like a
freight train. You can't stop it; it has great momentum. It has
been growing at 25 percent per year for a decade. It will
continue to grow. One of the reasons is that the world's
population, about one-third of it, does not have electricity.
So the bars show the growth of the market. This year it is
about $3 billion. It is being helped a lot by favorable
government programs in Japan and Germany, not so in the United
States. The solid line shows a declining U.S. market share. It
started at 80 percent back when, and currently it is down to
about 30 percent. So one of the things we need to do is make
this a more favorable climate for the manufacture and
deployment of these solar electric systems.
By the year 2020, we envision that we will have as much as
10 billion watts of solar electricity covering various parts of
buildings and various parts of the Earth. Small regions of
Arizona, a 100 square-mile area, could provide all the solar
electricity that you need in the United States.
Solar electricity is clean, so it has a significant effect
upon the reduction of CO2, but more importantly, it makes jobs.
So we could envision in the year 2020 to have almost a half a
million jobs, quality jobs, producing solar electric modules
and panels and systems to put in the field in the United
States.
But you can see what has happened to market share and where
the stuff is being made. You can see that the Japanese most
recently have really made inroads. Sharp just announced that
they are coming strongly into the United States, so even though
the markets in the United States are growing, the competition
worldwide is becoming more and more severe, especially coming
out of Germany and Japan, where they are developing these
markets and this business for international export.
Spire down in Bedford makes the equipment that makes the
modules and also uses its own equipment to produce the modules.
We have factories all over the world. It turns out, as I
mentioned, that a great number of people in the world don't
have electricity so that the factories generally go in
developing nations. So we have factories in Kathmandu and
Cerreto and places like that. Only recently have we come to the
United States. We have established a factory in Chicago because
the city of Chicago has provided us with favorable terms for
the purchase of systems that we produce in that factory.
We recently, my assistant and I, went to Chicago and met
with Mayor Daley and cut the ribbon on our new factory, and it
is scheduled to employ about 50 people. We produce systems that
the city purchases from us, puts on museums and schools. We
have a number of schools with PV systems on the roofs, and it
is a growing area. And we hope that we can export or we can
duplicate that model throughout the United States. We believe
every major city should have a PV production facility,
certainly in the States themselves. We hope Massachusetts is
going to be one in the not too far distant future, because of
their own deregulation legislation, which sets aside certain
money for these purposes.
That pretty much covers the points I wanted to cover. I
would just like to say that one of the things that could help
would be to continue or to expand the Department of Energy R&D
budget as the current administration has not considered that a
good place to put money to improve this technology and reduce
its costs. Thank you very much.
[The prepared statement of Mr. Little follows:]
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Mr. Ose. Thank the gentleman. Thank you, Mr. Little, for
your remarks. The typical manner in which we proceed is we will
ask questions now and we alternate. Out of deference to being
in Peabody, we are going to let Congressman Tierney go first,
so the gentleman is recognized.
Mr. Tierney. I thank you, and thank, Mr. Chairman, for that
deference. We could be here the better part of the week, I
suspect, if we wanted to talk about all the issues that you
brought up, but let me start with a general question, if I
could, for the panel, and maybe we could just clip some short
answers if that is possible. If I asked each of you to just
give me the rundown of what are the three most important public
policy things that could be done to move us in the direction
about which we talked, would you just list those for us, for
the record, starting with Mr. Bernow.
Mr. Bernow. I would say progressive Corporate Average Fuel
Efficiency standards for vehicles that would push the
technologies for transport, a progressive renewable portfolio
standard reaching probably as much as 20 percent by the year
2020 and some for of direct control on CO2, either through an
electric sector cap-and-trade system or an economy-wide
auction-and-trade system for carbon dioxide.
Mr. Swift. Do I get to vote for his and also give you some
new ones?
Mr. Tierney. Absolutely. That is what I am looking for.
Mr. Swift. That sounds great. No, I totally agree with the
need to cap carbon, implement a carbon policy as a major, major
priority. I would also like to add, I would like to see the
substitution of cap-and-trade systems for these inflexible New
Source Review type requirements, understanding we can't let go
of those until we have a better system, but there are much
better systems that should substitute for those. Second,
reiterating a point made, I would like to see a wires charge on
all electricity that would go to support research and
development. This is a critical, critical lack of funding for
research and development in this country. And, third, I think
the car issues, we have got to implement the hybrid electric
vehicle comprehensively through whatever regulatory strategy we
can, such as increased CAFE standards.
Mr. Tierney. Thank you. Mr. Fairman.
Mr. Fairman. Thank you. Again, speaking on behalf of the
Expert Group and highlighting their priorities, I think No. 1
would be in transportation, yes, to increasing fuel efficiency,
perhaps not only through CAFE but through some blend of
incentive measures. This group is particularly interested in
the notion of feebates and also in a tradeable CAFE standards
credit, which I can say a little bit more about if you are
interested. Second, in the electric sector, although there is
strong interest in renewables, there is even stronger interest
in leveling the playing field for distributed generation and
for efficiency to be equally cost competitive in a still
somewhat regulated environment where utilities have a regulated
rate of return. And, third, with regard to climate, echoing the
point made earlier, a single economy-wide instrument,
preferably a tax or a tradeable permit system.
Mr. Tierney. Thank you.
Mr. Sterbinger. Let me concentrate mainly on the electric.
I certainly agree on the transportation. I think that we
desperately need reorientation of the research and development
and demonstration effort in the United States. Everybody has
said it, but I think that one simple way to think of it is the
statisticians talk about Type I and Type II errors, and
Catholics talk about sins of omission and sins of commission,
and it is very important distinction. I mean, sometimes I think
we worry about not doing something that may be wrong rather
than making sure that we--and neglect the fact that we are not
doing something that is right. I mean you can really overly
protect yourself and sort of erect barriers to doing anything
because it might be wrong, and you lose the opportunity to move
ahead.
I think research, and development, and demonstration. The
demonstration part is an important part of that piece because
the renewables industry in particular is characterized by
staggering amounts of innovation on all the different fuels and
conversion technologies, in laboratories, and in think tanks,
and in universities around the country. And, I forget who but
someone mentioned the performance of the venture capitalists
and going through the Death Valley, from the prototype to the
market acceptance, and that is extremely important. I think
that Government assistance, appropriate Government assistance
blended in in the right way to make sure that there is a way to
take viable technologies with potential market adaptation
through not only the research and development but also the
demonstration.
Demonstration generally means performing under market-like
conditions on commercially acceptable terms. That last step is
very, very important. And, if you look at industry from
industry to industry to industry, you will see that the wind
technology has moved offshore, the photovoltaic technology is
moving offshore, and there are equally important stories along
those. So I think it is very, very important to pursue that.
I think it is also important to recognize that there are
both Federal and State initiatives, and one of the Federal
initiatives could be to encourage aggressive State actions.
Right now, not to belabor the point, but the State of Nevada
has this 15 percent portfolio standard. A firm 5-year
production tax credit available for all renewable technologies
will actually provide a benefit to that State because tax
credits will tend to flow to it. There may be other ways in
addition to sort of encourage States to move beyond what may be
the comfortable Federal level on a renewable portfolio
standard. I think it is a time when movement forward really
should be encouraged on both levels. The State actions can feed
the Federal actions.
There was a joke during the Enron time about how they would
have a big policy matrix that they would go down and look at
the cost of every policy in order to figure out what it was
going to cost them, and I think there is--I am sure they did
that. A lot of other people do it as well. I think as you move
forward, toward climate change, toward carbon caps, and so on
and so forth, I think it is very important to recognize that
there is that kind of policy matrix, people do look at the cost
of it. And I think by pushing this State innovation you can
feed Federal actions. By pushing those Federal actions, you can
bring along the technology that will actually reduce the costs
of meeting all those long-terms goals. So I think that is also
an extremely important change.
Mr. Tierney. Thank you.
Mr. Little. I certainly support what has been said. I would
just emphasize that the DOE, Department of Energy, solar energy
budget has taken hits over the years, and it really is the
foundation for reducing costs of solar electric energy. And
that, of course, leads to the growth of the business in the
United States.
Mr. Tierney. Just a minute ago, Mr. Sterzinger was talking
about the Federal Government taking some action to encourage
aggressive State action. What types of flexible policies do you
think might the Federal Government consider to bring about that
kind of reaction or do you think that is not the proper way to
proceed?
Mr. Swift. I think States are great sources of innovation
and progress, and I think Massachusetts has had a history of
that. Bringing about that through Federal policy is a complex
matter that would depend on the sector and set of regulations
involved, but things that--I mean let me give you one example,
the cap-and-trade systems we are talking about for carbon or
for the----
Mr. Tierney. Would you explain a little bit for folks that
are here? We are always referring to it as the cap-and-trade
system, but it might bear some explanation.
Mr. Swift. Sure. There are basically two or three paradigms
by which you can regulate environmental contaminants and
pollution. The traditional way is to set rate-based standards
for every pipe, and that was embodied in the 1970's Clean Air
Act and Clean Water Act in which Congress, reflecting public
understanding, visualized technologies such as the internal
combustion engine or coal-fired power plants to be permanent.
And the only thing you could do with them to achieve
environmental quality was you put a gizmo at the end of the
pipe to reduce that pollution. And that is embodied in
standards like the famous BACT, RACT, MACT standards of the
Clean Air Act. And I want to explain that as other than to
say----
Mr. Tierney. I was going to say that was very helpful.
Thank you. [Laughter.]
Mr. Swift. Under these standards, the Federal Government
requires State governments to impose rate standards on their
plants, and the ``ACT'' part of it is ``Available Control
Technologies.'' If you are a new plant, it is ``Best Available
Control Technologies.'' If you are an existing plant, it is
reasonably available control technologies.
But what I want to point out is that the standard is based
on ``available''-- which means existing--``control''
technologies, which means end-of-pipe. What you really want are
innovative process technologies. I have seen many of these
innovators with these brilliant technologies just crash against
the rocks of the bureaucracies saying, ``You are not available.
Show me where you have been demonstrated and practiced
before.'' And they say, ``Well, of course I am not available, I
am innovative.'' ``Are you a control technology? EPA has given
me this ACT document--Available Control Technologies document--
I don't see you in there.'' ``Well, of course I am not. I am
not a control technology, I am prevention.'' And they go into
this dialog for years and years, and by that time the money is
over and they are finished as a business, even if they have the
best, most imaginative, greatest product.
So how do you get States to be forward-looking? I think one
way is to create these more automatic systems, like a cap-and-
trade system that creates a cap over the entire industry,
limiting pollution, so that it will never rise again. In
contrast, rate-based standards allow pollution to increase with
growth, the allowance trading program allows the reductions to
be made in an effective place.
What I might mention to the Congressman is that you have
got to think a little bit about how these systems mesh with the
States. In my opinion, something we don't do in these laws,
such as the acid rain law, is that States, in a sense, are not
allowed to take these allowances off the table. If a State
wants to do more stringent regulation, I think it should be
allowed to take allowances off the table. A State should not be
allowed to tinker with the system the way New York did in
saying you can't sell upwind, you can only sell downwind,
because that is too great an interference with the working of
the system. But States should be able to take allowances off
the table.
Mr. Tierney. What do you mean by taking allowances off the
table?
Mr. Swift. Well, Massachusetts just passed a four-pollutant
bill, and it was purely through rate-based approaches. One of
the points is that once you have a cap-and-trade system, which
is what we are under in Massachusetts for NOx and SOx, rate-
based regulation no longer provides any environmental benefit,
because the--I forget the names of the plants here--Salem
Harbor, for instance, it reduces its pollution, but that will
migrate to a different place. And, even though the cap-and-
trade systems are far better overall, I would think you do want
to allow a State to say, ``Well, if you are going to reduce
your pollutant, we are going to capture that and take your
Federal allowances off the table.'' But you are going to need a
Federal act authorizing you to do that, because otherwise it is
interference.
The simple point is that you have got to think a little bit
about how cap-and-trade meshes with State-based regulatory
systems. And it gives you some more opportunities to allow
States greater powers, but they have not been taken advantage
of so far.
Mr. Tierney. Thank you. Mr. Sterzinger or Mr. Fairman,
either one of you on that, you both mentioned the progressive
renewable portfolio standard, and I assume you are both
familiar with that part of the Senate energy bill that deals
with that. Would you tell us your impression of the Senate
bill's content in that regard as opposed to where you would
like to be or like to see the policy drive, whichever order you
like.
Mr. Sterzinger. I think the Senate bill, at least the last
time I looked at it, was disappointing. It does set a portfolio
standard, but it has about three or four significant exemptions
which really weaken it. It exempted all municipal and co-op
systems, it defined the percent in a confusing manner--the last
time I had seen anything like it was when I was reading the
instructions on how to file my Internal Revenue Service taxes.
I mean it was 10 percent, but it is 10 percent of the sales
minus the 10 percent that is renewable, so it lowered it a bit.
Nevertheless, I think it is positive primarily in that it
will provide a floor. I think the great benefit of the
renewable portfolio standard is that it requires the affected
States or the affected retail sellers of electricity and the
State regulators that oversee them to break through this
roadblock of contracting that has basically stopped renewable
development or--well, it has certainly slowed it down. So I
think any renewable portfolio standard is a step in the right
direction.
I worry if the impact gets too small that the
implementation costs, the processes of starting it, the
potential controversies that might arise if one State has to
basically send money to another State as a result of it, can
overwhelm the benefit. So I would like to see it made
applicable across all of the different providers. Not to pick
on Nebraska, but basically the entire Nebraska is exempted
because it is a municipal electric system, so any renewables
that they develop they could sell to Illinois, which would then
prevent the development of renewables in Illinois and result in
people sending money out of Illinois into Nebraska. In my
experience, in State regulation and a lot of others, people
don't like to send money across State lines. There is a real
strong local component to this that I think you need to be
careful of.
If I could just say one more thing. On the sort of what the
Federal Government can do to increase or encourage initiatives
in the State, I think it is important to sort of step back from
this. There are plenty of examples in the transportation sector
and others of where every sort of--or a number of Federal
supports are sort of bundled together and then aimed at
inducing the State to do something or making sure they don't do
something else, like break the 55-mile an hour speed limit or
live within their NOx budgets, or something like that.
I think on the renewable side, you know, you can think of a
number of things. Everything from allowing a production tax
credit maybe only for States that are above the national
standard, all the way to trying to find ways to coordinate
something that is seemingly remote as the community development
support under the U.S. Treasury Department for the support and
development of local businesses that would be part of the
cluster of activities that would result from these aggressive
standards could all be brought to bear for a State that chose
to do something more aggressive than a national standard, so
that you are really creating a number of supports and
incentives to get the States--so that people just don't say,
``Well, there is a national standard, there is nothing more we
need to do.'' I think that would be really wrong. Even if there
is a national standard, there are a lot of reasons to try and
get the States out there proving that they can do more, proving
that it is good for them, proving that they can capture these
benefits, proving that it is supported by the electors of their
States.
Mr. Ose. Would the gentleman yield for a moment?
Mr. Tierney. Certainly.
Mr. Ose. Mr. Sterzinger, you talked about four exemptions
in the Senate bill under the renewable portfolio title.
Mr. Sterzinger. Yes.
Mr. Ose. Munis and co-ops, is that two or one? Munis is
one, co-ops is two?
Mr. Sterzinger. No, that was one. I am not sure I can
remember every one. Go ahead, though.
Mr. Ose. Well, I am curious of the other three, and I guess
this question kind of jumps over to Mr. Little in that if there
is a whole slew of exemptions on the renewable portfolio title,
does that not mean that the 50 jobs, for instance, that Mr.
Little's creating in Chicago or the 100 here in Bedford are put
at risk?
Mr. Sterzinger. I don't think it is----
Mr. Ose. If these things are tradeable across State lines.
Mr. Sterzinger. Well, I don't think it puts at risk Roger's
current level. I think it may affect his plans for expansion in
Illinois or in Massachusetts or in other places, but I will let
him speak to that.
I am trying to remember the exemptions or the modifications
in the Senate bill, and I am not coming up with them right now;
I apologize. Generally, it led to something that was I think a
very moderate--if you looked at the real net introduction of
renewable capacity between now and 2020, it was very moderate,
and it did raise some concerns.
Mr. Little. Well, of course, the jobs are local, so even
though you might trade credits across various regions, people
want manufacturing in their city, so that always goes in our
favor. As a member of the Solar Energy Industries Association,
we support the Senate bill, especially net metering, so this is
something you can have a major effect on, net metering. But
also the Senate bill only requires States to consider net
metering, not to really do it. But if there were some
legislation which says net metering should be done throughout
the country, that would help a lot.
Mr. Ose. I thank the gentleman.
Mr. Tierney. Mr. Little, while I have your attention, tell
us what they are doing in Germany and Japan that perhaps we
ought to consider doing here to facilitate the growth of the
solar industry.
Mr. Little. Well, solar electric technology is expensive,
and so they have various means of offsetting the cost to the
customer. In Japan, the homeowners are provided with 30 percent
subsidy for the systems they put on their roofs. So they have
been oversubscribed in Japan for electrifying homes. In
Germany, one incentive they have is to buy back the electricity
from the person who might have it on his roof at very favorable
rates, at rates which are higher than that person pays for his
electricity from the utility. And, that has caused homeowners
to almost become small micro utilities themselves, and that has
stimulated the market.
Mr. Tierney. Thank you. Mr. Bernow, the efficiency
standards that I mentioned in my opening remarks for
appliances, I believe, are saving a huge amount of money and
projected to save much more by 2020. Can you extrapolate out on
that and tell us whether you think that the adoption of
additional standards for other appliances is possible, and what
might some of those be and where would it take us?
Mr. Bernow. The efficiency standards that are embodied in
our study--by the way, a study that used the Department of
Energy's models, the same model that was used by the Department
of Energy and Environmental Protection Agency's clean energy
future study--those standards are more aggressive than the ones
that are now embodied in law. They are in our study and in
related studies that we cite. They cut across all end uses,
from the use of heat pumps, cutting-edge technologies to do
both heating and cooling, to fuel cells, to cutting-edge air
conditioning, dishwashers, all appliances, new building codes,
all of which are well-established technologies and techniques.
And they cut well beyond what is currently embodied in the
standards.
Mr. Tierney. Mr. Swift, can we do that in a way that is
mandatory and flexible?
Mr. Swift. Of course. I was actually going to comment on
your question that every study you can read out there will tell
you that we can save 25 percent of our national energy through
profitable energy conservation measures. And, it is remarkable
that none of us, however, mentioned that in our top three
priorities because the problem has been so intractable. How do
you get lots of consumers to take small actions? And, need I
tell you what would work like a charm is raising energy prices?
Mr. Ose. Have at it, Mr. Swift?
Mr. Swift. Exactly. It is the T word, and that is why the
issue of taxes also doesn't even enter our discussions. It is
not viable, and how to create the drive for efficiency through
a sensible, flexible regulatory mechanism has frustrated
people, and I don't have a good answer. We were getting there
with the power industry before deregulation, and I know there
are some good thinkers that would have some suggestions for
your office, but there are no easy answers, and I would have to
consult them for a more sophisticated answer.
Mr. Tierney. We may get back to you for that.
Mr. Swift. Thanks.
Mr. Tierney. I think two areas. One is individual
consumers, obviously, and we have got to find some way to
motivate them to do it. I think leadership has a lot to do with
that. I think people are still afraid they are going to have to
put on Jimmy Carter's warm sweater, and that is no longer the
case. The technology has come so far since the 1970's that is
not the issue, and we somehow have to project that up and put
it on our screens and get some leaders out there talking about
this on a regular basis so that people are encouraged to do it.
The other note I make is the impact on small business. The
amount of moneys that small businesses can save in my district
and Congressman Ose's district and others somehow has to be
brought home to them. We have people in this district that in
fact have won green awards for putting together buildings that
saved them almost 85 percent of their electricity costs and
their energy costs in their buildings. And, if people would
understand that--I was a small business person for 22 years.
You would love to be able to save that kind of money on your
energy moving forward. So we have to find a way to get that
information out there and do it in a way that is somehow going
to be digested. Because I suggest, as you saw Mr. Ose's
reaction on that, if you want to raise the taxes on it or you
want to do something of that nature, have fun. We will see
where that gets us all.
Mr. Fairman, you made a point that I think can be helpful,
though, and having read the NEPI report, which, Mr. Ose, we ask
that report, by unanimous consent, be placed on the record----
Mr. Ose. Without objection.
Mr. Tierney [continuing]. Together with the other
witnesses' reports and materials.
Mr. Ose. Without objection.
Mr. Tierney. Thank you.
[Note.--The NEPI report referred to may be found in
subcommittee files.]
Mr. Tierney. You mentioned purchasing. Will you expand on
that a little bit about just what the Federal Government and
the State governments could make as an impact if they change
their purchasing policies with respect to efficiency and
conservation as well as renewables and things of that nature?
Mr. Fairman. Thank you. I can elaborate a little on that.
If I may take a moment, I had just wanted to make two brief
comments with regard to the renewable portfolio standard and
efficiency, very briefly.
Mr. Tierney. Go ahead.
Mr. Fairman. The Expert Group did not reach consensus in
support of renewable portfolio standard and that was primarily
because of a combination of philosophical and practical
differences between those who see the main focus needing to be
the removal of barriers to competition on the performance-based
standard for different kinds of energy supplies as well as
demand side initiatives on one hand and those who feel strongly
that transformational efforts like the development of the
renewables industry require a more proactive Government action.
So just to be clear about this, some in the room felt that
the best way to support the development of renewables as an
industry is to have clear, across-the-board requirements for
utilities in the purchase of power that significantly penalize
dirty sources. And, that if you did that along with removing
other regulatory barriers, as was alluded to before, to the use
of renewables, that you would, in fact, get the same effect
without some of the, from the point of view of an economic
purist, distortions involved in creating a standard that
immediately gets you tied up in knots around an interstate
transmission and regulation.
On energy efficiency, I just want to emphasize that the
Expert Group felt very strongly about the availability of many
options and programs that could substantially improve
efficiency across a range of sectors, as Dr. Bernow's
presentation alluded to. And, I just want to mention, as a
footnote, one program that is separate from this initiative my
organization was involved with called the Northeast Energy
Efficiency Partnership that is very much actively engaged in
market transformation efforts, especially targeting medium and
small businesses, and a lot of the leverage comes through
changing the incentives for utilities to do more aggressive
outreach, to have financial incentives to do so, to promote
efficiency investments among their customers.
With regard to purchasing and procurement then, I think the
main thing that the group wanted to focus on was the reality
that Federal procurement practices have already had a
significant impact in industries, such as automobile
manufacturing, to some extent in appliances, and that could be
further leveraged through more aggressive requirements and
standards for purchasing. The group did not discuss any
individual program ideas in depth, but felt strongly that there
is a wide range of options available, especially in regard to
buildings and facilities.
Mr. Tierney. Thank you. If people were to look at the
energy consumption by sector, a chart down there, they would
see the transportation dollars up almost 27 percent of the
energy, and all of you, you were universal in your comments
about the corporate--the CAFE standards--and the reason I got
hung up on the word ``corporate'' was Doug reminded me I used
the word ``carbon'' earlier and I shouldn't have--but the
Corporate Average Fuel Efficiency standard. Any
conservationalist or environmentalist would have to be
disappointed with the reluctance of Congress in both bodies, in
both parties to move on this issue. And, I think, it is an
absolute disgrace that the Congress cannot find a way to change
the standards, particularly when you look at the amount of
gallons that have been saved with just the standards that we
have so far and the huge amount of money that has been saved by
the consumers over the period of time. Do any of you care to
make any comments about the CAFE standards and what we can do
to break what seems to be an intransigent group of Democrats
and Republicans, many of whom are from automobile manufacturing
States, or whatever, who seem to not realize the potential or
the danger of losing that business, much as we had the problem
with other countries building smaller cars in earlier years?
Mr. Bernow, you want to comment?
Mr. Bernow. Well, I would say, just rolling this discussion
back a bit, this is true for both appliance and building
efficiency standards as well as fuel efficiency standards for
automobiles. This is a tried and true policy and it has worked
for appliance equipment and in households and in offices, and
it has worked for automobiles. Massive savings on both
accounts. This is a well-known regulatory procedure, which
economists would admit sometimes the standard is the most
efficient way to reach a goal and not necessarily the market.
I would say with regard to the Corporate Fuel Efficiency
Standards for automobiles that there are real benefits to be
gained. Our study shows that when we break down the job impacts
by policy and we looked at this to some degree specifically for
the fuel efficiency standards, we were able to see that there
were job increases associated with the savings that households
would reap from those greater efficiencies. Those savings are
re-spent throughout the economy, small businesses especially,
and so there are job impacts, job savings, that could be part
of the way in which we can convince ourselves and the citizens
and lawmakers to take this quite seriously.
Mr. Tierney. Anybody else care to comment?
Mr. Swift. Well, I think it is--I am far less in statute to
yourselves and others on the political issues, but how to
convince the AFL-CIO that they could make as much money
building a high-technology car as a fuel-inefficient car seems
to be one of the greatest single needs to move this issue
forward.
Mr. Tierney. Interesting enough, as you bring that up, one
of my colleagues from Michigan has told me that in running a
poll of people out there and asking about the CAFE standards
and other standards like that, 65 or 68 percent of the people,
even in union households out there, favored moving to a cleaner
technology and a cleaner car. So I think there may be some
disconnect between the Washington hierarchy there and the local
situation, and a lot of it probably has to do with education
and reaction on that. But you are right, that is as much a
serious barrier, as is the attitude of organized labor toward
jobs and job loss. But I think there has been a significant
amount of work done and Mr. Sterzinger's work out there has
gone a long way toward sort of breaking through the
stereotypical attitudes on that.
We didn't speak to this particular aspect of it, but I had
a long conversation a couple of weeks ago with Kent Conrad, a
Senator from North Dakota, and we talked about the farm bill,
and without getting into that avenue--I think it was an
abomination, but others may have different views on that--but
one of the reasons we are giving huge subsidies to farmers is
their at least asserted inability to get back a profit on their
acreage out there. Tell me whether or not this is your view,
but one of the experts at this conference with Kent and I was
saying that you could probably lease or get almost $4,000 per
acre in lease funds for wind farms. In a State like North
Dakota, which would make a significant difference with making
those areas profitable, because they are now only making
somewhere between $350 and $750 per acre in profit for what
they are growing, it would go a long way toward removing the
need for subsidies and in a large way toward keeping farmers
farming while they are also profitable. The problems seem to be
that not enough money being spent on the dual issues of
storage, some way to capture that energy and preserve it, and
then transmission, some way of connectivity, of getting it out
there. Would anybody care to comment on that? Mr. Sterzinger.
Mr. Sterzinger. I spent 3 days in Bismarck, North Dakota a
couple of winters ago, so I actually--it was before I started
to work at the Renewable Energy Policy Project and I had a
client, the Turtle Mountain Indian Tribe, that is up near the
Canadian border that was trying to develop wind. There were 400
farmers that came to that meeting in the middle of the winter
in Bismarck, and that is exactly the reason that they came. The
current royalties are between $1,000 and $2,000 per megawatt
per year, and with the current size of wind turbines, depending
on the topography of the land, it is a very, very realistic
goal.
Interestingly, people also were talking about the
agricultural co-ops joining together so that the best land
would be used for the wind development without having
necessarily a windfall--no pun intended--go to a few landowners
and that the money be shared by the co-op as a whole so that
the development could be more orderly.
There is absolutely no question--in that conference, I
mean, they asked someone from the Western Area Power
Administration to come and talk about what could be done. And
they said, ``Well, from our perspective, the best you could do
is 50 megawatts exported from the State before you destabilize
the system.'' And, I have always believed that asking a
transmission engineer what can you do is exactly the wrong
point to start any of these discussions, because transmission
is one of the fundamental mysteries of the universe, and it is
very difficult to tell exactly what is going on in a
transmission grid. It is very hard to prove that you can do
something, and a lot of the law firms in Washington I think
really make their living, their bread and butter is on
transmission disputes before FERC and on other sort of related
issues.
My feeling, I would differ slightly on the idea of storage.
I think if you had a very economic storage technique, that
would be doable, but to my mind, the great problem is the
transmission interconnections out of North Dakota to the
markets that can use them. And, I guess, the sort of really
remarkable, I don't know if it is an irony, but the
juxtaposition was that the Western Area Power Administration
had been formed precisely as a transmission grid to bring power
from remote hydroelectric dams to markets.
And, there they were saying that remote wind projects--and
the potential in North Dakota is gigantic. I mean the wind
resource, the class four to six wind resources are absolutely
phenomenal and the amount of energy that you could generate is
substantial. I think that the capacity issue can be addressed
in other ways. I mean I do think that the reserve and capacity
requirements of power pools need to be rethought. We subsidized
large individual units and we penalize unmercifully
intermittent, probablistic resources.
I think I would go first for a transmission effort.
Somebody should think about at least a transmission effort to
parallel the Western Area Power Administration, what they did
for hydro in terms of what they could do for the wind resource
that is out there right now. I would look at the reserve
requirements of the different markets and try to find ways to
sort of address those. But there is no question. I mean 400
farmers, and people vote with their feet, 400 farmers in the
middle of winter coming to a conference on wind development was
an absolute blueprint stamp of approval on what they thought
the economic potential was.
Mr. Fairman. Just briefly, the question of what farmers
have to do with the energy sector came up in several ways in
our discussions. Three main things were cited. One, of course,
is the wind power option; the second is the growing of
cellulose as thick grasses that can be a double benefit, both
as a fuel source and as conservation tillage, and the third was
perhaps even more interesting, some experiments that have gone
on in the West involving farmers agreeing to use land for
carbon sequestration in order to give power plants who had
supplied them carbon credits. These, of course, have no current
regulatory value in the United States because we don't have
carbon regulated, but there have been some interesting
discussions in a couple of pilots to see whether that kind of
package can be put together. So I think that there are many
areas of relevance. This Expert Group mainly focused on the
idea broadly of trying to integrate the farm sector effectively
in the strategy.
Mr. Little. I just might comment that certainly the real
estate is important in renewable energy because it is such a
diffuse source of energy. We take it a step further in
photovoltaics. We try to put big arrays on brownfields and get
the offset that you get from not having to clean up the
brownfield as much as you would normally do. So we get a
benefit by covering a brownfield with a photovoltaic array.
Mr. Tierney. Let me ask you, Mr. Little, we have a sizable
area over in Lynn that used to be the General Electric Plant.
It is still there but a lot of the property has been out of
use; in fact, some of the buildings have been taken down and it
has been leveled off and fenced in. And we are talking many
acres of land. Is that the type of area that a company like
yours could go in, utilize as a manufacturing facility and do
something with?
Mr. Little. That is a perfect situation. In fact, we are
studying a situation just like that now in Brockton where they
have a brownfield, and we are studying the feasibility of
putting a factory on the brownfield, producing modules and
covering the brownfield to cut back on the cost of cleanup.
Mr. Ose. Gentleman, I have a number of questions. Mr.
Little, I first want to apologize. Neither John nor I are an
engineer, but we have managed to damage both of these, and they
are on the exact same diagonal cut, so there is something in
your manufacturing process about putting these things together
right at this point. So we apologize for damaging private
property.
A couple questions if I might. Congressman Tierney asked
you each about the three most important aspects, and you all
talked about the cap-and-trade programs or some variation
thereof. But Dr. Fairman, you talked about distributed
generation versus transmission, and we have had untold agony in
California about this issue. We could talk about the relative
efficiencies of this kind of transmission facility in hot
weather versus this kind in cold and the difficulty of building
lines and what have you. The Expert Group talked about this and
they had a recommendation. Could you expand on what you talked
about within the distributed power discussion that you had?
Mr. Fairman. I will do my best. The main focus of the
discussion was that in principle distributed generation can
have several different kinds of benefits. One, it can help
diversify sources of energy and potentially in some areas make
less polluting sources more competitive. For example, the
combined heat and power option, which is a form of efficiency-
increasing distributed generation. Another example is having a
small wind farm that could supply a local area more cheaply
than it could if it was required to supply a broader area. It
goes also back to some of the regulatory disincentives for
small producers to try and join the grid.
Second was the notion that distributed power as a national
security strategy makes a lot of sense. If large facilities are
more vulnerable to disruption, you get greater resilience from
a security standpoint from greater distribution of those
assets.
And, the third was that if the interconnection of many
different forms of distributed generation could be made simple
and easy, you could, in a longer-term scenario, have a fairly
radical potential transformation of the power system. For
example, if we actually move toward a significant share of the
automobile fleet being hydrogen-fueled vehicles, and those
vehicles while parked and stationary could serve to power homes
or even neighborhoods, you could have a significant benefit on
many levels, but it won't happen unless the ease of
interconnection, in both a technical sense and a regulatory
sense, is much greater than it is today.
We did not get into the specifics of California's
situation. I am sure that in any regulatory jurisdiction there
are many complexities involved. All that was acknowledged, but
the thrust of the recommendation was we can and should make
this a lot simpler to do.
Mr. Ose. Mr. Little, your business enterprise is
effectively distributed generation. Dr. Fairman talks about the
interconnection issues. In California, we have an ongoing
battle between the investor-owned utilities who collect natural
gas and the independent producers who produce natural gas and
releases, and how you get that gas into the main pipeline. Do
you have similar issues in terms of--as I understand it, you
make the equipment that makes the photovoltaic stuff. Do your
clients have these same kind of problems?
Mr. Little. Interconnection is a big issue with
photovoltaics. We make the equipment and then we use our own
equipment to produce systems in Chicago, so we are dealing with
interconnection all the time. And, on a Federal level, there
are things that can be done to make interconnection issues for
renewable energy sources better.
Mr. Ose. Such as?
Mr. Little. Well, I would have to refer to my notes here.
Standardization is really what it all boils down to and making
sure that from State to State you can use the same technology,
the same power conditioning, the same criteria for your
renewable energy system without having to tweak it for every
utility and every interconnect.
Mr. Ose. You have a preemption at the Federal level for
that power created under this renewable portfolio title, for
instance.
Mr. Little. Yes.
Mr. Ose. How would that--Mr. Sterzinger, that seems to me--
we would have a lot of feedback, it would seem, from the States
on something like that. What could we expect?
Mr. Sterzinger. Well, you expect a lot of feedback.
Mr. Ose. I do expect a lot of feedback.
Mr. Sterzinger. I think it is--there are real concerns and
then there are concerns that are raised I think simply out of a
conservatism, out of a desire to sort of preserve the status
quo. And, I think, what Roger said is exactly right. You look
at a photovoltaic installation or any kind of installation and
there are engineering issues and then there are what I would
call sort of the softer regulatory issues, things like you have
a distributed generator steam--multiple generators in steam,
the kind of what is called sort of standby capacity that you
are charged for that can be a killer. I mean, it can absolutely
wipe out the economics of it.
I think a thing that Roger said earlier that is very
important, especially for his business, on the net metering
provisions, both the engineering interconnection and the net
metering provisions I think need at least to have that sort of
national airing and hopefully a national override. I mean the
standardization of the equipment is something that would
greatly benefit, because it answers the questions. I mean it
lowers the transaction cost of doing this. These are sometimes,
especially in the early stages, relatively small projects, and
people are simply not going to be willing--they don't have the
money, the sort development money to go into Rhode Island or
Massachusetts or Vermont to fight out the local interests on
those standards, so it can stop it.
Mr. Ose. That was Mr. Swift's point earlier about having
the capital available to actually create these processes from
start to finish. Now, one of the challenges there when you talk
about--you are talking about not so much a standardization of
the equipment but a standardization of the interconnection. So
one of Mr. Swift's points was that if you moved a single
technology, you basically close the doors to a lot of
innovation that might otherwise occur. I don't think you are
suggesting that, are you?
Mr. Sterzinger. I think in this case, it is that balance of
the sort of sins of omission and sins of commission. I think in
this case, you want to move these forward. I mean there is a
clear, I think, demonstrated advantage that we haven't even
really begun to talk about in detail, and these are relatively
minor issues that simply can exhaust a business' resource or an
industry's resources in approaching them. And, I think, that in
that case the nationalization would really provide a platform
that then would allow a lot of other innovation. But if you had
a sort of standardization of interconnect and net metering
standards, I think you could expect a sort of flowering of
photovoltaic technologies rather than something that would be a
roadblock to them.
Mr. Ose. One of the Federal agencies that is under the
jurisdiction of my subcommittee is FERC.
Mr. Tierney. We have time for maybe one or two more
questions, then a short break, and then maybe come back and
address some of the questions that were submitted.
One question I just had generally and that is can give you
us a brief synopsis, those of you that know, how we stack up
against other countries in regard to the percentage of energy
that we are now getting from renewable sources versus what they
are doing elsewhere, and how do we stack up against other
countries in terms of our investment on research and
development, and demonstration versus support for other
governments to their industries? Anybody that wants to jump in.
Mr. Sterzinger. Let me start. I am not that familiar with
the R&D numbers. Steve may know them better. When you fly into
Copenhagen Airport right now, you fly across the harbor and you
pass nine or 10 offshore windmills, each about a megawatt,
megawatt and a half. The European Union is moving through the
sort of regulatory progressions to put in place roughly an 11
percent, 11.2 percent I think it is, renewable portfolio
standard, which varies by country. I mean, they have done an
assessment of what each country can contribute around that
target, and then they have allocated that. And, they are trying
to answer the ancillary questions related to that.
Those are major competitors. I don't know what the
statistics are, but I would be willing to bet that upwards of
three-quarters of the wind turbines sold in the United States
were manufactured offshore, either in Europe or in Japan. So I
wish I knew the R&D numbers; I don't at this time. But it is
clear that in terms of the recognition of the importance of
this to their energy markets, one of our substantial
competitors and partners has moved well beyond us.
Mr. Tierney. Mr. Bernow, do you have more specifics on
that? No? Mr. Little, you have some comments, I think, on the
solar end of that, right?
Mr. Little. I know the Japanese budget for photovoltaics is
about twice ours, and I think the German budget has now
significantly exceeded it, just for the R&D.
Mr. Tierney. With the chairman's acceptance, I am going to
steal out one of the questions ahead of time here that I saw
going through, because it is exactly the same question I was
going to ask. It happens to be asked by our State
representative from Danvers who was here a moment ago, Ted
Speliotis, on that.
One of the reasons I wanted to come to this district and
have the hearing, amongst all the other reasons, is that I
don't hear a single word being talked about the policy of
energy amongst all the many people that are running for
statewide office, and I would hope that we have some leaders
and some leadership amongst that group who start talking about
this and the importance it can be to the Commonwealth of
Massachusetts, my district and the other districts that are
here in terms of jobs, in terms of investment, attraction of
capital, and all of that.
What can States do--while they are waiting for the Federal
Government to improve on its performance, what can States do
that would mean something favorable in terms of jobs in this
regard but would also make a serious impact on what people can
save in energy costs, how the State could move away from
reliance elsewhere and how we can produce more manufacturing,
right on down the line? Mr. Bernow.
Mr. Bernow. Almost every one of the kinds of policies that
we have discussed here that would be affected at the national
level, almost all but not all, could be implemented at the
State level and some have been, as we have heard, from the
renewable portfolio standard to State-level feebates, which are
now under discussion, or procurement strategies. There is now a
New England energy efficiency initiative, and the aim is to go
beyond the Federal level for efficiency standards. Almost every
one of those policies and measures that can be enacted at the
Federal level can be enacted effectively at the State level.
We are now in a process, a stakeholder process, in the
State of Rhode Island, which is supported by the Department of
Environmental Management. It has stakeholders from every sector
of society--oil people, the utilities, environmental
organizations, small business, and so on--in that stakeholder
process. We have enumerated measure by measure, across each
sector of actions that could be taken by that State and of
course by any State that is willing to take a lead that would
save money, reduce carbon, transform their energy system into a
more cutting-edge energy system, and create jobs, and reduce
local air pollution. Again, we have shown that for States just
as we have shown it for the Federal policies.
Mr. Little. There are a lot of State programs, including
Massachusetts. Massachusetts now has $150 million in a pot for
renewable energy. It is being managed by the Massachusetts
Technology Collaborative, and they're supposed to really get
this moving. It has been some time because it has been tied up
in litigation in Massachusetts. But there is a big pot there;
there is a big pot in California. I think the question that was
brought up before of how to better coordinate State funds from
a national perspective is a good question, and I think more of
that needs to be done.
Mr. Tierney. Thank you.
Mr. Ose. I want to go back to the cap-and-trade, if I
might. Cap-and-trade works on acid rain precursor. Are there
other pieces of our air quality dilemma or otherwise, water,
soil, what have you, that cap-and-trade might work in? Have you
expanded your thinking beyond just the air quality stuff? Mr.
Swift.
Mr. Swift. Yes. I have done quite a lot of research on
this, and not to say that there are not differences of
perception and political issues, but the cap-and-trade is
currently considered the leading approach for three of the four
major power pollutants--nitrogen oxide, sulfur, dioxide, and
carbon. I think it is well-suited for those. It is a
contentious issue whether you also want to apply it to mercury.
I have in my mind an article titled, ``Why
Environmentalists Have Nine Reasons to Support Cap-and-Trade
and None Against It.'' There are a number of very fundamental
issues this approach resolves, including the problems created
by these rate-based standards. The one thing you hear about as
a negative is the so-called ``hot spots.'' I have done a
considerable amount of research on the issue and as far as I
can see, although there is the potential there that requires
some regulatory action to prevent, the actual performance of
cap-and-trade systems has been to cool hot spots and not
increase them. In fact, it is the rate-based traditional
systems that create more hot spots than a cap-and-trade system.
Mr. Ose. Could you just expand on what you mean or refer to
as a hot spot, please?
Mr. Swift. Well, a hot spot is the idea of an emissions
concentration. You have to realize that every single regulatory
system you can imagine or economic system will create emissions
concentrations of--let us take SO2, and it is something you
don't want. No neighborhood wants to have an unduly high SO2
concentration.
There are two points to make. The first is that by siting
power plants you create emissions concentrations. There is one
large power plant in Massachusetts and it is very obvious that
is where the emissions are going to be. You then impose
regulatory systems, and a trading system in some people's mind
creates the specter of you will trade emissions from other
sources and put them in one place where they will concentrate.
It is a complicated area, but the simplest thing to say is that
trading systems tend to provide economic incentives for the
larger sources to reduce the most, because they put in capital
equipment and that is where the biggest bang for the buck with
the capital equipment comes in.
So every system I have looked at, the SO2 program and some
of the NOx-based credit programs, you see this phenomenon
happening, that the larger sources that are creating the most
reductions and the trading disperses emissions instead of
concentrating them. But it is a strong perception among the
advocacy community that cap-and-trade programs may create worse
hot spots.
Mr. Ose. Dr. Bernow.
Mr. Bernow. I wanted to add on that, maybe take some issue.
I support cap-and-trade, especially if the credits are
auctioned, but there is nothing intrinsic in the trading system
that prevents hot spots, and I think you mentioned a moment ago
that to the degree that there might be hot spots, the
regulatory process needs to take account of that and make
adjustments. I think the emperics so far are, as you say, that
there haven't been hot spots, but that is probably, to some
degree, the result of the fact that there hasn't been a massive
amount of trading. And so, I think it behooves us when we
engage in making regulations like this to ensure that we meet
the various social goals that we set out to meet. And, since
there is nothing intrinsic in trading that prevents hot spots,
you should take account of that.
Similar with encouraging distributed generation. You may
want to encourage distributed generation for various reasons
that were alluded, but certain forms of distributed generation
may create their own local hot spot, such as willing diesel or
other dirtier forms of DGN. So I generally concur that cap-and-
trade with auctioning is a very effective policy, but it may
need to be complemented by hot spot or sudden pulse prevention
as well as, as you said earlier, the ability of States to
withhold and not sell their credits across State boundaries.
Mr. Tierney. With the chairman's agreement here, I am going
to jump in for a second, because that is a very important area,
one of the questions we had on the card in fact deals exactly
with this issue. And so if the general feeling is, Mr. Swift,
at least from your perspective, that it is not as big a problem
as some of the efficacy groups see it, Mr. Bernow you are still
in favor of the cap-and-trade thing, then how would you deal
regulatorily with those hot spots? What types of things would
happen to make sure that it didn't occur?
Mr. Swift. I think there are two general sets of tools to
deal with hot spots, and I am very much against one of them,
which is to impose rate-based standards on each stack. That is
what creates your inflexibility, that is what causes your
problem. You have got a different set of tools that deal with
State power in non-attainment areas. And, from the first days
of the Clean Air Act, States are allowed to create what is
called a State Implementation Plan, a SIP, that guarantees, or
attempts to guarantee, that within your non-attainment area you
will not be exceeding your Federal standards. That is a
perfectly good idea, it should be encouraged, and States should
in fact get more tools to do things. And, there are ways to
develop non-intrusive ways of dealing with protecting that non-
attainment area. You can also develop very intrusive ways, like
mandatory percent reduction rate standards imposed on ends of
pipes. So that is the basic protection that you want.
There are other protections that have nothing to do with
whether it is cap-and-trade systems or regulatory systems that
are rate-based. One is that NOx is produced on hot days--I mean
the ozone is produced on hot days, so it is precisely on hot
days when people run their air conditioners more. And so, in
any regulatory system you will have spikes of more pollution on
exactly the worst days. I think in Connecticut, and maybe
Massachusetts you have to get extra provisions to do something
on those hot days to prevent precisely that happening.
Mr. Ose. Such as?
Mr. Swift. I think Connecticut has a three-for-one
allowance reduction system that is triggered on those days. So
it costs firms a lot more to emit NOx on those days, so they
will differentially produce power from their low-NOx sources.
Each firm has a whole bunch of plants they can produce power
from at any moment. And so, they will probably go with their
modern gas turbine plants which are very, very low NOx and cut
out their coal on those days. So it is not a problem, it is not
even a big economic problem, but you have got to have the
economic signals in there for companies to understand what they
have got to do and when to do it. But, again, the design issues
are critical. You can do this in an intrusive, costly way, or
you can do it in a flexible way.
Mr. Ose. Mr. Sterzinger.
Mr. Sterzinger. I just want to inject, I guess, a little
different note on the issue of whether there are hot spots. The
United States allows 10.8 million tons of sulfur dioxide to be
emitted each year, and that emission is associated with fine
particulates. And Apt Associates, a Boston-based consulting
firm, has been very active in assessing the health risks
associated with those fine particulates, the risk of death from
those particulates in particular.
If you look at a map of the United States, you see a sort
of concentric set of circles darkening, and it gets darkest on
the Southeast, the six Southeastern States, American Electric
Power System, Southern, Duke Energy, in particular. That is a
hot spot in my mind. The risk of death from that particular
condition in those areas is, I believe, 10 times the national
average. I support cap-and-trade for its ability to lower the
cost of meeting targets, but I think there needs to be a
recognition that the journey isn't finished. I mean, we have
not answered all of the questions related to not only
protecting national standards but also regional, State, and
local health issues as well.
Mr. Tierney. I guess, help us along that journey then.
These things are happening now. People are making decisions
about power plants, they are making decisions about levels of
pollutants or whatever, so if we are recognizing hot spots,
what ought we do now to get us on that journey so that if we go
into cap-and-trade system, those areas that consider themselves
to be likely to become hot spots don't get penalized?
Mr. Sterzinger. Well, I think there are two--I mean I do
not have the complete answer to this, by any stretch of the
imagination. I think that you need to develop a system. Mr.
Swift referred to having something like a State limit that now
relates to NOx, perhaps relate to the other pollutants as well,
so that a particular State wouldn't be disadvantaged in terms
of their health by virtue of overcompliance in one region.
Again, sometimes you need to look at the details. The American
Electric Power System overcomplied on a huge coal plant they
had in West Virginia, Harrison 4. They put in all the
scrubbers, they overcomplied on that plant, they actually
overcomplied for their system, in part because the regulatory
allowances allowed very quick recovery of the pollution
equipment and provided a potential source of revenue for them
on the sale of credits. And so I think they were well set in
terms of their system to comply.
If you happen to live in a State with some of those other
plants, the system as a whole is in balance, but the pollution
that you were subjected to hadn't changed at all. I mean there
had been no effect on it. The famous New York case where New
York State sued was precisely because of downwind pollution
drifting onto the State with Long Island and other utilities
buying credits from the very utilities who were sending the
pollution onto the State.
So I think there needs to be that kind of State action. We
have been really heavily involved with sort of the use of
renewables and conservation in the NOx compliance plans. Each
State--Georgia is allowed 30,000 tons of NOx. They are
approximately 1\1/2\ or 2 times over that. They have to come
into compliance. The experience from 1990 has been that
conservation and renewables have been vastly underrepresented
as a solution. Part of that is a problem related to how you
qualify conservation, particularly renewables to some extent,
as a legitimate reduction in NOx. The other problem is that
there is a problem in terms of whether if you do something in a
particular State, that State can capture that benefit or
whether the plants are simply run and exported out of the
State.
There is an awful lot of concern. I think that the health
concerns related to the fossil generation is something that is,
at least in my experience, in people's mind, almost as great an
issue as the security and global environmental concerns. And I
think it is legitimate. I think it needs to be addressed very,
very carefully.
Mr. Swift. And, some of these have been alluded to, but
there are several ways to address the limits, hot-spot related
or pulse or spike-related issues associated with a cap-and-
trade system. One that is mentioned, strong State
implementation plans. A second would be a system of augmenting
the trading credits at certain times of the year, in certain
spots. A third would be States being allowed to retire their
credits once they have generated them and not trade them away.
A fourth would be some limitations on banking. A fifth would be
to establish perhaps State and/or regional programs. As George
was saying with respect to RPS, you could do that at the State
level, perhaps at the regional level, State and regional areas
in which cap-and-trade could take place. And, finally, of
course, is to limit overall emissions--to reduce the overall
cap nationally to acceptably low levels, which in itself would
reduce the hot spots as well as the overall emissions. And
there are various proposals that have been put forward for very
dramatically reducing SOx, NOx, mercury and CO2 nationally.
Mr. Ose. In California, we had our problems and we had--
under the SIP we have different air basins, and we were not
able to trade credits from one air basin to another, which
tells me that we all may not be able to trade air credits from
one State to another in many instances. I don't want to be a
doomsayer, but speaking to the future I can see a situation
where we have re-created in certain sectors, for certain
geographic areas of the country, a replay of what happened in
California. Now, if that occurs, how do we keep these credits
from going through the roof value-wise and forcing the shutdown
of this or that generating plant, whether it be coal or natural
gas or nuclear, what have you? I mean nuclear has no emissions
so they are pretty clean in that respect. But the issue becomes
whether or not you have to end up waiving your air quality
requirements or not. I would be interested in the panel's
considered opinion as to whether or not these credits should be
tradeable, either one for one or at some discount or premium
across air basins or State boundaries. Dr. Bernow.
Mr. Bernow. Yes. Well, I think I have suggested, and maybe
others have, that there could and should be some limitations on
that to the degree that is necessary to protect local citizens.
I think every State has a responsibility to protect its
citizens. And, the tradeoff, ultimately, is between a
completely flexible market, which has great advantages in some
respects and protecting of citizens in a local community. And,
if the citizens in a local community are willing to pay the
price of departing from what is seen as, from a market
standpoint, the economically efficient solution in order to
protect their local health and their local environment, then
that is a political decision that they can and should take, of
course, with all due deliberation.
Mr. Swift. From what I understand of the--I think you are
referring to the RECLAIM market in California where prices went
through the roof. One of the key elements is that market does
not allow any banking and so after a miscalculation by firms in
how much it would cost to meet the 2001 standard, there was no
escape hatch. Every other system, even the New England NOx
system, does allow limited banking, and it just again points to
the importance of details in this area. I think you can solve
that problem.
Mr. Ose. Dr. Bernow, do you support the banking concept of
these credits?
Mr. Bernow. I support some of them.
Mr. Ose. OK. Mr. Swift, do you support the banking concept?
Mr. Swift. Yes. I basically think--well, I mean secretly, I
think this whole issue is grossly overblown. I think if you had
no local rules whatsoever, everything would be fine, because
the whole east coast is one big transport area for NOx. You
have basically got the east coast, Houston, and L.A. as
outliers. Seventy-five percent of Massachusetts NOx comes from
out of State. You can quibble about the 25 percent but I don't
want rules to interfere with the functioning of the system, but
I will also say that carefully crafted, modest rules that
reassure the public for things that may never happen are
perfectly OK as long as they don't interfere with the system.
So I will go along with limited banking as long as it is not
too limited.
Mr. Ose. Dr. Fairman, does the Energy Group have any
opinion?
Mr. Fairman. Just, conceptually, nobody in the Expert Group
advocated cap-and-trade or other primarily market-based systems
to the extent that they would violate public safety or public
health standards. These standards are thresholds, they are
politically and public health-wise non-negotiable. The whole
point of these performance, market-based incentives is to
maximize cost effectiveness of pollution control above that
threshold. So no one in the group would support any banking or
use of permits in a way that violated those thresholds
themselves. It is all above the threshold.
Mr. Ose. Mr. Sterzinger.
Mr. Sterzinger. Let me just tell you, I agree pretty much
with what has been said so far. I think that the kind of
problems you are talking about, the price spikes that can
occur, are not to anybody's advantage. They disrupt the market,
they don't lead to any sort of long-term solution, and they can
undermine support for the environmental standards.
I think it really underscores the need to look for a
variety of options. I think we may have been lulled into a
false state of complacency with respect to the performance of
the cost of sulfur dioxide credits from 1990 on, since they
dropped so precipitously. And, I think with the NOx and other
pollutants we need to do more work going in to make sure that
there is as wide a portfolio of options, including renewable
technologies and conservation efficiencies, as possible to make
sure that the problem you are talking about of really just
coming catastrophically out of compliance with people bidding
against each other for an inadequate source of credits doesn't
arise.
Mr. Ose. Mr. Little.
Mr. Little. Well, related to this is why does Chicago want
a photovoltaic factory? And, the answer is because when they
are hot, which is in the summer, when the sun is beating on
Chicago, that is when the renewable energy is the most
efficient, so it is a perfect match. And, that is one of the
reasons the mayor wanted to increase renewable energy within
the city itself.
Mr. Ose. I have but one other question, and then I would be
happy to yield the time to Mr. Tierney. I just want to get it
straight in my own mind--different parts of the country have
different embedded advantages for this or that alternative
energy source. Are there advantages that exist in this
particular area that I, as a Member from California, wouldn't
ordinarily be knowledgeable about but need to be knowledgeable
about relative to alternative energy sources, specifically here
in Peabody, here in Massachusetts? Right, geothermal,
photovoltaic?
Mr. Sterzinger. I think offshore wind is something you
might not know about that is a potential resource for this
State, and it may be underestimated at this time. I mean the
ability both of the turbines to increase in size, 2, 2\1/2\
megawatts, and the location of possible sites, perhaps not
directly on Nantucket roads but perhaps someplace else; I think
is a resource that you may not have appreciated.
Mr. Ose. Anybody else?
Mr. Fairman. This may be slightly off point, but just from
the experience of the Expert Group talking about the resources
conceptually, the idea that the intellectual capital here in
the energy efficiency and renewable energy markets supported by
Federal RD&D and the university/Government nexus is a huge
resource, not just for Massachusetts but for the country. So,
just thought I would throw that in.
Mr. Ose. Dr. Bernow? So you have the 128 corridor, you have
colleges and universities, something offshore with the wind?
OK. Mr. Little.
Mr. Little. Well, solar energy works here as well as it
does in Chicago. I wanted to add from the Department of
Energy's point of view, I at one point received a contract and
gave a subcontract to an individual formed Eden Semiconductor
which is a big corporation in this area, and it grew out of
that research and this intellectual environment we have.
Mr. Ose. Thank you. Mr. Tierney.
Mr. Tierney. Thank you. I might add that solar has already
been shown to work here in this part of Massachusetts, over at
the solar facility we have had in the Beverly High School for
so many years. Unfortunately, the lack of governmental support
for that has jeopardized that program. But it was successful.
It fed energy into the city's municipal supply, and it was a
great example for the number years it was there. Obviously,
biomass, we have a lot of farmland in certain parts of this
Commonwealth that could generate that, as they could in a
number of other States in the country. The wind offshore is now
just beginning to get some recognition around here so that we
have a number of reasons why hopefully our State policy as well
as our Federal policy will move us in that direction.
I think we have dealt with several of the questions that
were asked from people that are in the audience just by virtue
of our own line of questioning overlapping some of those. I
will say that there are a number of questions on nuclear energy
production. I am not a fan of nuclear energy production, and
certainly I note that there haven't been any new nuclear
facilities proposed for some time, and I think it is unlikely
that there will be. The question is how do we move beyond that,
or whatever? If anybody wants to make a comment about our
nuclear energy and its role in moving forward our energy
supplies or the likelihood that it won't be part of a mix in
the future after the original plants fade out.
Mr. Bernow. I would say that the prospects for the next
several decades are moving very, very dramatically toward
energy efficiency, cogeneration, or combined heat and power,
and renewable energy, complemented by some natural gas but
keeping natural gas under control would obviate the need for
nuclear power in all of the attendant economic and security and
human risks.
Mr. Fairman. I just want to highlight in the text of the
Expert Group report on page 10, you will see a small box on
nuclear power, which represents the summary of a 3-hour
conversation, quite intense, among 20 experts on this topic.
And, basically, without taking nuclear power off the table,
they wanted to be very explicit in saying that nuclear power
has been given many, many exemptions from the kind of
regulatory requirements and financial requirements that other
energy sources are generally required to meet. And, they were
quite firm in saying that if nuclear is going to stay in, it
should stay in on the basis of being cost competitive with
other sources and not with exceptional subsidies and
exceptional allowances. They also emphasized that without a
stable long-term solution to the waste disposal problem, there
is just nothing that is going to happen politically or
technically in that sector.
Mr. Tierney. Thank you. There are a number of questions
about why there is so little funding for renewable energy
development and education, and I suspect that is more a
political question than for any of the gentleman on the panel.
And, the answer is that is just an argument that Congressman
Ose and I have to take to our colleagues as well as others and
try and be more successful there. I know that in my opening
remarks that the amount that we spend on research and
development and education, also pilot programs, things of that
nature, has dropped precipitously since the 1978 period down to
now. Hopefully we will reverse that. I don't think it has been
reversed in the plans that are currently being considered by
Congress. I think they are woefully low compared to the money
that we still spend on fossil fuel research and things of that
nature. But those are also political questions that you
probably won't want to participate in.
But I think that the last two parts of it that would
address much of what people are asking on the last couple of
questions, one would be a little more emphasis on the jobs. If
somebody might just want to tell us some practical ways that
jobs would be increased? Maybe give us an example or two on
that aspect of why people should not be overly concerned with
the loss of jobs, that if we have a smart transition program
that gives people that are losing their job in the coal
industry, for instance, some support, and then where they would
go for their next job. Do you want to start left to right or
right to left?
Mr. Bernow. I will start. I think the work that George
Sterzinger has done to show the direct economic job benefits of
specific renewable technologies is very, very important. The
work that I have done and colleagues have done complements
that, that shows that if you have a smart set of policies and
measures, and again I would echo George, there is no magic
bullet here, you have to have a very, very robust set of
policies and measures. If energy efficiency and combined heat
and power are at the heart of those policies and measures, then
that would be a job stimulation program of a fairly deep
nature, because you would have all of this money saved by
households and businesses that gets re-spent.
That said, and my study shows this, there will be some
sectors that in the near term could--the fossil sectors that
could, all else equal, suffer some setbacks, and those sectors
have both the necessity and the opportunity to be assisted,
especially the workers in their transition program in the
communities, assistant to transitioning themselves into the
modern and cutting-edge clean energy world. And, I think that
is true of the oil sector; it is true of the transportation
sector; it is true of the electric utility sector. They can be
providers of energy efficiency and alternative forms of liquid
fuels and not simply stay stuck in coal for electricity
generation and oil for transportation. The Government needs to
play a role to ensure that the transition is effective and
smooth.
Mr. Swift. I had a question for you, which was the last
time I looked there are only 70,000 coal miners in the United
States. It has gone down steadily from 200,000 or 300,000 a few
decades ago. I am just perplexed as to why, on the other hand,
you can visualize many more jobs doing the clean technologies
that we are talking about, but why does the political
perception persist that those 70,000 jobs count so much more
than the other jobs?
Mr. Tierney. I will start first, if you don't mind. We are
both going to take a shot at that, because I think we are
troubled by it all the time too, why disproportionately--I
think all politics is local, obviously, and for the people that
may be in very powerful positions in the Senate or the House,
there is a great deal of pressure to not have several thousands
of people out of work in your district. And, what we have been
incredibly lax and seemingly unable to do that we have to do is
find a way to make sure that those people don't suffer. This
isn't the only issue. That happens in trade. Why don't we move
better on trade and free trade? It is not because people don't
believe in free trade, it is that nobody has the confidence
that we are going to do anything to help the people that are
going to be displaced or otherwise inconvenienced severely by
this.
So the political issue is there for us to move forward in
those directions but to put in place some safety net system of
people, not a welfare system, whatever, but a transitional
system that helps their families and their communities, because
it is always more than just a family. Base closure is another
area that we always deal with this on, help them survive that
segue into the next area and get them trained and retooled and
up and placed into another job where they make as much or near
as much as they were making before. I think that is just the
abject failure of policymakers so far to make sure that we do
these things in tandem, that we don't just talk about energy
policy or base closures, recommended by the President or
whomever, or free trade, without also talking about what we are
going to do with the people that are going to be impacted,
because our political situation is such that people do have the
power sometimes to slow down the wider public policy based on
those narrow issues. Doug.
Mr. Ose. That is a far more comprehensive answer than I was
going to give. One thing I have learned on Capitol Hill is to
be attuned to the interests of the senior Senator from West
Virginia. And, one of the great things about being a Member of
Congress is you get to ask questions, not answer them.
[Laughter.]
Mr. Tierney. But you got it done pretty well, so I got to
hand it to you. You got a two-for there. Anybody else want to
add on to that? Sure, George.
Mr. Sterzinger. Yes. Let me try to put a slightly different
spin on it, because I have heard that, the number, 70,000,
50,000, many, many times. Turn it around, 70,000 workers
provide the fuel to provide 22 percent of the U.S. energy
sources and even more of the electric sector, which is an
enormous productive resource. I mean I think a lot of the
reason that goes beyond--I mean I have heard people say,
``Well, you know, pay everybody $50,000 a year and you are done
with it,'' I mean just get away with it. But I think it
neglects the ongoing importance. There is a real need to reduce
the pollutants from coal, to make the use of coal as efficient
as possible, but I think everybody would agree that as we go
forward that hopefully won't be the major source or perhaps
even a growing source, but it will be a foundation of the
energy economy.
And I think a lot of times--well, let me just switch. I
agree precisely that as you make a transition from one
technology to another, first of all, I think it is important if
you look at the story of the Energy Information Administration,
it isn't coal that is in the cross-hairs of renewable, it is
imported LNG, of which there are very few jobs, of which there
are substantial security benefits. But I do think it is
important to come up with a transition program that is very
convincing to the people in those communities that any move
away they will be taken care of and provided with an
alternative and productive future.
One thought, one of the great, I think, unintended
consequences of the last 5 years of deregulation of the
wholesale market is that it has produced a number of unexpected
winners. The nuclear plants that were sold for 10 cents on the
dollar is one example of plants that are--if you bothered to
look at what they were making selling into the deregulated
wholesale markets, it is a substantial amount of money. The old
coal plants are the same. One way you might be able to--and
this is one of the things we get to say without having to deal
with the political issues--would be to try to put a windfall
profits tax on those sales into the underegulated wholesale
markets and use that as the basis for funding some sort of a
transition, some sort of productive development or transition
program.
Mr. Tierney. Just like a rock star, you carry your fans
with you. Mr. Bernow.
Mr. Bernow. Yes. I would like to pull a few things together
here. There was some comment that the national dialog didn't
want to take a position on the renewable portfolio standard
because it was kind of driving toward a specific solution. On
the other hand, George pointed out that, at least prima facie,
renewables compete with natural gas. But if you put everything
together, I think you realize that this is part of a harmonious
package. If you want to solve the climate problem but for
sequestration that is scrubbing the carbon and burying it
somewhere in the ocean and the land, coal is going to have to
go in a strong and steady decline over time. There is no
solution to that other than sequestration. If coal goes, that
is going to pull natural gas in. Renewables then allow you to
get rid of coal without pulling too much natural gas in and
also stabilizing the natural gas prices. So renewables prima
facie may be competing with natural gas, but it is part of the
coal/natural gas solution. Renewables, efficiency, CHP,
complement a carbon policy and keep natural gas from swamping
the system and creating high prices. So they are all part of
the package.
And just to finish that package, insofar as--there are some
policies that would allow coal units to purchase credits
against their carbon emissions. The long-term solution to the
climate problem is going to require both the long-term
retirement coal units and sequestration of carbon from the
atmosphere. It is a very daunting problem, so I don't think one
can readily substitute for the other.
Mr. Tierney. Three more questions, and then I think we will
probably try to bring this to a close. One just concerns the
Clean Skies Initiative of the President, and we have covered
all this ground.
Do you believe that the caps reduction schedule in the
Clean Skies Initiative will substantially drive technological
innovation? Mr. Swift.
Mr. Swift. My personal opinion is that the levels are in
the ballpark that we need to talk about, but the timing is way
too long. I think without disruption to the power pool, we need
to bring the timing of our reductions closer, and that will
drive far greater innovation.
Mr. Tierney. Last two questions actually come from the
audience but they are things that Congressman Ose and I would
have wanted to ask. One is a good question on the impact of the
world human population. How can the United States and the world
hope to cope with energy issues in a successful and responsible
way in light of the rapidly increasing world human population?
That is a show stopper.
Mr. Little. Well, I can say that----
Mr. Ose. Before you--we want the short answer, by the way.
Mr. Little. I am always short. I am in business. What we
are trying to do with photovoltaics is to keep people back on
the farm. And what is the problem with much of the world like
Mexico City is that there is no electricity out there so they
come into the city, and it becomes a more severe problem. So
that is what is, in part, driving the international markets.
Mr. Tierney. Mr. Swift.
Mr. Swift. I had a quick response, which is that I spend
quite a lot of my time in developing countries, and the role of
ourselves, the United States and other developed countries, is
that we have got to come up with the answers. They do not have
the technology or the capital to invest in these high-
technology answers we are talking about. And that is where
these problems with the lack of research funding and the lack
of incentives are magnified many times over. The world is
looking to us for the technology answers to these questions.
Mr. Tierney. I would suspect that many of these developing
countries could leapfrog right over a whole slew of dirty
technologies that benefited us, obviously. Not to say that in a
denigrating way but that we benefited from greatly, but now,
obviously, we find a need to move on. We can avoid that whole
problem moving over. Dave.
Mr. Fairman. Just wanted to say that the Expert Group felt
very strongly that it is not just their problem, it is our
problem, particularly with regard to climate change but with
many other issues as well. That is, yes, it is true that--I
would agree in part that we have to help find the answers, but
there is also the need for doing things in partnership because
one of the things that we are learning about, for example,
changing the structure of the coal sector in India and China,
is that unless we really understand their local political and
financial incentives, the technology itself is only about a
third of the answer. The second third is the financing, and the
third third is the institutions and regulations. But the Expert
Group strongly felt that the United States must take a
leadership role in this regard.
Mr. Bernow. I would concur with that precisely. That is our
experience throughout the world. One thing I would add that in
addition to building the human institutional capacity is that
we have got to take the lead in bringing the costs of these
cutting-edge technologies down. We can't shift the costs of
these cutting-edge technologies for leapfrogging onto
developing countries, they just can't take them. So the
innovation, the R&D has to be led from this country but then in
situ spinoff R&D working with capacity building is the next
phase.
Mr. Sterzinger. Just a real quick comment. I just got back
from Belize. We are sort of doing an early feasibility study on
providing off-grid communities perhaps with solar, perhaps with
small wind and then wireless Internet connection so that the
bundle of those services is actually both more productive to
the community, perhaps producing more income or perhaps in an
interesting paradox making something that actually offers more
services and is more expensive more easily to afford precisely
for the reason that Roger said, which is if you can start to
locate economic activity out at the ends, out in the villages
instead of having everything concentrated in the cities, you
have solved several problems at once.
Mr. Tierney. Thank you. And I think we did talk some more
about conservation probably after this question was written. Is
there anything anybody would want to add about the unique
benefits that conservation can add to decreasing the needs that
we have or have we covered that ground? All right.
Having covered it, I just want to wrap my comments by
thanking every one of you on the panel. Your testimony was
excellent, your written testimony was even more involved and
developed, and we appreciate the benefit of that. It will go on
the record, as will all the other charts and reports that you
have submitted. I want to thank the chairman for having the
hearing up here in the 6th District. I hope we benefit from
that. I noticed some folks from the news media were here and
hopefully it will help in the educational process of
understanding how important this is, not just nationally but
locally here. It can be a great thing for us to both attend to
our environmental needs as well as our energy use needs, and
creation of jobs for our economy as well as for our health and
for the environment.
I want to thank the staff. I know it dislocates them a bit,
both the majority and minority side, to come out into the field
for these hearings, but it is useful to get out, and I hope the
folks from the community were served somewhat by having their
questions addressed directly. So thank you, Chairman Ose.
Mr. Ose. You are welcome. I want to add my compliments to
those of Congressman Tierney to the people of Peabody for
hosting us. I would like to especially make note of the great
effort that Congressman Tierney's district and Washington, DC
staff did in putting this together. I would like to thank Dan
Skopec and Elizabeth Mundinger for joining us here today.
My compliments to the panel of witnesses today. This has
been very informative. I want to remind everybody in the back
of the room we have copies of all the testimony from each of
the witnesses. We are going to leave the record open for 10
days in the event Congressman Tierney or I have additional
questions. So we would appreciate timely response to any such
interrogatories. Barring any other questions, this hearing is
adjourned.
[Whereupon, at 2 p.m., the subcommittee was adjourned.]
[Note.--The Environmental Law Institute Research report
entitled, ``Barriers to Environmental Technology Innovation and
Use,'' may be found in subcommittee files.]
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