Segment 3 Of 3 Previous Hearing Segment(2)
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Chairman BOEHLERT. Thank you very much, Dr. Holdren. Mr. Darmstadter.
STATEMENT OF JOEL DARMSTADTER, SENIOR FELLOW, ENERGY AND NATURAL RESOURCES DIVISION, RESOURCES FOR THE FUTURE
Mr. DARMSTADTER. Mr. Chairman, and Members of the Committee, I appreciate the invitation, of course, to appear at this important hearing. I guess one of the virtues, or at least consequences, of being the last on the panel is that certain of the points in my prepared testimony have been made by some of my colleagues around the table. So I suppose that means that I have no excuse for breaching the time constraint that you have lavished us with. My presentation deals with the use of renewable energy in electricity generation, a key economic activity for which an expanded role for renewables is thought to have particular promise.
Specifically, I want to address three questions. First, what is the emerging and prospective contribution of renewables to electric power production? Secondly, to what extent has that contribution lived up to expectations? And, thirdly, what policy initiatives could promote greater penetration of renewables in electric power production? While my remarks are based on research conducted at Resources for the Future, RFF for short, the views expressed here are entirely my own.
Turning to the current and prospective status of renewables, Table 1, appended to my prepared text, makes it clear, as Mary Hutzler has also indicated earlier, that the relative magnitude of renewables is very small economy-wide and even more negligible in electric power production alone. Nor is this picture likely to change appreciably over the next several decades, according to the most recent analysis of DOE's, Energy Information Administration, EIA, although, as you heard a moment ago, Dr. Holdren challenges the basis for some of those projections. Under EIA's most optimistic conditions, renewable capacity would not exceed around 4 percent of the Nation's aggregate electric-generating capacity by the year 2020.
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A point that I emphasize in my prepared remarks, and perhaps it is an obvious one, is that any such conjecture must be cast within an economic setting that embraces a range of competing technologies and resources, both renewable and nonrenewable.
Next, let me recap the emerging performance of renewables compared to how they were expected to do some 25 years ago. Here the findings of a study at RFF seem quite striking. In terms of real cost, that is cents per kilowatt hour, there has, by and large, been a decline even greater than the proactive renewables constituency of the 1970's anticipated, but, at the same time, market share remains inconsequential, as we have noted.
There isn't much of a paradox here. Through technical improvements, fuel cost declines, although you wouldn't think so this year, and a less inhibiting regulatory environment, conventionally powered electric generation has succeeded in retaining a pretty firm competitive edge. And this is captured by the fact that in 1984, EIA projected nationwide generating costs to increase from about 6 cents a kilowatt hour in 1983 to about 6b cents per kilowatt hour in 1995, all expressed in constant '95 prices. But, in fact, they declined to 3b cents per kilowatt hour, thereby wiping out the concurrent, but still insufficient, decline in wind power costs. Indeed, the cost per kWh, a disadvantage of renewables, may even understate their economic challenge. Thus, wind and solar being weather-dependent, cannot always be dispatched to meet the necessary load.
Still, the renewable experience that I have, you know, summarized here, can't be termed as bleak. The cost reductions, which I have mentioned, which occurred without the benefit of large private investments and without significant output volume that would aid sort of a learning curve experience, they are a genuine accomplishment, which can represent a springboard for future progress.
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The reductions, moreover, are at least partial testimony to the efficacy of public support for renewable energy. And on that public policy issue, the third of my principle themes, my prepared text reviews a number of past and existing policies, investment and production tax credits, R&D support, renewable energy has received in the electric power sector through these initiatives. And if I judge that record accurately, that policy support has not been negligible and it remains nontrivial today.
Whether or not the extent of some of those measures are justified by the environmental virtues of renewables compared to fossil energy, the fact is, that, for example, with respect to wind power, the tax advantages were not large enough to overcome the cost disadvantages of wind power. There are some very vexing issues here. If it is deemed unrealistic to tighten environmental standards on fossil energy, then the alternative of subsidizing renewables for their benign environmental properties also raises concern. For it is an approach that encourages excessive electricity consumption from all sources by underpricing electricity and it encourages a manipulation of damage estimates by different interest groups in support of renewable or of conventional systems.
Let me sum up with the following six observations. Progress on the part of conventional energy systems seems certain to parallel likely developments in renewables. Both could, and probably should, be significant factors in the wide-ranging energy portfolio that we all agree is in the Nation's interest. Third, although the marketplace remains the ultimate arbiter of successful outcomes, the complementary role of government, in representing the broad public interest, is scarcely trivial. Fourth, prudently targeted programs in long-term R&D, with particular stress on the basis research part of that duality, would seem to be particularly on target.
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In such policy initiatives, emphasis should, as far as possible, be put on economically and socially efficient resource use and the overcoming of real market failures, not just market barriers, stemming from high costs. In voicing its rationale for substantial Federal R&D support for renewable energy, the 1997 report by PCAST, the President's Committee of Advisors on Science and Technology, headed by my colleague, Dr. Holdren—that study observed that opportunities exist for important advances in wind-electric systems, photovoltaics, solar-thermal energy systems, biomass-energy technologies for fuel and electricity, geothermal energy, and a range of hydrogen-producing and hydrogen-using technologies, including fuel cells. The increased support for these renewable energy technologies would focus on areas where the expected short-term returns to industry are insufficient to stimulate as much R&D as the public benefits warrant.
And that judgment, I believe, holds true today and deserves the continuing and earnest consideration of Congress. Thank you, Mr. Chairman, and, Members of the Committee.
[The prepared statement of Mr. Darmstadter follows:]
PREPARED STATEMENT OF JOEL DARMSTADTER, SENIOR FELLOW, ENERGY AND NATURAL RESOURCES DIVISION, RESOURCES FOR THE FUTURE(see footnote 40)
THE ROLE OF RENEWABLE RESOURCES IN U.S. ELECTRICITY GENERATION: EXPERIENCE AND PROSPECTS
Interest in renewable energy arises from several concerns. Many renewable energy technologies impose less burden on the environment than emissions from fossil fuel combustion. Persons concerned with long-term scarcity of nonrenewable energy sources like oil and natural gas also see in renewables a means of mitigating that eventuality—though there is more controversy on this point.
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In this presentation, I deal with the use of renewable energy in the country's electric power generation—a key economic activity for which an expanded role for renewables is thought to have particular promise. My focus is on renewables other than hydroelectric power, which is currently the dominant renewable resource, accounting for roughly 10 percent of the nation's electricity generation. As Congress has recognized, hydro is a mature, low-cost technology that raises policy issues different from those raised by other renewable energy sources. Those other sources involve emerging technologies that face barriers which are primarily economic in nature. And large-scale nonelectric applications of renewables are potentially important but more speculative at this time.
I would like to address three questions: (1) What is the emerging and prospective contribution of renewables to electric power production? (2) To what extent has that contribution lived up to expectations? (3) What policy initiatives could promote greater penetration of renewables in electric power generation? While my remarks are based on research conducted at Resources for the Future, the views expressed are entirely my own.
Current and Prospective Status of Renewables
Table 1 provides a broad perspective on how renewables fit into the recent fuel and power picture in the United States. It is immediately apparent that the relative magnitude of renewable energy is very small, economywide, and even more negligible in electric power generation alone. (Outside the electric power sector, the balance of renewables use is concentrated in industrial biomass utilization—much of it in the form of wastes in wood processing and in pulp and paper mills.) Nor is this picture likely to change appreciably over the next several decades, at least if the most recent analysis of the U.S. Department of Energy's Energy Information Administration (EIA) is considered. In its Annual Energy Outlook, released in December 2000, EIA projected that the use of nonhydro renewable energy resource (essentially wind, solar, geothermal, and biomass) would increase by approximately 1% annually to the year 2020 in the ''reference'' case—an exceedingly low rate of growth, considering the low absolute base from which this growth is measured (U.S. DOE 2000). In an alternative ''high renewables'' case using assumptions embodying a less probable but still arguable course of events, EIA projects that nonhydro renewables would grow at about 6.5% annually, with two-thirds of the increment due to expansion of wind power capacity. Still, installed renewable capacity would not exceed 4% of the nation's aggregate electric generating capacity. Moreover, the more one contemplates plausible alternative scenarios for the future of renewable energy, the more one needs to be sure that such conjecture is rooted within an economic setting that comprehends a range of competing technologies and resources, both renewable and nonrenewable. It is in that broader perspective that one's judgment about the prospective role of renewables must be circumspect. I will touch on this caveat again a bit further on.
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A Scorecard on the Performance of Renewables in Recent Years
Despite the optimism regarding the emergence of renewables dating from the energy market upheavals of the 1970s, and notwithstanding considerable policy support over the years (as described below), the reality is sobering: nearly 30 years later, renewable energy systems have not succeeded in emerging as a significant factor in the country's electricity infrastructure. Does this mean that renewable technologies have been such a great disappointment that continuing public policy support is misguided?
As a basis for probing that elusive and surprisingly complex question, several of my colleagues at Resources for the Future and I recently analyzed what went right and what went wrong in the evolution of renewable energy inputs into U.S. electric power generation over the past quarter-century (McVeigh et al. 1999). We evaluated five technologies used to generate electricity: solar photovoltaics, solar thermal, geothermal, wind, and biomass. A principal aim of our study was to see how the actual performance of renewable energy technologies in the 1990s compared with specific goals of cost reduction and market expansion of earlier projections. Many observers (both independent analysts and unabashedly proactive advocates) in the 1970s and 1980s had judged these goals to be attainable with the help of accommodating public policies.
In general, market penetration has been markedly lower than projections from the 1970s and 1980s. However, the cost of renewable technologies has also been lower than projected, even taking into account the seemingly optimistic forecasts of renewable energy advocates. Whereas 1980s wind power projections of generation costs a decade hence assumed roughly a 64% decline, to reach a level of 5.7 cents per kilowatt hour (kwh) by 1995, costs actually declined by an estimated 67% to a level of approximately 5.2 cents/kwh. (Here and in the paragraphs that follow, costs are expressed in constant 1995 prices.) By contrast, although the volume of wind-generated electricity did show steadily rising absolute numbers in the course of the 1990s (from an almost zero level in the 1980s), it remained an inconsequential part of the nation's electricity system. Only at the end of the 1990s and in 2000 did we see signs of some meaningful momentum in wind power capacity expansion.
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One can argue about which of the two measures (market penetration or cost) has greater relevance in evaluating the performance of renewable energy resource programs. To the extent that public sector support was particularly driven by the need for and pursuit of cost reductions, the cost outcome seemed to us particularly important. Indeed, the cost outcome seems quite remarkable, because renewable technologies have not seen the large-scale investment and volume of output that can contribute to significant technological development or economies of scale in production, as many people had anticipated when forming their cost projections. Evidently, the characteristics of several renewable energy systems—high capital intensity, uncertainty about interconnections with the electric grid, variability in availability (the intermittency of wind and sunlight)—that have frequently been viewed as major barriers to economic viability have not precluded significant reductions in the reported cost of producing power. It is likely that the rapid deployment of renewable technologies in areas outside the United States has supported continued technological improvements over the last decade.
The failure of renewables to emerge more prominently in the nation's energy portfolio is intimately linked to the concurrent decline in the cost of conventional generation. Consider that in 1984, the Energy Information Administration projected nationwide electric generation costs to rise from 6.1 cents/kwh in 1983 to 6.4 cents/kwh in 1995; in fact, they declined to 3.6 cents/kwh. That 41% decline, though less in percentage terms than what was achieved by wind power, nonetheless preserved a sufficiently large margin of advantage for conventional over wind power as to foreclose more than a minute niche for the latter. Indeed, because wind and solar generation are dependent on the weather and cannot always be dispatched to meet load, cost-per-kwh comparisons may understate the economic challenge faced by these technologies.
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Several factors have contributed to keeping down the cost of generation from conventional technologies. They include, for example, the emergence of more competitive energy supply markets, productivity improvements in oil and gas exploration and coal production, the successful deregulation of railroads (a major factor in reducing the cost of coal shipping), and technological progress in conventional generation itself (such as gas-fired combined-cycle power plant systems). Notwithstanding the current problems facing California, the ongoing restructuring of the electricity industry also has put downward pressure on cost.
Although changes in the regulation, technology, and market structure of fossil fuels have thus been mostly beneficial for electricity consumers, they have hindered the development of technologies for renewable energy resources, which have had to compete in this changing environment. In other words, supporters of renewables have had to fix their sights on what has so far been a steadily receding target. Nor is that competitive tension likely to abate in the years ahead. Future gas prices will play a critical role in setting the bar for renewables: unlike the situation for other generation technologies, where capital costs are the dominant component in levelized costs of generation, fuel costs drive the cost of power from gas-fired units. With favorable gas price developments, the combined-cycle technology I have mentioned apparently has a good chance of embodying improved technology that could drive real generating costs down by as much as 25% over prevailing levels during the next two decades.
Since discussions of renewable energy frequently refer to experience elsewhere in the world, it may be worth mentioning briefly that few other countries have so far fared much better than the United States in the extent of electricity market penetration by renewables (IEA 1999). A few heavily forested places (for example, Austria and the Nordic countries) have had some success exploiting fuelwood resources—aided, in some cases, by extremely favorable tax treatment and other subsidies. Denmark is developing a notable presence in wind energy. But, as in the United States, competition has not been kind to investment in renewables projects. And not surprisingly, the competitive realities and policy dilemmas that face the United States are precisely those that arise when impediments to renewables are considered elsewhere.
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Policy Choices
Although some might question their adequacy, numerous public policies have been introduced in support of renewable energy over the past quarter-century. Rather than providing an exhaustive account of these measures, I will mention and illustrate four principal ways in which the federal government has sought, or is seeking, to promote the development and use of renewables: various kinds of research and development (R&D) support, the role of the 1978 Public Utility Regulatory Policies Act, the use of other financial incentives, and the prospective role of a ''renewable portfolio standard.'' (A 1998 report from the Energy Information Administration provides additional information about renewables programs [U.S. DOE 1998].) Although federal policies have dominated, states have introduced some significant initiatives as well. In the discussion that follows, I will not try to independently assess how these policies have shaped energy markets. But I will add some brief remarks regarding alternative approaches designed to give renewables a fairer shake in the marketplace.
R&D Support
For various reasons—excessive risks, long time horizons, limits to capturing the returns from successful outcomes, nonmarketability of external benefits—industry is commonly believed to underinvest in basic science and technology. Therefore, a federal role to augment private efforts in advancing basic science and technology is widely accepted. In the case of renewable energy, that role largely involves R&D activities conducted at or supported by the U.S. Department of Energy (DOE) and its national laboratories, such as the National Renewable Energy Laboratory (NREL) in Colorado.
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The U.S. General Accounting Office (GAO) reported in 1999 that for the 20-year period 1978 to 1998, $10.3 billion (in current prices) was thus disbursed (U.S. GAO 1999). Solar photovoltaic technology was the leading beneficiary of this program. Over the 20-year period, photovoltaics received about $2 billion and wind power $1 billion. During fiscal year 1999, the respective funding was $72 million and $35 million. In both cases, GAO sees program objectives having gradually shifted away from fundamental research to enhanced market opportunities, both domestic and international. As just one example of a recent wind power initiative, DOE's Turbine Verification Program has provided for cost sharing with utilities to facilitate the development and deployment of wind turbines.
In critical comments on the GAO analysis (included in the GAO report), DOE questioned GAO's characterization of a programmatic shift emphasizing market potentials. Whether GAO or DOE is more on the mark in this dispute, a chastening point does perhaps emerge. Programs whose start-up rationale puts major stress on precommercialization challenges—basic science, research, and early developmental barriers—may, subtly or not, slide over into terrain dominated by sales prospects. The labels ''research'' and ''development'' are broad enough to allow such slippage.
PURPA
The federal Public Utility Regulatory Policies Act (PURPA) of 1978 was a major instrument that encouraged a shift from conventional energy to renewables. Under this statute, utilities were mandated to purchase power from nonutility producers at prices that were supposed to represent the ''avoided cost'' that utilities would otherwise have had to pay to produce power using conventional resources, such as petroleum; these avoided-cost prices were calculated by regulators within each state. However, numerous beneficiaries of this policy lacked technical expertise in alternative energy production (renewables and certain other innovative categories), and avoided-cost projections in some states overshot actual avoided costs by a wide margin, resulting in significant costs to consumers as utilities passed through the costs of PURPA power. Although PURPA demonstrated that nonutility generation could be accommodated in electricity systems, it is widely judged to have fallen far short of its objectives in promoting real market penetration by renewables.
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Other Financial Assistance
Overlapping with PURPA, and continuing to the present, the federal government has provided significant direct financial benefits to renewable energy producers. Both solar photovoltaics and wind power benefit from investment tax credits, and under the Tax Reform Act of 1986, wind power was accorded a depreciation life of five years—much shorter than the depreciation life of conventional power supply investments. One provision of the Energy Policy Act of 1992 (extended in 1999) provided an inflation-adjusted 1.5 cents/kwh production tax credit for generation from wind and closed-loop biomass plants (by 1999 the credit had increased to 1.7 cents/kwh). Until very recently, these tax advantages were not large enough to overcome the cost disadvantages of wind power.
Renewable Portfolio Standard
A policy position developed by the Clinton administration during 1999 embodies provisions for a so-called renewable portfolio standard (RPS; see U.S. DOE 1999). Its goal is to ensure that some minimum percentage of generation originates with nonhydro renewable energy sources. An RPS target for 2010 called for 7.5% of electricity sales to be based on renewable energy resources. (Separately, bills introduced in the last Congress call for RPS shares ranging from 4% to 20%.) If the RPS were implemented as conceived, the means envisaged for meeting the 7.5% target represent a much more economically efficient route to stimulating renewables-based electricity than PURPA does. That is because RPS incorporates a tradable permit system that encourages renewable power production to take place in the most cost-effective location. In addition, it would impose a ceiling on the increment to overall electric power costs that result from the mandate. The RPS proposed by the Clinton administration would also provide credit for the use of biomass ''cofiring'' at existing coal plants, which does not qualify for the production tax credit. Cofiring could use existing biomass from the agricultural and forest product sectors and also create opportunities for the cultivation of biomass energy crops, overcoming the ''chicken and egg'' problem that arises when new fuels and new plants must be added simultaneously.
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Electricity restructuring programs at the state level have also incorporated some elements to encourage renewables. Competition itself creates an opportunity to market ''green power'' to consumers who are willing to pay a premium to ensure the presence of renewables in their electricity mix. Some states have provided additional subsidies to promote renewables, while others have established their own RPS requirements, generally at levels less ambitious than those proposed by the Clinton administration. It is too early to judge the success of such efforts. One element of uncertainty is that even if these measures result in new investment in renewables generation, it is possible that existing facilities may be prematurely retired because of competitive pressures (Palmer 1999).
Nonrenewables versus Renewables: The ''Level Playing Field'' Issue
The legitimacy of the kinds of policy support I have cited is closely related to the question whether renewables deserve to command a premium price for their favorable environmental properties. That is, with minimal pollutant emissions compared with fossil fuel combustion, is it not entirely proper that they be credited—via a public subsidy or similar financial benefits—for their nonpolluting character? The question is a fair one, but it raises several complicating points. First, to the extent that fossil fuel combustion imposes costs on society not fully governed by the Clean Air Act or other measures, the appropriate course would be to tighten such standards to further reduce these so-called external costs. That, of course, is more of a conceptual than a pragmatic answer, so the next question relates to what might be the second-best approach of rewarding renewables for social damages averted through their use.
The first difficulty here is the determination of the dollar value of such damages, an issue that is complicated and controversial. We can illustrate the problem by referring to estimates from a study conducted several years ago by researchers at Resources for the Future to monetize environmental damage throughout the entire fuel cycle, from resource extraction to final use. (For an analysis and interpretation of some relevant findings emerging from the study, see Krupnick and Burtraw 1996.) Comparing coal with biomass, these researchers found that the former energy source imposed greater social costs. The difference was reckoned at about 7 mills/kwh (that is, 0.7 cents/kwh). However, more than 90% of the differential (about 6.4 mills/kwh) reflected imputed values—however crude—of the impact of increased global warming from fossil fuel use. This imputed value is on the order of $18 per ton of carbon emitted to the atmosphere, well within the range of plausible values derived from existing assessments of global warming risks. Nonetheless, these kinds of calculations are controversial. And the estimates underscore that except for potential benefits from reduced global warming, biomass offers little environmental benefit over coal—certainly not enough relative to the current cost differences in the technologies to justify a major expansion of biomass use. Other renewable technologies certainly have less environmental impact than coal or biomass. However, these technologies also have more substantial cost differences relative to coal or gas technology. For example, as I have already noted, there is still a cost premium for the use of wind power, especially if the nondispatchable nature of wind is taken into account. This complicates the head-to-head comparison of conventional and wind or solar technologies.
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Aside from problems in calculating social cost differences, the approach of subsidizing renewables versus increasing environmental performance from conventional technologies raises other concerns. This approach encourages excessive electricity consumption from all sources by underpricing electricity, and it encourages manipulation of damage estimates by different interest groups in support of renewable or conventional systems.
Concluding Comments
All projections are conditional and inherently uncertain. One of the less uncertain ones, however, is that in support of economic growth, particularly in developing parts of the world, the demand for electricity will increase substantially for many years to come. A growing worldwide electricity market would facilitate scale economies and learning curve experience, and would thereby enhance prospects for greater penetration of renewables. However, progress on the part of more traditional energy systems is sure to parallel further development of renewables, and there is no reason to expect that dynamic state of affairs to flag in the future. Thus, even as the size and technology of wind turbines improve and their costs decline, or as longer-term technological improvements overcome the prevailing limitations of storage and dispatchability that hamper a fuller potential for renewables-based electricity, nonrenewable systems aren't standing still. Efficient gas turbines have recently been the technology of choice for new generating plants (though high gas prices currently temper that enthusiasm), and in most projections gas turbines, in either a single cycle or a combined-cycle configuration, capture the vast majority of capacity additions over the next decade. Fuel cells, other distributed systems of power supply, across-the-board realizable improvements in energy efficiency, and even the emergence of advanced (and publicly acceptable) nuclear technology (even if currently unlikely) are all possibilities to be reckoned with. Each could be a prospective competitor to power systems based on renewable energy sources.
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These considerations argue for retaining a wide range of options in the nation's overall electricity and energy portfolio. Although the marketplace remains the ultimate and dominant arbiter of competitively successful outcomes, the complementary role of government in representing the broad public interest is scarcely trivial. Policies should be sought that, as far as possible, put primary emphasis on economically and socially efficient resource use and the overcoming of real market failures, not just market barriers from high costs. Prudently targeted programs in long-term R&D—with particular stress on the basic research part of that duality—represent an important and legitimate component of such public policy initiatives. In voicing its rationale for substantial federal R&D support for renewable energy, the 1997 study by the President's Committee of Advisers on Science and Technology (PCAST 1997) observed,
Opportunities exist for important advances in wind-electric systems, photovoltaics, solar-thermal energy systems, biomass-energy technologies for fuel and electricity, geothermal energy, and a range of hydrogen-producing and hydrogen-using technologies including fuel cells. . . . [T]he increased support for these renewable-energy technologies would focus on areas where the expected short-term returns to industry are insufficient to stimulate as much R&D as the public benefits warrant.
That judgment, I believe, holds true today and deserves the continuing and earnest consideration of the Congress.
Bibliography
Burtraw, D. 1999. Testimony by Dallas Burtraw of Resources for the Future before the Senate Energy and Water Appropriations Subcommittee, U.S. Congress. September 14. Congressional Record, Daily Digest.
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Darmstadter, J. 2001. The Role of Renewables in U.S. Electric Generation: Experience and Prospects. In M. Toman, ed., Climate Change Economics and Policy: An RFF Anthology, Washington, DC: Resources for the Future, in press. (A shorter and somewhat updated version of that chapter forms the essence of the present testimony.)
IEA (International Energy Agency). 1999. The Evolving Renewable Energy Market. June. IEA Renewable Energy Working Party. Prepared by Novem BV: Sittard, the Netherlands.
Krupnick, A.J., and D. Burtraw. 1996. The Social Costs of Electricity: Do the Numbers Add Up? Resource and Energy Economics 18: 423–66.
McVeigh, J., D. Burtraw, J. Darmstadter, and K. Palmer. 1999. Winner, Loser, or Innocent Victim: Has Renewable Energy Performed as Expected? Research Report No. 7. March. Washington, DC: Renewable Energy Project.
Palmer, K. 1999. Electricity Restructuring: Shortcut or Detour on the Road to Achieving Greenhouse Gas Reductions? Climate Issues Brief No. 18. July. Washington, DC: Resources for the Future.
PCAST (President's Committee of Advisers on Science and Technology). 1997. Federal Energy Research and Development for the Challenges of the Twenty-First Century. Report of the Energy Research and Development Panel, Executive Office of the President. September 10. Washington, DC: U.S. Government Printing Office.
U.S. DOE (Department of Energy). 1999. Supporting Analysis for the Comprehensive Electricity Competition Act. May. Washington, DC: U.S. DOE, Office of Policy. (See especially pp. 5, 22–24, 33, and 34 for details about the renewables portfolio standard.)
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XXX. 1998. Renewable Energy: Issues and Trends 1998. March. Washington, DC: U.S. DOE, Energy Information Administration.
XXX. 2000. Annual Energy Outlook 2001. December. Washington, DC: U.S. DOE, Energy Information Administration.
U.S. GAO (General Accounting Office). 1999. Renewable Energy: DOE's Funding and Markets for Wind Energy and Solar Cell Technologies. Report GAO/RCED–99–130. May. Washington, DC: U.S. GAO.
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BIOGRAPHY FOR JOEL DARMSTADTER
JOEL DARMSTADTER
Resident Consultant/Senior Fellow
Energy and Natural Resources Division
Resources for the Future
Phone: (202) 328–5050
1616 P Street, N.W.
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Fax: (202) 939–3460
Washington, DC 20036–1400
Email: darmstad@rff.org
Education
B.A., Economics, George Washington University, 1950
M.A., Economics, Graduate Faculty, New School for Social Research, 1952
Principal Positions
1966– Research staff, Resources for the Future (Director, Energy and Materials Division, 1984–1988)
1983–1993 Professorial Lecturer, international economics, Johns Hopkins University School of Advanced International Studies
1957–1966 Economist, National Planning Association, Washington, DC
1952–1957 Research assistant with several economic research organizations (1952–55) and active duty, U.S. Army (1955–57)
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Selected Publications
Books
Assessing Surprises and Nonlinearities in Greenhouse Warming (editor and contributor, with Michael Toman) (Resources for the Future, 1993).
Global Development and the Environment: Perspectives on Sustainability (editor and contributor) (Resources for the Future, 1992).
Greenhouse Warming: Abatement and Adaptation (contributor and editor, with Norman J. Rosenberg, William E. Easterling III, and Pierre R. Crosson) (Resources for the Future, 1989).
Energy in America's Future: The Choices Before Us (with Sam H. Schurr, Harry Perry, et al.) (Johns Hopkins/Resources for the Future, 1979).
How Industrial Societies Use Energy: A Comparative Analysis (with Joy Dunkerley and Jack Alterman) (Johns Hopkins/Resources for the Future 1977).
Recent Other Publications
''The Role of Renewables in U.S. Electricity Generation: Experience and Prospects'' and ''The Energy-CO Connection: A Review of Trends and Challenges,'' in M. A. Toman, ed., Climate Change Economics and Policy: An RFF Anthology, Washington, Resources for the Future, in press.
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(with M. K. Macauley, J. N. Fini, et al.) ''Can Power from Space Compete,'' Discussion Paper 00–16, Washington, Resources for the Future, March 2000.
(with J. McVeigh, D. Burtraw, K. Palmer) ''Winner, Loser or Innocent Victim: Has Renewable Energy Performed as Expected?'' Solar Energy, Vol. 68, No. 3, 2000; also appeared as Research Report No. 7, Renewable Energy Project, Washington, March 1999.
XXXXXXXXXX''Renewables From Another Angle,'' Electric Perspectives, Edison Electric Institute, March-April 2000.
''Innovation and Productivity in U.S. Coal Mining,'' in R. D. Simpson, ed., Productivity in Natural Resource Industries: Improvement Through Innovation (Resources for the Future, 1999).
(with D. R. Bohi) ''The Energy Upheavals of the 1970s: Policy Watershed or Aberration?'' in D. l. Feldman, ed., The Energy Crisis: Unresolved Issues and Enduring Legacies (Baltimore: Johns Hopkins University Press, 1996).
''Energy Tax,'' in The Encyclopedia of the Environment (Boston, Houghton Mifflin, 1994).
''Climate Change Impacts on the Energy Sector and Possible Adjustments in the MINK [Missouri, Iowa, Nebraska, Kansas] Region,'' Climatic Change, June 1993.
Review of L. Schipper and S. Meyers, Energy Efficiency and Human Activity in The Energy Journal, Vol. 14, No. 2, 1993.
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(with R. W. Fri) ''Interconnections Between Energy and the Environment: Global Challenges,'' Annual Review of Energy and the Environment, Vol. 17, 1992.
Selected Presentations and Professional Activities
''The Economy-Energy-CO Connection: A Review of Trends and Challenges.'' Paper presented at Greenhouse Gas Technology Conference, Cairns, Australia, 13–16–August 2000.
''The Role of Renewables in U.S. Electricity Generation: Experience and Prospects.'' Paper presented at International BIOCLIMECO Workshop, Graz, Austria, November 19–20, 1999.
Member, National Research Council Panel to Review the U.S. Geological Survey's Energy Resources Program, 1997–98. (Panel's report was published as Meeting U.S. Energy Resource Needs: The Energy Resources Program of the U.S. Geological Survey, National Academy Press, 1999.)
Member, review team evaluating National Institute for Global Environmental Change, sponsored by U.S. DOE, administered by University of California/Davis, 1997.
Member, Committee on Earth Resources, National Research Council, 1994–97.
Organizer, National Research Council Workshop on ''Valuing Natural Capital in Planning for Sustainable Development,'' Woods Hole, MA, July 1993.
Organizer, sessions on natural resources, American Economic Association meeting, Washington, DC, December 1990.
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Organizer, Symposium on Climate Change, AAAS Annual Meeting, New Orleans, LA, February 1990.
Contributing Editor, Environment magazine, 1979–.
Member, Editorial Committee, Annual Review of Energy, 1975–1986.
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Chairman BOEHLERT. Thank you very much, Mr. Darmstadter. You are absolutely right. We have some vexing issues before us. And as Ms. Hutzler completed her testimony, I was reminded of one my favorite reference sources. Woody Allen, who said in his address to graduates, ''We have arrived at the crossroads. One road leads to hopelessness and despair, the other to total extinction. Let us pray that we have the wisdom to choose wisely.''
Just let me—there are a couple of observations before we go to questions. First of all, Mr. Humphreys, I think you can assume that you get a loud no to a technology freeze. I think you can assume that it is totally unacceptable, at least from this Committee's standpoint, that we have business-as-usual. Mr. Holdren, I—Dr. Holdren, I want you to know that I think there is a consensus that we are in agreement with you, that the existing investment in renewables and efficiency is inadequate and we are going to be working diligently to get more resources devoted to those two.
Steps to Improve Energy Efficiency and Increase Use of Renewables
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Let me start with the biggest question of all. What steps can this Committee and Congress, as a whole, take that would be most likely to improve energy efficiency and increase the use of renewables? What steps are most likely to make the current EIA scenarios turn out to be inaccurate? Let us go in reverse order. Mr. Darmstadter.
Mr. DARMSTADTER. I think the—my list would be to, first of all, recognize, as increasing numbers of people are doing, that climate change poses a serious problem, that the underlying cause for that problem is human in nature, not natural cycles, and specifically, the burning, the combustion of fossil fuels. It would seem to me that the first step should be a consideration of some inhibiting—some inhibition on the use of fossil fuels to try to deal—at least to begin to deal with the climate problem. I realize that this is a contentious issue, the idea of carbon taxes, or other caps on emissions, continues to be intensely debated.
But it would seem to me, if we are going to try to reflect the cost of energy production and energy consumption directly on the source that is causing the problem, then it has to be—that the problem has to be attacked at the source. An increase in the cost of fossil fuels will do wonders for energy technologies and other energy resources that are vastly more benign in their impact on the environment.
Chairman BOEHLERT. Dr. Holdren.
Dr. HOLDREN. The first step, as I suggested at the end of my oral statement, in terms of what I hope this Committee would support, would be, as you have just suggested, Mr. Chairman, support for expanded R&D expenditures, both for efficiency and renewables, which represent a tremendous bargain. But I would argue that it is also going to be important to put in place an array of price and nonprice incentives and other policies that will encourage deployment of the energy efficiency renewable energy and other advanced energy technologies in proportion to their public benefits.
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I think in this connection we ought to have tighter corporate average fuel economy standards. I think we ought to have expanded use of renewable energy portfolio standards and production tax credits. I think we ought to have increased use of energy efficiency standards and labeling programs for energy-using equipment in residential and commercial buildings, and a good deal more. I think most importantly—and this builds on what my colleague, Joel Darmstadter, has already said—the incentives relating to our energy deployments are not really going to be right until we bite the bullet and implement either a carbon tax, or its equivalent, in the form of tradable carbon emissions permits. This is not going to be politically easy—I recognize that—although the revenue raised in this way could be offset by reductions in other forms of taxes, which I think would be welcome.
I think that ultimately growing recognition of the climate change perils of business-as-usual expansion of the use of conventional fossil fuel technologies by the United States, and by others, is going to compel taking this step, and I think we would be better off to take it, at least to start getting our toes wet with a modest carbon tax or equivalent emissions trading system, sooner rather than later.
Chairman BOEHLERT. Mr. Humphreys.
Mr. HUMPHREYS. Thank you very much. And obviously, I am very pleased to hear that a technology freeze or even business-as-usual is not a good enough paradigm, that we need to look beyond. So I thank you for that comment.
Since we are very focused in our work on long-term energy modeling, you know, I think one of the things that is ultimately important to decide is what are our long-term goals. And remember that any capital stock that we deploy in the energy system, if we begin developing it now, it is unlikely to be deployed for at least a decade, and once it is in place, it will be in place for as long as 50 years. And so the choices we make now do cast potentially a long shadow over the future. So I would urge longer-term thinking than 2020. Go out further in the future, decide what our objectives are, and then set measurable interim milestones so that we can see if we are making progress.
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The second, I would comment on the issue of carbon taxes. I do ultimately feel, or we feel, that placing a value on carbon is one way to help markets begin to deal with the climate change problem. I would also suggest that there are many ways that value can begin to be placed on carbon, and it doesn't always need to mean an explicit tax. For example, if the Administration and the Congress began to explore credit for companies' early action, when they reduce their CO emissions, that counts toward the future, that places a real market value on carbon.
There are already progressive companies, like Shell and BP, that have set up internal carbon markets. These things can form, and we can start the process in a variety of ways. Ultimately, it is a policy decision whether you want to go to explicit tax or not. Personally, I think at some point in the future we will get there, but there are ways to start now in small steps.
The other thing I would suggest is when it comes to renewable technologies, make sure we are spending our energy R&D on breakthroughs. If we are spending our energy R&D to reduce the cost of the technology by 5 or 10 percent, that is not going to dramatically cause their market share to ultimately increase, if that is the goal you want to achieve. Thank you.
Chairman BOEHLERT. Thank you. Ms. Hutzler, anything you care to add?
Ms. HUTZLER. Yes. In my last chart, in my testimony, I indicated that the costs of renewable technologies are higher than fossil-fired technologies. Fossil technologies have been improving, as well as renewable technologies. And if they improve at a faster rate, or even at the same rate, they are going to be penetrating more than renewable technologies in a Reference-Case scenario.
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Also, there is the issue in efficient technologies, that they are more costly. And consumers generally want their pay-back period to be short while many have pay-back periods of 10 years, so we are not going to see them penetrate. Now, EIA does not take positions on policies, but we have analyzed policy for this Committee and other Committees. For this Committee, we have looked at an analysis of the Kyoto protocol, where we have added on a carbon fee to the delivered cost of fossil fuels. In that case we saw that renewable technologies increased substantially. We had wind at about 50 gigawatts by the year 2020, biomass, about 45 gigawatts, as well as other renewable technologies being much higher than their Reference Case.
Also, in that case, we saw reductions in consumption because of the higher prices to consumers. We have also analyzed cases where we have looked at renewable portfolio standards. Here, too, we get lots of renewable technologies. We also get less demand because renewable technologies does mean that we are going to see higher prices for electricity to the consumer.
Chairman BOEHLERT. Thank you very much. A couple of observations, first, before I turn to Ms. Woolsey. First of all, a carbon tax not only would not be easy, I don't think it is even realistic to think in terms of that in this Congress when we are focusing on less rather than more in terms of taxation. But very much in play are things like CAFE standards, early credit for early action. I am a cosponsor of that bill. CAFE standards—they are all very much in play.
The second observation I would make is the Chair already broke its first rule which is to limit each question here to 5 minutes, but I only asked one question, and it was a broad question. So I think I was granted some leeway in allowing each of the witnesses to answer. With that, I will turn to Ms. Woolsey.
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Ms. WOOLSEY. So you are setting the precedents. Right, Mr. Chairman? If we have an excuse, we can go over. All right. I have an observation that I want to thank you for being here, and because you proved to me why I love being on this Committee. There is no political stuff up there. It is just good brains and I respect you so much.
Now, this Committee possibly could be the Committee in this Congress that could take a long-term approach, in that our Chair says he wants to, the Chair of the Energy Subcommittee also does. And we can do it because, you see, we get elected in 2-year cycles and we try to jam everything that happens in 2 years to prove we have accomplished something. This Committee does have the will to go beyond 2 years and we are going to have fun doing that.
Incentives
Each of you said that you assume there will be greater use of renewables to some degree or another, and if you don't assume it will be used, that there is a need. So it was—I heard that clearly. So now—and I know the Chairman asked this about incentives—but I think we also need to look at our infrastructure and what kind of education program we have out there for the public to make renewables and efficiency alternatives just part of the regular dialogue that the people in this country use and expect and demand. How would you suggest we go about that on this Committee along with what incentives do we need to provide so that it is affordable and that people demand renewable energies? Start with you, Mr. Humphreys.
Mr. HUMPHREYS. I think education is something that is a bit out of my field, being an engineer. However, obviously, I think that one of the things that just communicating the fundamental benefits and the pros and cons of different technologies so that consumers have as much information as possible to make an informed choice.
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Ms. WOOLSEY. Right.
Mr. HUMPHREYS. I mean, I think that is just fundamentally what is needed at all levels.
Ms. WOOLSEY. Okay. Dr. Holdren.
Dr. HOLDREN. Well, I would certainly reinforce that. I think, at a very fundamental level, education is important in terms of people's grasp of the relation between our choices about energy and our economic well-being, our environmental well-being, and our national security. That, I think, is the level at which what I would call education is terribly important.
At the level of specific choices that people make every day about what kind of appliances they are going to buy, what kind of vehicle they are going to buy, and so on, I think information—which is a narrower concept, in a way, than education—is the key. Consumers still don't have all the information they require to make choices that are in their immediate economic interest.
And I would disagree a little bit with Ms. Hutzler about this in relation to energy efficiency. I think energy efficiency options available now on the market very often do deliver the high rates of return, the 2- or 3- or 4-year pay-back times that people want, and people still don't buy them because they don't have the information to enable them to understand that they would reap these returns if they made those investments.
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There are a variety of other kinds of barriers, of course, not just information, that need to be addressed by policy. But I think there is a lot of leverage just in the information area. And that is why I mentioned in my early laundry list of measures, increased use of labeling——
Ms. WOOLSEY. Uh-huh.
Dr. HOLDREN [continuing]. And more creative use of labeling to convey to people exactly what it is they are buying and what it is they are getting.
Ms. WOOLSEY. Thank you. Ms. Hutzler.
Ms. HUTZLER. I would also agree that education programs are important. We have started some of these in terms of the labeling programs that Dr. Holdren mentioned. And they do provide the information of what it would cost a technology if it was there for a longer period of time. But there are other barriers, and Dr. Holdren did mention that there were other barriers. Many people just stay in their homes for a few years and so, therefore, they are more interested in the initial cost rather than the long-term cost of the technology. So these barriers also need to be overcome as well.
Ms. WOOLSEY. Mr. Darmstadter.
Chairman BOEHLERT. Would the gentlelady yield——
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Ms. WOOLSEY. Oh.
Chairman BOEHLERT [continuing]. For just one moment, and I won't take this out of your time.
Ms. WOOLSEY. Sure.
EIA Assumptions
Chairman BOEHLERT. But I thought I heard you accurately saying the assumption made in your EIA report was that the best energy efficiency technology would be chosen regardless of cost. I was just wondering, do you have any support for that? Because there is no indication—and I agree with Dr. Holdren—there is no indication in any great numbers that that is taking place in the marketplace today.
Ms. HUTZLER. That is not what we assume in the Reference Case. That was a special case that I wanted to indicate to you how much better we could do if, in fact, you could get consumers to choose the best technology. But they are not going to because of all these barriers, and one of which can be cost.
Education/Information
Chairman BOEHLERT. Well, just to follow up on that, because efficiency is so very important and one of the main thrusts of this hearing—is there anything that we, in Government, should be doing to encourage more education so that people will know if you buy a certain light bulb that it may cost you ten times as much initially, but you will get 50 times as much efficiency and, therefore, your out-of-pocket cost over the duration, the life duration of that life cycle, would be significantly less? And there is some of this information available out in the marketplace today, but good gosh, you would need to be a Rhodes scholar to understand it.
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Ms. HUTZLER. I always believe that information is useful and it would benefit the public as well as policymakers in terms of determining what they should do. Even having the information, though, you are not going to get all consumers to purchase the most efficient technology because they have other factors that are important to them.
Chairman BOEHLERT. Thank you for yielding.
Ms. WOOLSEY. Oh. You are welcome. Mr. Darmstadter.
Mr. DARMSTADTER. Darmstadter. Yes.
Ms. WOOLSEY. Would you also, when you are talking, talk about the infrastructure that is in place and what we need to do about that?
Mr. DARMSTADTER. Let me first talk a little bit about the education. I would like to broaden, if I may, the concept of education to not merely be limited to K–12, but the broader public discourse that I think could greatly illuminate the kinds of energy technology and environmental issues that we are wrestling with. Climate is still, it seems to me much too much shrouded in political rhetoric and almost, you know, demagogic levels of accusations and retorts.
If, somehow, we could achieve some degree of de-politicization of an issue like climate change, albeit keeping in mind that there remain considerable uncertainties, but also recognizing that there is an emerging degree of consensus. That is not always what one finds in press coverage, in political debate. That would be the first thing.
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I think it also would be useful, as part of this, sort of a broader approach to education, to have the public appreciate a little bit more of what the facts of energy trends have been. We are currently confronted with the skyrocketing natural gas prices, high electricity prices. We tend to forget that, over a period of some 30 years or so, the price of energy has remained essentially constant, if not actually declined, in real terms. To be sure, there have been upheavals, '73, '74, the Iranian Revolution, '79, '80, Persian Gulf, early 1990's, and now. But these, one could at least plausibly argue, are isolated incidents that cost considerable amount of dismay and hurt, but, over the long run, you know, energy prices have remained relatively constant. I don't know whether that is something that the public fully appreciates.
Another, I think, piece of the education debate that could usefully help is how we view this whole question of dependency on foreign sources of oil. We hear a lot about some magical number of 50 percent without being told that there is a price that we may have to pay in order to achieve such a magic target. We could close off all imports and subsist entirely on domestically-produced oil and gas if we were willing to pay the enormous price that it would entail.
And so I think that on energy and environmental matters there is a good deal more that could usefully, you know, sort of illuminate for the benefit of the public and its, you know, representatives by a more open discussion of some of these issues. And I suspect that ANWR might provide an opportunity for some of these issues of dependency, of prices, of the world market, to be part of the debate.
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Ms. WOOLSEY. You are right. Mr. Chairman, I am sure I have used up my time. Thank you.
Chairman BOEHLERT. Thank you very much. Before going to Dr. Bartlett, who chairs the Energy Subcommittee, and incidentally, will be following through on this very subject very diligently, I would like to observe that on March 14, the Committee will have a Full Committee hearing on the Science of Global Climate Change, and so that should be of interest. Now, it is a pleasure to recognize the Chair of the Subcommittee on Energy, Dr. Bartlett.
Impacts of Energy Conservation/Efficiency
Dr. BARTLETT. Thank you very much. Ms. Hutzler, you mentioned in your testimony that twice in recent history, when oil prices went up, consumption went down. How come? Was that conservation or efficiency?
Ms. HUTZLER. In both those cases we had very high oil prices and it was probably a combination of both. Consumers used less energy, as well as buying more efficient vehicles. However, when you saw the lower prices come back into play, consumers changed, as my chart showed you, about energy intensity and energy intensity declined at a much lower rate.
Dr. BARTLETT. It did change. You are right. But I think that although efficiency may have been a part of that, a major part of that was conservation. And I know it is politically incorrect to talk about conservation, but I think history shows us that when prices go up, use goes down and so, I think, conservation is a real thing to talk about.
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In terms of efficiency, in your table on page 12 of your testimony, when you are looking to the future and efficiency of space heating, space cooling, water heating, refrigeration, and lighting, the only one where you show any improvements are refrigeration. Why shouldn't we expect the same kind of improvements in these other areas that we are projecting for refrigeration?
Ms. HUTZLER. In terms of refrigeration, there was technology that was available that could be implemented. This is using different compressors that could really help the refrigeration technology, that is also available to air conditioners, but it is not available to all technologies. So, therefore, you are not going to get as much improvement in some of these other technologies as you saw for refrigeration.
Fossil Fuel Supply and Market Factors
Dr. BARTLETT. Thank you. Mr. Humphreys, you talk about market competitiveness versus cost and what is going to be used. If, in fact, we have a limited supply of fossil fuels, clearly they are not forever. At what point do we recognize that we can't simply rely on market factors? If you are lost in the wilderness and you know that you will be rescued in 7 days, and you have what ordinarily would be 2 days' supply of food, I don't think you would eat it all up in the first 2 days. And to what extent are we about to do that relative to energy?
Mr. HUMPHREYS. Well, I think fossil fuels, in a variety of forms, are certainly very abundant——
Dr. BARTLETT. Coal.
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Mr. HUMPHREYS [continuing]. Around the planet. Coal is——
Dr. BARTLETT. Coal.
Mr. HUMPHREYS [continuing]. Very abundant. I believe that conventional oil and gas reserves are expected to tail down around 2030, however, there are certain other nonconventional sources, like oil shales, perhaps methane hydrates, tar sands——
Dr. BARTLETT. At much higher prices.
Mr. HUMPHREYS. Yes. Agreed. Agreed. And so the way we do—I showed you one scenario today. Typically we look at a range of scenarios with alternative resource backdrops. And we look at a world that relies predominantly on coal with renewables penetrating when they are cost effective. We look at a world where we are able to develop some of these nonconventional oil and gas resources at an increased price. And then in those scenarios, again, fossil and renewables compete against each other. So that is the way we look at it. In terms of market competition, you have an available resource base, as you mentioned, at a particular cost.
It is certainly always the case that you could choose a policy that you want to have higher renewable penetrations in the future, and you could try to pursue that. That is a policy choice that we can inform, but I don't make that judgment.
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Dr. BARTLETT. Yeah. But I am not sure that that is the—that if you would like to have them. If, in fact, fossil fuels, those of high quality, that are readily available, that you don't pay an enormous environmental penalty for using them like you do coal—if you presume that those are limited, then it is not you would like to have a larger penetration of alternatives of renewables, but that you've got to have it. And I just think that the longer you wait, the more difficult that transition is going to be.
Cellulosic Biomass
I would like to ask a question now, before my time runs out, of Dr. Holdren. You mentioned something that is very exciting that I don't think most of our folk know about. And that is the possibility of releasing the glucose from this large, complex cellulose molecule. And, you know, we couldn't heretofore do that. How can we do it now and it represents an enormous potential for our farmers and a big renewable source of energy?
Dr. HOLDREN. Yes. It is true. We discussed this at some length in the PCAST 1997 review of the U.S. energy R&D portfolio and note that recent technological developments in production of ethanol from cellulosic biomass have basically transformed the possibilities that were previously understood. That is why the PCAST report reached the conclusion that if we wanted to pursue that line, we could be getting something in the range of 2b million barrels a day of oil displacement from cellulosic ethanol alone by the year 2030. If one pushed it harder, one could have that much even sooner.
Dr. BARTLETT. Isn't this largely because we have bioengineered a bacterium which can now do for us, but heretofore was only done in the belly of ruminants, where cellulose could be broken down to——
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Dr. HOLDREN. It——
Dr. BARTLETT [continuing]. Glucose and then fermented?
Dr. HOLDREN. This is not my field of expertise, but I think that is a——
Dr. BARTLETT. Yes. I think that was a major breakthrough that we have bioengineered a bacterium which can now split cellulose into the glucose molecules, heretofore that only happened in—largely in——
Dr. HOLDREN. Right.
Dr. BARTLETT [continuing]. Ruminants. It is a very tough molecule to break down. But once you have done that, you now have an enormous potential.
Dr. HOLDREN. Once you have done it, you are——
Dr. BARTLETT. And shredded newspapers can be converted into ethanol. Corn stalks, soybean waste, much of the stuff at the landfill, and old sofa—much of that can now be converted into ethanol with this technology.
Dr. HOLDREN. Of course, we could already convert that stuff into other useable forms——
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Dr. BARTLETT. That is correct. That is correct. But not into ethanol.
Dr. HOLDREN [continuing]. And have been doing so.
Dr. BARTLETT. Thank you for——
Dr. HOLDREN. And if I could add——
Dr. BARTLETT. Yes.
Dr. HOLDREN [continuing]. One thing about the question of running out of fossil fuels, I would reinforce what Mr. Humphreys said, by arguing that, although it is true that fossil fuels are ultimately finite, the fact is that we are running out of environment more rapidly than we are running out of fossil fuels. We are being constrained—not because the amount of stuff in the ground is disappearing so rapidly—that we are going to be in trouble soon. That is true for oil in the Middle East and in Alaska and a number of other places. That stuff will be gone relatively soon. But the ultimate fossil fuel resources are very large. What we are really running out is environment. And we are running out of environment, in part, because we are not pricing it. We are not paying for it in the costs of those fuels that are most damaging to environment.
Chairman BOEHLERT. That is just another reason to be prudent.
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Dr. HOLDREN. Absolutely.
Chairman BOEHLERT. Thank you very much. Mr. Larson.
Mr. LARSON. Thank you, Mr. Chairman. And let me add to the chorus of those who are applauding you for not only this very important hearing, but the sequential order of importance in which you have called hearings for this Committee that relate to renewable energy, efficiency, our climate. And I want to also commend the panelists who are here this morning. And I have written testimony that I would like to submit for the record, but cut right to the chase here.
Hydrogen/Fuel Cells
Mr. LARSON. The discussion on our having to rely on foreign oil, I believe, now has reached the point where the United States is importing more than $120 billion annually in terms of our reliance on foreign oil. Now, that is more than twice what we spend on public education, our transportation infrastructure needs, et cetera. So the concept of avoidance here is very important.
I was intrigued by your testimony. Not only do you all seem to be coming back to climate, which I think is important. And also in your testimony, I believe, Mr. Humphreys, you talked about making sure that we get the best bang for our dollars in the PCAST report. I believe, Mr. Holdren, you guys also talked about both doubling the amount of R&D that is needed. But also specifically, and Mr. Darmstadter, you mentioned hydrogen. I am interested in what you see for fuel cells as an alternative and how you see that as. . .what kind of an investment we should be making in that in terms of a high yield or a high return or efficiency for the dollar—R&D dollar outlay that we might have. Mr. Humphreys, I will start with you and——
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Mr. HUMPHREYS. Well, I think, fuel cells are certainly important just in terms of improving the efficiency with which we deliver power to residential and commercial structures, as well as automotive vehicles. I mean, I think there is a lot to be gained there. One of the other dimensions, I would note, is particularly as you move into a realm where you have a climate-constrained world, moving toward a hydrogen economy is extraordinarily important. Where are you going to get the hydrogen to run that economy? A large part of it is likely going to come from transformation of fossil fuels and probably also transformation of biomass fuels.
One of the things that is going to be important, though, is to have a coupled carbon-capture technology when you transform those fuels so as you make hydrogen you are not just removing carbon from a carbonaceous fuel——
Mr. LARSON. Right.
Mr. HUMPHREYS [continuing]. And then putting it up the stack, so to speak. So extraordinarily important, high-value technology—it is important to start thinking now about carbon-capture technology that couple with fuel-cell technologies.
Mr. LARSON. I believe in your report, Dr. Holdren, you referred to proton exchange membranes and looking at the—Department of Energy, I believe, has been looking into that as well.
Dr. HOLDREN. Yes. We recommended substantial increases in fuel-cell research across a number of kinds of fuel cells. There are various kinds of fuel cells and they are differentially suited for different applications—some optimal for electric power generations, some for vehicle propulsion, some for home use.
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We also recommended substantial increases in research and development on hydrogen production, both in the fossil fuel sector and in the biomass sector. I would endorse everything Mr. Humphreys said. The potential in fuel cells is very substantial. The potential in hydrogen is very substantial. People need to understand, as I know you do, that the hydrogen itself is not a primary energy form. It has to come from somewhere else. And, as Mr. Humphreys said, we will certainly get a lot of it from fossil fuels for some time to come.
In the long run, there are many different ways to get hydrogen. One could get it from fission or fusion. One could get it from renewable energy sources of a variety of kinds. But the great attraction of hydrogen in the fossil fuel sector is precisely this point, that the processes for obtaining the hydrogen suit themselves quite well for grabbing the carbon along the way and making possible the sequestration of that carbon away from the atmosphere. This is another technology that the PCAST report recommended be pushed very hard because it has immense potential. We are not going to change very rapidly a world that gets more than j of its energy from fossil fuels. That isn't going to change overnight. And so we need to look at how to use those fossil fuels in ways that maximize efficiency and minimize environmental harm, and converting some of them to hydrogen and grabbing and sequestering the carbon is a very good way to do that.
Impacts of R&D Funding Cuts
Mr. LARSON. Critical to all of this, of course, is there support for increased R&D funding in these areas, and it is heartening to hear on this Committee, especially knowing the deep interest. What would a cut in this area mean with respect to that?
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Dr. HOLDREN. I think a cut would be a terrible mistake at this point—to cut renewables R&D, to cut efficiency R&D, to cut fossil R&D, or nuclear R&D, any of them. I mean, we made the argument in the PCAST study for a portfolio approach—we argued for the importance of diversity in the Government's efforts in this area. And I think we recommended what I would call a prudent trajectory of strengthening the country's R&D investments across this portfolio. In my view, to fall much below that trajectory, which, alas, has been happening, is a mistake. There have been increases, and they are admirable, but they have not been increases as great as PCAST recommended. And I think the current Administration should be seeking to narrow the gap between what we have got and what PCAST recommended, rather than allowing it to widen.
Chairman BOEHLERT. The gentleman's expanded time has expired.
Mr. LARSON. Thank you.
Chairman BOEHLERT. The Chair now recognizes the Chairman of the Subcommittee on Environment, Technology, and Standards, Dr. Ehlers.
Mr. EHLERS. Thank you, Mr. Chairman. And I am sorry for dashing in and out, but I have two other Committee meetings going on at the same time. The first one—and I want to follow up on a comment of Mr. Holdren—or Dr. Holdren. I appreciate his comments about energy efficiency. Too often, people equate that with freezing in the dark. It doesn't have to be that way. It is—the key is efficiency, not just conservation. And it has always amazed me that many people who admire themselves for being efficient, running their businesses efficiently and so forth, think that energy efficiency is not important. But frankly, there is—that—improving energy efficiency is the quickest and least expensive way of improving our energy supplies and we should do more of it.
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Energy Use Per Capita
Question for Ms. Hutzler. Where is—first of all, on the first graph you showed, I was puzzled in the units you had up, energy use per capita. What are the—what is the unit on there, ordinate, at this point?
Ms. HUTZLER. I think that was quadrillion BTUs of energy consumption per person.
Mr. EHLERS. No. No.
Ms. HUTZLER. Sorry.
Mr. EHLERS. It can't be quadrillion per person.
Ms. HUTZLER. Okay.
Mr. EHLERS. That is quadrillion——
Ms. HUTZLER. I am going to grab that——
Mr. EHLERS. Yeah.
Ms. HUTZLER [continuing]. Graph. Sorry.
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Unidentified SPEAKER. That is a Texan right there.
Mr. EHLERS. Yes.
Ms. HUTZLER. That may be. Oh. I am sorry. That graph—I am sorry. That graph was an index, and I guess we indexed it to—was that 1999—1970. It grew from 1970. I needed to get that graph in front of me. I am sorry.
Mr. EHLERS. It is—but it is what?
Ms. HUTZLER. Show, it shows, from 1970, the percent increase in these numbers over time.
Mr. EHLERS. So it is only an increase or a decrease. That doesn't make—that doesn't——
Ms. HUTZLER. It shows you the decrease or the increase. So essentially we are saying that consumption per capita is increasing in the forecast.
Mr. EHLERS. So you were showing the rate, not the actual increase.
Ms. HUTZLER. Exactly. It was a rate in that graph.
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Mr. EHLERS. It would be nice to see the integral of that too. It is a little difficult sometimes to understand differentials if you don't see the base one. Okay. Another question.
Ms. HUTZLER. Uh-huh.
Mr. EHLERS. The—what is the U.S. energy use per capita compared to other countries? Are we still the largest energy user per capita?
Ms. HUTZLER. Yes. We and Canada are the highest. Other countries are probably fairly—maybe half the amount where we and Canada are, or less.
Future Oil Costs
Mr. EHLERS. All right. Another question. What—you talked about the future use of various fuels. I am particularly interested in fossil fuels, and, at the moment, especially interested in oil because that is where we are encountering great price increases. What—have you done studies in your agency on the future cost of oil and how that is going to impact the economy?
Ms. HUTZLER. We look at a number of cases for oil prices. Our Reference Case has, in real 1999 dollars, about $22 a barrel for oil. We do a High Case and a Low Case. The high case is around $28 or $29 a barrel; the low case is about $15 per barrel.
Mr. EHLERS. Yes. I am talking about the future. What about——
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Ms. HUTZLER. Yes.
Mr. EHLERS.—20 years from now?
Ms. HUTZLER. This is in 2020 in real 1999 dollars. Now, in nominal dollars, that would be different. I think, in nominal dollars, the high case is around $36 a barrel.
Mr. EHLERS. That sounds incredibly optimistic to me.
Ms. HUTZLER. Well, it turns out, if you compare us to other forecasters, we are actually, in the Reference Case, slightly higher than other forecasters the last time they published last year. Also, our High Case essentially is set at what level alternative technologies could come in at. For instance, you can have natural gas-to-liquids technology coming in at around $30 a barrel. Maybe coal-to-liquids technology coming in at $35 a barrel. So if your oil price is sustained for a long period of time to get these other technologies economic, then they can also penetrate the market.
Future Natural Gas Prices
Mr. EHLERS. And what do you forecast as price increases for natural gas in the future?
Ms. HUTZLER. Our Reference Case is natural gas going up to $3.13 in 2020. Now, we see current prices coming down in our current Reference Case in about the year 2004, to our long-term growth case, which was about $2.50 per thousand cubic feet, and then we see it increasing up to about $3.13 as the demand for natural gas increases over time.
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Mr. EHLERS. What—are you making any assumptions about energy use and increases in other nations in your forecast?
Ms. HUTZLER. Yes. For oil, we look at the world balance and we do have higher oil consumption in this year's forecast. But the USGS put out a reassessment of the resource base last June and they had 700 billion barrels more oil in that reassessment. So those two off-balanced each other and we have about the same amount of—well, we have about the same price because of this offset. In terms of natural gas, that is pretty much a domestic North American market. We do import from Canada and we do have liquefied natural gas in our forecast this year.
Mr. EHLERS. I would appreciate it—my time is up. But I would appreciate it if you could send me a summary of some of the questions I raised, documents you have produced that would answer that. I think you are being overly optimistic, frankly, and I think that could be a real disservice to our country if we are not realistic about future energy costs. Thank you.
Conservation Efficiency and the Effect of Prices
Chairman BOEHLERT. Let me add that there is a great deal of interest, obviously, in this subject and a number of Members will have additional questions which we will submit in writing to the panelists and we would appreciate a rather timely response. Mr. Baird.
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Mr. BAIRD. Mr. Chairman, I want to compliment you for hosting—holding this hearing. My comments come out of two recent experiences. One, about a month ago, I had the privilege of visiting the Maldive Islands, where a 3-week long El Niño event raised ocean temperatures to greater than 90 degrees Fahrenheit and caused a 98 percent die off of their coral reefs. Two, in the Pacific Northwest, we have seen extraordinary price increases, and I want to basically focus on two questions.
Energy Conservation and Efficiency
One, as we talk about energy conservation and efficiency, I sure appreciate Mr. Bartlett's earlier comments on conservation. It strikes me that the most efficient, most immediate way in which we can conserve energy is through behavioral change, not technological change. And I wonder if you could comment briefly on any research we have on how to make that happen more quickly, more efficiently. Simple things, like turning down hot water heaters, etcetera, shifting to different lights, seem to me the more immediate way to conserve energy. Could you comment on what we are doing or what we should do in that? And I will leave that open to any of the panelists.
Mr. DARMSTADTER. I just—I will very brief. As we scan the record over the last 30 years, we find that the periods, and they were fairly prolonged periods, during which energy consumption, relative to income or per capita, declined in a meaningful way, were the periods during which prices rose in a meaningful way. The turnabout came—prices kept going up until the early and mid-'80's; consumption went down. Prices turned around after the mid-1980's; consumption went up. There is nothing like substantial changes in price that would concentrate the mind on either consuming more or consuming less. And I think that is probably an axiomatic and probably the first principle with respect to behavioral change in energy use that needs to be kept in mind.
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Mr. BAIRD. Thank you. Other comments on that?
Dr. HOLDREN. Yes. If I could just add to that, I think there is a lot of ambiguity in terms like conservation and terms like efficiency. When some people hear the word conservation, they assume what we are talking about is belt-tightening sacrifice, as Congressman Ehlers said, freezing in the dark. Efficiency has a nicer ring to it. People understand intuitively that efficiency is a good thing and what we mean by it, in general.
When we talk in aggregate terms about energy efficiency, I think all of us here on the Panel are using essentially the same definition, which is the ratio of real economic activity, as measured by real gross national product, to the amount of energy that has to be supplied to generate that economic activity. That measure is not perfect. We know GNP includes some things that don't really measure well-being and fails to include some others that are important to well-being, but it is more or less the best we have got. And by that measure, by the ratio of real GNP to energy, we have made immense improvements over the last 30 years by means that have not entailed sacrifice. What they amount to is making people better off by getting more goods and services out of each gallon of fuel, out of each kilowatt hour of electricity, out of each pound of coal.
And my personal view is that it is going to be more productive and more successful to continue to build on that record of success than to tell people they have to undergo large changes in what they imagine their lifestyle to be about. I think it would be a tactical mistake to say the key to this problem is to get people to turn off the lights. There is some benefit there on the margin where people are lighting rooms that nobody is in, for example, or throwing energy away by heating badly insulated buildings to very high temperatures in the winter. Those sorts of behavioral changes are valuable and they will be brought about through a combination of education and, perhaps, increased energy costs, in part, by starting to reflect the environmental impacts in the monetary prices. But I think efficiency is the handle that is going to bring us the biggest gains.
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Mr. BAIRD. Thank you.
Chairman BOEHLERT. Thank you very much. Mr. Akin.
Environmentally Damaging Fuels
Mr. AKIN. Thank you, Mr. Chairman. I just had a question. One of you used the words environmentally-damaging fuels. Could you elaborate on what the most environmentally damaging fuels are and give us some kind of a list in terms of what you think are better fuels or worse fuels? That would be for anyone and I forgot which one of you used that term, but if you could define it.
Dr. HOLDREN. Well, I am not sure which one of us used it either, but I would rather refer to environmentally damaging technologies. That is, any given fuel—coal, oil, natural gas, uranium, sunlight, biomass—can be used in ways that are damaging to the environment in any number of respects, and they can be used with different technologies in ways that can very substantially reduce that amount of environmental damage.
Among the fuels, I think we all understand, that are very damaging if used in suboptimal technologies, would be coal containing high quantities of sulfur and burned in power plants that have——
Mr. AKINS. Don't have the scrubbers——
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Dr. HOLDREN [continuing]. Ineffective or absent controls for the sulfur for particular matter and so on. In addition, coal, among the conventional fossil fuels, releases the most carbon dioxide per unit of energy contained in the fuel. And, therefore, from the standpoint of greenhouse gases and climate change, coal is a particularly problematic fuel. But with better technology, including technology that can capture and sequester the carbon, those liabilities of coal would become much smaller.
And that is another reason for the recommendations in the PCAST study, and the recommendations by many others, that we should continue to invest in the research and development to improve the technologies. Because we are not stuck with the intrinsic environmental liabilities of fuels. We can use technology to reduce those.
Significance of Man-Made COI RELEASES
Mr. AKINS. So in terms of environmentally damaging fuels, you would say that that wouldn't be a term that you would use. You would say it is more the way the fuel is used and then the side effects of that. A second assumption that seems to have been in some of the comments I have heard—and that is that there is a big problem from the release of CO through man-generated sources. The CO that is being released to our atmosphere, what percent is that released by mankind and how much of that is from just natural sources?
Dr. HOLDREN. The natural carbon cycle is understood to be more or less in balance so that you have a process by which photosynthesis removes carbon dioxide from the atmosphere and decomposition and combustion of the photosynthetic material puts the carbon dioxide back in. Those fluxes, the fluxes of carbon associated with photosynthesis, are in the range of ten times larger than the human addition by combustion of fossil fuels. But the natural flux is more or less in balance.
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And that is why the carbon dioxide content of the atmosphere, the accumulated concentration of carbon dioxide, has been going up. There is absolutely no scientific controversy about the fact that the carbon dioxide content of the atmosphere has gone up by something in the range of 30 percent over the last 200 years. And there is no scientific controversy about the cause of it, namely, that the increased carbon content of the atmosphere is due primarily to human activities.
Mr. AKIN. So what you are saying is that in answer to my question, we are putting a very small amount of the carbon dioxide in the atmosphere in total.
Dr. HOLDREN. No. That is not what I would say. I would say that since the natural flows are in balance, the natural flows are pulling out as much as they are putting in, the fact that humans are adding net in the range of 7 billion tons of carbon per year to the atmosphere, is precisely what is responsible for the fact that the carbon dioxide content of the atmosphere is going up and affecting the climate in so doing.
Mr. AKIN. And I thank you, Mr. Chairman.
Chairman BOEHLERT. Thank you. Mr. Barcia.
Mr. BARCIA. Mr. Chairman, I don't have any comments and I just had some conflicts with the hearing today, but I am glad I made it for part of it.
Chairman BOEHLERT. Because there are some Members that have been here a long time want to get questions in. Mr. Nethercutt.
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Hydroelectric Power
Mr. NETHERCUTT. Thank you, Mr. Chairman. And I am delighted that you would call this hearing today and welcome to all the witnesses. I come from the Pacific Northwest, east side of the State of Washington, where we use hydropower facilities to provide energy. And I am aware—I am informed, I should say, that the Department of Energy has studies that show that there are about 21,000 megawatts of potential hydro capacity at current dams and, of that, 4,300 megawatts can be developed at existing hydro facilities alone. I also am aware that, in looking and listening to your testimony, especially Dr. Holdren, that hydropower provides about 8 percent of domestic energy production around the country.
I also noted that the PCAST called for insignificant amounts of research in this area, of about $3b billion dollars in proposed research, it looks like from 1997 to 2003, only about $48 million was recommended for hydro. I—since—you know, I have come to the preliminary conclusion that that is not enough.
And I am wondering, ladies and gentlemen, if you might have some ideas about how we can encourage this form of use of existing facilities or expand that which we already have, to create greater capacity, since it is renewable, it is clean, it is environmentally friendly, and it seems to me make sense. What is your comment, sir?
Mr. DARMSTADTER. I think hydro is widely recognized to be a mature technology, to be a low-cost technology, and that it is inhibited from being expanded upon for reasons other than its cost or technical level of advancement. But——
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Mr. NETHERCUTT. I read that in your testimony.
Mr. DARMSTADTER. Right.
Mr. NETHERCUTT. What—do you think there is no capability or opportunity to have more efficient turbines, for example, energy-efficient turbines, given the potential out there for greater development of this——
Mr. DARMSTADTER. Are you referring to better turbines in existing hydro facilities or——
Mr. NETHERCUTT. Well, new generations of turbines.
Mr. DARMSTADTER. Well, again, I am not an electrical engineer or a—so I wouldn't want to pass judgment on the feasibility of more advanced turbines.
Mr. NETHERCUTT. Right.
Mr. DARMSTADTER. But I am impressed with the depth of the feeling about damming additional rivers and developing new hydro facilities because of all the other external costs that one associates with hydroelectricity—fish migration, recreational, you know, opportunities, the question of Indian lands, a whole welter of things which, if I read the public mood correctly, constrain really serious consideration of significant expansion of hydroelectric capacity in the Pacific Northwest——
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Mr. NETHERCUTT. Uh-huh.
Mr. DARMSTADTER [continuing]. Notwithstanding the fact that if we ignored those things, additional hydro could probably be produced at 1b cents per kilowatt hour.
Mr. NETHERCUTT. Right. Very cheap. Anybody else care to comment?
Dr. HOLDREN. Yes. If I could add just one thing? PCAST did recommend modest increases——
Mr. NETHERCUTT. Right.
Dr. HOLDREN [continuing]. In Federal research in the hydropower area and they recommended particularly an increase in research on turbines that were both efficient and fish-friendly.
Mr. NETHERCUTT. Yes, sir.
Dr. HOLDREN. And this underlines the point that my colleague was making, that the constraint on expansion of hydropower has not really been deficiencies in the technology as ordinarily understood. The efficiency of hydropower turbines is already very high, so high that there is relatively little gain in pushing further on it. But the impact on fish has been a significant constraint in the public perceptions about and receptivity to expanded use of hydropower. And so PCAST saw that there was some benefit potentially in applying contemporary insights from hydrodynamics to the design of turbines that would retain the existing high efficiency, but would be less destructive to fish populations. That would be a benefit and could contribute to hydropower's——
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Mr. NETHERCUTT. Right.
Dr. HOLDREN [continuing]. Acceptance as a continuing source.
More Efficient Computers
Mr. NETHERCUTT. Right. Let me ask you one other question for the Panel and then I know that we are—time is short here. We are seeing the use in California, Seattle, other parts of the Nation, the high use of computers and a continuous and exploding use of computers that use energy. To what extent do you feel there should be additional research done on how we can enhance greater efficiency of computers, whether it is spray-cooling technology or other potentials out there, given the likelihood that we are going to be using computers in a greater number than we are today? Anybody care to comment?
Dr. HOLDREN. Well, I will take a brief cut at that one. There was actually a recent study at the Lawrence Berkeley National Laboratory about how much information-processing equipment was contributing to the growth of electricity use in the United States. And somewhat surprisingly, the answer was very little. That is, computers basically generate so much GNP per kilowatt hour that they are more a factor in the improvement of that ratio than they are a factor in rising electricity growth. That is not to say that nobody should be paying attention to the efficiency of computers, but they are not a large contributor, at this point, to our electricity demands.
Mr. NETHERCUTT. Thank you, Mr. Chairman.
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Chairman BOEHLERT. Thank you very much, Mr. Nethercutt. Now, here is the situation. We have a series of five votes on the Floor. We have 10 minutes to go. Mr. Rohrabacher will ask his questions and then we will have to adjourn the hearing because you all have schedules that you have to meet and we would—we don't want to keep you over or try to keep you over for at least a half hour for the votes. So Mr. Rohrabacher is recognized.
Climate Change Theory and Energy Policy
Mr. ROHRABACHER. Thank you very much, Mr. Chairman. I appreciate the opportunity that I have to have the full 5 minutes because we are right here at the end. Let me note that I would have preferred to have at least one witness on this Panel that seemed to differ in their points of view when they—you know, when you talk about not having politicization, that just means you should have honest discussion, and we certainly seem to have people who agree with each other today.
Let me say this—I haven't seen so many charts and so much discussion that I don't consider to be accurate, but seemed to be backed up by all these charts, since I read the Global 2000 Report, which, of course, was apocalyptic and proven to be total nonsense.
Most of what I am hearing today, in terms of a demand—go back to Mr.—is it Holders? Is that he—Holdren's—inability to express—acknowledge the fact, even by his own calculation, that 10 times the amount of carbon dioxide going into the atmosphere come from natural sources. My—other statistics that I have heard it is 20 or 25 times the amount of natural sources for this carbon that is going into the air.
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What you are talking about is a—and what we have heard today, Mr. Chairman, is a global climate change theory that is driving energy policy for the United States and it has proven catastrophic to my State of California, and it is going to be proven catastrophic to this country, unless, of course, we are all willing to decline—to decrease our standard of living until we live like Chinese peasants.
We have heard today that the United States, we have something to feel sorry about that we are consuming more energy than any other people. But the fact is, we are consuming less energy per unit of wealth that is produced in our country than just about any other country. Isn't that correct? Does someone have a disagreement with that? The fact is China—yeah, we produce more problem—you know, more gases naturally—these carbon—hydrocarbons than China does, but our people live well and we produce a lot of wealth. China produces a lot more hydrocarbons and so does the Third World.
I would agree with you, those of you who have stressed conservation and energy efficiency. I think that is really important. But—and I think it is also important to clean the air and I think that, yes, it is of concern to—I live in California. I couldn't go out and work in the gym 2 days a week because the air was so polluted. But that is because I am concerned about people's health and not some nonsense—again, unproven global climate change theory driving energy policy is—usually like Global 2000 Report, turns out to be based on nonsense and it ends up creating policies that hurt our people. And in California, the people who are going to be hurt are our poorest people.
And we had the question about hydroelectric dams. Yeah. Last year, I was lobbied—I was lobbied in order to get a water project through to California, that we had to tear down a bunch of hydroelectric dams in northern California. This is at a time when California is on the edge of a major energy crisis.
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Ladies and gentlemen, if we are going to try to be taken seriously, I think that we have got to take a look at these statistics and not look at them through the prism of a global climate change theory or any other type of theory.
And I know that the gentleman talked about politicization of that. What you meant by that, sir, was just people should agree with your view on it. There is an honest disagreement on whether or not humankind is creating the conditions that are leading to any change in the global climate. The fact is that long before mankind came on the scene, there were ice ages where the glaciers retreated and ice ages when the glaciers proceeded, and it had nothing to do with mankind whatsoever.
So, Mr. Chairman, I would hope when this Committee looks at global climate change, that we have a little bit more broad-based Panel than just a group of people who agree with each other. And I would hope that we—I mean, here I am at the very end, and the reason I don't—I sound a little frustrated now, is it has been an hour-and-a-half and I am getting my 5 minutes, but earlier on, before we ever got to any questions, it—and before we ever got to any questions that were adversarial, frankly, there had been a lot of time used that didn't usually happen in hearing like this. So with that, I have expressed some of my frustrations and now I have to run off and vote rather than sit and listen to your answers. And I would like to have a discussion with you on this.
Chairman BOEHLERT. I thank the gentleman.
Mr. ROHRABACHER. Okay.
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Chairman BOEHLERT. And obviously it is evident that there is diversity in Congress and on this Panel. The gentlemen is entitled, as all Members are, to submit any questions he may choose in writing to the panelists, and they have assured us they will respond in a timely manner. Let me also point out that this is not the only hearing that we are going to have on this very important subject. I want to thank all the panelists for being participants in today's hearing and for your cooperation and for acting as resources for the Committee. Thank you. The hearing is adjourned.
[Whereupon, at 11:55 a.m., the Committee was adjourned.]
APPENDIX 1:
Answers to Post-Hearing Questions Submitted by Members of the Subcommittee on Energy
REPUBLICAN MEMBER QUESTIONS
Post-Hearing Questions Submitted to Ms. Mary J. Hutzler, Director, Office of Integrated Analysis and Forecasting, Energy Information Administration, U.S. Department of Energy
Accuracy of EIA's Forecasts
Q1. What is EIA's forecasting track record, i.e., how accurate have past forecasts been and how do your forecasts compare with others, such as those of DRI, WEFA, etc.?
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A1. The forecasts in the Annual Energy Outlook (AEO) should more precisely be characterized as long-term projections. As a longer-term model, the National Energy Modeling System (NEMS) does not take into account a number of short-term fluctuations that may influence future energy markets. These factors include severe deviations from normal weather, fluctuations in economic growth, changes in energy regulations and policies, and stock changes caused by weather deviations, supply disruptions, or infrastructure failures. AEO provides a likely energy future given known technology, economic, and demographic trends and current policies and regulations.
EIA has been providing an evaluation of the projections in the AEO annually since 1996. Each year, the forecast evaluation adds the most recent AEO and the most recent historical year of data. The most significant conclusions are:
Over the last two decades, there have been many significant changes in laws, policies, and regulations that could not have been anticipated or assumed in the projections. These actions have had significant impacts on energy supply, demand, and prices; however, the impacts were not incorporated in the AEO projections until their enactment or effective dates in accordance with the mandate that Energy Information Administration (EIA) remain policy neutral and the practice that AEO projections include only current laws and regulations.
Natural gas has generally been the fuel with the least accurate forecasts of consumption, production, and prices. Natural gas was the last fossil fuel to be deregulated following the strong regulation of energy markets in the 1970s and early 1980s. Even after deregulation, the behavior of natural gas in competitive markets has been difficult to predict.
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Energy prices have been far more difficult to predict than consumption, production, and net imports, and prices have been more typically overestimated than underestimated. More rapid technological improvements, the erosion of the market power of the Organization of Petroleum Exporting Countries in the mid-1980s, excess productive capacity, and market competitiveness are all factors that led to lower energy prices than projected. In the 1980s and 1990s, productivity and technology improvements and the effects of gradual deregulation and changes in industry structure have more than offset the factors that have tended to raise energy prices, such as resource depletion and increasing energy demand.
External factors such as severe weather, economic cycles, and strikes have also had an impact on energy markets; however, these events cannot be anticipated in the mid- to long-term period and are not captured in the models underlying the AEO projections.
Technological improvements in both the production and use of energy have had a significant impact on the price, supply, and consumption of energy. For the most part, earlier AEOs assumed much slower technology development than actually occurred, accounting for some of the deviation between the forecasts and history. This trend was recognized, in part, by this type of retrospective forecast evaluation. Beginning with the Annual Energy Outlook 1994, the projections in the AEO were produced using NEMS. Because NEMS was designed with methodologies to represent technology in a more detailed fashion, there has been an improvement in the capability to represent technological change throughout energy markets. Additional studies on technological improvement have led to more optimistic assumptions in the more recent projections. Also implemented were modeling innovations, such as learning-by-doing, in which experience gained with new generation technologies leads to cost reductions in the model. These enhancements have significantly improved the projection capability within NEMS.
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For each of the variables included in the analysis, the table below shows the average absolute forecast errors, which are computed as the average of all the absolute values of the percentage differences of the projections from actual, for each AEO and for each year in the forecast. The forecasts of consumption, carbon dioxide emissions, production, and gross domestic product have generally been the most accurate, and the forecasts of prices have been the least accurate.
71798dd.eps
The forecast evaluation does not specifically address renewable sources of energy; however, in the table below, we compare the projections for renewables in the Annual Energy Outlook 1995 (AEO95) with the most recent data for 2000, extrapolating from the first ten months of the year. The projections for renewable generation were high by about 40 billion kilowatthours, mostly due to lower hydroelectric power than projected. End-use renewable consumption is estimated to be higher than projected. Renewables consumption in the residential sector has been about 0.2 quadrillion Btu below the projections. However, industrial consumption of biomass, which accounts for most of the end-use renewables, is about 0.6 quads more than in AEO95, primarily due to high economic growth.
71798ee.eps
In the Annual Energy Outlook 2001 (AEO2001), forecasts from Standard & Poor's DRI (DRI), the WEFA Group (WEFA), and the Gas Research Institute (GRI) are compared to the AEO2001 projections.(see footnote 41) For natural gas, projections are also compared to the National Petroleum Council (NPC) and the American Gas Association (AGA).(see footnote 42) For petroleum, projections are also compared to the Independent Petroleum Association of America.(see footnote 43)
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The table below indicates the average annual growth rates in energy demand across the projections. AEO2001 projects the highest growth rate for primary energy use, due in part to higher projected economic growth. While GRI projects the same growth rate, their projection is only available through 2015. GRI projects the highest electricity demand growth of all the forecasts.
Both AEO2001 and GRI project the highest growth for residential energy demand, and AEO2001 has the highest growth rate for commercial energy demand. GRI projects the most rapid growth for demand in the industrial sector, with AEO2001 approximately in the center of the range. The AEO2001 projects growth in the transportation demand sector slightly below DRI, which has the highest projected growth. GRI and WEFA both have projected considerably lower transportation demand growth, due to much lower growth for light-duty vehicle travel, coupled with much more rapid improvement in vehicle efficiency in the GRI projections.
71798ff.eps
As shown in the next table, total electricity sales in AEO2001 are higher in 2020 than in WEFA and DRI, and they are almost identical to GRI in 2015. All forecasts project electricity prices to remain stable or decline. The AEO2001 electricity price projection is the highest in 2020 but is slightly lower than the GRI projection in 2015.
71798gg.eps
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In 2020, AEO2001 projects the highest natural gas consumption and production of the available forecasts. GRI projects the highest natural gas consumption and production in 2015, while the NPC projection is very similar to that in the AEO2001. AGA projects lower consumption in 2015 relative to AEO2001 but higher production, relying less on imports. In both 2015 and 2020, the natural gas prices in AEO2001 are the highest projections with the exception of NPC.
71798hh.eps
In both 2010 and 2020, the AEO2001 projection of total petroleum demand is approximately in the middle of the range of the other available projections. In 2010, AEO2001 has the lowest projection of crude oil production; however, in 2020, AEO2001 projects crude oil production of 5.1 million barrels per day, essentially the same as DRI and WEFA, the two other available projections. In both 2010 and 2020, AEO2001 projects the highest world oil prices.
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In both 2010 and 2020, total coal consumption in AEO2001 is projected to be higher than in the other projections, primarily due to higher coal consumption for electricity generation. As a result, total coal production is also higher in AEO2001. In 2020, projected mine-mouth coal prices are very similar across the projections. In 2015, the projected minemouth price in AEO2001 is essentially the same as in WEFA but higher than in GRI.
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Role of Tax Incentives
Q2. Please comment on the role of tax incentives in promoting renewable energy and energy efficiency. What has worked and what has not worked and why? What are the pros and cons of such incentives?
A2. EIA has addressed the potential impacts of proposed tax incentives, most recently in Analysis of the Climate Change Technology Initiative and Analysis of the Climate Change Technology Initiative: Fiscal Year 2001.(see footnote 44) The timing of tax incentives, their size, and their length are all important to the future penetration of a technology. Also important is whether the action would be undertaken even in the absence of tax incentives. This could happen, for example, if a proposed tax incentive would apply to projects or activities currently under construction.
The duration of the incentive needs to be sufficient that consumers can plan to undertake the additional investments in a reasonable manner. To the extent that tax incentives are intended to encourage technology development and cost reductions, it is important that the incentives be in place long enough to bring about such long-term changes. Where tax incentives are applied to emerging technologies, it is important that the technology be commercially available during the life of the tax incentive. Finally, the size of the tax incentive is also important. Small changes in the cost of new or improved technology are unlikely to affect the economic payback sufficiently to change consumer behavior. The tax incentive must be of sufficient size to overcome competition with alternative technologies. In EIA's analyses of the Climate Change Technology Initiative (CCTI), it was concluded that the proposed tax incentives were not of sufficient duration or size to make much of a significant impact on energy consumption. In the fiscal year 2001 CCTI analysis, energy consumption in 2010 is projected to be reduced by 92.9 trillion Btu, or 0.08 percent, relative to the reference case, as a result of the collection of tax incentives analyzed across the end-use and generation sectors.
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Some tax incentives appear to have been less effective in bringing about a permanent change in renewables penetration. In the early 1980s, shipments of medium-temperature solar thermal collectors (the type used for water heaters) peaked at just under 12 million square feet per year, enough for about 300,000 units. After the 1978 Federal 40 percent residential and 15 percent business energy tax credits for solar collectors expired at the end of 1985, shipments fell to less than 1 million square feet per year, and they have never recovered. A business energy tax credit for solar energy was reinstated at 15 percent for 1986 and phased down to 10 percent by 1992, with the Energy Policy Act of 1992 providing a permanent extension of the tax credit. The credit reinstatement and increasing oil prices after 1986 did not seem to create a rebound of the solar industry. Today, most solar collector shipments (85 percent) are used for heating swimming pool water, which is excluded from the tax credit. In 1997, EIA estimates that roughly 460,000 households (0.5 percent) used solar water heaters to provide some of the energy required to heat the annual load of hot water. Currently, about 9 percent of solar thermal collector shipments are destined for the commercial sector. Only 0.5 percent of all solar thermal collector shipments purchased by the commercial sector are for uses other than heating swimming pools, even with the existing energy tax credit. It appears that these later tax credits have not been effective in encouraging the penetration of solar energy.
Natural gas production from coal seams has grown dramatically since the late 1980s, largely because of tax credits that provide an incentive for the production of high-cost gas supplies. In 1997, 1,090 billion cubic feet, or 6 percent of total U.S. production, came from coal seams, compared with only 41 billion cubic feet in 1988. The tax credit appears to have been successful in encouraging coal seam production and has also contributed to sustained development of natural gas from coal seams by promoting an improved understanding of unconventional gas reservoirs, leading to new and lower cost technologies for its recovery.
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Investment tax credits (ITC) were used in the early 1980s to spur investment in wind power and other renewables. Before its expiration with respect to wind power in 1985, the ITC, along with requirements to purchase renewables in the Public Utility Regulatory Act of 1976, is widely credited with facilitating the California wind power growth of the 1980s, reaching 1.7 gigawatts within the decade. EPACT made the 10 percent ITC permanent for central station solar photovoltaic plants. It appears that these tax credits were successful in encouraging the technologies when most of the higher cost and risk were covered, such as for wind, and were unsuccessful when the technology costs clearly exceeded the market price even with the incentives.
EPACT established a 1.5-cent-per-kilowatthour production tax credit (PTC) for every kilowatthour of production during the first 10 years of operation for all new wind or closed-loop biomass plants entering service by June 30, 1999, which has been extended through December 31, 2001. Less than 115 megawatts of new wind capacity was added through 1997; however, as the original expiration approached more than 160 and 650 megawatts were added in 1998 and 1999, respectively. EIA's Annual Energy Outlook 2001 projects more than 775 megawatts will be added in 2001, and current evidence suggests that actual builds in 2001 may be several hundred megawatts higher, including builds that may be accelerated to qualify for the PTC.
The PTC appears to have contributed to the growth of wind generation and also to improved cost and performance for wind technologies because the PTC covers most or all of the gap between wind power and its next lower cost competitor. However, new wind plants are not appearing where State incentives are absent, suggesting that State mandates have also been a contributing factor. In the analysis of the CCTI, EIA analyzed a proposed extension of the tax credit through 2005, which suggested that nearly all of the wind generation additions would have occurred without the credit. The PTC appears not to have worked for closed-loop biomass because the 1.5-cent tax credit, now 1.7-cents, is insufficient to overcome much higher closed-loop biomass technology costs.
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Tax incentives may play an important role in encouraging the penetration of new, more energy-efficient or renewable technologies. However, the size of the incentive must be sufficient to overcome any price or other disadvantages the technologies may have. Also, the incentive must be in place for a long enough period of time and for the correct time frame to be able to make a significant impact on technology penetration. Another consideration for evaluating the effectiveness of a tax incentive is the extent to which it is subsidizing ongoing activities and projects, thus increasing the marginal cost of the projects stimulated by the tax incentives. Accounting for these factors, tax incentives may contribute to long-term technology development and cost reductions.
Factors in Use of Best Available Technology
Q3. EIA's Annual Energy Outlook 2001 illustrates that energy use in the residential sector could be reduced below 1999 levels in 2020 if the best commercially-available technologies in the reference case were chosen by consumers whenever equipment was purchased. Is the same statement true for the commercial, industrial and transportation sectors? Why do consumers not choose technologies that are closer to the best available?
A3. The Annual Energy Outlook 2001 high technology cases for the residential and commercial sectors assume earlier availability, lower costs, and higher efficiencies for more advanced technologies than in the reference case. The residential and commercial best available technology cases assume that consumers choose the most energy-efficient technologies available in the high technology case, regardless of cost.
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In the commercial sector, delivered energy consumption could be reduced 11 percent in 2020, relative to the reference case, if consumers chose the most energy-efficient technologies available in the high technology case whenever equipment was purchased. Commercial delivered energy consumption in 2020 for this case is projected to be higher than in 1999 by 23 percent; however, commercial delivered energy use per square foot projected for 2020 would be 5 percent below 1999 energy use per square foot indicating that growth in commercial floorspace is expected to exceed efficiency improvements.
AEO2001 does not present a best available technology case for the industrial sector due to the way capital additions are made in that sector. The foremost requirement for incremental capital investment is to enhance output, either quantitatively or qualitatively. While this requirement often results in reduced energy intensity, energy alone is typically not of paramount importance. An underlying assumption in the AEO2001 forecast is that new equipment installed to meet growing demand or to replace retired facilities will be state-of-the-art in terms of productivity.
AEO2001 presents a high technology case for the industrial sector. The high technology case assumes that there will be a more rapid reduction in the state-of-the-art energy efficiency and that this equipment will be added earlier than in the reference case. Delivered industrial energy consumption in the high technology case is projected to be 0.6 quadrillion Btu lower than in the reference case in 2020. In order for industrial energy consumption in 2020 to be the same as in 1999, a result that parallels the result of the residential best available technology case, industrial delivered energy intensity would need to decline at an average rate of 2.5 percent per year, compared with the 1.4 percent annual decline in the AEO2001 reference case. Assuming that industrial intensity decline, delivered industrial consumption in 2020 would be 7.5 quadrillion Btu, or 22 percent, lower than in the AEO2001 reference case. This decline rate would be slower than the average annual decline of 3 percent in the 1979 to 1987 period; however, the AEO2001 projections are based upon relatively modest increases in energy prices and rapid industrial growth, which are opposite to the conditions that prevailed during the 1979 to 1987 period.
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AEO2001 does not present a best available technology case for transportation due to issues of how best available technology choices would impact the choice of vehicle size and class. Using assumptions for light-duty vehicles from Scenarios for a Clean Energy Future,(see footnote 45) we assume that new automobile efficiency reaches 37.5 miles per gallon in 2010, from the Moderate Efficiency Case in the report, ramping up to 61.3 miles per gallon in 2020, the highest available efficiency. The efficiency of new light trucks is assumed to reach 27.1 miles per gallon in 2010 and 33.9 miles per gallon in 2020, from the Advanced Efficiency Case, which represents very optimistic adoption of energy-efficient and weight-reducing technologies. Using these efficiencies for new vehicles and the same stock turnover and travel from AEO2001, light-duty vehicle energy consumption in 2010 is projected to be 17.5 quadrillion Btu compared to 18.5 quadrillion Btu in the AEO2001 reference case. In 2020, light-duty vehicle consumption is projected to be 16.5 quadrillion Btu compared to 21.0 quadrillion Btu in the reference case. Under these assumptions, light-duty vehicle consumption remains above the 1999 level of 14.9 quadrillion Btu.
One reason that consumers do not choose technologies that are closer to the best available is that the most energy-efficient technology may not be the most cost-effective. The incremental investment required for residential consumers to purchase the most efficient technologies is projected to be $185 billion, saving consumers $108 billion in energy expenditures, so consumers do not recover their investment and these purchases are not economical. (Incremental investments and energy expenditure savings are discounted back to 2000 at a 7 percent real discount rate.)
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Many investments in energy efficiency do make economic sense; however, several other factors may be considered when purchasing energy-using equipment. Features other than energy efficiency may be more important to consumers as evidenced by recent trends toward larger, more powerful personal vehicles and larger home entertainment equipment, for example. Builders and owners of leased property often lack incentives to invest in energy-efficient equipment because they are not responsible for paying the energy bills, and the homeowners and tenants may not have the option of choosing more efficient technologies. Since more efficient equipment is typically more expensive, consumers may expect to move before they would realize enough energy savings to recover their investment or may simply want a more immediate payback than that offered by the equipment. Artificially low prices for energy, through regulated prices or fuel price subsidies for example, may hamper the penetration of technologies, because even lower technology costs would be necessary for them to appear cost-effective. In addition, reasons such as uncertainty about future energy prices, lack of information about new technologies and their supporting infrastructure, uncertainty about the timing of newer models or improved technologies, and lack of immediate availability (in the case of a broken water heater or refrigerator) are often cited as barriers to investment in energy-efficient equipment.
EIA Energy Cost Projections
Q4. Did the EIA predict the recent energy price spikes for various energy types-oil, natural gas, and electricity? If not, has the EIA adjusted its forecasts in light of these price spikes, and if so, what are the results?
A4. At the time the projections in the Annual Energy Outlook 2001 were finalized, the projections for the years 2000 and 2001 used the short-term projections from the September 2000 Short-Term Energy Outlook (STEO). At that time, the short-term projections for the average world crude oil price were about $27.60 per barrel in 2000 and $23.80 per barrel in 2001 (1999 dollars). Using the March 2001 Monthly Energy Review and the April 2001 STEO, world oil prices are estimated at $27.12 per barrel for 2000 and $24.54 per barrel for 2001, adjusted to 1999 dollars. So the oil price estimates were reasonably close to what is currently estimated.
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While electricity prices may be high in California, the national average price is not experiencing the same surge. Through November, the average retail price of electricity for 2000 is 6.7 cents per kilowatthour, the same price as for the similar period in 1999. In AEO2001, projections for the average residential price of electricity were 8.1 and 8.0 cents per kilowatthour in 2000 and 2001, respectively, in 1999 dollars. The April STEO estimates the price at 8.1 cents per kilowatthour for both 2000 and 2001, in 1999 dollars.
In AEO2001, the average wellhead price of natural gas was projected to be $3.32 per thousand cubic feet in 2000 and $3.34 per thousand cubic feet in 2001, in 1999 dollars. The price is currently estimated at $3.53 and $4.98 per thousand cubic feet in 2000 and 2001, respectively, in 1999 dollars. While EIA anticipated an increase in natural gas prices for 2000 that was reasonably close, it did not project the magnitude of the increase in 2001, which is partially weather related.
EIA has not made a preliminary estimate of the longer-term impacts of the higher short-term natural gas prices. However, we believe that the natural gas industry will continue to respond to the higher prices as evidenced by higher drilling over the last year, which will eventually lead to lower prices. In 2000, drilling for natural gas in the United States increased by 45 percent over the 1999 level of 10,500 wells, in response to a 66 percent increase in the average natural gas wellhead price from 1999 to 2000. Relative to AEO2001, the higher natural gas prices earlier in the forecast will probably lead to slightly higher capacity additions for coal-fired generating plants, and slightly lower capacity additions for natural gas-fired plants.
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Q5. It is our understanding that California, New York and other states are scaling up their energy efficiency programs in light of recent electricity reliability and other energy problems. Has the EIA adjusted its forecast to account for these recent developments and the continued growth in state and regional energy efficiency programs that is expected?
A5. Since the Annual Energy Outlook 2001 (AEO2001) was prepared last fall there have been no explicit changes to represent these newer programs and until many of the details of the programs are available it will be difficult to assess their potential impact. At this time it is unclear whether the expenditures on these programs reflect new investments in energy efficiency or whether they largely offset decreases in investments that used to be made by utilities. With the advent of deregulation, many States have turned to alternative methods including public benefits charges (also referred to as systems benefits charges) and/or renewable portfolio standards to continue programs that were once part of utility demand-side management programs.
For many years utilities reported expenditures on demand side management (DSM) programs to EIA. In general these expenditures were rising each year until 1993, but since then they have declined precipitously. In 1993, they totaled $3.1 billion (in 1999 dollars), while in 1999, the last year for which final data are available, they had fallen to $1.4 billion, a 55 percent decline. The impacts of these programs have been captured by EIA's surveys and used to develop our projections. In general, our projections show the rate of growth in electricity demand slowing in the future because of improving energy efficiency that is, in part, due to the past DSM investments by utilities and States. However, it is difficult to determine whether the improvements in efficiency are due to general trends or specific programs.
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In both California and New York, public benefits charges have been instituted to fund a variety of programs, including low-income assistance, energy efficiency, peak load reduction, research and development, and renewable development programs. In California, the Governor also recently announced plans for an $828 million energy efficiency and demand reduction program. Of this total, $404 million is incremental funding while $424 million is the funding associated with existing programs. The impacts of the existing $424 million program, which is slightly below what the major California utilities used to spend on DSM programs, should be captured in EIA data and represented in our projections. The AEO2001 projections include estimates of the renewable generating capacity stimulated by California renewable power auctions held prior to August 2000, but do not incorporate the impacts of the November 2000 auction. In New York, the systems benefits charge previously scheduled to end in July 2001, was extended to July 2006 in January 2001, and increased from $78 million to $150 million. While we may not have fully represented the potential impacts of all of the incremental programs in the AEO2001 projections, the general trend towards improving energy efficiency and continued investments in renewables has been incorporated. The programs not incorporated in AEO2001 will be addressed in the Annual Energy Outlook 2002.
QUESTIONS SUBMITTED BY CONGRESSMAN LAMAR SMITH
Renewables Ranking
Q1: Please rank renewable energy resources in order of their greatest potential for future development.
A1: This answer is based on future potential for electricity generation. Although renewable resources are used in other applications (such as ethanol in transportation fuels), their greatest potential is as a source of electricity generation, as an alternative to fossil-based and nuclear technologies.
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There are a number of measures that could be used to rank renewable resources by future potential. EIA's Annual Energy Outlook 2001 projects both capacity and generation for renewable technologies in its reference case, which assumes current laws, regulations, and trends in research and development; and in a High Renewables Case, which is primarily based on cost and performance goals as stated by the Department of Energy's Office of Energy Efficiency and Renewable Energy (EERE).(see footnote 46)
Based on the projected increases in electricity generation in the reference case through 2020, we rank biomass, landfill gas, geothermal, wind, and solar, in order, in terms of their potential for future electricity generation. Hydroelectricity, due to environmental issues, is not expected to increase its contribution to the Nation's generation over this time period. Biomass, which has potential in the areas of cogeneration as a co-firing fuel in some coal-based generating units and in dedicated generating capacity, is projected to increase its generation by about 29 billion kilowatt-hours over the next 20 years. Much of this growth is in the industrial sector as cogeneration due to projected economic growth in the paper and pulp industry. Landfill gas generation, driven in part by the need to reduce methane emissions at landfills, is expected to increase about 16 billion kilowatt-hours through 2020. Geothermal-based generation, which has the capability of meeting baseload demands, grows about 13 billion kilowatt-hours through 2020, but is limited by the concentration of its resources in the Western United States, and the fact that many of those resources are in national parks not conducive to development. Wind, which is the least costly of all of the renewable technologies on a per kilowatt-hour basis, nevertheless is impeded by its intermittence, which reduces its availability for meeting generation requirements. Solar technologies are generally too expensive to show significant penetration over this time frame.
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EIA's High Renewables Case, which assumes lower capital costs and improved operating characteristics primarily based on EERE goals, as well as higher resource availability, shows increased usage of both wind (a 60 billion kilowatt-hour increase from 1999 to 2020) and geothermal (a 53 billion kilowatt-hour increase from 1999 to 2020) under those circumstances, followed by biomass, landfill gas, and solar. Wind's low per-kilowatt-hour cost gives it an advantage in a scenario that favors renewables in comparison to the reference case assumptions. Despite its concentration in the West, geothermal also shows considerable potential in this case, due to its status as a provider of baseload power and its lower per-kilowatt-hour cost compared to biomass.
If the measure of future potential is capacity, the rankings change somewhat. In the AEO2001 reference case, the ranking by capacity additions is biomass (3.7 gigawatts), wind (3.2 gigawatts), landfill gas (2.1 gigawatts), geothermal (1.5 gigawatts), and solar (including distributed applications in buildings) (1.0 gigawatt). Although capacity is not a measure of the contribution of these technologies to meeting demand, it indicates the potential contribution during periods when the resource is available. Because wind and solar are both intermittent resources, however, their utilization rates are limited by the availability of the resource at the time it is needed. In the High Renewables Case, the ranking of technology by increased capacity is wind, geothermal, biomass, landfill gas, and solar.
A final measure of potential is based on the amount of ultimate resources, a concept roughly equivalent to total oil and gas resource estimates. On this basis, wind resources could support hundreds of gigawatts of additional capacity, if issues of system reliability, access to transmission lines, and storage could be solved. Biomass could also fuel multiples of its installed base today once dedicated energy crops become economically viable. Geothermal is limited by its geographic concentration in the West, while landfill gas is dependent on the Nation's solid waste stream and how it is managed. Solar resources, especially in the West, are also plentiful, but the cost of the technology makes it less likely as a significant source of electricity. Finally, hydroelectricity has the potential to add as much as 30 gigawatts of additional capacity; but because of environmental and economic issues surrounding its use, it is generally not considered to be a viable source of new generation.
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Geothermal Efficiency
Q2: Because of its dependability at continuous generation of electrical power, is geothermal the most efficient?
A2: No, geothermal is not usually the most efficient renewable resource, either in energy conversion efficiency or in cost. Although geothermal input heat rates vary tremendously depending upon the specific site, EIA estimates an input heat rate for geothermal at or above 31,000 Btu per kilowatt-hour. In contrast, many fossil-fueled and other technologies offer input heat rates well under 10,000 Btu per kilowatt-hour; for example, advanced natural gas combined cycle plants, at 6,917 Btu per kilowatt-hour, have a thermal efficiency roughly four times higher than geothermal. Biomass gasification features an input heat rate of 8,900 Btu per kilowatt-hour. Geothermal becomes economically attractive only when the cost of extracting useful heat falls below the cost of using the fossil-based or other fuels.
Nor is geothermal usually the least cost per kilowatthour. Except for a few low-cost sites, it is estimated that capital costs for most new capacity would average above $2000 per kilowatt, and with high transmission and operations and maintenance (O&M) costs, few occasions exist at which geothermal can deliver electricity at lower costs than fossil-fueled alternatives. Finally, geothermal is simply not available in most of the country. However, where they are available—such as in California, Nevada, and Oregon—some geothermal resources are a reliable and cost effective renewable source of generation.
Deep Gas Potential
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Q3. Deep gas wells have encountered subsurface temperatures of up to 180oC. What is the potential of deep gas?
A3. The Annual Energy Outlook 2001 (AEO2001) projects that gas production from deep reservoirs greater than 10,000 feet will rise from 1 trillion cubic feet per year in 1999 to 2.7 trillion cubic feet per year by 2020. This projected level of deep gas production would compose approximately 10 percent of total projected United States natural gas production in 2020, up from a 5 percent share in 1999.
Conventionally recoverable deep gas resources not associated with oil reservoirs represent about 116 trillion cubic feet or about 9 percent of the technically recoverable resources in the Lower 48 United States. These resources typically are more expensive to find and develop than shallow resources because of the technical difficulties encountered when drilling at deeper and deeper intervals. Deep gas is harder, riskier, and more expensive to find since the precision of seismic information declines with depth, and the greater risk requires larger (and less common) prospective accumulations to justify an exploratory well. Another obstacle affecting both exploration and development is the higher temperatures experienced as drilling proceeds further into the earth. At certain temperatures, increasingly important electronic applications are no longer able to operate properly. At even higher temperatures, the most durable parts of the drilling apparatus begin to lose their ability to function reliably. Research is being conducted to overcome these obstacles. Examples include efforts to develop smaller electronic devices that can more effectively withstand the heat and pressure experienced at greater depths. More corrosive-resistant alloys are also being developed to render the drilling strings and drillbits less subject to the damaging effects of the extreme conditions encountered at lower levels. These ongoing technological innovations are incorporated in the Annual Energy Outlook by adjusting drilling costs and productivities to reflect the long-term trend of technological progress in this area.
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Renewable Percentage of Total Energy Supply
Q4. What percent of today's energy needs are supplied by renewable energy sources?
A4. In 2000, the United States consumed 7.1 quadrillion Btu of renewable energy, or 7.2 percent of total energy consumption of 98.8 quadrillion Btu. This renewable consumption includes approximately 0.3 quadrillion Btu of net electricity imports generated from hydroelectric or geothermal energy. Primarily due to lower hydroelectric generation, this is a reduction from the 7.5 quadrillion Btu of renewable energy consumed in 1999.
ANSWERS TO QUESTIONS SUBMITTED BY DEMOCRATIC MEMBERS
Projected Household Energy Use
Q1. Given the efficiency gains from 1970 to 1999, what factors account for the projected increase in energy use per household from 102 to 107 million Btu from 1999 to 2020?
Doesn't the addition of new, more energy efficient housing to the Nation's inventory offset the additional electrical load inside the houses?
If you had factored into your projections the new standards adopted by DOE in January of this year, would you still see that slight increase in energy use per household?
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A1. The Annual Energy Outlook projections include increasing efficiency of equipment and tighter shells (windows and insulation). However, the efficiency and shell effects are insufficient to offset other factors causing increases in consumption. In addition to increasing electrical loads, there are two other notable factors contributing to the increase in energy use per household between 1999 and 2020: the increasing size of new construction and weather effects.
The forecast accounts for the trend toward building larger homes resulting in an increasing average size for housing units over the projection period. This trend has persisted for a decade and a half for all Census divisions and for all three housing types (single family, multi-family and mobile homes) based on U.S. Department of Census data (the Characteristics of New Housing reports). The trend toward increasing size has an important effect on energy consumption since delivered residential energy consumption per square foot declines slightly in the reference case from 61.0 thousand Btu per square foot in 1999 to 60.5 in 2020.
Overall, 1999 was somewhat warmer than average. On a national basis, the reduction in the need for heating outweighed the increase in the need for air conditioning, resulting in lower energy consumption than would be expected in a year with ''normal'' weather. Energy use projections for 2001 and beyond are based on ''normal'' weather using 30-year averages. Thus, comparing 2001 with 2020, energy use per household includes comparable weather effects in both years. For these years, per household delivered energy use increases from 105 to 107 million Btu.
If the new standards adopted by DOE in January and revised in April had been included in the projections, energy consumption per household would have still exhibited an increase between 1999 and 2020 from 102 to 104 million Btu per household. Placing the results on a comparable weather basis by comparing the years 2001 and 2020, energy consumption per household would be projected to decline from 105 to 104 million Btu with the new standards in place.
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Price Effect on Industry Energy Usage
Q2. Do you have any estimates of the changes that could be expected in the decline of industry primary energy intensity if you factor in current energy prices?
A2. Current national estimates of electricity and oil prices are reasonably close to those projected in the Annual Energy Outlook 2001 (AEO2001). Only the near-term natural gas prices are significantly higher than projected in AEO2001. EIA has not made a preliminary estimate of the longer-term impacts of the higher short-term natural gas prices. However, the expectation is that earlier in the forecast period, projected industrial energy intensity would be slightly lower than projected in AEO2001 due to the current higher natural gas prices and resulting electricity prices. The industrial energy intensity is expected to be unchanged from the current 2020 projection.
Municipal Solid Waste Gas
Q3. In your high renewables case, is municipal solid waste, that is garbage, included in your definition of biomass? If not, why not?
A3. While municipal solid waste (MSW) is not included in our definition of biomass, it is separately accounted for in all of our forecasts, both the reference case and the High Renewables Case. Under the ''municipal solid waste'' category we assume that existing municipal solid waste mass-burn facilities will continue to operate as currently planned. However, we assume that all new capacity additions under the category ''municipal solid waste'' will be landfill-gas-to-electricity facilities. We do not assume that any new MSW mass-burn facilities will be built over the 20-year forecast horizon, for four reasons: (1) capital costs for MSW mass-burn facilities are very high ($2,723 per kilowatt)(see footnote 47), (2) concerns with air emissions (e.g., dioxins) and solid waste emissions (e.g., heavy metals) from the MSW mass-burn facilities drive community opposition to such facilities, (3) the fees for collecting municipal solid waste, called ''tipping fees'', are not high enough to make MSW mass-burn facilities financially attractive operations (other than in some niche markets), and (4) court decisions(see footnote 48) facilitating interstate transfer of trash now make landfills more attractive and mass-burn facilities less viable. As a result of these factors there are no known plans for additional facilities in the MSW mass-burn category.
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There is potential for growth in the MSW landfill gas category as waste sites and municipalities have to deal with the issues of scarcity of land for locating new landfills, and to address methane emissions from existing landfills. In the AEO2001 reference case, landfill gas capacity is projected to increase 2.1 gigawatts through 2020, with another 0.3 gigawatts projected in the High Renewables Case.
ANSWERS TO QUESTIONS SUBMITTED BY REPUBLICAN MEMBERS
Post-Hearing Questions Submitted to Mr. Kenneth K. Humphreys, Senior Staff Engineer, Energy, Science and Technology Division, Pacific Northwest National Laboratory
21st Century Scenarios
Q1. You state in your testimony that, for the U.S. component of the ''business-as-usual'' scenario'', ''[b]y 2100, all renewables make up 20% of the U.S. energy mix, but 80% of U.S. energy needs in 2100 are still supplied by fossil fuels—down from 90% in 1995. Fossil fuels remain the dominant fuel.'' What is the mix of renewables that comprise that 20%, that is, how much of that is hydro, wind, geothermal, etc.?
A1. First, a few important points about interpreting these results:
The scenarios generated by our energy-economic models are best used to evaluate long-term trends and technological opportunities, particularly when several scenarios (e.g., one with significant technological development and one without) are compared against each other. Predicting precisely absolute fuel prices 30, 50, or a 100 years out is not particularly wise.
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Some variables in the scenarios we typically run become more uncertain as we look far into the future, such as population, economic growth, etc., making relative comparisons between scenarios more appropriate than absolute predictions.
While some uncertainties grow as we look far into the future, it is also true that some variables become more certain. An example would be relative oil prices, which can fluctuate significantly on an annual basis, as we have seen over the last few years; but on a decadal basis are fairly predictable.
Thus, the general trends, rather than precise numbers should be the focus in interpreting these results.
In addition to the factors mentioned above, what our energy future looks like depends upon what energy resources become available at cost-effective prices. Typically, we consider three alternative resource futures, which we term: (1) ''coal bridge to the future'', (2) ''abundant oil and gas'', and (3) ''non-carbon future''. We feel that these three largely capture the extreme cases of energy resource availability. The realized energy future is likely to be some linear combination of our three. When we evaluate a particular scenario, we usually consider multiple energy resource futures to see how this affects the overall results.
Finally, there is no universally agreed to ''business-as-usual'' scenario; therefore, before providing a numerical answer to this question, there are few embedded assumptions in this scenario that need stated:
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As eluded to in the written testimony, but stated more explicitly here, the U.S. business-as-usual scenario assumes that nuclear plants operate the remainder of their lifetime, but are phased out at their end-of-life and not replaced with new nuclear capacity due to lack of public acceptance.
The scenario discussed in the testimony, uses a ''coal bridge to the future'' as an energy resource future, which implies that beyond 2030, as conventional oil and gas supplies become limited, coal is the primary cost-effective, abundant fossil fuel.
Under these constraints, by the end of the century renewables are projected to reach a market penetration of about 20%. Predicting the relative split among the type of renewables within this mix is a highly uncertain proposition, as almost certainly there will be some unanticipated breakthroughs and failures of various renewable technologies. Generally, we can observe that by the end of the century:
Primary energy use has approximately doubled from 1990 levels of 82 exajoules. Thus, for a particular technology to maintain the same market share, it must double in terms of the capacity deployed.
Hydropower will likely see its market share erode from about 4% in 1990, as global hydropower capacity is limited.
Providing that the globe is willing to accept biotechnology and a biotechnology revolution occurs, biomass has significant potential in the future energy mix. Land is not as much of a constraint as water is likely to be. Currently, the interrelationship between water demand and the penetration of BioEnergy into the marketplace is poorly understood by all energy modelers, as it has not been a focus of research.
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Together, solar and wind make up a significant share of the 20% renewable market; however, without inexpensive storage technologies, their market penetration is limited.
We also should be mindful that while a 20% market share for renewables is significant, a breakthrough of extraordinary proportions could increase this share much further.
Finally, one should bear in mind that ''business-as-usual'' scenarios—the jargin used by energy/economic modelers—are really ''innovation-as-usual'' scenarios. That is, it is assumed that technologies like biomass, solar, wind and others will continue to see substantial improvements in their performance. Thus, current public and private research efforts are critical just to achieve ''business-as-usual'' outcomes. If we wish to see greater penetrations of renewable technologies, profoundly bolder technology development must occur.
Climate Stabilization Scenario
Q2. In your U.S. component of the ''stabilization scenario,'' you say that ''[e]nergy prices are higher and therefore overall demand for energy [is] somewhat lower.'' How much higher are the energy prices?
A2. The higher energy prices in a ''stabilization scenario'' are a direct result of the assumption that in a world where society chooses to stabilize atmospheric concentrations of greenhouse gases, in one form or another, the U.S. economic system would place a ''value'' on carbon dioxide. This value could take one of many or a combination of forms (voluntary programs that results in a higher cost to produce energy, CAFE standards on fossil fuel-powered cars, emissions regulations on powerplants, a carbon tax, or one of a myriad of other approaches suggested by analysts and policymakers). We leave the choice of the mechanism up to policymakers and instead focus on the incremental cost that fossil fuels would bear through the mechanisms.
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The value of a ton of carbon will depend on several factors including the target concentration chosen—a concentration of 450 ppmv has significantly higher carbon values than a concentration of 750 ppmv, energy resource availability, and importantly the mix of technology options that is available—the availability of carbon capture and sequestration in all its forms ranging from soils to chemical capture and geologic sequestration could cut costs in more than half.
For a 550 ppmv target, and depending on other assumptions, the value on carbon is approximately $35 (per ton of carbon) in 2020 to $100 in 2050 to more than $300 in 2100. The resultant increase in the price of fossil fuels is a function of the carbon content of the fuel. Consequently, a high-carbon fuel like coal is receives more of an economic burden than natural gas or renewables.
As an example, a stabilization scenario might result in electricity prices 30 to 50% higher over the next century when compared to those in a business-as-usual scenario where we don't act on climate change. While a non-trivial increase, two points should be noted. First, to put this in context, this size of increase over the next century is less than many on the West Coast saw in one year. Therefore, spread over a long-period of time these increases are more easily dealt with by the economy. Second, these costs are not fixed, and bold technological breakthroughs have the potential to reduce the increases.
It is also important to note that some technologies, like carbon capture and geologic sequestration and biotechnology, should they prove-out as technologies, have extraordinary leverage on cost. The existence of a cost-effective option to capture and sequester carbon in geologic formations not only insures the central role of fossil fuels for the remainder of the century, but also dramatically reduces both the marginal and total value of carbon. Technology options that take advantage of near-term sequestration opportunities such as soil carbon sequestration can dramatically affect near-term costs.
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Stabilization Scenario Mix of Fuels
Q3. What is the mix of solar, fossil, nuclear, etc., in your U.S. component of the ''stabilization scenario''?
A3. The mix of fuels in the stabilization scenario changes over time in response to the total energy demand and fuel prices.
Relative to the business-as-usual scenario in question #1:
By 2100, bearing in mind that this scenario assumes non-conventional oil sources, such as oil shales, methane hydrates, and tar sands are not cost-effective, oil use have declined to minimal levels.
Natural gas and coal use remains robust, holding approximately 30% market shares each in an energy market twice as large as today.
Biomass expands dramatically, assuming water demands can be met, also holding approximately a 30% market share.
Biomass, natural gas, and coal all help support a large part of what has become a hydrogen economy.
Solar, Wind, and Hydro hold the balance of the market in the U.S.
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It is worthy to note that in a consistent global scenario, solar, wind, and hydro hold 25% of the energy market; thus, attesting to their value in developing countries. Their deployment overseas helps reduce the overall cost of managing climate change to all countries. Further, while not present in the U.S. under this business-as-usual scenario, nuclear holds more than a 10% market share on a global basis.
If a modified stabilization scenario is run where new nuclear starts are permitted, nuclear provides several percent of total U.S. primary energy demand, including approximately 5% of electricity demand.
It imperative to bear in mind that this scenario is based on a ''coal bridge to the future'' energy resource endowment and an includes technology performance that is similar to that of the IPCC IS92A scenario, and that one could conceivably construct an infinite number of scenarios to obtain any number of outcomes. Therefore, what's important here is not the precise market shares, but that economics will almost certainly drive us toward a mix of fuels (renewable, nuclear, and fossil), all playing an important role in the U.S. energy future. The probability that any single fuel type dominates the global energy future is slim.
Developing Technology Goals
Q4. You state that ''[t]he overall costs of providing for a robust energy future are minimized when a 50 to 100-year time horizon is taken and near-term technology goals are set. On a global basis, a systematic long-term strategy appears to save many trillions of dollars and the U.S. shares directly in these savings.''
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Please elaborate. What are the appropriate ''near-term'' technology goals?
A4. Near-term technology goals must ultimately be set as an outgrowth of dialogue between public and private sectors. While specific goals remain to be developed, it is clear that creating realistic technology and energy system options in a variety of areas that have heretofore received relatively little attention should be a high priority. For example, carbon capture through scrubbing with geologic sequestration, soil carbon capture, fuel cells, commercial biomass and gas hydrates, all have potential to be deployed at scale in the long term, but to date have received only modest attention. For carbon sequestration, development of technologies for monitoring and verification will be a relatively high priority. Biotechnology shows similarly good promise of delivering revolutionary breakthroughs in performance of energy systems.
We should also be extremely mindful that developing some of these technologies (e.g., sequestration or biomass) will take a bolder and more fundamental meshing of basic science and applied engineering, if these technologies are to reach their full potential. Further, these technologies have fundamental social issues associated with them (i.e., stakeholder concerns about deep injection and biotechnology, respectively). We should not assume that R&D models and public-private partnerships of the past are, defacto, the best approach for conducting R&D in the future. We must not only increase R&D investment, but must also reinvent the way we manage some R&D programs, if the investment is to be used effectively.
PNL and EIA Forecasting Compared
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Q5. What the similarities and differences of your forecasting methodology compared to EIA's?
A5. Our models are long-term (until 2100) and global in detail and coverage, and are appropriate for looking at global issues like climate change, and the effects of different policies and scenarios at a global as well as U.S. level. One of our models is a partial equilibrium model; the other is a general equilibrium model. They include non-energy and energy markets (e.g., agriculture and labor markets), which are essential to understand how technologies, particularly such as biomass, penetrate the energy system over time.
The EIA's models are detailed, and short-term (2020) and limited to the U.S. in their scope. They are most appropriate for near-term energy projections.
ANSWERS TO QUESTIONS SUBMITTED BY DEMOCRATIC MEMBERS
Efficiency Improvement Forecasts
Q1. You state in your testimony that ''end-use efficiency in all sections and regions of the world are projected to improve at approximately 1 percent per year.'' How does your end-use efficiency estimate compare with EIA and the PCAST study's estimate?
A1. A clarification is in order here. ''end-use efficiencies in all sectors and regions of the world are assumed to improve at approximately 1 percent per year.'' The improvement level varies by technology type to some degree, but with few exceptions, varies between 0.5 and 1.5%. We used this assumption in the reference case that I used in my testimony, because it is a fairly universal assumption in the energy modeling community and is based on an understanding of how the overall average performance of the technology fleet improves over time. Of course, we have explored a variety of values ranging from as little as zero (no further technology improvement—our worst case scenario) to 2% per year. The reference to ''fleet average'' is important, because in order to manage the U.S. energy system, it is far more important to measure the average efficiency of cars or building stocks than the improvement in the best car or building.
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PCAST uses scenarios that are based on comparable assumptions. EIA is very focused on improvements over the next twenty years. This is a shorter time period than many capital stocks (e.g., powerplants and buildings). EIA also models technologies in great detail making diverse assumptions among various technology types, as such, without a thorough side-by-side analysis, a comparison between our assumptions and EIA's are not possible at this time. However, our expectation is that in aggregate our improvement rates are similar to EIA's.
Year 2001 Fuel Mix
Q2. In your third bullet on page 2 of your testimony you state that by 2100 approximately 80 percent of U.S. energy needs will still be supplied by fossil fuel. Do you have any opinion on what the fossil energy fuel mix might be by then?
A2. Noting first that this ''80%'' figure is associated with a business-as-usual scenario (i.e., a non-climate policy scenario), the split amongst fuel types depends on what is assumed about the accessibility to various fuel resources. As described in the response to one of the preceding questions, we typically consider ''coal bridge to the future'' and an ''abundant oil and gas'' as possible fossil-based energy resource endowments.
If either the ''coal bridge to the future'' or ''abundant oil and gas'' resource endowments is used as a backdrop to the business-as-usual scenario, overall fossil fuel presence is about the same, 80%. Quite literally, in the ''coal bridge to the future'' coal strongly dominates the fuel mix. In the ''abundant oil and gas future'', methane hydrates, oil shales, and tar sands help oil/gas dominate the fuel mix.
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Energy Demand Elasticity
Q3. In general, how does energy demand respond to changes in price? In other words how elastic is energy demand?
A3. As one might expect, higher prices lead to lower energy demand. The price elasticity for energy depends on many factors and remains a matter of some debate even for historical periods (see Bohi, 1981(see footnote 49)). One of the most important determinants of the elasticity of demand for energy is the time period over which consumers respond. If consumers have a long period of time they will tend to be more responsive than if they must adjust immediately. In our long-term (2100) analysis we use long-run price elasticities of demand for U.S. sectors such as buildings and industry, with numerical values near unity. That is for each percentage increase in the price of energy a similar percentage demand reduction will occur. See Edmonds and Reilly (1985)(see footnote 50)
Climate Stabilization Scenario
Q4. In your testimony you describe the U.S. component of your ''energy stabilization'' scenario. Have any changes in world energy prices, shifts in supply or demand, or any other factors since the scenario was developed, caused you to change it significantly?
If so, how?
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A4. The ''stabilization'' scenario is constrained only by a maximum allowable emission trajectory over the next 100 years. The world markets for energy, carbon, fuels, etc., determine the fuel mix necessary to meet regional and global energy demand, subject to the constraints imposed by total allowable emissions and the capital stocks of the different fuels. As such, the model structure or the scenario specification has not been, nor should it be, changed to reflect the issues mentioned in the question, which are shorter term. For example, a short-term price spike in gasoline prices, while disconcerting to a consumer today, is not particularly significant over periods of a decade or longer.
In terms of capturing historical events and trends in prices, the model inputs are calibrated to accurately reflect history.
Energy R&D Funding
Q5. You state in your testimony that current investment in energy R&D does not appear adequate.
How do you view the PCAST funding recommendations?
Are they on target?
A5. The PCAST funding recommendations are a small down payment on what is needed. As noted in the testimony, the business-as-usual scenario assumes some fairly dramatic levels of technology development. This development is significantly spurred by R&D investment. Energy R&D investment has dropped 75% over the past two decades. We must reverse this trend. The PCAST numbers are thus a small down payment that seems to reflect the reality of constrained Federal budgets and the need to be practical, as opposed to an independent evaluation of what is required.
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If society chooses to address climate change, we need to be considering a national commitment to double energy R&D, in the public and private sectors, over the next five years. The Global Energy Technology Strategy Project, referred to in my testimony makes a compelling case that new technology can reduce the cost of addressing climate change by trillions of U.S. dollars; thus, while significant near-term increases in R&D may be politically difficult now, they are one of the necessary medicines for what ails us.
ANSWERS TO QUESTIONS SUBMITTED BY REPUBLICAN MEMBERS
Post-Hearing Questions Submitted to Professor John P. Holdren, Harvard University and Chair, President's Committee of Advisors on Science and Technology (PCAST) Energy Research and Development Panel
Research, Development, and Deployment Priorities
Q1. What is appropriate balance among funding for basic research versus applied research versus demonstration? What is this balance in the PCAST recommended funding levels?
A1. The 1997 PCAST study, ''Federal Energy R&D for the Challenges of the 21st Century'', focused primarily and applied energy-technology R&D, and all of its quantitative budget recommendations related to this category. It did not make quantitative recommendations about future funding levels for either DOE's ''basic energy sciences'' activities or for energy-technology demonstration activities. Concerning basic energy sciences, the report did note that the funding level in FY1997 was $640 million compared to $1282 million in applied energy-technology R&D, and it suggested that DOE should consider increasing its basic energy sciences funding in parallel with the increases in applied energy-technology R&D funding proposed for FY1999 through FY2003. Concerning technology demonstration, the PCAST report argued that the government should support demonstrations of technologies with expected public benefits beyond the expected private returns that motivate private investment, but the report did not put a number on this activity. (This was beyond its mandate.) It did say that such a demonstration program should be designed to complement public investments in R&D, that it should be designed to reduce the prices of the targeted technologies to competitive levels, and that it should be limited in cost and duration.
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Q2. How did PCAST derive its funding levels? What were the bases for assigning the various funding levels among the different technologies?
A2. The 21-member PCAST energy R&D panel, which contained individuals from the private, academic, and NGO sectors with experience in the full range of energy options, divided itsefl itself into four task forces—end-use efficiency, fossil, nuclear (containing both fission and fusion), and renewables. Each task force studied intensively (and was intensively briefed by DOE staff) on the existing DOE R&D programs in these areas including reading evaluations of these produced by previous internal and external reviews. The task forces also considered the potentials and opportunities in each of the four areas, in relation to the major energy challenges identified in the study, and it considered the current and likely future patterns of energy R&D investment in the private sector. Each task force then developed a program of proposed Federal R&D in its area, starting from the existing DOE program and making appropriation subtractions from and additions to it, constructed to effectively exploit the opportunities and address the challenges in gaps left by private-sector R&D activities. These gaps relate most importantly to possibilities where the expected returns to society from as a whole from innovation are likely to exceed those that could be reaped by private investors, as well as where there are natural complementarities between the capabilities of the Federal government (as in the national laboratories) and the private sector. The proposals of the four task forces were then extensively debated and modified in discussion in the full committee, where considerations of overall portfolio balance, capacity to address long-term as well as short-term challenges, and likely overall budgetary constraints were brought to bear.
Carbon Dioxide Control
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Q3. In your written testimony, you states that, in your view, ''the incentives relating to our energy deployments are not likely to be 'right' until we bite the bullet and implement either a carbon tax or its equivalent in the form of a tradeable carbon-emissions permit system.''
Q3.1 What level of the carbon tax would you consider appropriate?
A3.1 The appropriate level for a carbon tax depends on how rapidly society wants to bend over the curve of carbon emissions growth, how much it is willing to pay for the abatement of climate-change risks that it buys in this way, and what the costs of low-emitting and zero-emitting energy alternatives turn out to be over time. My position is that the United States should ''get its feet wet'' by starting out with a carbon tax in the range of 10 times lower than the $100–200 per ton figures that feature in the ''scare'' scenarios of some economists. That is, we should start with $10 to $20 per ton of carbon. If applied to today's fuel-use pattern, this would raise U.S. energy costs by $15–30 billion per year, compared to the recent total of about $600 billion per year, thus by 2.5 to 5 percent overall. Part of the money could go to reduce other taxes or for debt reduction, part could go toward relieving the impacts of higher energy costs on our poorest citizens, and part could go for R&D on improved low-emitting and zero-emitting energy options. I believe the incentives generated by this modest level of carbon tax would start to push energy choices in low-emitting directions more rapidly than most people expect, unleashing a lot of cost-minimizing innovation that would make a low-carbon energy future considerably cheaper than most people expect.
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Q3.2 How would a tradeable carbon-emissions permit system be equivalent to a carbon tax?
A3.2 A tradeable permit system in which the permit price equilibrates at the market-clearing level increases the cost of energy choices that emit carbon in a way that looks to producers and consumers just like a carbon tax of the same magnitude. The two approaches differ, however, in the ways in which they would be designed and implemented. A particularly important difference is that, in the case of a tax the society decides up front how much it is going to pay for carbon emissions, per ton, and this decision then leads, through operation of the marketplace, to an overall emissions level, whereas under a tradeable permit scheme, the society decides up front how much carbon it wants to emit and issues permits in this amount, and this decision then leads, through operation of the marketplace, to a price per ton.
R&D Funding
Q4. What is the level of private-sector energy R&D and what should be done to boost that level?
A4. Complete figures on private-sector energy R&D are not available, but it appears that such expenditures in the United States in the mid-to-late 1990s were in the range of 2.5 to 3 billion 1997 dollars per year, and that these expenditures had fallen by about 2 billion 1997 dollars per year since the mid-1980s. (The mid-1990s figure was about twice the Federal government 's expenditures on applied energy-technology R&D, and equal to about 0.5 percent of national expenditures on energy. This makes energy the least R&D-intensive of all high-tech sectors, in which, more typically, firms spend 3–4 percent of sales on R&D.) The private-sector's investments in energy R&D could be increased by expanded tax credits for such R&D, by regulatory and labeling measures that place a higher premium on improved energy efficiency and/or on reduced emissions, or by economic measures (such as a carbon tax or a tradeable-permit scheme) that tend to increase the economic competitiveness of alternative energy technologies.
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DOE Program Evaluation
Q5. In your opinion, which of the Department of Energy (DOE) energy efficiency and renewable programs are better managed than others? What steps should DOE take to improve its management of these programs?
A5. I am not in a position to give a definitive answer to the question as posed. The 1997 PCAST report made a number of recommendations relating to improvements that could be made in DOE's management of its energy R&D programs across the board. These recommendations included increased use of academic-industry advisory panels in reviewing R&D programs, increased use of peer-review in judging proposals for R&D support, and increased coordination across the different sectors of DOE energy research (i.e., fossil, nuclear, renewables, end-use efficiency). It is my understanding that many of these recommendations have, in the meantime, been implemented by the Department. It is also my impression that efficiency and renewables programs were among the better-managed programs in DOE's energy R&D portfolio at the time we conducted our review, but I do not have up-to-date information that would permit a current comparison.
ANSWERS TO QUESTIONS SUBMITTED BY DEMOCRATIC MEMBERS
Evaluation of PCAST Report Based on Present Conditions
Q1. The PCAST study was completed in 1997 and presumably begun in 1996. That was five years ago. From the PCAST Committee's perspective, how much change has occurred in the intervening years in the body of facts and information that the Committee relied on in the preparation of its report?
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Are the changes sufficient to warrant a reassessment of some of the Committee's findings and conclusions?
If so, what are they?
A1. Since the report was completed, the U.S. oil-import bill has more than doubled, natural gas prices have increased, California has been plunged into an electricity crisis born of botched deregulation, and the scientific consensus on the causes and consequences of greenhouse-gas induced global climate change has grown stronger and deeper. Federal energy expenditures on applied energy-technology have increased, but not by as much as the PCAST study recommended. On the whole, these developments tend to strongly reinforce the PCAST conclusion that the country's support for R&D to develop more efficient and affordable alternatives to imported oil and high-emitting conventional fossil-fuel technologies have been and remain incommensurate with the challenges and the opportunities that the country faces in the energy field. Although I cannot speak on this on behalf of a panel that no longer meets as a group, I suspect that if we were to convene again in today's circumstances we would recommend even more substantial increases in some of the areas we examined, including for example technologies for the capture and sequestration of carbon from fossil-fuel use, fuel cells, wind power, unconventional sources of natural gas, and electricity end-use efficiency. It should be noted that a PCAST panel reporting in summer 1999, on the topic of enhancing international cooperation in energy-technology innovation (and with some, but by no means total, overlap in membership with the 1997 group), came up with very similar conclusions and priorities to those in the earlier study, within the context of a mandate to focus on international dimensions of the problems and opportunities.
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Creating Renewable Energy Market Penetration
Q2. You mention in your testimony that renewables portfolio standards could allow renewable energy technologies to contribute to U.S. and global energy needs over the next several decades. What other options should be considered to encourage utilization of renewables?
Would production tax credits be as effective as a renewable portfolio standard?
A2. Renewable energy technologies, most importantly biomass and hydropower, already contribute significantly to U.S. and world energy supplies. The renewable contributions could certainly be increased through the use of renewable portfolio standards (most effectively so with the use of auctions to yield the cost-effective way to provide the designated contribution), as well as through production tax credits (which are far more effective than investment credits). Whether renewable portfolio standards would be more or less effective than production tax credits depends on the details—What is the standard? How big is the tax credit? Carbon taxes or tradeable emission permits could also be very effective at increasing the contribution from renewables, and would be more economically efficient overall at the goal of reducing greenhouse-gas emissions because these approaches would permit selecting, from a wider range of options (including energy-efficiency improvements and advanced energy technologies of all kinds), the mix that would achieve the desired emissions reductions at the lowest overall cost.
Increasing Biomass Ethanol Production
Q3. What biomass materials will be the main components needed to meet the goal of 3 million barrels per day of ethanol by 2035?
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A3. Current U.S. ethanol production of 1 billion gallons per year (equivalent to only about 40,000 barrels of oil per day) comes from corn, but this technology is not economic without substantial Federal subsidy and is not expected to be the basis of a greatly expanded role for ethanol. Instead, the current ethanol R&D program is centered on ethanol production from low-cost cellulosic materials (e.g., various biomass residues in the short term and energy crops such as perennial grasses and short-rotation woody crops grown on excess agricultural lands and/or on land restored from a degraded state in the longer term) using enzymatic hydrolysis.
ANSWERS TO QUESTIONS SUBMITTED BY REPUBLICAN MEMBERS
Post-Hearing Questions Submitted to Mr. Joel Darmstadter, Senior Fellow, Energy and Natural Resources Division, Resources for the Future
Solar Technologies Market
Q1. Which solar technologies have made the most progress in beating past cost projections and which have made the least progress? What are the reasons for these differences?
A1. In the study cited in my prepared testimony (see McVeigh et al.), we surveyed two solar variants—solar thermal and photovoltaics. In terms of forecasts made in the 1970s, photovoltaic costs appear to have recorded the most impressive percentage reduction in capital and generation costs. These reductions stem from efficiency improvements in fabrication of photovoltaic cells as well as in the capture and conversion to electricity of solar radiation. Such improvements are expected to continue. For now, however, photovoltaic generation costs still hover at around 10 cents/kwh. That is roughly the prevailing generation cost of solar thermal generation. We did not study—nor have the competence to study—particular thermal technologies and their problems and prospects. My intuition is that solar thermal systems—being the less daunting of the two systems technologically—may ''plateau'' at a relatively costly level while photovoltaics offer the potential for steady technological improvements that will continue to drive generation costs down. Please take that as the judgment of a non-specialist.
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Q2. To what extent do the solar cost figures take into account balance-of-systems costs, such as energy storage and/or increased redundancy, to compensate for the intermittent nature of some of the technologies?
A2. The solar cost figures embody at least in part the intermittent availability of the resource. Thus, the denominator in the cents/kwh estimate would reflect the relatively low number of yearly hours—say, 2500 or so compared to the 6000 or more associated with a typical base-load fossil plant. For a given level of plant cost, the lower the availability, the higher the generation cost. Even then, the solar generation cost may represent an underestimate in comparison with a base-load facility insofar as it does not capture a charge for capacity that would allow electricity dispatch to meet load. Such capacity might be met in the future as a result of breakthroughs in storage technology, or could conceivably be met today by coupling a combustion turbine to a solar plant, but that is, to my knowledge, rarely an affordable option.
Renewable Energy Policies
Q3. In your written testimony you note that ''[s]ome states have provided additional subsidies to promote renewables, while others have established their own RPS [Renewable Portfolio Standards] requirements, generally at levels less ambitious than those proposed by the Clinton administration. It is too early to judge the success of such efforts. One element of uncertainty is that even if these measures result in new investment in renewables generation, it is possible that existing facilities may be prematurely retired because of competitive pressures.'' Please on elaborate on what you mean when you say that new investment in renewables generation may result in premature retirement of existing facilities?
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A3. While new renewable investments are likely to be governed by deregulated market conditions, some existing facilities—particularly those deployed under PURPA (Public Utility Regulatory Policies Act) avoided cost rules—may find themselves unable to compete in the new milieu. Contracts for utility purchases under PURPA will soon run out, but transactions in the mid-nineties still occurred at prices which, for nonhydro renewables, were nearly three times the then prevailing national average electric generation cost.
Q4. Please elaborate on the statement in your written testimony that ''except for potential benefits of reduced global warming, biomass offers little environmental benefit over coal''?
A4. Although the respective pollutants of the two combustion sources are different—depending on the nature of the biomass resource, particulate matter may be common to both—the benefits of damage avoidance from the two energy sources have been estimated as roughly comparable. (See Krupnick and Burtraw, cited in my prepared testimony.) But evidence on this matter is highly tentative. Moreover, there may be secondary impacts of dedicated biomass combustion—e.g., compromised water quality or land erosion in the case of agricultural feedstocks—that deserve greater attention. Even more basic is the need to differentiate among the variety of organic/biological resources that constitute the generically termed category ''biomass.'' For now, the small amount of biomass in electric generation is almost exclusively accounted for by onsite industrial generation from wood and wood waste products.
Q5. You say in your written testimony that ''[p]olicies should be sought that, as far as possible, put primary emphasis on economically and socially efficient resource use and the overcoming of real market failures, not just market barriers from high costs.''
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What are ''real market failures''?
A5. In an abstract sense, market failures are circumstances that preclude society from realizing the optimal value of its present and (discounted) future level of real income. (The members of ''society'' whose activity or behavior could contribute to such an outcome may be households, producers, or investors.) One prominent example of actual or potential market failure involves the exercise of monopoly power. Another example revolves around the presence of ''externalities'' in market transactions that fail to reflect threats to health, environment, or safety brought about by ''uninternalized,'' pollution-causing energy production or conversion. In broader applicability to energy, externalities could refer to conditions causing private actors or markets to underinvest in a socially desirable amount of basic research, leaving at least part of that task up to government. Such a governmental role does not only have some obvious practical justification but can be defended conceptually in terms of yet one more instance of externality—in this, case, what might be called an ''information externality.'' As stated elsewhere, ''[information] is commonly referred to as a public good in the sense that, once provided, it is often difficult to exclude individuals from sharing in its benefits. This means that the benefits of an additional unit of information to society as a whole exceed the benefits to the individuals paying the cost of providing that unit of information. If decisions regarding the amount of resources devoted to generating information were left entirely to the private sector, the amount of information would be suboptimal.'' (See D.R. Bohi and J. Darmstadter, ''Is National Energy Planning Oversold? Journal of the American Planning Association, Summer 1991, p. 269.) In the light of such a perspective, it seems entirely appropriate, for example, for the federal government to take the lead in developing the parameters for long-term radioactive waste management or for pursuing some of the basic research relating to carbon sequestration, rather than assume that such research initiatives can confidently be left, respectively, to nuclear energy firms or to coal-burning utilities in the expectation that successful outcomes will largely be appropriable.
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ANSWERS TO QUESTIONS SUBMITTED BY DEMOCRATIC MEMBERS
The Role of Federal Government R&D
Q1. Do you have an opinion on the way the federal government structures its R&D activities?
Are there changes that you would recommend be made in the organization, management, or even the goals and objectives of the federal R&D enterprise?
A1. See A2. below.
Q2. How far should federal R&D programs venture from basic research toward commercialization activities?
Do you see a bright line on a continuum between basic research and commercialization beyond which the federal government should not go?
Would your answer be the same for all technologies, or are there exceptions?
A2. Since the above two sets of questions are closely interrelated, I hope I can be permitted the following cross-cutting answer—prefaced, however, by the reminder that the matter of R&D strategy and policy are areas about which my views are those of a non-specialist: (a) It is admittedly facile to note that energy R&D—broadly considered—overlaps numerous federal agencies, including DOE, EPA, NRC, USDA, USGS, to name the most obvious ones. Within DOE, there is—within its far-flung operations—the activities (and comparative advantages) of headquarters personnel and those at the national labs. To the extent that the R&D component of a ''comprehensive'' national energy policy is a legitimate concern, an effort that ensures coherence among the R&D activities of these various entities may be desirable. (b) Notwithstanding the difficulty of making a sharp dichotomy between the research and the developmental parts of federal energy support, the primacy that I believe should be accorded the former deserves to be kept continuously in mind. (The GAO–DOE exchange, cited in the GAO reference in my prepared remarks, points up the issue.) Subsidies or even cost-share programs that target well-established industries like automobile manufacturing or fossil-fuel combustion merit close scrutiny as to whether federal programs are a socially justified complement to, or merely serve to crowd out, private initiative. (c) There are undoubtedly some technologies that warrant a more conspicuous federal role than can be determined by invoking some hard-and-fast divide on the R;D continuum. Consider the possibility of a revived nuclear energy momentum. If such a revival is thought to be something that that should not be excluded from a broad-ranging energy technology portfolio, it is inconceivable that, at least for the time being, the necessary impetus could be largely left to the private sector. (These thoughts are relevant to, and overlap, question Q5 on market failures, posed by the Majority Membership.)
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Tax Credits and Portfolio Standards
Q3. How economically efficient do you believe the current wind production tax credit is?
Should production tax credits be extended to the other renewables, and if so, on the same terms and conditions?
A3. There are two principal reasons to question the virtues of a production tax credit as a preferred vehicle for supporting renewables—wind or otherwise—in order to encourage their greater penetration of energy markets: (a) At the broadest level, to the extent that the benefits of renewables are meant to offset the ''disamenities'' of fossil fuels, it would be more efficient to inhibit use of the latter rather than overstimulate aggregate electricity demand by trying to drive down renewables prices. Constituency pressures don't help achieve a more balanced outcome: traditional energy producers resist the need to internalize yet one more externality; renewables advocates argue entitlement to a fairer shake in the marketplace. I don't minimize the difficulty of dealing with these aspects. (b) Policymakers would need to appraise the technological/economic status of given systems at given intervals as a basis of assessing the need for tax relief: would a 15 cents/kwh system warrant the same 1.7 cents/kwh (or whatever) tax credit as a system producing electricity at, say, 5 cents/kwh? In other words, as technological breakthroughs occur (or fail to occur), the need for the credit—its magnitude and duration—would need to be legislatively reevaluated. Beyond these two aspects, it is worth noting that tax credits are only one of the sources of policy support for renewables. There is R&D support, favorable amortization treatment, and other financial preferences. At the very least, more informed policy choices might be possible if the different instruments of support for different renewable resources could be more readily analyzed and compared.
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Q4. Which approach do you believe is more economically efficient, a renewable portfolio standard or production tax credit?
Which one do you believe would get more renewable generating capacity deployed?
A4. There are two principal reasons to question the virtues of a production tax credit as a preferred vehicle for supporting renewables—wind or otherwise—in order to encourage their greater penetration of energy markets: (a) At the broadest level, to the extent that the benefits of renewables are meant to offset the ''disamenities'' of fossil fuels, it would be more efficient to inhibit use of the latter rather than overstimulate aggregate electricity demand by trying to drive down renewables prices. Constituency pressures don't help achieve a more balanced outcome: traditional energy producers resist the need to internalize yet one more externality; renewables advocates argue entitlement to a fairer shake in the marketplace. I don't minimize the difficulty of dealing with these aspects. (b) Policymakers would need to appraise the technological/economic status of given systems at given intervals as a basis of assessing the need for tax relief: would a 15 cents/kwh system warrant the same 1.7 cents/kwh (or whatever) tax credit as a system producing electricity at, say, 5 cents/kwh? In other words, as technological breakthroughs occur (or fail to occur), the need for the credit—its magnitude and duration—would need to be legislatively reevaluated. Beyond these two aspects, it is worth noting that tax credits are only one of the sources of policy support for renewables. There is R&D support, favorable amortization treatment, and other financial preferences. At the very least, more informed policy choices might be possible if the different instruments of support for different renewable resources could be more readily analyzed and compared.
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APPENDIX 2:
Additional Material for the Record
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(Footnote 40 return)
Resources for the Future, 1616 P Street, NW, Washington, DC 20036 (e-mail: darmstad@rff.org). Resources for the Future is a non-profit, non-advocacy research and educational organization specializing in problems of natural resources and the environment.
(Footnote 41 return)
Standard & Poor's DRI, U.S. Energy Outlook (Spring/Summer 2000); Gas Research Institute, GRI Baseline Projection of U.S. Energy Supply and Demand, 2000 Edition (January 2000); and The WEFA Group, U.S. Energy Outlook (2000). In April 2000, the Gas Research Institute merged with the Institute of Gas Technology to form the Gas Technology Institute.
(Footnote 42 return)
National Petroleum Council, Natural Gas, Meeting the Challenges of the Nation's Growing Natural Gas Demand (December 1999) and American Gas Association, 1999 AGA–TERA Base Case (December 1999).
(Footnote 43 return)
Independent Petroleum Association of America, IPAA Supply and Demand Committee Long-Run Report (April 2000).
(Footnote 44 return)
Energy Information Administration (EIA), Analysis of the Climate Change Technology Initiative, SR/OIAF/99–01 (Washington, DC, April 1999), www.eia.doe.gov/oiaf/archive/climate99/climaterpt.html and EIA, Analysis of the Climate Change Technology Initiative: Fiscal Year 2001, SR/OIAF/2000–01 (Washington, DC, April 2000), www.eia.doe.gov/oiaf/climate/index.html
(Footnote 45 return)
Office of Energy Efficiency and Renewable Energy, U.S. Department of Energy, Scenarios for a Clean Energy Future, (Washington, DC, November 2000).
(Footnote 46 return)
Renewable Energy Technology Characterizations, EPRI TR–109496, December 1997. This document was jointly prepared by the DOE Office of Energy Efficiency and Renewable Energy, and the Electric Power Research Institute.
(Footnote 47 return)
''Renewable Energy Issues and Trends 2000,'' DOE/EIA–0628 (2000), February 2001, p. 46, Table 3. Landfill-gas-to-electricity facilities have an initial capital cost of $1,395/kW (1999 dollars) [''Assumptions to the Annual Energy Outlook 2001 (AEO2001),'' DOE/EIA–0554 (2001), December 2000, p. 69, Table 43].
(Footnote 48 return)
For example, C&A Carbone, Inc. v. Town of Clarkstown, New York, which overturned restrictions on shipment of municipal waste to landfills rather than to more expensive combustion facilities.
(Footnote 49 return)
Bohi, Douglas R. (1981). Analyzing Demand Behavior: A Study of Energy Elasticities. (Johns Hopkins University Press for Resources for the Future, Baltimore, MD).
(Footnote 50 return)
Edmonds, J., and J. Reilly (1985). Global Energy: Assessing the Future (Oxford University Press, New York).