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Congressional Testimony
May 24, 2000, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
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TESTIMONY May 24, 2000 MELANIE A. KENDERDINE ACTING DIRECTOR OF POLICY U.S.
DEPARTMENT OF ENERGY HOUSE COMMERCE ENERGY AND POWER NATIONAL
ENERGY POLICY
BODY:
MAY 24,2000 STATEMENT OF
MELANIE A. KENDERDINE ACTING DIRECTOR OF POLICY U.S. DEPARTMENT OF ENERGY BEFORE
THE SUBCOMMITTEE ON ENERGY AND POWER OF THE COMMITTEE ON COMMERCE U.S. HOUSE OF
REPRESENTATIVES THE CLINTON/GORE ADMINISTRATION'S ENERGY POLICY The
Administration's "First Principle ".- Reliance on Market Forces Mr. Chairman and
members of the Subcommittee, I am pleased to be here today to discuss the
Administration's National Energy Policy with the Subcommittee. Sound energy
policy is not only important to the day-to-day functioning of our society, it is
essential to the continued improvement in our standard of living. Energy is a
key economic driver and a strategic global commodity. Energy has significant
impacts on the environment at the same time it offers real market opportunities.
The "first principle" of the Administration's energy policy has been a reliance
on free markets as the best means of informing supply and demand, and getting
the most for the American consumer. Our commitment to this principle has
contributed to the longest period of sustained economic growth in modem times.
The unprecedented economic expansion under this Administration has pushed the
overall unemployment rates to 30-year lows, led to increased labor productivity,
generated extraordinary gains in the nation's stock markets, given us the first
federal budget surpluses in several decades, and helped to significantly reduce
poverty rates, all while maintaining low levels of inflation. This does not mean
market failure will not occur. When markets are insufficiently fixable to
address critical national challenges ... market transformations require market
pushes and pulls. . . or groups of individuals or businesses are threatened by
market disruptions or dislocations... this Administration has not hesitated to
take appropriate action. Examples of interventions in the energy arena include:
the release of emergency LIHEAP funds during last winter's home heating oil
crisis; support for a home heating oil reserve in the Northeastern United States
and support for tax incentives for renewable energy or to increase domestic oil
and gas production. Economic Growth, Energy Use and Environmental Protection are
Not Mutually Exclusive At the same time that the economy has been steadily
growing, many of the environmental consequences of energy use have been reduced
-- this point is clearly made by Chart # I which plots growth in GDP against
certain emissions associated with energy use. There is good news: 0Since 1990,
at the same time the US economy has grown by 35 percent, sulfur
dioxide emissions have declined by around 20 percent; 0The energy intensity of
our economy -- the amount of energy used per unit of economic output -- has
declined by 40 percent since the mid-seventies; In 1974, we consumed 15 barrels
of oil for every $ 1 0,000 of gross domestic product -- today we consume only
eight barrels for every $ 1 0,000. Energy use, while increasing, has been
out-paced by the economic growth achieved by the Clinton/Gore Administration.
Also, increased energy efficiency - in homes, businesses and manufacturing - has
helped insulate the economy from short-term market fluctuations in energy
prices. Through wise policy choices and informed, targeted investments of public
dollars, we can have an extremely robust economy fueled by relatively
inexpensive energy, and protect the environment and the health of our citizens.
Policy Framework for our Energy Strategies The Clinton/Gore Administration has
published two statements of its national energy policy in the last several
years: Sustainable Energy Strategy (July 1995) and The Comprehensive National
Energy Strategy (CNES, April 1998). Both documents provide a guide to energy
policies proposed and implemented by the Administration, and seek to ensure that
energy policy is well integrated into the Nation's economic and national
security policies. We are currently in the process of updating the CNES and
should be releasing this update shortly. In addition, the President's Committee
of Advisors on Science and Technology has completed two scientific reviews of
energy related technology development, Federal Energy Research and Development
for the Challenges of the 21" Century, in 1997 and, more recently, Powerful
Partnerships in 1999. These two documents provide an analysis of energy
technologies being developed by the Department, and make recommendations on how
to best utilize these technologies both domestically and internationally.
Finally, the Department over the last several years, has engaged in numerous
roadmapping exercises with industry, government, and academic stakeholder
groups, and two extensive energy portfolio exercises, in which we matched our
energy R&D investments against larger strategic goals of the CNES. This
process, followed by an analysis of the portfolio, has helped us to identify
gaps in our portfolio and opportunities for additional investments in energy
technology. The Comprehensive National Energy Strategy, which DOE released in
1998, identified five overarching energy goals: -improving the efficiency of the
energy system; -Ensuring against energy supply disruptions; -Promoting energy
production and use in ways to protect human health and the environment;
-Expanding future energy choices, and; -Cooperating internationally on energy
issues. The Nation's Energy Challenges In addition to identifying five energy
goals, the CNES highlighted three major energy challenges for policy-makers.
These are: -Maintaining America's energy security in global markets; -Harnessing
the forces of competition in restructured energy markets, and; -Mitigating the
environmental impacts of energy use. While each of these challenges warrants
different Government actions, there is a need to invest in the development of
alternatives and longer-term technologies to meet our future energy needs. We
have added an additional long-term energy responsibility to the three CNES
challenges: 0Ensuring a diverse set of reliable and affordable energy sources
for America, now and in the future. I now want to summarize how the Clinton/Gore
energy policy utilizes market forces, policies, and investments in research and
development to address each of these challenges. 0 challenge # 1: Maintaining
America's Energy Security in Global Markets The United States remains heavily
dependent on crude oil. Since 1985, domestic crude oil production has declined
by 34 percent, while domestic oil consumption has increased by more than 22
percent. In 1974, net imports of crude oil and products supplied about 35
percent of U.S. consumption. In 1999, net imports supplied about 50 percent of
U.S. consumption. The Administration's response to the important role of oil in
our economy and the increase in net imports recognizes the following:
Consumption of oil continues to grow; The cost of oil production in the U.S. is
high relative to other producing nations; The price of oil is a world price.
High or low prices of oil worldwide will mean high or low prices domestically;
Reducing volatility in oil prices will spur investment and match supply to
demand; Global capacity must be increased if we are to meet domestic and
international demand for oil; Increasing net imports are not only an indicator
of flat or declining domestic production, but also a reflection of increased
domestic consumption; Almost two-thirds of our oil is used for transportation.
To spur domestic production and lower the costs of doing business - without
imposing quotas on imported oil, which would raise costs to consumers - the
President has proposed tax incentives for 100 percent expensing of geological
and geophysical costs (G&G), and allowing the expensing of delay rental
payments. G&G expensing will encourage exploration and production. Delayed
rental expensing will lower the cost of doing business on federal lands. The
Administration has also supported and promoted virtually all significant energy
legislation enacted by the Congress over the last seven years. This includes
legislation for: Deepwater Royalty Relief-, lifting the ban on the export of
Alaska North Slope Oil; Royalty Simplification; privatization of the Elk Hills
Naval Petroleum Reserve; the transfer and lease of Naval Oil Shale Reserves One
and Three for production; Alternative Minimum Tax (AMT) and percentage depletion
tax relief for small operators; and creation of a guaranteed loan program for
small domestic oil and gas producers. The Administration has also proposed
legislation to transfer Naval Oil Shale Reserve Two to the Ute Indian Tribe for
production; USGS estimates that there may be as much as 0.6 tcf of gas on this
property. To address higher US exploration and production costs compared to
other countries, we have invested in a portfolio of technologies designed to
lower the costs of exploration and production, and to' produce hard-to-find oil
in more mature fields. In large part because of the joint R&D efforts of
government and industry, the U.S. petroleum business has transformed itself over
the past three decades into a high-technology industry. The United States is a
mature oil-producing region. While an estimated two-thirds of all U.S. oil
remains in the ground, much of it is located in deep, complex reservoirs or
environmentally- sensitive areas. Development of advanced oil and gas
technologies is essential to efficiently maximize the production of domestic
resources while preserving the environment. A single project in DOE's five-year,
$118 million government/industry Oil Reservoir Class Program has already added
2.4 million barrels of oil from one field and produced an additional $12.7
million in taxes and royalties. The final outcome of this project is expected to
produce an additional 31 million barrels of oil and $160 million in federal
revenues. The Department of Energy conducted the initial design of the
polycrystalline drill bit, now used in about 40 percent of drilling worldwide,
with annual industry sales in excess of $200 million. innovations such as
horizontal drilling have revitalized oil production from the Austin Chalk region
of Texas to. the Dundee formation of Michigan. New imaging technologies
developed by DOE labs are revealing large hydrocarbon supplies beneath the ocean
floor salt formations in the Gulf of Mexico and 3D seismic is now standard in
the industry. Secondary gas recovery technologies have led to new gas production
from south Texas and the mid-continent. In Alaska, oil is now being produced
from wellpads that are one tenth the size of those 30 years ago. Industry and
the Department of Interior estimate that new discoveries in the Gulf of Mexico
may yield as much as 18 billion barrels of oil - more than Prudhoe Bay.
Technological innovations in subsalt imaging, reservoir characterization, and
drilling technologies will enhance our ability to economically produce these
reserves. To ensure that we are not overly reliant on imports front a single
region of the world, we have diversified our sources of supply. Although our oil
imports have increased, our sources of these imports have changed significantly
over the last two decades. Last year, we imported 4.85 million barrels of oil
per day from OPEC nations, down 22 percent from the 6.19 million barrels of oil
per day in 1977. Our imports now come from over 40 countries. During this same
period, OPEC's share of the world market has dropped from 49 to around 41
percent. In 1970, the top six producers in the world controlled 68 percent of
the world's production; this figure is now down to 45 percent. I note that just
recently, a significant oil find was made in the Caspian Basin which is thought
to have potential reserves equaling or surpassing the North Sea. The
Administration has invested in a significant diplomatic effort to encourage oil
development in this region, as well as to encourage the investment of U.S.
energy firms in the Caspian. To help the world develop its oil resources and
increase world capacity, Secretary Richardson has actively promoted investment
and development of the world's energy resources. Most notably, Secretary
Richardson has held two international energy summits - the Western Hemisphere
Energy Ministers Summit in New Orleans and the African Energy Ministers Summit
in Tucson, to discuss energy issues and plot a course for global energy
development and future uses. In addition, the Secretary has traveled to
virtually all the major energy producing regions of the world - the Caspian,
Russia, the Middle East, Nigeria, Norway, Mexico, and Venezuela - to encourage
energy production and business for U.S. energy companies. To increase the
coverage provided by our "national energy insurance policy, " the Strategic
Petroleum Reserve, we are adding 28 million barrels of oil to fill the Reserve
back to the 590 million barrel level, its approximate size prior to the
revenue-raising sales directed by the Congress in 1996 and 1997. The replacement
of this oil in the Reserve was also done through a unique royalty-in-kind
payment, with no outlays for the government. In addition, we have completed
upgrades for the Reserve - to make it safer and to extend the useful life of the
facility. This seven-year project was completed ahead of schedule and under
budget. To address volatility in world oil markets, we have strengthened our
ties with the world's oil producing nations, worked closely with oil consuming
nations through organizations such as the International Energy Agency, and
launched a campaign to improve the collection, dissemination and understanding
of world oil supply and demand data. Last January, prominent industry analysts
and data experts met at a DO ' E-sponsored forum in Houston to discuss how the
quality, timeliness and availability of oil data might be affecting volatility
in oil prices. DOE will be co- hosting an international conference in Spain this
surnmer as a follow-on to the earlier meeting. There is significant
international interest in this issue and growing consensus that the world needs
better data for producers and consumers to more accurately gauge oil supply and
demand. We are also investing in reducing net oil imports by focusing on demand
side technologies and policies. More than 60 percent of our oil consumption is
for transportation, making vehicle fuel efficiency a ripe target for reducing
the consumption side of the net import equation. Specifically, the Department's
transportation program is: 0developing an 80 mile-per-gallon (mpg) prototype
sedan by 2004 through our Partnership for Next Generation Vehicles Program;
0improving light truck fuel efficiency by 35 percent while meeting newly issued
EPA Tier 2 emission standards by 2004; 0developing technologies to increase fuel
economy of the largest heavy trucks from 7 to 10 mpg (nearly 50 percent) by
2004; 0increasing domestic ethanol production to 2.2 billion gallons per year by
20 1 0; 0develop production prototype vehicles that will double the fuel-
efficiency of tractor trailer truck and triple the efficiency of heavy-duty
pick-ups; and 0supporting tax credits for hybrid vehicles. Let me illustrate
just how important these investments are. As you can see on Chart #2, over the
past decade, vehicle manufacturers have focused on increasing horsepower at the
expense of miles per gallon, the exact opposite of what occurred in the 1970's
when auto manufacturers were more focused on fuel- efficient vehicles.
Increasing the average fuel economy for cars and light duty vehicles by just
three miles per gallon would save almost a million barrels of oil per day. This
represents over 15 percent of current U.S. daily production. Investing in fuels
and more fuel-efficient vehicles could substantially reduce our reliance on
imported oil at the same time it contributes to a cleaner, healthier
environment. Without minimizing the, importance of increased oil production, it
is clear that even a small commitment to greater vehicle efficiency will net
significant gains in reducing net oil imports, without compromising pristine
onshore or offshore environmental ecosystems. 0Challenge #2: Harnessing the
Force of Competition in Restructured Energy Markets As I have noted, the
Clinton/Gore approach to energy policy is built around the principle of
market-oriented approaches to energy supply and use. A reliance on markets is
not unique to our Administration - it spans both Republican and Democratic
Administrations. Natural gas is a clear area of success for market-driven energy
policy for recent Administrations. With deregulation, natural gas has emerged as
a plentiful, national energy resource. In the mid- 1970's, a labyrinth of
outdated and counterproductive pricing regulations had handcuffed America's
natural gas industry, stifling exploration and production and conveying the
false impression that America's natural gas supplies were on the wane. Today,
the onerous natural gas regulations which started in the 1950s, have been
replaced by a restructured and highly competitive gas market, and natural gas is
now one of the most plentiful energy resources available to meet the Nation's
future energy and environmental needs. The decontrol of natural gas prices, the
advent of competition in interstate gas transportation, and the ability of
industrial customers (and increasingly residential consumers) to contract
directly for their own gas supplies has clearly provided major benefits to both
producers and consumers. Electricity restructuring is the biggest prize of all.
Over 40 percent of the nation's energy bill goes for electricity. With over $200
billion in annual sales, electricity is the lifeblood of our economy, and the
reliable supply of electricity is vital to our economy and to the health and
safety of all Americans. The Clinton/Gore Administration is seeking, with
Congress, to extend the role of markets and competition into the electricity
sector. At one time, the debate surrounding electricity restructuring focused on
the pros and cons of doing away with the vertically- integrated monopoly utility
that generated, transmitted and distributed the power consumed in a
state-designated monopoly service territory. That debate is over. As a result of
the Energy Policy Act of 1992 and the efforts of the Federal Energy Regulatory
Commission (FERC), utilities are now buying power from competing generators and
marketers at competitive rates rather than building plants on their own, and
independent power producers are gaining an increasing share of the generation
market. Restructuring and competition are not, of course, limited to the
wholesale markets. Twenty-five states have now adopted electricity restructuring
proposals that allow for competition at the retail level. Almost every other
state has the matter under active consideration. These are positive developments
-_ competition, if structured properly, will be good for consumers, good for the
economy and good for the environment. Companies that had no incentive to offer
lower prices, better service, or new products are now being required to compete
for customers. Consumers will save money on their electric bills. Lower electric
rates will also make businesses more competitive by lowering their costs of
production. By promoting the use of cleaner and more efficient technologies,
competition will lead to reduced emissions of greenhouse gases and conventional
air pollutants. Securing a Competitive Future Requires Both State and Federal
Action. We believe that the full benefits promised by electricity competition
can be realized only within an appropriate Federal statutory framework. What we
do at the Federal level, and when we do it, will have a profound impact on the
success of wholesale competitive markets, as well as on state and local retail
markets. Federal action is necessary for state restructuring programs to achieve
their maximum potential. Electrons do not respect state borders. Electricity
markets are becoming increasingly regional and multi-regional. Actions in one
state can and do affect consumers in other states. States and the Federal
government must work together. States alone can't ensure that regional power and
transmission markets are efficient and competitive. They can't provide for the
continued reliability of the interstate bulk power grid. And states can't remove
the Federal statutory impediments to competition and enable competition to
thrive in the regions served by Federal utilities. Clearly, some states are
considering retail competition proposals at a less rapid pace than others.
Nevertheless, Federal action is equally important to all states. If wholesale
markets, which transcend state boundaries, are not working efficiently, the
impediments to the flow of power between states will cause rates to go up and
reliability to be endangered. The Clinton Gore Administration encourages
Congress to pass comprehensive electricity restructuring legislation. In 1998
and again in 1999, the Administration presented the Congress with a
comprehensive legislative blueprint of changes needed for updating the federal
statutory framework to support the advent of competition in electricity markets.
Indeed, this bill was a featured element of the Comprehensive National Energy
Strategy the Administration sent to Congress in April, 1998. A well-structured
electricity bill is a centerpiece of the Administration's energy policy, and we
look forward to working in a bipartisan manner with both the House and Senate to
pass this or similar legislation. Mr. Chairman, we recognize the efforts of this
subcommittee, which reported an electricity bill last October. We urge this
Congress to replicate the earlier bipartisan successes with natural gas and oil
deregulation and pass a comprehensive restructuring bill this summer. Ensuring
the reliability of the energy grid is a growing focus of the Administration Is
R&D efforts. While the electricity system powers other infrastructures, it
will also be increasingly dependent on natural gas as a fuel source for both
central power stations and small, distributed generation. EIA's Annual Energy
Outlook, 2000, projects the annual growth of 4.3 percent for the use of natural
gas for electricity generation through 2020. In addition, our energy delivery
systems are becoming increasingly reliant on telecommunications and computing
systems for fast, efficient operation. These trends will likely result in
increased efficiencies and a range of new consumer products, but can also
potentially increase physical and cyber threats to our energy infrastructure. To
ensure the reliability and security of the electricity and natural gas
infrastructures, the Administration has proposed a new Energy Infrastructure
Reliability initiative with three components: *electric reliability which will
focus on regional grid control, distributed resources and microgrids,
information system analysis, possible offsetting of peak summertime electric
load with distributed generation and natural gas cooling technologies for
example, and high capacity transmission; * ,natural gas
infruastructure.reliability to include storage, pipeline and distribution
R&D, and; *secure energy infrastructures, vulnerability assessments,
interdependency analysis, risk analysis, and the development of protection and
mitigation technologies. Challenge #3: Mitigating the Environmental Impacts of
Energy Use The production, transport and conversion of energy is fundamental to
our way of life and continued economic prosperity, but energy has more
significant effects on the environment than any other economic activity. To
reduce these adverse effects, the federal and state governments have imposed
environmental restrictions on energy, from production to end-use. These
restrictions have, as noted earlier, resulted in reductions in energy-related
pollution and environmental damage, and have been achieved without substantial
increases in energy prices, disruptions in energy supplies or other adverse
economic impacts. This achievement is due, in part, to the constructive role
that the Department of Energy has played in the development of
environment-friendly energy technologies and the adoption of regulatory policies
that have enabled the energy industry to minimize costs and avoid supply
disruptions. We cannot, however, stop with the successes achieved to date.
Domestically, one of the leading challenges facing us now is further reducing
the environmental impacts of energy use in the transportation and power
generation sectors. We want to minimize the negative effects of fossil fuel
combustion in ways that do not increase prices or price volatility, or decrease
reliability. Other domestic environmental challenges that will require careful
monitoring include: assuring the continued access of the energy industry to new
resource areas, in a manner that protects our natural heritage; and ensuring
that any further regulation of the energy sector is based on good science and is
cost-effective. Internationally, responding to the threat of climate change is
the greatest challenge facing the energy sector. To provide the technologies
that reduce greenhouse gas emissions, and to preserve U.S. competitiveness and
economic growth, President Clinton has proposed an aggressive $4.1 billion FY
2001 climate change package. The package includes: the International Clean
Energy Initiative, Clean Air Partnerships, Climate Technology Initiative and
other programs that preserve jobs and the climate. This includes R&D and
deployment initiatives for a broad range of technologies including those using
fossil fuel. For example, the President's plan contains a significant request
for Clean Coal technology funding and for carbon sequestration to offset the
carbon emissions from fossil fuels. We are working with other countries to
elaborate rules and guidelines for the flexibility mechanisms identified in the
Kyoto Protocol -- emissions trading, the Clean Development Mechanism and Joint
Implementation. Only through the use of market-based emissions trading and
related mechanisms, can we substantially slow or halt the growth in global
greenhouse gas emissions without imposing unacceptable costs on the United
States. Many different economic analyses done both in the private and the public
sectors, indicate that the cost savings from full implementation of the Kyoto
Mechanisms could reduce costs in excess of 50 percent from more regulatory
approaches. We have a historic opportunity to complete the elaboration of an
internationally unprecedented market-based approach to climate protection that
will lower costs and spur U.S. technology exports. The anticipated use of these
mechanisms will also provide the economic incentive for developing countries to
make meaningful commitments to greenhouse gas emissions reductions. Sound
science is the cornerstone of DOE's work on energy-related environmental issues.
The Department has been a partner with EPA and other regulatory agencies in
developing science- based regulations. This was seen recently in DOE's work with
EPA on coal ash; and last year in our work with EPA on coal combusters of fossil
fuels containing cobalt or vanadium. These are two examples where it was
demonstrated, through science and interagency cooperation, that regulations of
the energy industry were not needed. Our work on climate change on the other
hand, is part of the substantial body of scientific evidence that demonstrates
the impacts of carbon emissions on the global environment, supports the
Administration's commitment to mitigating the impacts of greenhouse gas
emissions on the atmosphere and human health, and strongly suggests that
significant and timely action to mitigate climate change is needed. Cost is a
key consideration. The costs and benefits of alternative approaches must be
weighed. To the extent feasible, the costs of reducing adverse environmental
impacts should be shared fairly among all of the contributors to an
environmental problem, not borne primarily by a small subset of industries or,
in the case of global climate change, a small subset of countries. Most
recently, the Department of Energy helped develop the economic analysis for
treating small refiners as a separate class of businesses under the recently
released Tier II gasoline sulfur rule. This treatment for small
refiners will give them additional time and flexibility in meeting the
requirements of the rule. We are similarly engaged with other agencies in the
government on proposed low sulfur rules for diesel fuel and for
MTBE. An important element of the Administration's energy policy is support for
the development of energy technologies to reduce environmental impacts of energy
use by: -promoting technologies to produce cleaner conventional fuels;
-increasing the efficiency in the use of conventional energy sources, primarily
fossil fuels, and; -developing alternative sources of energy. Cleaner Fuels . On
the transportation side of fuel use, vehicles currently account for a large
portion of urban pollution, including 77 percent of carbon monoxide, 49 percent
of nitrogen oxides, and 37 percent of volatile organic compounds. The
transportation sector also generates one third of U.S. carbon emissions. In
coming decades, increasing public health and environmental concerns will likely
lead to new environmental regulations that may be difficult or impossible to
meet with current fuels. The President's Bioenergy and Biobased Products
Initiative is intended to address this growing need. Recent scientific advances
in bioenergy and biobased products have created enormous potential to enhance
U.S. energy security, help manage carbon emissions, protect the environment, and
develop new economic opportunities for rural America. This nation has abundant
biomass resources (grasses, trees, agricultural wastes) that have the potential
to provide power, fuels, chemicals and other biobased products. The President
has set a goal of tripling U.S. use of biobased products and bioenergy by 2010,
which would generate as much as $20 billion a year in new income for farmers and
rural communities, while reducing greenhouse gas emissions by as much as 100
million tons a year - the equivalent of taking more than 70 million cars off the
road. DOE has also launched a new initiative this year, the Ultra-Clean Fuels
Initiative, to address the need for cleaner fuels within the context of the
current refining infrastructure. 'Me Ultra- Clean Fuels Initiative will mobilize
industry and DOE's national laboratories to develop and demonstrate new
technologies for making large volumes of clean fuels from our diverse fossil
energy resource base. In the nearer term, ultra-clean transportation fuels can
be produced by upgrading refinery technology, and using new bio-fuel blends. In
the mid-to-longer term, ultra- clean transportation fuels can be developed
through biotechnology, or from natural gas and coal, which enjoy high levels of
compatibility with the existing infruastructures and could provide environmental
benefits due to their suitability for use in advanced, high-efficiency vehicles.
On the power side, fossil fuel-fired power plants emit about one third of the
nation's carbon dioxide and significant amounts of NOX, SOX and particulates.
These plants also account for 70 percent of all U.S. electricity generation and
are projected to dominate power generation for the foreseeable future.
Technologies for coal-fired power plants, developed by DOE, have resulted in
improved performance at a fraction of the original cost. Coal is used to
generate almost 52 percent of the nation's electricity and scrubbers are now
deployed on one-third of U.S. coal plants. Our partnerships with industry have
resulted in rapid development, of low cost NOx technologies to address both near
term needs and future environmental challenges. The near tern challenge has been
met by the addition of low-NOx burner technology to virtually all coal-fired
boilers, and even more stringent technologies will be installed on a substantial
portion of coal units. These technologies are 50-90 percent cheaper than options
available just IO years ago. To address pollution from coal and natural gas
power systems, DOE has a program - Vision 21 - with a goal of near-zero
emissions from power generation and 60 to 70 percent generation efficiencies.
The fleet of large, high- efficiency power systems envisioned by this program
would produce emissions well below New Source Performance Standards for SOX,
NOX, and particulates, with most advanced systems achieving near- zero emissions
for regulated pollutants. DOE's Carbon Sequestration Program is designed to
develop technologies and practices to sequester carbon that: are effective and
cost-competitive; provide stable, long-term storage; and are environmentally
benign. Increased carbon emissions are expected unless energy systems reduce the
carbon load to the atmosphere. Accordingly, carbon sequestration - carbon
capture, separation and storage or reuse - must play a major role if we are to
continue to enjoy the economic and energy security benefits which fossil fuels
bring, to the nation's energy mix. Increasing efficiency in the Use of
Conventional Energy Sources. It is particularly important to develop and deploy
higher efficiency technology for fossil energy power generation since 85 percent
of America's energy currently derives from oil, gas and coal. In electricity
generation alone, energy efficiency potentially could be doubled through
cogeneration and the application of advanced technologies. DOE's advanced
turbines - fueled by natural gas or biomass, and capable of reducing NOX
emissions and producing steam together with low-cost electricity - are already
approaching efficiencies of 60 percent. High efficiency electric power systems,
where fuel cells are joined with combined cycle plants, could improve efficiency
to as much as 70 percent. Industrial resource recovery could be dramatically
improved with the development of technologies such as an integrated gasification
combined power technology, which would convert coal, biomass and municipal solid
wastes into power and products. The U.S. uses 94 quads of primary energy a year.
The nation's 100 million households and 4.6 million commercial buildings consume
36 percent of the total. Buildings also use two thirds of all electricity
generated nationally. Energy consumption in buildings is a major cause of acid
rain, smog and greenhouse gases, representing 35% of carbon dioxide emissions,
47 percent of sulfur dioxide emissions and 22 percent of
nitrogen oxide emissions. Clearly, more efficient buildings will pay big
dividends in reduced energy use and a cleaner environment. Research and
deve.1gpment areas for buildings include: heating, ventilation, and air
conditioning; building materials and envelope; building design and operation;
lighting; appliances, and; on-site generation. To use energy more efficiently,
we are working to develop "intelligent building" control systems, more efficient
appliances, and fuel cells to power commercial buildings. Standards to improve
the energy efficiency of flourescent lighting in commercial and industrial
applications, proposed this March, are expected to save between 1.2 and 2.3
quadrillion BTUs of energy over 30 years, enough energy to supply up to 400,000
homes per year over the same time period. We have recently proposed an update to
the efficiency standards for water heaters, and expect to issue proposals for
clothes washers and central air conditioners in the near future -- each of which
are likely to produce even greater energy and environmental benefits. The
industrial sector consumed almost 35 quads of primary energy in 1997 - about 38
percent of all energy used in the United States. The industrial sector contains
extraction industries, as well as materials processing and product manufacturing
industries. Over 80 percent of the energy consumed in manufacturing (including
feedstocks) occurs in only seven process industries: aluminum; steel, metal
casting, forest products, glass, chemicals, and petroleum. These major process
industries are becoming more capital-intensive. Markets are continuing to become
more competitive globally. Reducing energy costs and waste, and reducing or
eliminating environmental emissions upstream (closely related to energy use) are
recognized, controllable costs that can increase productivity and
competitiveness of U.S. businesses and decrease costs. The Department's primary
program for industrial efficiency is Industries of the Future, which focuses on
these seven most energy-intensive and supports collaborative research,
development, and demonstration efforts to accelerate efficiency in U.S.
industries. If the Department's energy efficiency programs were fully funded, we
could likely: reduce industry energy consumption per dollar of output; 0increase
the average fuel efficiency of new cars and light trucks by 20 percent by 2010;
-reduce the annual energy consumed by buildings; and -by 2010, reduce energy
consumption in federal facilities by 35 percent relative to the 1985 consumption
level, saving taxpayers $12 billion from 2000-2010. These reductions in energy
demand will result in comparable reductions in greenhouse gas emissions, as well
as reductions of other environmental impacts associated with energy use. Of
course, none of this can be achieved without the active support of other
agencies, industry and consumers. DOE looks forward to working with the Congress
to develop and fund programs to increase the efficiency of our transportation,
commercial, manufacturing and building sectors in order to save energy, increase
the competitiveness of U.S. industry, and reduce our reliance on imported oil.
Investing a in Renewable Power Sources. Renewable resources such as wind, solar,
photovoltaics, geothermal, biomass, hydrogen, and hydroelectric, are abundant.
These alternatives are used for power generation and their primary advantage is
that they produce virtually no emissions or solid wastes. Their primary
disadvantages are the cost of producing power (except hydro) compared to coal
and natural gas, and the need to create an infrastructure required to deliver
this power to market. To take advantage of the environmental benefits of
renewable power, the Department has focused on decreasing its costs and tackling
infrastructure issues. The most feasible approach to lowering cost and
delivering renewable power appears to be through distributed generation -
alternatives to central power stations, where power is generated locally or
on-site. Distributed generation technologies are a major R&D focus at DOE.
In addition, the Department is working on improving the performance of specific
kinds of renewable energy. The growth for wind power, for example, is the
highest of all sources of energy in the world. Dramatic improvements in wind
turbine technology has helped spur a 25 percent increase in wind-generating
capacity over the last decade. Costs of wind generated power have dropped
dramatically to between four and six cents per kilowatt hour. Photovolatic costs
are down from one dollar in 1980 to between twenty and thirty cents today.
Geothermal costs are almost competitive with conventional power generation
costs, coming down from fifteen cents to between five and eight cents today.
Last year, the President issued an executive order directing agencies to expand
their use of renewable energy. Meeting the goals of this order will reduce
greenhouse gas emissions by 2. 4 million tons and save taxpayers over $750
million a year. It will also expand markets for renewable technologies, reduce
air pollution, and serve as a powerful example to businesses and consumers who
can reap substantial benefits from environmentally- friendly energy sources. The
Government's Commitment: Ensuring a Diverse, Reliable and Affordable Set of
Energy Sources for the Future The energy options within our portfolio are oil,
gas, coal, energy efficiency, renewables, hydropower, fission, and fusion. We
must strategically manage energy R&D with this understanding about the
energy world as we know it: there is no single silver bullet which will solve
all our energy needs, making science and technology -- and a broad-based energy
R&D portfolio -- key to meeting our long term energy needs.. Without energy
technologies, a ton of coal, a barrel of oil, a cubic foot of natural gas, a ton
of uranium ore, a stiff breeze, or the sun's warmth cannot directly contribute
to the prosperity of modem society. With the very best technologies, however,
society can use energy resources efficiently and responsibly and with great
economic and environmental gain. While economic and security challenges continue
to demand investment in a robust energy research and development (R&D)
program, environmental challenges provide additional impetus for increased focus
on energy-related science and technology during the coming years. Technology
development plays a strong supporting role in the Department's pursuit of all of
its energy policy objectives. It supports improvement in the competitiveness of
the energy system; the development of more efficient transportation, industrial
and buildings technologies as a key objective; our goal of reducing the
environmental impacts of the energy sector, and; the further development of
technologies that reduce the environmental impacts of energy production. The
requirements for near term returns on investment, limited resources and the risk
averse nature of many industries warrant a special role for government in the
support of technology development, especially when new technology can help
address national concerns not fully reflected in the marketplace. Consequently,
the development of new energy technologies has been a central mission of the
Department of Energy's since the late 1970's. At DOE, we focus on maintaining a
strong national knowledge base as the foundation for informed energy decisions,
new energy systems, and enabling technologies of the future, and developing
technologies that expand long-term energy options. Ensuring the success of the
Department's research and development efforts has been a constant challenge,
especially during periods of stable or declining energy prices, when market
incentives for technology development and adoption are at their lowest. In
addition, the unpredictability of technology development process and the
continual changes in scientific knowledge, social priorities and market demands
pose additional challenges to government efforts to effectively spur technology
development. I have already discussed many of DOE's energy technologies and
technology investments and successes. I would now like to discuss our energy
portfolio more broadly, and then focus specifically on natural gas as a
transition fuel. DOE Is energy resources R&D portfolio is organized in three
broad strategic areas: reliable and diverse energy supply ($170 million, FYO.1
request); clean and affordable power ($542 million, FYOI request), and;
efficient and productive energy use ($437 million FY01 request). In addition,
the Department has a basic science portfolio ($1.2 billion FY 0 1 request) which
supplies the foundation for much of the applied R&D in the energy areas. A
number of reviews and studies have been conducted that provide valuable
information on the adequacy and focus of this portfolio. Overall, these studies
have confirmed that our energy portfolio is generally well-focused on the
nation's strategic energy goals. However, the studies also have identified a
number of deficiencies in how fully these goals are addressed by the portfolio
and made a number of recommendations for important portfolio changes or
additions, including: 0 Significantly enhanced R&D funding 0Renewed emphasis
on electric power systems reliability 0A Nuclear Energy Research Initiative 0
Carbon management R&D 0Increased bioenergy R&D 0Methane hydrate R&D
0 Hydrogen R&D 0Clean fuels R&D 0Integration of fuel cell R&D
efforts 0 An international RDD&D effort The Administration strongly supports
the increased use of natural gas. Several of these recommended changes or
additions to our portfolio relate directly or indirectly to natural gas power
systems reliability, carbon management, methane hydrates, clean fuels, and fuels
cells all involve the development of technologies to increase the supply,
improve the delivery of, or improve the environmental performance of natural
gas. Also, as I mentioned earlier, because it is abundant and relatively clean,
natural gas will be the fuel of choice to meet the nation's future power
generation needs. Of the 1000 powerplants the Energy Information Agency (EIA)
projects the U.S. will need by 2020, 900 will probably be natural gas power
plants. If we are able to produce the gas to meet this need, we will need the
means to distribute it safely and efficiently. Right now, there are 85 proposed
pipeline projects just for the years 2000 through 2002, at the same time
significant impediments exist for pipeline and storage siting. Investments in
natural gas R&D are critical to meet future energy needs. The Clinton/Gore
Administration has invested roughly $1.5 billion in natural gas R&D. DOE's
joint efforts with industry have helped produce the fuel cells, microturbines,
reciprocating engines, and other enabling technologies to power the gas industry
of the future. DOE's request for natural gas R&D funding in FY 2001 is
around $215 million and, as I mentioned earlier, includes an initiative for
energy infrastructure reliability. The natural gas portion of this initiative
specifically focuses on methane leakage, aging and corroding pipelines, and
natural gas storage, to improve the safety and reliability of the natural gas
distribution network. Last December, Secretary Richardson established DOE's
newest national laboratory - the National Energy Technology Laboratory,
co-located at Morgantown, VVIV, and Pittsburgh, PA. This laboratory is dedicated
to providing the nation with clean and affordable fossil energy and will house a
new Center for Natural Gas Studies, in order to give added focus and emphasis to
natural gas policy and "bore hole to burner tip" research and development.
Presidential Decision Directive 63 - Critical Infrastructure Protection -
establishes safety and security of the natural gas infrastructure as a national
security priority. In addition, the Administration also envisions a substantial
role for natural gas as the transition fuel for a cleaner environment, and in
reducing greenhouse gases. The President's Executive Order on the Greening of
the Government promotes efficiency in federal buildings, acknowledging that
there are substantial efficiency gains to be made by measuring energy from the
source, not just at the site. Natural gas is a winner in this scenario. The
Administration's Comprehensive Electricity Restructuring bill will benefit
natural gas as well by providing for more rapid market penetration of innovative
technologies on both sides of the customer's meter. End-use distributed
generation technologies, for example, have a critical role to play in a
restructured energy future. Along with new uses for natural gas, these
technologies promise relatively high efficiencies, low emissions, increased
flexibility and reliability, and cost- effective alternatives to the traditional
utility grid infrastructure. To. further develop natural gas power systems for
the 21' century, DOE will be focusing on advanced combustion science and
technology; interconnect devices and parameters for standard interconnect
designs to enable distributed generation; low temperature catalysts for
emissions control; inexpensive sensors for emissions monitoring, and; carbon
dioxide separation and sequestration technology. For natural gas storage, we
will be investing in developing non- damaging fluids for drilling, and methods
for controlling reservoir damage caused by drilling and perforating fluids. We
need to encourage increased natural gas supply. The National Petroleum Council's
recent study on natural gas projects increased consumption for natural gas of 29
trillion cubic feet (TCF) in 2010 and 31 trillion cubic feet (TCF) by 2015. At
the same time, EIA estimates that in 1998, reserve additions of natural gas were
only 83 percent of production. To meet this demand, we will need to ensure that
we have an adequate supply of natural gas. Several pieces of legislation I
described earlier - specifically the deep water royalty relief and the
guaranteed loan program for small oil and gas producers - will benefit natural
gas production, as will the G&G and delayed rental tax credits supported by
the President. In addition, our energy supply R&D programs, designed to
lower the costs of oil and gas production, will help add to the nation's
supplies of natural gas. These include: -a Diagnostics and Imaging Program to
cost-effectively locate and produce oil and gas reserves; -the Advanced
Drilling, Completion and Stimulation Systems Program which focuses on the
development of sophisticated drilling technologies and methodologies; -the Gas
Hydrates Program, a long term R&D effort to help turn potential methane
hydrates into gas reserves, and; -the Low Quality Gas Upgrading Program to
purify gas reserves containing high levels of contaminants. Clearly, much
remains to be done if we are to meet significant increases in demand for natural
gas over the next two decades. We look forward to working with Congress in a
bipartisan effort to increase the nation's supplies of natural gas. PROSPERITY
AND SECURITY ARE "ENERGY DEPENDENT" Energy plays a vital role in our economy.
Somewhere between six and seven percent of our Gross Domestic Product- about
$600 billion per year-is attributable to energy consumption. Over $200 billion
per year is spent on transportation fuels. Approximately $200 billion per year
is spent on electricity - to power our factories, to light, heat, and cool our
homes, offices and schools, and to increasingly power the electronically based
New Economy. The electric bill for the nation's industrial sector alone is
around $ 1 00 billion annually. Clearly, energy is the engine that drives our
economy. At the same time, it represents a substantial cost to consumers and
businesses -- its fundamental importance to the nation's economic and
environmental health has wan-anted investments by this and previous
Administrations in a set of policies and a portfolio of technologies to produce
more energy, to use it more efficiently, to reduce its impacts on the
environment, and to find alternative sources of supplies. These policies and
investments have paid big dividends. Over the 20-year history of the Department
of Energy, we have made a great deal of "energy progress." In today's dollars,
we are paying substantially less for a gallon of gasoline than
in 1980. We have diversified our suppliers of imported oil -- three out of four
of our top importers are in the Western Hemisphere. We have, by far, the largest
strategic petroleum stockpile in the world. Relatively recent policy changes and
technological advances have spurred oil and gas production on the Outer
Continental Shelf and extended production on Alaska's North Slope. Significant
technology improvements have lowered oil and gas exploration and production
costs dramatically and reduced the environmental footprint of energy production
to one tenth the size it was twenty years ago. In addition, the rapid
development of energy efficient technologies and practices and the restructuring
of our industrial sector has enabled the United States to decrease its energy
use per dollar GDP by around 40 percent since 1973, representing an annual
energy cost savings of over $400 billion. Between 1970 and 1990, the average
fuel efficiency of automobiles went from 13 miles per gallon to 20 miles per
gallon. The efficiency of combined cycle gas turbines for electric power
generation exceeds 60 percent and wind energy and biomass show tremendous
promise for cost-competitive power generation from alternative energy sources.
Despite this track record, the potential for increased energy savings in the
U.S. economy remains enormous - and to meet growing energy demand, it remains
essential. In the utility industry for example, only one third of all thermal
energy from coal or gas is actually transformed into electricity in a typical
power plant. In the transportation sector, which accounts for 60 percent of the
nation's demand for oil, the fuel economy of passenger vehicles has actually
declined in recent years due to the increasing market share of SUVs and
minivans. Net imports of oil continue to increase and domestic oil production
has declined. The Clinton/Gore Administration is proud of its record on energy
policy and on our progress in achieving the nation's energy goals. Clearly,
however, much remains to be done. Secretary Richardson has called on the
Congress to work with us in a bipartisan fashion to pass legislation for those
energy incentives and programs which require Congressional action, namely
comprehensive electricity restructuring, tax incentives for oil and gas
production, energy efficiency and alternative fuels, the reauthorization of
EPCA, the creation of a home heating oil reserve in the Northeast, and a
supplemental appropriation to replenish emergency LIHEAP funds before we enter
the summer power season. We look forward to working with you in the days ahead.
If we are going to meet the nation's energy needs of the 2 1 century, we have
neither the time - nor the energy to waste.
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June 6, 2000, Tuesday 
