Copyright 2000 Federal News Service, Inc.
Federal News Service
July 26, 2000, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 4519 words
HEADLINE:
PREPARED TESTIMONY OF DAN W. REICHER ASSISTANT SECRETARY FOR ENERGY EFFICIENCY
AND RENEWABLE ENERGY U.S. DEPARTMENT OF ENERGY
BEFORE THE
HOUSE COMMITTEE ON APPROPRIATIONS SUBCOMMITTEE ON INTERIOR AND
RELATED AGENCIES
SUBJECT - THE NEED FOR A NATIONAL ENERGY POLICY
STRATEGY
BODY:
Mr. Chairman and Members of
the Subcommittee, over the last year, with rising gas prices,
inadequate inventories of home .heating oil, and fears of increasing electricity
outages there has been great concern over the perceived lack of a national
energy policy. As my joint context statement with Mr. Kripowicz demonstrates,
the Administration does have an energy policy.
Its key elements, as
presented recently by Secretary Richardson are: reliance on market forces rather
than artificial pricing diversity of supply and strong diplomatic relations with
energy producing nations - improving the production and use of traditional fuels
through new technology development diversity of energy sources, with long-term
investment in alternative fuels and energy sources increasing efficiency in the
way we use energy; and maintaining the strategic petroleum reserve and
strengthening our insurance policy against supply disruptions.
This
policy has evolved over time in response to the changing marketplace and the
emergence of new national challenges. Mr Chairman, the essence of our national
energy policy is to ensure secure, clean, affordable, 'and diverse energy
supplies, and use them efficiently. Our problem is not the lack of a federal
energy policy that hampers us today, but rather a lack of sufficient sustained
resources and, in some cases, authority to implement that policy that leaves us
- more vulnerable to price spikes, supply shortages and brownouts. It is
important to point out that the intent of a national energy policy is to plot a
long-term energy course for the Nation. Shorter-term price and supply
volatilities will inevitably occur. Given the chance to work, however, our
nation's energy policies will progressively reduce these volatilities and
improve environmental quality.
I will focus today on the programs and
policies in my area- energy efficiency, renewable energy and natural gas.
Congress has established basic energy policies through the National
Energy Conservation Policy Act, the Energy Policy and Conservation Act, and the
Energy Policy Act of 1992, and this Administration has repeatedly proposed
strategic initiatives - both spending and tax incentives to promote greater
energy efficiency and diversity of fuel sources. However, we are often lacking
the full resources needed to reach these goals. In the area of energy efficiency
and renewable energy, for instance, despite this subcommittee's support for
energy R&D, Congressional appropriations overall have been considerably less
than requested since 1992, particularly since FY 1996.
In addition, in
some areas we still need additional legislative authority. We clearly need to
adopt, for example, comprehensive federal electricity restructuring legislation
to ensure that the transition to competitive electricity markets is good for
consumers, the economy and the environment. Another example of needed
legislative action is the enactment of tax incentives for key emerging
technologies - technologies that promise the opportunity to significantly reduce
our oil dependence, improve our electricity reliability and cut air pollution-
but have not been acted upon since proposed in 1997, by the Administration.
Mr. Chairman, despite all the laws, orders, and regulations, ours is not
a planned economy and the major focus of our energy policy since the late 1970s
has been strengthening competitive market forces. Regulatory reforms or outright
deregulation have accomplished this objective in several sectors. As a result of
these reforms energy markets have evolved over this time including the advent of
the NYMEX oil futures market in 1983, interstate natural gas pipeline
transportation competition in !992, retail competition in electricity markets in
such States as California and Pennsylvania, and emerging green power markets in
many States.
However, Mr. Chairman, we should also remember that while
the energy markets seek to direct our energy resources to their highest and best
use, market forces alone sometimes do not result in the most efficient use of
resources -- especially when those resources affect the environment or national
security. It is in these instances that government works to influence the
functioning of the market. We, both the Congress and the Executive branch, have
worked to influence the market through our laws, investments, and regulations.
For example, we have tried to signal the market that it is undervaluing energy
research and development by directing and providing funds and tax incentives for
R&D. And we have tried to signal the market that it is undervaluing energy
security by providing for a strategic petroleum reserve and fuel economy
standards. These actions, if successful, manifest themselves in changes, both up
and down, to the price of energy and energy services. For example, our R&D
investment in wind power has resulted in lower prices for this clean energy
technology and has greatly accelerated its deployment.
Therefore, Mr.
Chairman, in light of all of the above, why is it that there is a perception
that we have no energy policy? It is not, in my opinion, a question of whether
we have a national energy policy; we do and it is a well thought out one.
Rather, I would submit it is the lack of resources and, in some cases, authority
to fully implement this policy, that leaves us in the vulnerable spot we find
ourselves today. Let me cite a few examples in my own area of Energy Efficiency
and Renewable Energy: In the Energy Policy and Conservation Act of 1975 (EPCA)
and National Appliance Energy Conservation Act, Congress directed DOE to set
energy efficiency standards for appliances. Reduced appropriations and Congress'
withdrawal of authority for the program between 1995 and 1996 - in addition to
DOE's own technical challenges - delayed promulgation of many standards. Recent
unprecedented peak electricity demand and price spikes could have been dampened
had these standards been in effect, particularly for air conditioners.
Fortunately, Mr. Chairman, we expect to have several of the "high priority"
appliance standards in place by the end of this year. In a variety of federal
legislation since 1973, including EPCA, the National Energy Conservation Policy
Act of 1978 and the Energy Policy Act of 1992, Congress set aggressive goals for
cutting energy use in federal buildings and vehicles. The federal government
today consumes almost 2 percent of U.S. energy and by cutting use we can
increase energy Security, dampen price volatility and decrease pollution.
Unfortunately, in the 1980's and early 1990's support for the Federal Energy
Management Program, and individual agency conservation programs, was weak and we
lost the opportunity for major savings.
The good news is that with your
help, support has grown somewhat in recent years and we recently met our EPACT
goal for the year 2000. However, we are not nearly as far along as we might have
been in cutting federal energy demand for oil, natural gas and electricity, thus
exacerbating our current energy challenges. In major energy policy set by
President Clinton and Vice President Gore in 1993, the U.S. Government and the
Detroit automakers agreed to a major partnerships to develop technology that
will radically increase auto fuel economy - up to 80 miles per gallon -- and cut
emissions. In recent years, however, Congressional support for the Partnership
for a New Generation of Vehicles (PNGV)has not been adequate. And as I'm sure
you will agree, the recent House vote to zero DOE funding for the program was a
blow to one of the cornerstones of our national policy to cut foreign oil
demand, decrease oil price volatility and reduce air pollution. Just a one mile
per gallon increase in the U.S. fleet average fuel economy would save more than
100 million barrels of oil a year and cut greenhouse gas emissions by over 10
million metric tons of carbon. In the Energy Policy Act of 1992, Congress took a
number of actions to spur the introduction of alternative fuels -- e.g., natural
gas and ethanol -- in vehicles. For example, in Section 502 (b) Congress set the
goal of achieving alternative fuel use in vehicles of 10 percent by 2000 and 30
percent by 2010. Some tax incentives were established and certain regulatory
authorities were provided, but these actions were not sufficient to have a
Substantial impact on the transportation sector's continuing dependence on
petroleum products. Following Presidential Executive Orders, this Administration
has worked hard to advance alternative vehicle technologies and fuel use, most
recently for federal fleets. As a result, the nation is better positioned to
respond to tight world oil markets than it might have been, although fully
funding budget requests for alternative fuels in transportation would enable the
nation to further lessen its dependence on petroleum. In the Energy Conservation
in Existing Buildings Act of 1976, Congress created the low income
weatherization assistance program. Our Weatherization Assistance Program has
retrofitted almost 5 million homes to date. But today it finds itself without
adequate funds to complete the task of making the 29 million homes of
financially disadvantaged citizens energy efficient, thereby reducing family
energy use for space hearing by about one-third.
In fact, with level
funding for this program between 1996 and today, DOE would have been able to
weatherize nearly 250,000 additional low- income family homes, saving energy and
an average of $200 per year per family in utility bills. Many
of these families would have been shielded from the worst of last winter's
run-up in prices for home heating fuels.
Mr. Chairman, these and many
other examples demonstrate that while we do have a national energy Policy, it
is, in part, because of a lack of sufficient resources, and, in some cases
authority, that we find ourselves struggling today with a host of energy
challenges and a frustrated public.
Our joint statement identifies four
major challenges that need to be answered if we are to achieve an effective:
national energy, policy: Enhancing America's Energy Security by Reducing our
Vulnerability to Volatile Oil Markets; Mitigating the Environmental Impacts of
Energy Production and Use; Increasing the Competitiveness and Reliability of
U.S. Energy Systems; and, Providing Diverse Energy Technologies for the Future.
My Office of Energy Efficiency and Renewable Energy, through many of the
programs this Subcommittee funds, can make significant contributions to
addressing these challenges if we have adequate authority and resources in each
case. Without Congress' backing of DOE energy programs, the policies we have
crafted over decades will remain little more than words on paper. Let me now
review these challenges:
Challenge #1: Enhancing America's Energy
Security - Reducing our Vulnerability to Volatile Oil Markets. Recent oil price
volatility, with prices fluctuating between $10 and
$30 a barrel during the course of a little more than one year,
has hinged on worldwide quantity variations amounting to only 2 million barrels
a day, out of a total global use of about 75 million barrels per day in 1999.
The Energy Information Administration expects oil imports, including products,
to increase by 3 million barrels per day in 2010 relative to today.
The
transportation programs funded by this Subcommittee are, by themselves, forecast
to reduce demand by almost 700,000 barrels of oil per day in 2010 and more than
1.5 million barrels per day by 2020. For comparison, this is the equivalent of
nearly 1/3 of the expected increase in oil imports in 2010. Of course, these
forecasts depend on receiving the support and resources necessary for these
programs to continue along a path to success. In particular, our programs
support high-risk research and development to advance highly efficient
transportation technologies and clean alternative fuels. Our programs reduce
energy demand (particularly for petroleum), pollution, greenhouse gas emissions,
and the nations' vulnerability to energy price volatility by focusing on
light-duty vehicles, heavy-duty tracks, biofuels and technology deployment. Both
the light-duty vehicle and heavy-duty truck programs support R&D for the
development of technologies which will produce substantial improvements in the
fuel economy of these vehicles. As already described, the PNGV program is the
focus of our light-duty vehicle work. The House decision to zero out the DOE
program will profoundly retard the R&D necessary for substantial fuel
economy improvements and we hope you will be able to restore these funds in
Conference.
Reducing the costs of alternative energy supply technologies
-- for example, biofuels and natural gas in the transportation sector -- is a
major objective of our R&D programs. These R&D investments will provide
a Variety of cost-effective energy supply options to help the country meet its
energy needs, thereby reducing our dependence upon any one energy supply
technology or fuel-type. These investments also exert downward pressure on the
price of conventional fuels and energy supply technologies because the threat of
deploying alternative technologies provides a price ceiling that conventional
fossil-fuel technologies strive to stay below. As R&D advances continue to
lower the costs of alternative energy supply options, the price ceiling for
conventional fuels and energy supply technologies will be forced even lower. In
short, while the deployment of alternative energy supply technologies has been
limited in our energy economy, the threat of their deployment if the costs of
conventional energy supply options rise above a certain point helps keep
conventional fuel costs down.
The biofuels program pursues the
development of low-cost biomass feedstocks and cost competitive conversion
technologies for liquid fuels production from agricultural residues, forestry
wastes and energy crops. Our work in natural gas includes advances in natural
gas fueled vehicle combustion and storage technology to expand markets for this
clean domestic fuel. Further, our technology deployment program funds activities
which accelerate the market acceptance and purchase of both alternative fuel
vehicles and advanced high-efficiency vehicles.
Challenge #2: Mitigating
the Environmental Impacts of Energy Production and Use.
Mr. Chairman, as
we have diligently worked to reduce our energy security vulnerabilities, we have
been keenly aware of the environmental challenges that face our Nation. Most
notably, air pollution problems in the Nation's urban areas, which are largely a
result of power plant and automobile emissions, are harming the health of
Americans and the quality of the natural environment. Furthermore, there are
increasing signs of climate change driven primarily by greenhouse gas emissions
from the combustion of fossil fuels. The Federal Government has helped increase
the quality of our natural environment and reduce the impacts of pollution on
the health of U.S. citizens through a two-pronged approach' pollution control
and pollution prevention. Pollution control has been a major focus of U.S.
policy with the deployment of best available pollution control technologies.
Significant advances have been made in the health of the air we breathe as well
as the quality of our rivers and lakes through this approach. However, as the
costs of trying to control emission of multiple pollutants has increased, there
has been increased attention towards pollution prevention options, such as
energy efficiency and clean energy technologies, with the focus on meeting the
country's energy needs with a minimal emission of pollutants. These technologies
save energy and prevent pollution in vehicles, industry and buildings. As an
example, through our Building America program builders have shown that they can
construct homes that are 30-50 percent more energy efficient than comparable
homes -with equivalent reductions in associated air pollution -- at little or no
additional cost. These and other building practices and technologies have
already saved consumers more than $90 billion in energy costs,
above what they would have spent otherwise, and cut carbon and related
greenhouse gas emissions by more than 200 million metric tons. And our renewable
energy work is helping to bring large new clean energy generation to market.
As an example a 100+ MW wind power plant in Minnesota powers more than
40,000 homes and its clean energy is the equivalent of taking 50,000 new cars
and light tracks from road.
Challenge #3: Increasing the Competitiveness
and Reliability of U.S. Energy Systems. Mr. Chairman, the high sensitivity of
energy markets to small imbalances magnifies the importance of DOE Energy
Efficiency and Renewable Energy programs that at a first glance may appear to
have only modest impacts on energy production and use, in and of themselves. Our
appliance efficiency standards are a case in point. While air conditioning
accounts for only 8 percent of total U.S. electricity consumption, it can
account for several times this amount during peak hours on hot summer days, when
electric reliability is most strained. A 20 percent improvement in air
conditioner efficiency would reduce the nation's total annual electricity use by
1 - 2 percent after it was fully phased in. However, the same efficiency
improvement would provide a greater percentage reduction in peak loads, reducing
the prospect of brownouts and price spikes. These peak load reductions are
critical when you consider that the conditions leading to grid instability can
occur well before peak demand even equals supply: Overall, the benefits we can
achieve by increasing energy efficiency in our homes and buildings, through
improved lighting, envelopes, heating and cooling, appliances, and design and
materials, are large and will substantially reduce demand and enhance our
electric and natural gas system reliability.
Similar efficiency
improvements are possible by reducing transmission losses and by utilizing waste
heat during generation. Most electric generation today is only one-third
efficient, as two-thirds of the energy is lost in the combustion process.
Technology development and restructuring of the U.S. electricity system have
opened the market for new more efficient technologies placed near the point of
rise to satisfy electrical and thermal energy requirements for local
residential, commercial, institutional and manufacturing complexes. Distributed
energy technology can significantly enhance reliability and efficiency and cut
pollution. We estimate that more than 20 percent of new electricity generating
capacity could be from distributed energy resources by 2010. EERE has recently
integrated our distributed energy technology development programs including
microturbines, fuel cells, natural gas engines,.solar, wind, hydrogen and
bioenergy with a systems architecture and integration initiative to help develop
efficient, cost effective, and reliable distributed energy approaches. This
holistic approach will also link Federal, state, local and stakeholder outreach
efforts and programs and, provide the necessary leadership to yield the expected
benefits from distributed generation.
I would be remiss if I did not
discuss the restructuring of the electricity sector since this, over the long
run, may have some of the biggest benefits to our energy future. Up to 40% of
the nation's energy bill, more than $220 billion, is spent on
electricity. 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, utilities are now buying wholesale 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.
However, 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. Twenty-five states
have now adopted electricity restructuring proposals that allow for competition
at the retail level. Most other states have the matter under active
consideration. 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.
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
competition in electricity markets. 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 the House and Senate to pass this or similar
legislation, Such a bill, if enacted, would: encourage states to implement
retail competition; protect consumers by promoting competitive markets,
enhancing information flows, and outlawing various customer abuses; assure
access to and reliability of the transmission system; promote and preserve
public benefits, including support for. renewable energy and energy efficiency;
remove impediments to competition in areas served by Federal Power Marketing
Administrations and the Tennessee Valley Authority; protect the interests of
rural and remote communities and Indian tribes; and amend existing Federal
statutes to clarify Federal and State authority. We urge Congress to replicate
earlier bipartisan successes with natural gas and oil deregulation and pass a
comprehensive restructuring bill this year.
Challenge #4: Ensure Diverse
Energy Technologies for the Future. Mr. Chairman, a carefully planned and
implemented - and consistently funded -- national R&D policy is key to
ensuring that our energy future will be environmentally sound, robust, and
beneficial to the nation. The American taxpayers deserve nothing less, and, Mr.
Chairman, I believe our R&D activities are leading us to that future. For
example, twenty years ago renewable energy was generally produced at a very high
cost and in an inefficient manner. Advanced power delivery system components and
high temperature superconducting materials did not even exist, and the
alternative transportation fuel sector was very immature.
Mr. Chairman,
we have come a long way, but we have some distance to go, While, for example,
the cost of electric power from wind turbines in 1980 ranged from
$0.30 - $0.40 per kilowatt hour (kWh), through
aggressive R&D by EERE and its industry partners, we have been able to
reduce the costs to between $0.04 and $0.06
per kWh. At this price, wind systems are entering the marketplace, expanding
from the early California windfarms to include States ranging from Vermont to
Alaska and from Minnesota to Texas and are also poised to expand into other
Great Plains and Northeastern locations, such as Oklahoma, Wisconsin, the
Dakotas, Maine, and New York. We are also working on Next Generation Turbines to
reduce the cost of electricity from wind even further- to as low as 2 1/2 cents
per kwh by 2003.
As another example, the first commercially-available
photovoltaic (PV) systems in the early 1980s produced power at a cost of more
than $1.00 per kwh. Today, PV systems are delivering
electricity for as low as $0.12 - $0.20 per
kWh -- depending upon the specific technology - making clean, reliable PV
systems competitive in many remote and on- grid sites here in the U.S. and
around the globe. Before 2010 we project PV-generated electricity will drop to
$0.10 per kwh. At this price solar would be a competitive power
option in many urban and suburban areas where transmission and distribution
systems are constrained and also in rural areas across the entire United States
where distribution costs are high. To hasten this day for PV as well as a
variety of other emerging clean energy technologies, we believe that well
crafted and implemented federal tax credits should be provided. The
Administration has proposed a package of tax incentives to Congress that would
stimulate the use of renewable, natural gas and energy efficient technologies
across the economy at a modest cost. This package, unfortunately, has not been
acted upon by Congress.
One area of great promise is industrial energy
efficiency. Our Industries of the Future program has charted an important
R&D course that is yielding impressive energy savings and productivity
improvements in industries ranging from Forest and Paper Products, Steel,
Aluminum and Metal Casting, to Glass, Chemicals, Petroleum, Mining, and
Agriculture. As an example, Combined Heat and Power systems can substantially
cut industrial energy costs and improve productivity by linking industrial
electric generation and thermal process requirements in systems that can exceed
80 percent efficiencies' The Administration's clean energy tax proposals would
provide incentives for the use of such systems. These examples typify our
nation's ability to surmount technical obstacles when we put our best minds,
sufficient resources and the will to the task.
Finally, Mr. Chairman, in
the federal government, we've led by example. Our Federal Energy Management
Program (FEMP) has surpassed the goals set in the Energy Policy Act of 20%
reduction in energy use at federal facilities since 1985. This year, I'm pleased
to say that we reached that goal one year earlier than expected. We did this by
employing innovative financing techniques, technical assistance and training.
And now we will try to reach our goal of a 35 percent reduction in federal
energy use by 2010. But again, Mr. Chairman, this will only become reality if
adequate resources and support are made available.
CONCLUSION:
Mr. Chairman, this nation and this Administration do have a national
energy policy. It is the product of almost 30 years of legislative,
administrative and market decisions. What we lack are the full resources and, in
some cases, the authority to implement that policy. We must work together to
provide the necessary tools -- R&D funding and tax incentives in particular
'- and also adopt effective federal electricity restructuring legislation. If we
do so this will go a long way toward addressing the serious energy challenges
that we face today.
Mr. Chairman and Members of the Committee, that
concludes my prepared statement. I would be happy to answer any questions you
may have at this time.
END
LOAD-DATE: July 27,
2000 
