SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 1968 words

COMMITTEE: HOUSE

HEADLINE: MAXIMIZING ENERGY RESOURCES

TESTIMONY-BY: DAVID FAIRMAN, PH.D, VICE PRESIDENT

AFFILIATION: CONSENSUS BUILDING INSTITUTE

BODY:
Statement of David Fairman, Ph.D. Vice President, Consensus Building Institute

House Government Reform Committee Maximizing Resources; Meeting our Needs; Retaining Jobs Field Hearing,

June 17, 2002

Chairman Ose and Congressman Tierney, thank you for the opportunity to testify before the subcommittee on the important issue of national energy policy. Recently, my organization, the Consensus Building Institute, in collaboration with the Rocky Mountain Institute, facilitated the National Energy Policy Initiative, a process designed to build consensus on national energy policy among a diverse group of distinguished energy experts. Most of the experts who participated have served in multiple senior positions in government, the private sector and academe. Several have served in senior policy making positions in both Republican and Democratic administrations. Remarkably, given the diversity of the group and the complexity of the issues, the participating experts were able to reach consensus on

-a diagnosis of major shortcomings in our current energy policies;

-a long-term vision for energy policy;

-a set of top priority areas for policy action;

-policy strategies for each priority area. Their points of consensus are presented in the National Energy Policy Initiative Expert Group Report. The text of this report was drafted jointly by the participating Experts-its words are theirs.

I understand that the text of the Report will be incorporated as part of the record of this hearing. Today, I will speak briefly about why we undertook the National Energy Policy (NEP) Initiative. Then, speaking primarily on behalf of the Expert Group (and without claiming expertise for myself or my organization) I will highlight the main points of the Report.

The NEP Initiative's focus on building a broad expert consensus is a response to the past three decades of experience in national energy policy making. Whether crisis-driven or incremental, the political process has tended to focus on trade-offs among strongly held interests and values (for example, choosing between increasing domestic production of fossil fuels and protecting the environment). It generally has not taken full advantage of opportunities to achieve simultaneous gains in economic efficiency, environmental protection and national security. This is particularly frustrating because energy policy offers so many opportunities for joint gains through technological innovation and through linkages to other sectors (such as transportation, construction and information technology).

The NEP Initiative's goal was to use the Administration and Congressional interest in comprehensive energy policy legislation, and our shared sense of urgency about national energy policy post-September 11th as a starting point for a focused exploration of key policy issues. The Initiative was designed to complement the political process as an informal, non- attribution forum for a distinguished and diverse group of energy experts. During the Expert Workshop, participants explored issues and created new options that could form the basis for a bipartisan political consensus.

With that as background, let me briefly highlight the key points of consensus that emerged from the Workshop, beginning with the Experts' vision statement:

The United States, and the world, must begin a decades-long transition to an energy system that will not run out, cannot be cut off, supports a vibrant economy, and safeguards our health and environment. Today's patterns of energy production and consumption will not deliver these benefits for our children and grandchildren. The way we produce and use energy wastes money, threatens our environment, raises our vulnerability to accident, terrorism and economic shocks, and contributes to instability around the globe.

We must create a new energy system that makes our country and the world more secure. It must be less susceptible to major disruptions and must meet the needs of people today and of generations to come-providing adequate, affordable, and healthful energy services, for all, forever.

The opportunity to create this new energy future is here and now. New technologies that only a few years ago seemed visionary now provide energy services to millions and demonstrate that this energy future is not only possible but also commercially viable. The sooner we begin to act on key energy policy issues, the more control we will have over our energy future. The longer we wait, the higher the cost of action and the less certain its success.

The opportunity and the need for energy policy change are greatest in four areas: 1) transportation and mobility; 2) electricity services; 3) energy security; 4) climate change.

Redirection of government energy research, development and demonstration (RD&D) programs and procurement practices is also needed to support policy change in these four critical areas.

In crafting this statement, the experts knew that they were advocating very significant departures from the status quo in energy policy. They wanted to dramatize their shared sense that our current mix of energy supply sources; our current electricity and transportation infrastructures, technologies and policies; and our strategy for dealing with climate change are not sustainable. They also wanted to underscore the feasibility of achieving joint gains in economic efficiency, environmental protection and national security through policy reforms ranging from Federal R&D through procurement to regulations and market incentives for energy production, distribution and end use.

With regard to transportation and mobility, the Expert Group noted that American transportation is now 97 percent oil- dependent, that fossil fuel emissions contribute to local and global environmental problems, and that our current transportation planning systems too often contribute to urban sprawl. The Experts recommend that we substantially reduce oil dependence, improve environmental quality and land use through three primary strategies:

1.Increase fuel efficiency through higher CAFE standards, gasoline taxes, tradeable fuel efficiency credits and/or an efficiency feebate system for old vehicle scrappage and new vehicle purchase;

2.promote the development of non-petroleum fueled automobiles, using technologies such as hydrogen fuel cells, through a combination of Federal RD&D and procurement, automobile industry and consumer incentive programs;

3.incentivize and support urban planning and transportation systems that minimize sprawl and make mass transit attractive to commuters.

In the electricity services sector, the Expert Group noted that our current system is hindered by highly centralized generation, costly grids, poorly regulated monopolies and command and control environmental regulation. Despite efforts at reform, perverse incentives remain in place, favoring new plant construction over investment in efficiency; continued operation of existing "dirty" plants over new investments; and continuing dominance of large centralized utilities over distributed generation, with risk to the reliability and resilience of the grid.

The Experts recommend three primary strategies to increase energy efficiency and system resilience, and reduce environmental impacts while maintaining universal access.

1.Restructure the current regulated monopoly system with appropriate rules to encourage competition. Specific options include opening wholesale generation markets fully to competitive bidding; ensuring that investments in generation and transmission efficiency earn the same return per kilowatt saved as investments in new power production; and instituting real time pricing with two-way metering.

2.Encourage adoption of new technologies and innovations while maintaining environmental protection. Rather than specifying pollution control technologies, environmental regulators should set environmental performance targets. Regulations should be structured to put end use efficiency on an equal footing with low- /zero-emissions technologies.

3.Allow distributed power, combined heat and power, renewable technologies and demand-side investments to compete fairly with traditional power generation and delivery systems. For example, institute a national standard for interconnecting distributed generators to the grid.

The Experts also reached consensus on principles to guide future decisions about nuclear power; I would be glad to discuss these if members of the Subcommittee are interested.

With regard to energy security, the Experts highlighted the fundamental issues of oil dependence and infrastructure vulnerability. They agreed that the U.S, cannot significantly reduce its oil dependence or its vulnerability to global price shocks through increased domestic oil production, because that production cannot meet more than a fraction of our current domestic demand, and prices are set in global, not national markets. They also noted that U.S. energy infrastructure, particularly power generating stations, transmission lines and pipelines, is vulnerable to both accidental and deliberate disruption.

To reduce oil dependence, they recommend a primary focus on the transportation sector, because the transportation sector accounts for the majority of domestic oil use. In the short term, they recommend increasing transportation fuel efficiency. In the longer term, they recommend transitioning to non-petroleum fueled vehicles, with options including hydrogen- and cellulosic biomass fuels. In addition, they recommend that the U.S. explore options for increasing participation of key allies and trading partners in a joint strategic oil reserve.

To reduce the vulnerability of energy infrastructure, they recommend detailed risk assessment of major infrastructure elements in the short term, and implementation of additional security measures where necessary. In the longer term, they recommend promoting distributed generation to reduce the concentration of generation and transmission facilities.

On climate change, the Experts agreed that greenhouse gas emissions from fossil fuel use are increasing the risk of climate change. Climate change could impose direct economic costs on the United States, and could also create global economic and political instability. However, they also agreed that making a gradual transition away from fossil fuels could be a net benefit to the economy, because investments in fuel efficiency and new non-fossil fuel technologies can be profitable if policies rely primarily on market-based instruments to drive the transition.

To deal more effectively with climate change, the Experts recommend starting immediately to send clear policy signals to producers and consumers to reduce carbon emissions. Those policies need to establish the framework for a smooth and fair transition to a more efficient, diversified, and lowcarbon energy system.

Among policy options, either a cap-and-trade system or a carbon tax could efficiently internalize carbon costs across the whole economy, and could be made revenue-neutral, fair, and economically stimulative. To maximize the economic and environmental benefits of action, it will also be necessary to remove barriers to efficient energy use.

Finally and briefly, the Experts noted that Federal RD&D and procurement policies can facilitate the transitions they advocate in transportation, electric services, energy security and climate protection. I would be glad to speak further about the Experts' views on these issues if Subcommittee members are interested.

Thank you for the opportunity to testify before the Subcommittee. I will be glad to answer questions about the NEP Initiative and the Expert Group's Report.



LOAD-DATE: July 9, 2002