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Hearing of the Subcommittee on Energy and Environment of the House Energy and Commerce Committee - "The American Clean Energy and Security Act of 2009, Day Three"

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Location: Washington, DC


Hearing of the Subcommittee on Energy and Environment of the House Energy and Commerce Committee - "The American Clean Energy and Security Act of 2009, Day Three"

HEARING OF THE SUBCOMMITTEE ON ENERGY AND ENVIRONMENT OF THE HOUSE ENERGY AND COMMERCE COMMITTEE

SUBJECT: "THE AMERICAN CLEAN ENERGY AND SECURITY ACT OF 2009, DAY THREE"

CHAIRED BY: REP. EDWARD MARKEY (D-MA)

WITNESSES: PANEL I: ALLOCATION POLICIES TO ASSIST CONSUMERS JEFF STERBA, CHAIRMAN AND CEO, PNM RESOURCES INC. (ON BEHALF OF THE EDISON ELECTRIC INSTITUTE); GLENN ENGLISH, CEO, NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION; MARK CRISSON, PRESIDENT AND CEO, AMERICAN PUBLIC POWER ASSOCIATION; JOHN SOMERHALDER II, CHAIRMAN, CEO, AND PRESIDENT, AGL RESOURCES (ON BEHALF OF THE AMERICAN GAS ASSOCIATION); RICHARD MORGAN, COMMISSIONER, DISTRICT OF COLUMBIA PUBLIC SERVICE COMMISSION (ON BEHALF OF THE NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS); RICHARD COWART, DIRECTOR, REGULATORY ASSISTANCE PROJECT; ROBERT GREENSTEIN, EXECUTIVE DIRECTOR, CENTER FOR BUDGET AND POLICY PRIORITIES; ROBERT MICHAELS, PROFESSOR OF ECONOMICS, CALIFORNIA STATE UNIVERSITY; DARRYL BASSETT, EMPOWER CONSUMERS; PANEL II: ENSURING U.S. COMPETITIVENESS AND INTERNATIONAL PARTICIPATION RICH WELLS, VICE PRESIDENT FOR ENERGY, THE DOW CHEMICAL COMPANY; TOM CONWAY, INTERNATIONAL VICE PRESIDENT, UNITED STEEL WORKERS; JACK MCMACKIN, PRINCIPAL, WILLIAMS AND JENSEN, LLC (ON BEHALF OF THE ENERGY INTENSIVE MANUFACTURERS WORKING GROUP ON GREENHOUSE GAS REGULATION); TREVOR HOUSER, VISITING FELLOW, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS; ELIOT DIRINGER, VICE PRESIDENT FOR INTERNATIONAL STRATEGIES, PEW CENTER ON GLOBAL CLIMATE CHANGE; DOUG SMITH, VIRGINIA INTERFAITH SOCIETY FOR PUBLIC POLICY; LEE LANE, AMERICAN ENTERPRISE INSTITUTE; PANEL III: LOW CARBON ELECTRICITY, CARBON CAPTURE AND STORAGE, RENEWABLES, AND GRID MODERNIZATION HOWARD GRUENSPECHT, ACTING ADMINISTRATOR, U.S. ENERGY INFORMATION AGENCY; DIAN GRUENEICH, COMMISSIONER, CALIFORNIA PUBLIC UTILITIES COMMISSION; DAN REICHER, DIRECTOR OF CLIMATE CHANGE AND ENERGY INITIATIVES, GOOGLE, INC.; JIM ROBO, PRESIDENT AND CHIEF OPERATING OFFICER, FPL GROUP; DAVID HAWKINS, DIRECTOR OF CLIMATE PROGRAMS, NATURAL RESOURCES DEFENSE COUNCIL; GREGORY KUNKEL, VICE PRESIDENT FOR ENVIRONMENT AFFAIRS, TENASKA, INC.; JONATHAN BRIGGS, REGIONAL DIRECTOR OF THE AMERICAS, HYDROGEN ENERGY INTERNATIONAL; EUGENE TRISKO (ON BEHALF OF THE UNITED MINE WORKERS OF AMERICA); JAMES KERR, FORMER COMMISSIONER, NORTH CAROLINA PUBLIC UTILITIES COMMISSION; JAY APT, ASSOCIATE PROFESSOR, CARNEGIE MELLON UNIVERSITY

Copyright ©2009 by Federal News Service, Inc., Ste. 500, 1000 Vermont Ave, Washington, DC 20005 USA. Federal News Service is a private firm not affiliated with the federal government. No portion of this transcript may be copied, sold or retransmitted without the written authority of Federal News Service, Inc. Copyright is not claimed as to any part of the original work prepared by a United States government officer or employee as a part of that person's official duties. For information on subscribing to the FNS Internet Service at www.fednews.com, please email Carina Nyberg at cnyberg@fednews.com or call 1-202-216-2706.

REP. MARKEY: This hearing will come to order. Today we will begin our second full day of hearings on the American Clean Energy and Security Act. Yesterday we heard from three members of the Obama cabinet, from CEOs of the United States Climate Action Partnership, from Mayor John Fetterman of Braddock, Pennsylvania, and from numerous experts, scientists, and economists, all with a stake in the best way to go about creating a new energy economy.

Today we will hear from three panels. The first panel will provide us with input on how best to allocate emission allowances in ways that can assist and benefit consumers. That panel includes representatives of major trade associations, associated with electricity production and natural gas usage, as well as advocates for low-income consumers.

The second panel will advise us on ways in which we can ensure international competitiveness and help encourage international participation in our efforts to fight global warming and maintain a level playing field. It will feature major stakeholders like DOW Chemical and the United Steel Workers.

And our final panel will help us to understand how we can produce low-carbon electricity, both from coal with carbon capture and storage, and from renewable energy sources like wind, geothermal, and solar.

Today is about the nuts and bolts of our legislation. How we help consumers keep jobs here in America and begin transforming our energy system. With the information that we glean from today's witnesses, we can better craft solid solutions for our energy and environment future.

I look forward to hearing from our witnesses today. And I turn to recognize our ranking member, if he has any introductory comments.

REP. FRED UPTON (R-MI): I hope you liked the movie last night. I just -- Chairman Markey and I were the co-hosts of the Disney movie on Earth last night. And that's one of the reasons why we finished panel 4 by 6:45, so we could get there to the opening. But I have no opening statement. Let's get right to it.

REP. MARKEY: Let me turn to the chairman of the full committee. Mr. Waxman?

REP. HENRY A. WAXMAN (D-CA): No opening statement.

REP. MARKEY: I asked if he has any, and I do not see Mr. Barton -- so let me then turn and introduce Jeff Sterba. He is -- he was elected chairman of the Edison Electric Institute in 2007. Edison Electric Institute is a national association of shareholder-owned electric companies. They are international affiliates and industry associates. He also the chairman, president, and CEO of PNM Resources, an energy holding company serving New Mexico and Texas.

Mr. Sterba, please, begin when you are ready.

MR. STERBA: Thank you very much, Mr. Chairman. I appreciate the introduction and I would first like to commend you and this committee for holding these hearings. This is a complex topic and education and understanding of the ramifications of what you may do is an exceptionally important aspect of it and I very much appreciate the opportunity to appear before the committee.

I am here to represent Edison Electric Institute. And as an organization, we have endorsed principles associated with climate change that will help ensure that we can achieve the kinds of greenhouse gas reductions that are necessary, but to do it in a way in which we protect the impact on consumers.

That is a very important aspect of, I think, this program, because electricity is so pervasive in everything that are -- that consumers use, whether you are a business, or a residential consumer, or a major industry.

For our industry, moving to a low-carbon future is about turning over capital stock. These are expensive, long-lived generation assets that are currently being paid for in customer -- in customer's rates. The turnover of this capital stock is not going to be simple, it's not going to be cheap, it won't occur overnight. It has to be done in concert with the development of technologies that will allow us to move to low-carbon equipment to be used to meet customer's needs. Things like carbon capturing storage, which you have addressed in your proposed legislation.

Care in this transition is paramount to ensure that the resulting cost increases to customers are reasonable and absorbable by the economy. We strongly believe that an allocation of allowances for the benefit of consumers is a critical part of this care in transition that will enable an affordable path to aggressive greenhouse gas reductions.

I want to spend my limited time talking about why we believe the allocation of emission allowances to the electric sector is the most effective way to minimize adverse impact from customers, and then to explain a specific proposal that EEI has developed that the entire -- our entire membership has endorsed as to how this allocation could occur.

The cap-and-trade system that Congress established to reduce sulfur dioxide as part of the Clean Air Act amendments of 1990 is truly the most successful example of a cap-and-trade system in the world. Today the emissions have been reduced by more than 50 percent at a cost far less than what was anticipated at the time it was done, and without the existence of the occurrence of any windfall profits.

In that case, 97 percent of all allowances were allocated to regulated emission sources, and only 3 percent were put up for auction. In the proposed cap-and-trade system, by having allowances allocated to consumers, or are allocated for the benefit of consumers, you avoid the double whammy. By double whammy I mean customers having to pay for the higher cost of new resources that will have to be added, plus the cost of allowances to cover what you have to remit to cover the emissions that you have from existing fossil fuel resources.

It's important to note that by allocating these allowances for consumer benefit the primary goals of a cap-and-trade system are still intact. There is a price that's placed on carbon, which we need to understand and see, so we can make informed decisions on resources. And the environmental improvements of greenhouse gas reductions occur just as they would if the allowances were auctioned.

Now, some have argued that money raised by allowance auctions could be provided back to consumers as a means to buffer the cost impact. So what is the difference between that and allocating allowances to the distribution company to flow those benefits back to consumers?

First, most of the proposals to implement either a low income tax credit or send payments to individuals would not benefit commercial customers, industrial customers, the source of jobs within our economy, but it's not just that. It's also the impact on the balance of the public sector.

What happens to hospitals? What happens to schools? They wouldn't receive the value. It would be going to consumers. And so the hospitals and bus stations and everything else that provide services to consumers, their rates would go up. And those costs would then be flowed on to consumers. So the increased cost of electricity would affect the economy through higher prices for goods and services, higher taxes for local governments to cover their costs.

An allocation system that benefits all electricity consumers helps cushion these cost increases through the economy. And I think also the efficiency of not taking the money from consumers through high electricity prices in the first place, seems at least to me, to be a better solution than taking it and then trying to pass it back to consumers through taxation and/or spending policies.

Another argument that's made against allocations is that -- look at the European situation and it led -- it led to windfalls. So we shouldn't have that happen; so let's not make allocations. But what led to windfalls was because of the structure of their system in the EU. First they over-allocated allowances, because they did not have a good baseline on what greenhouse gas emissions were. In the United States we have that good baseline.

Second, they made the allocations totally to all unregulated generators in the electricity sector. And it's a competitive market that they operated over there, where -- many of the states in the United States are not competitive markets at the retail side. And the result was that they got some benefit of price uplift and they also got an allocation that led to windfalls.

The approach that we are proposing and that EEI has developed ensures that that will not occur, because we know what the baseline of greenhouse gas emissions are. And we know how to structure a system through the allocations being given to the regulated side of the business by -- to the largest extent, so that they flow through to the benefit of customers.

Let me briefly walk through the EEI proposal, so that that's out on the table. The initial allocation to the electric power sector should be 40 percent of all allowances, because that's the proportion of our sector share of the national greenhouse gas, carbon dioxide emissions.

This 40 percent allocation should remain in place until critical technologies, such as, carbon capture and storage, which are essential to achieving long-term climate policy objectives, are commercially available. Then, our sector share should -- could gradually decline as consumer costs for cleaner energy would also decline.

Within the electric sectors, these allowances would be divided among regulated distribution companies, and merchant coal generators, only merchant coal generators. Merchant coal generators would receive allowances based on about 50 percent of their base year emissions. And this is solely to cover that portion of the cost that isn't recovered through the marketplace.

There is a clear agreement on our part that there should not be windfalls to Merchant coal generators. And what we are proposing is very different than what was done in the EU model. The allowances would enable these generation facilities to continue to operate, avoid a rush-to-gas, which would have consequences to all consumers while new generation resources are developed.

The vast majority of allowances would be allocated to the distribution company based on an even split between emissions and retail sales. By allocating to the distribution company, we ensure that the value of that allowance flows through to consumers. And that's the main point, how do we do this in a way in which we mitigate the cost impact to consumers?

So Mr. Chairman, I appreciate the time to visit with you. I look forward to your questions and particularly those around how do we make sure that consumers are not adversed by doing the right thing.

REP. MARKEY: Thank you Mr. Sterba, it was a very important proposal to put on the table for the members' consideration.

Next, we welcome a former colleague and a good friend, Glenn English, who is the president of the National Rural Electric Cooperation. He represented Oklahoma 6th Congressional District for many years in Congress. His organization advocates for consumer-owned cooperatives on energy and operational issues as well as the rural community and economic development. We welcome you back here to Congress.

Glenn, whenever you're ready, please, begin.

MR. ENGLISH: Thank you very much, Mr. Chairman, I appreciate that. And I do want to stress, we are a cooperative, we are owned by consumers, and our focus really is to do two things. First of all to make sure that our membership have enough power, keep the lights on, and maintain their standard of living. And the second is to; of course, make sure that electric power is affordable.

So that's where we are coming from. We are not-for-profit -- we are not-for-profit.

There are no rewards in anyway for a particular fuel, so we have no fuel choice from the standpoint of generating that electric power. It all comes down to this question of the cost of power and how we can deliver that power to our membership in the most affordable manner possible.

Now, Mr. Chairman, I'm speaking only from a standpoint of electricity as it applies to the bill of course. And I would like to also call the attention of the committee to a commitment that was made years ago in 1932, first made in '32 and then reiterated several times over the next 10 years by Franklin Roosevelt, when he made the observation that in this country that electric power is no longer a luxury. And had become a necessity -- a necessity.

And I would suggest as we move to deal with this particular issue and this challenge that we keep that in mind that probably, as a little different category perhaps than other issues regarding carbon, food, clothing, housing, and then electricity. I think most people would agree that in order to maintain that standard of living in this country, that's what we have to have.

So anyway, I would like to just lay out a few markers Mr. Chairman, as we move forward to deal with this particular challenge. The first thing is -- and the dean of the House I think made this point sometime ago about trying to regulate carbon through the Clean Air Act, I believe he described it as being a "glorious mess."

And I think that would probably be the case. It wasn't designed to do that. I remember I was here when we passed it last, I believe that was 1990, Mr. Chairman, and I remember I voted for it. I don't remember any discussion about carbon when we were talking about that. So this was not designed to do that kind of a job.

So in reality, I think we all got to face the fact that we got to have a bill. But I would also suggest not just any bill. It's got to be a bill I think that addresses the carbon issue and the carbon issue alone. In other words what I would suggest, it's a bill that needs to be simple, if such things can be done. It needs to be flexible, it certainly needs to be affordable, and it needs to have sustainability.

And what I mean by sustainability, Mr. Chairman, is one that is going to last through the years. This is a long-term project we are embarking on, and certainly the next 10 to 15 years are probably going to be the most challenging as we move down that road. And we also need one that's effective. So I would suggest a common sense approach as we begin to put these pieces together to have a workable bill that accomplishes this objective.

Next thing I would suggest is that it should not be legislation that is designed to raise revenue. It shouldn't be a revenue enhancing endeavor. It should be something that is -- trying to achieve the objective of reducing carbon emissions in the country and that alone. So that means auction is not a good idea. We would discourage the committee from going down that road. That means that allowances should be free, particularly, as far as it applies to the electric utility industry.

And we would also suggest that it should be done on the distribution level, so that the full benefit of those allowances should go to consumers. Of course, our not-for-profit status, that's where they go.

I would also suggest, Mr. Chairman, that as we look at the caps, they should be established with an eye towards the question of technology. What can we do and when can we do it? I think we all appreciate and understand that this bill -- this effort, what we are going to try to accomplish here, if we are going to keep the lights on, keep electric bill affordable, we need technology.

And we are going to have to make some very significant advancements, and we are very hopeful that's going to be the case. And in some cases, I guess, you could say, Mr. Chairman, we are betting on the cow (ph). And we need to do everything we can to make sure that we speed up that technology and get it developed, get it online, so it can be utilized, so we can get back to a full complement of fuels.

And we would also suggest -- again, looking at it from a consumer standpoint, Mr. Chairman, that there should be some kind of safety valve devise that makes certain that consumers are assured that we will in fact have a limit on any economic damage if this thing would get out of control. That we are going to try to contain those costs. I know that you've addressed that in the draft. I would suggest, it probably needs to be done in a little different manner than what you have in the draft. I appreciate the thought.

And also as we move forward with renewables, Mr. Chairman, we are very committed to renewable. We, in fact serve 70 percent of the land mass of the United States, so most of renewable energy that's going to be generated in this country is going to be done in rural America, an area served by electric cooperatives.

We've just established a national renewable cooperative, which allows small distribution systems all over the country to invest in renewable projects. But I would also suggest that there is a wide range of difference in different parts of the country. Some areas can produce renewables far more economically, far easier and in far greater magnitude than you can in other regions. And that's the reason that we think it should be looked at nationally, and what can be done nationally.

And Mr. Chairman, I would also suggest that for that reason, there needs to be a small utility exemption about the 4 million megawatts per year. And I think we can make a serious workable start and then move down the road to the objective you are trying to achieve. Thank you, Mr. Chairman.

REP. MARKEY: Thank you, Mr. English, very much.

And our next witness is Mr. Mark Crisson. He is the CEO of the American Public Power Association, which is the service organization for more than 2000 community-owned electric utilities. Prior to his current position, Mr. Crisson was at Tacoma Power in Washington State for nearly 30 years.

Whenever you're ready, please, begin.

MR. CRISSON: Thank you, Mr. Chairman. Good morning, I'm Mark Crisson, president and CEO of the American Public Power Association. And as you said, we represent over 2000 publicly owned, not-for-profit power systems across the United States, 49 states. We serve cities as large as Los Angeles. But most of our members, the vast majority of our members, serve communities of 10,000 people or less.

Mr. Chairman, APPA supports Congressional action to address climate change. But as my colleagues have stated, we are very concerned that achieving environmental goals be properly balanced with affordable costs to the consumer and the economy. Consequently, we have developed a detailed set of principles on implementation of a cap-and-trade program.

We believe it is critically important that the transition to a low-carbon future be managed in a way that keeps electricity affordable and reliable in order to be sustainable and workable in the long term. Thus our first principle is that legislation must include a safety valve or other stringent cost containment mechanism that sets a maximum price on carbon. While we support the inclusion in your draft bill of an offset regime in the use of banking and borrowing, we do not think these are adequate measures.

We urge the committee to include a price ceiling on CO2 in the next version of your draft. We also have concerns that the provisions governing the establishment and use of offsets were inadequate for cost containment purposes. I would like to work with the committee to improve these provisions.

Regarding the issue of emission allowances, the electric utility sector should receive an allowance allocation proportionate to its share of total emissions or about 40 percent. All of which we feel should be allocated to load-serving entities or local distribution companies. This will provide the industry with allowances sufficient to maintain reliability and affording time to adapt during the transition period when low emission technology is under development.

Allowances should go to the local distribution companies because they are in the best position to ensure that allowance revenues are used to reduce cost to electric consumers. Allocating allowances, as opposed to fossil fuel generators, would eliminate the prospect of windfall profits that have resulted in some cases in the European Union cap-and-trade system.

We think the allocation to the LSEs is particularly important in regions that have restructured wholesale power markets that are under federal jurisdiction and run by regional transmission organizations, such as the Northeast, the Mid-Atlantic, the Greater Midwest, and California. Because allocating allowances two independent generators into these markets, will raise the already high wholesale prices these markets are producing.

This is because fossil fuel generators nearly always set the clearing price in the wholesale electricity supply auctions in these markets. Should they receive allowances, these fossil fuel generators will add the value of these allowances to their bids into these markets thereby adding that cost to all of the generation bidding into the market, including no or low carbon generations, such as nuclear plants.

APPA also has serious concerns about auctioning allowances. An auction by its nature disadvantages small entities like most of my member systems. It's important therefore, that if an auction is conducted, that it be designed to restrict speculation and minimize potential for volatility in allowance prices.

With a stringent cost control mechanism in place, APPA would support phasing in an auction gradually over time. But without such a control mechanism, we think no auction should occur until new emissions control technology is commercially available to the industry. It is also essential that all net auction proceeds be used only for targeted research and development, energy efficiency, and mitigation of cost impact on consumers. In other words, areas directly related to addressing the climate change issue.

Mr. Chairman, regarding the proposed renewable electricity standard, APPA supports the workable federal RES of 15 percent by 2020. However, our support contemplates that such a standard be in place prior to implementation of a federal greenhouse gas reduction mandate. And would serve to provide a bridge between the present and the time when technology has been developed to significantly capture and store carbon.

We also believe that once the federal cap-and-trade program is implemented an RES is either -- is neither necessary nor appropriate. By its nature, the RES limits the flexibility of our industry, while a cap-and-trade program is intended to provide the industry more flexibility to tailor a compliance program. Enacting the two simultaneously will increase compliance costs for many utility systems.

Regarding the energy efficiency resource standard, we do not support such a standard but would urge that the RES permit a significant percentage of the standard be met by using energy efficiency measures.

Finally Mr. Chairman, APPA has serious concerns about the new source performance standards included in Title I, because several of our members have facilities in various stages of permitting and construction. These standards would also effectively create a moratorium on coal on a post-2015 world, and raise some significant challenges for facilities yet to be permitted between 2009 and 2015, because basically there is no commercially deployable coal generation technology in the U.S. that can achieve the proposed standard of 1100 pounds per megawatt hour. We would strongly urge the committee to delete this provision.

Thank you, Mr. Chairman; I look forward to answering any questions you may have.

REP. MARKEY: Thank you, Mr. Crisson, very much.

Let me now recognize the gentleman from Georgia, Mr. Barrow to introduce our next witness.

REP. JOHN BARROW (D-GA): I thank the chair for the courtesy of allowing me to introduce our next witness. I want to welcome Mr. John Somerhalder here to the committee today. Mr. Somerhalder is the chairman of the Board, president and CEO of AGL Resources down in Atlanta.

He is a chemical engineer. He had been in the natural gas business for 30 years. And I think you will find as he speaks for the American Gas Association today, the folks in natural gas are already doing a lot of the things we want them to do. Already early starters in the area of efficiency in trying to our reduce carbon footprint, so it's a privilege for me to welcome you. Thank you, Mr. Somerhalder, for being here today.

MR. SOMERHALDER: Thank you Congressman, and thank you Mr. Chairman and thank you to the committee.

REP. MARKEY: Could you move the microphone a little bit closer, please?

MR. SOMERHALDER: Again, thank you Chairman.

REP. MARKEY: Just a little bit closer, please.

MR. SOMERHALDER: My company has utilities in addition to in Georgia and Florida, Tennessee, Virginia, Maryland and New Jersey, and natural gas storage facilities in Texas and Louisiana. I am pleased today to testify on behalf of the American Gas Association of which I am vice chair and chair of the Climate Change Task Force.

The AGA's 202 members deliver natural gas to more than 171 million Americans. In terms of helping in the fight to reduce greenhouse gas emissions, natural gas utilities have two great resources, our fuel, and our customers. Our fuels are clean, efficient, abundant, and a domestic energy source with 98 percent of America's natural gas being produced in the United States or in Canada.

It is the dominant source of energy for residential and commercial heat, hot water, and cooking, yet it produces only about 6 percent of the total U.S. greenhouse gas emissions. Upon combustion, natural gas creates 43 percent less carbon dioxide than coal, and 28 percent less than petroleum.

In terms of our customers, they lead the nation in energy efficiency. Since 1970, the number of residential natural gas customers has increased from 38 million to 65 million, but the energy consumption and carbon emissions have remained flat in that time period. This results from a trend of declining use per customer. This dramatic reduction is attributable to tighter homes, more efficient appliances, and energy efficiency measures, many of which were implemented by natural gas utilities.

Clearly, natural gas is part of the climate change solution. It offers an immediate answer with technology that is available today. The most efficient and effective way to use natural gas is directly in our homes and businesses. More than 90 percent of the energy that leaves the well head gets to the customer, rather than indirectly to produce electricity, where two-thirds of the energy can be lost.

In light of the above factors, we maintain that a national programmatic focused effort rather than a cap-and-trade effort for these customers is the best way to ensure equity, while not subjecting customers to unpredictable allowance cost. We do not want to see our customers competing with electricity generators and large industrials for the allowances necessary to heat their homes and cook their food.

We believe, and history proves that programmatic measures uniformly applied can accomplish what we want without the undue costs and complexities of the cap-and-trade system. However, if programmatic measures are not acceptable, AGA supports including natural gas residential and commercial sectors, excluding them from the scope of the cap-and-trade system until 2016, as proposed in the discussion draft bill.

AGA believes that most allowances required for residential and commercial gas customers should be allocated rather than auctioned. As allocating allowances is the best way to ensure that price impacts on our customers will be minimized.

Local natural gas utilities as regulated by state public utility commissions make no profit on natural gas prices when they arise. Similarly, they would not make any profit on allocated allowances. The national gas -- the natural gas utilities will need the ability to pass on the cost of these allowances and the climate change bill should provide for this rate-making treatment.

We support the proposed carbon footprint labeling in the draft bill. Giving customers this carbon output information will provide them with the essential information that they need to play a role in reducing our carbon output. The discussion draft bill proposes to establish an energy efficiency resource standard for both electric utilities and natural gas utilities.

While the end result is a laudable one, the lack of clarity in the language addressing EERS causes concerns. First, the legislation could have the unintended consequence of limiting carbon-driven fuel switching and could even increase the nation's dependence on foreign oil by preventing conversation to high-efficiency gas applications from less-efficient fuels.

Second, the imposition of these penalties could be a barrier to economic growth and development by raising the cost of energy to both new and existing customers. And third, the focus is on large after- the-fact penalties rather than incentives, and it is tied to consumer behavior which the utility cannot directly control.

Mr. Chairman, and the committee members, there are many other issues including research and development of natural gas vehicles and renewable gas that we don't have time to address now, but are included in my written testimony. That concludes my remarks and I will be happy to address your questions.

REP. MARKEY: Thank you very much. Our next witness is Richard Morgan. He is a member of the Energy Recourses and Environmental Committee of the National Association of Regulatory Utility Commissioners, which represents State Public Service Commissions that regulate utilities. Mr. Morgan also leads the NARUC task force on climate policy and he is serving in his second term as commissioner on the District of Columbia Public Service Commission.

Please, begin when you are ready, Mr. Morgan.

MR. MORGAN: Thank you, Mr. Chairman, and members of the subcommittee. My name is Richard Morgan, and I am a member of the District of Columbia Public Service Commission. I am testifying on behalf of the National Association of Regulatory Utility Commissioners. I am honored to have the opportunity to appear before you this morning regarding the American Clean Energy and Security Act.

NARUC is on record as supporting a well-designed economy-wide federal program to limit greenhouse gas emissions. In order to remove existing uncertainties that are hampering critically needed investment in electricity transmission and generation. In concept, NARUC supports the goal of auctioning emissions allowances under a cap-and- trade mechanism.

But we believe it is appropriate to provide a transitional allocation of free allowances in order to minimize economic dislocations as we move toward a 100 percent auction. However, as OMB director Peter Orszag correctly points out, when allowances were given away to European power generators, shareholders, not consumers, got most of the proceeds as windfall profits. It is precisely for this reason that NARUC opposes the allocation of no-cost allowances to electricity generators.

State regulators propose a different approach to ease the transition in the electric sector. Instead of giving away allowances to power generators, which are often unregulated, give them only to regulated local distribution companies, which own the wires used to distribute electricity.

These LDCs as we call them are always subject to rate-setting authorities such as state public utility commissions or consumer-owned utilities, where they can assure that consumers, not utility shareholders, receive the benefits of the free allowances. In fact, state regulators already have in place mechanisms for flowing through to consumers the benefits of free emissions allowances from the existing Acid Rain Program.

President Obama has stated that reducing carbon emissions must be done in a way that insulates consumers as much as possible from potentially dramatic rate increases. Giving allowances to LDCs as a proxy for their customers provides an efficient means of softening the impact on consumers and solves the windfall profits problems at the same time.

Under this approach revenues associated with pricing greenhouse gases would be returned to the very consumers who would be at risk for paying higher energy prices. Regulators could direct a portion of the proceeds toward mitigating the impacts of pricing carbon, such as through expenditures on energy efficiency or low-income energy assistance programs.

Meanwhile, generation decisions would still be influenced by the full effect of pricing greenhouse gas emissions. How the proceeds of a cap-and-trade mechanism are spent is every bit as important as putting a price on carbon in the first place.

Assuming an allocation to LDC, state regulators can direct the proceeds toward investments, such as energy efficiency that reinforce the goals of limiting greenhouse gas emissions and thereby lower the overall cost of achieving emissions reductions. And you will hear more about this from our next witness, Mr. Cowart.

Mr. Chairman, you've surely noticed similarities between NARUC's proposal and those of some industry groups. In fact, EEI's testimony refers to NARUC's support for an allocation to LDCs. But that's really where the similarities end. There are some important distinctions that I want to bring to your attention.

These industry groups which have unregulated generators among their members naturally seek an allocation of free allowances, not just for LDCs, but for merchant generators as well. NARUC objects to giving free allowances to electric generators under any circumstances and I would like to explain why.

First, in many states generators are unregulated and state commissions have no way to ensure that consumers would receive the benefits of these free allowances. There is no reason to expect an outcome any different from what happened in Europe.

These companies say that they need allowances to cover their so- called net compliance costs, an argument that we find curious since there is no commercial technology available to remove CO2 emissions from an existing generator. These merchant generators are not trade exposed in the sense of competing in overseas markets. They are purely domestic.

Free allowances won't help to keep dirty generators operating, even if that were desirable. If carbon prices are too high, the company could simply shut down its generator and keep the value of the allowance stream for its shareholders, as sort of a golden parachute.

Under the formula proposed by EEI, electric sector allowances would go first to merchant generators based on historic emissions. LDCs would then get only what is left. And the generator share could grow if the utilities decide to spin-off more generators into unregulated subsidiaries.

Finally, any electric sector allowances given to generators would not be available to help soften the impact of pricing carbon on consumers through their LDCs. Those who advocate an allocation to generators have not explained how this would help consumers in any way or why it would not produce a windfall for their shareholders just as it did in Europe.

Mr. Chairman, and members of the subcommittee, NARUC believes that through a carefully designed cap-and-trade mechanism and an appropriate distributing of emissions allowances, carbon restrictions can be implemented without undue economic burden on consumers.

Thank you for your time and consideration this morning. I would be happy to answer any questions.

REP. MARKEY: Thank you, Mr. Morgan, very much. Our next witness, Mr. Richard Cowart, Director of the Regulatory Assistance Project. He has served as commissioner and chair of the Vermont Public Service Board for 13 years. He was elected president of the New England conference of public utility commissioners and was chair of the national -- NARUC National Committee on Energy Resources and Environment.

Mr. Cowart, please, begin when you are ready.

MR. COWART: Good morning, Chairman Markey --

REP. MARKEY: If you could turn on your microphone please?

MR. COWART: Is that on?

REP. MARKEY: Yeah.

MR. COWART: Ranking Member Upton and members of the committee --

REP. MARKEY: Bring it a little bit closer, please.

MR. COWART: I get it, right there.

I appreciate the opportunity to speak with you this morning about the critical role of end-use energy efficiency in reducing greenhouse gas emissions and containing the cost of climate change legislation. Let me begin, Mr. Chairman, by congratulating you for the comprehensive approach you were taking to global warming pollution and the progress the Congress is making in addressing this critical issue.

Given the scale of this issue, it's no surprise that climate legislation raises concerns about prices and about impacts on consumers. I've been a state environmental commissioner, public utility's commissioner, and as an advisor to many governments. So for about 25 years I've been working to protect consumers, while promoting advanced utility services needed for a modern economy.

My testimony will stand fairly simply. I'm focusing on the central role that carbon credit allocation can play in protecting consumers and containing the cost of climate legislation. The good news is that a smart allocation policy linked to a smart investment strategy can greatly reduce the consumer cost of the proposed cap-and- trade program.

My overall message is very simple. Congress should design the climate program to reduce emissions through greater energy efficiency, not just through higher carbon prices. For the power sector, the best way to do this is through a consumer allocation for efficiency. That is by allocating the sector's allowances to local distribution companies or other state supervised entities acting as trusties for consumers.

The trusties can then auction the allowances to emitters and recycle the revenue for the benefit of consumers. Moreover, the best way to help consumers and to lower the cost of the entire climate program is to invest a large fraction of those funds in low carbon resources, especially cost effective and use efficiency.

My written testimony elaborates on four points. So I'm just going to touch on them here. First as I've just stated, it's essential to think of climate legislation as a combination of programs, including both regulatory and market measures to lower emissions. It's not just cap-and-trade, it's not just a renewable electricity standard, it's not just better building codes; it's really all of the above.

When California completed its exhaustive examination of this issue recently the Air Resources Board came out with a scoping plan. At least 75 percent of the carbon reductions in the California plan are going to be accomplished through mechanisms that people call the complimentary policies. Of 75 -- that 75 percent, I would view as the foundation for the cap-and-trade program, which is intended to deliver the other 25 percent.

My second point is that energy efficiency is the equivalent of a low-cost carbon scrubber for the power sector. And the good news is that utility scale energy efficiency is relatively inexpensive at $ 0.03 a kilowatt hour, it's much less than the cost of supply and delivery, which is usually two to five times more expensive.

Efficiency opportunities exist in large quantities in all regions of the country, whether your system is a coal system, a gas system, a hydro system, any region of the country, energy efficiency resources can be tapped to benefit customers.

My third point is on price impacts and cost containment. Simply put, energy efficiency is the key to cost containment in the climate legislation. Adding a price signal to the cost of electricity is useful in trying to reduce emissions -- carbon emissions. But trying to meet our goals through price alone will be much more costly than a cap-and-trade program that builds efficiency right into its architecture. And this realization has two sides. And I want to touch on both of them.

First it's hard to get to where we want to go through carbon prices alone. People are often surprised to learn how hard it is to reduce power sector carbon through price signals. On the consumer side, it takes a very high price because of low price of electricity to actually reduce carbon as much as we need. And on the generator side, it takes a very high price in order to significantly change the dispatch in our -- across our power grids.

This leads to my final point, which concerns allocations. As I've said earlier, the best way to control costs in the power sector is not by giving allowances for free to generators, but by allocating them to local distribution companies or other consumer trustees supervised by state regulators.

Those trustees can sell the allowances and apply the proceeds to benefit consumers. This will deliver much more low cost efficiency than a purely price-driven approach to allowance allocation. Our studies show that for the same dollar cost in rates, efficiency programs will save five to seven times more carbon than would result from carbon taxes or credit markets alone. So five to seven times greater savings on the environmental side for the same cost to consumers.

I'll close by noting that there is a good model in the United States for the practice that I'm describing here and that's the RGGI, the Regional Greenhouse Gas Initiative. If you look at the experience of RGGI, all ten RGGI states considered this question and concluded that almost all the allowances should be auctioned and that almost all of -- or 70 percent of the revenues associated with the program should be recycled back for the benefit of consumers, principally through low-cost energy efficiency.

Thank you, very much. I look forward to your questions.

REP. MARKEY: Thank you, Mr. Cowart, very much.

Our next witness is Mr. Robert Greenstein, founder and executive director of the Center for Budget and Policy Priorities. He has had a long and distinguished career, but it included winning a McArthur fellowship and he was appointed by President Clinton to serve on the bipartisan commission on entitlement and tax reform. We welcome you back sir. Whenever you are ready, please, begin.

MR. GREENSTEIN: Thank you very much, Mr. Chairman. As you know, the work of our center in this area has focused on developing proposals to protect the budgets of low and middle income consumers in a way that is effective in reaching them, efficient, and consistent with energy conservation goals.

With these goals in mind, we've designed an energy refund or rebate to offset the increases in households' overall energy expenses that would result from an emissions cap. Not just the increases in utility bills, which will account for less than a half the overall hit to consumers' budgets.

We recommend that consumer relief be provided through the tax system and existing benefit delivery systems. Under the proposal we have developed, 95 percent of households in the bottom fifth of the income distribution and over 98 percent of those in the middle fifth and the fifth in between would be reached automatically without new bureaucratic structures, no new applications required, and low administrative costs.

Here is how it would work. Most households qualifying for an energy refund would get it through the form of a refundable income tax credit that would be provided in paychecks through adjustments to employer withholding, as is being done with the tax credit that you enacted in the recovery legislation in February.

For seniors, veterans, and people with disabilities, they would get their refund as a direct payment from the Social Security Administration or the Department of Veterans Affairs, again, as being done under the recovery legislation.

And finally, very poor households participating in programs like food stamps would receive monthly energy refunds through the debit card systems that every state human service agency in the country operates to provide other low-income benefits. Those systems have proved to be efficient and highly effective.

Now, some, including other of my fellow panelists here, have proposed instead routing funds for consumer relief through local utility distribution companies. Well, that may seem reasonable at first wash; our analysis indicates that such an approach would be unwise for several reasons.

First, the utility company approach is aimed at electricity and natural gas bills. It doesn't address the full impact of an emissions cap on consumers' budgets. Over half of the impact would be in other areas, gasoline, increased prices for a whole array of goods and services that use energy in their manufacture or transfer -- transportation to market.

Consumer relief that only focuses on a home or even business, electricity, and gas bills leaves consumers with a large uncompensated hole in their budgets. Secondly, this approach would cause prices for other forms of energy and energy products, other than electricity and gas, to rise even more, and it would increase the overall cost of the economy of meeting the cap.

This is not just our conclusion. This is in the EPA study of your draft bill released this week. And it's in the study of Resources for the Future, the premier environmental think-tank.

The issue is that keeping utility bills low would blunt the price signal an emissions cap is supposed to send, and as a result, you'd get less reduction in electricity and natural gas use. Now, if the cap is a given amount of tons of carbon emissions, and you get less reduction from electricity and natural gas, you must get greater reduction from all other forms of energy.

In order to do that, the price of other forms of energy has to rise more. In the Resources for the Future study, they estimated that this kind of an approach would cause the overall allowance price to be 15 percent higher than it otherwise would be.

In the EPA study released earlier this week, and I'm quoting, "Returning the allowance value to consumers of electricity via local distribution companies, prevents electricity prices from rising, but makes the cap and trade policy more costly overall. This form of redistribution makes cap and trade more costly since greater emissions reductions have to be achieved by other sectors of the economy."

A third and final problem here is that while the LDCs are regulated utilities, the quality of state utility regulation is uneven across the country. And the fact that they're regulated is no guarantee that in every area of the country free allowances -- free distribution of allowances to the LDCs will produce well-targeted and effective consumer relief. This is an issue some consumer organizations have expressed concerns about.

So to wrap up, in a refundable energy tax credit delivered through paychecks coupled with electronic benefit transfers and payments from social security and veterans affairs would be the most effective way to provide relief to low and middle income consumers.

Other mechanisms would provide less consumer relief per dollar of cost, and this is why the newly formed climate equity alliance, has as a basic principle, providing the consumer relief directly through the kind of mechanism I've described rather than through utility companies.

This is an alliance that includes leading civil rights groups like the NAACP and the National Hispanic Environmental Council; leading religious organizations like the U.S. Conference of Catholic Bishops, SEIU, and the Center for American Progress.

Having said this, we all know that deadlock serves no one. We all know that agreement needs to be reached to move this legislation. So in the spirit of compromise, let me swallow hard and suggest a possible middle ground from what you're hearing on this panel.

REP. MARKEY: We will give you extra time right now. That's an important --

(Laughter)

That's a very important sentence; you just said it, thank you.

MR. GREENSTEIN: Well, I believe providing consumer relief through the local distribution companies is unwise for all the reasons I've mentioned. It seems that that would need to be a component of something that would move particularly in this committee.

So the suggestion would be rather than as some have suggested combining a very large LDC piece and a small low-income consumer piece to supplement it, to have a somewhat more moderate LDC piece combined with a energy tax credit designed such that the sum of the LDC relief and the tax piece together fully offset the hit to the budgets of the typical middle-income households.

The social security veterans and debit card pieces, obviously, would still be a part of it for those groups. And then over time, as energy efficiency and other matters kicked in over time, the free distribution of allowances to LDCs would phase down. The direct relief of the tax piece would phase up and would stay at the level based on what was happening with energy prices that you needed to provide the consumer relief to make the typical consumer whole. Thank you.

REP. MARKEY: Thank you, Mr. Greenstein.

Our next witness, Dr. Robert Michaels, is a professor of economics at California State University, Fullerton. Mr. Michaels is also an adjunct scholar at the Cato Institute. We welcome you, Dr. Michaels. Whenever you are ready, please begin. Could you turn on your microphone please?

MR. MICHAELS: Thank you, Chairman Markey. I'm honored to be here. I come from California where we supposedly set a lot of trends. And the first thing I wanted to do is summarize a few problems California is that may be quite important for the content of the legislation we're talking about here.

Because your legislation depends, among other things, on a national renewable portfolio standard, the thing that is clear now is that California's utilities are far out of compliance with their standard. It appears that it's going to be impossible for them to move on to tighter standards, and there are a variety of reasons, including regulatory uncertainty, and siting problems with transmission.

Second, the supposed effective energy efficiency policies in California need to be reconsidered. It's been highly touted that California's per capita electricity consumption is staying constant instead of rising like the rest of the country.

What this really reflects, we can look into statistics. It's a departure of industrial customers. Studies that show for the Air Resources Board that it's going to be a painless transition that creates jobs to California's cap-and-trade system. These had been thoroughly discredited by peer reviewers from places that even include the Pew Foundation.

The smart grid, cost benefit figures for the smart grid have gone in every which way in the applications in California. They've gone from negative to positive largely on the basis of assumptions that the utility will be able to control people's power in their homes.

Those are important, but there is a more important thing about this bill. And I think it really matters at the base. This bill is a tax bill. This bill is very anti-consumer. It is one acknowledged policy. It is to raise energy prices to Americans, and when it does so, it's going to make a miracle less competitive in an ever more competitive world.

For reasons they can best explain, some people are on record as favoring higher prices. As important as those prices are, are the policies that will increase them. Every major provision of this bill is at base a tax, and every one of them is called something else.

The renewable electricity standard is a cleverly disguised tax. None of it is ever going to appear on the federal books.

Instead, the bill will simply force utilities to purchase renewable energy, leave state regulators with no charge, but to fold the costs into households' bills.

Another tax turns up in the proposed auction of allowances. The official term is "auction," and again the real term is "tax." The easy way to see this, look at the plans for spending the revenue, details aren't firm, but it's possible to go to consumer rebates, deficit pay down, health care financing. There are only two possible sources, debt, and taxes and this is a tax.

Like all other taxes, allowance charges compel business owners to divert funds they could otherwise have used to operate their firms and employ people. Those who believe that the re-spending of revenue from auctions will create jobs, have been conspicuously silent about the jobs that are going to be destroyed in the initial allocation process.

The bill's effect start with scarcer energy, they hardly end there. It would be increasing the prices of all other goods and services that use energy in their production. If that's so, we're talking lower standards of living for Americans, not higher, and talking about making American goods less desirable to foreign purchasers, not more.

This bill's thrust is to make energy needlessly scarce, and then somehow, we reach a conclusion that this action is good for the economy. Think of it simply. If workers work with more talented workers, they're going to be more productive than workers who labor alone.

Workers with more advanced equipment to work with and more of it are going to be more productive than workers who are without it. Workers with better and more abundant energy are going to be more productive than workers who do not have access to it.

This bill's logic seems to reverse all of that and tell us that less energy is going to somehow do the exact opposite of all those other things that workers work with. There is no economics in it. Scarce energy creates jobs by making workers less productive, so that it takes more of them to get something done.

This bill does not create prosperity. This bill is going to produce a less competitive, less productive economy that has lower incomes, less opportunity, and less wealth to hand on to future generations. Thank you.

REP. MARKEY: Thank you, Mr. Michaels, very much.

And our final witness before questions from the subcommittee members is Mr. Daryl Bassett, spokesman for the Empower Consumers Coalition. Mr. Bassett formerly served as Arkansas State public utility commission.

Mr. Bassett, please begin, whenever you are ready.

MR. BASSETT: First of all, I want to thank you, Mr. Chairman, members of the subcommittee. Having been familiar, Mr. Chairman, with your body of work while I was a commissioner, I have a great deal of respect for that body of work.

It's a privilege, it's an honor to be able to come to this committee and testify on what impacts, we believe, consumers may very well face if Congress does, in fact, adopt energy or climate policies without adequate cost containments.

But I'd be remiss if I went any further without recognizing the presence on the committee of one of Arkansas' favorite sons, Congressman Mike Ross, and certainly his diligence in representing the people back home. We are awfully proud of him back there.

But it's an honor. It's a privilege to offer my perspective on how policies in the current draft might very well impact the poor, the elderly, the consumers on fixed incomes, those institutions of higher education, hospitals, and small businesses.

These are people, members of the committee, whose story generally gets, kind of, lost in the wash anytime government, whether it be state or federal, considers sweeping public policy changes. And as a former utility commissioner, I'm acutely aware that the first question that consumers generally have when confronted with sweeping policy changes is one, how much is that policy going to cost, and two, who is going to have to pay it.

And personally, and quite candidly, answering that second question is always easier to do than answering the first. So consequently, I want to certainly applaud the EPA for their recent analysis. So I think, consider it a great first step in answering that first question, which is how much is the implementation of this proposed draft going to cost the American people.

However, that analysis, that I've had a chance to peruse, while certainly well-intention, doesn't go in my opinion far enough, given the overlapping mandates in the draft. The draft, as you know, considers mandates on renewables, energy efficiency, standards for new power plants, federal gasoline standards, their provisions. They are for, cap and trade and issues involving greenhouse gases.

So I think it's fair to say that the consumer is going to be concerned about what the total cost of the proposal is going to be, and will certainly be less than content if we only offer them an analysis that covers cap and trade as the EPA analysis does.

There is little disagreement among consumers that the cap and trade program is going to cost them a lot of money. We are looking at studies that go anywhere from an EPA estimate of ($) 983 billion by 2030 to one done by the American Council for Capital Formation that says it's upwards of $1 trillion.

Consumers are also aware that renewables are going to be costly. What one Texas utility pays for wind, recently more than doubled, and Dr. Michaels just gave you some indication about what's going on in California. They have among -- they have -- they're among the nation's highest utility rates, but they also have one of the highest renewable mandates.

What concerns us, quite frankly though, is putting the two of them together, the cap and trade as well as the renewable portfolio. I believe that if we are not careful, what we could pose is potentially devastating consequences on the most vulnerable in our country.

Because it will -- what we are looking at when we look at that potentiality; we at Empower Consumers, would then -- would respectfully ask that the committee, before it moves further, consider an analysis that takes into consideration all of the proposals, and what their simultaneous implementation would be before passing any type of climate change or any type of renewable legislation.

Our concern, quite frankly and honestly, is not with the draft. As I said initially, I'm familiar with your body of work and certainly with your reputation for integrity, for -- that goes without saying. But what we feel, while we feel the draft is well-intentioned, we're concerned about the unintended consequences of well-intentioned legislation.

And so we feel that at this critical juncture in our nation's history, we can't afford to make sweeping decisions on far-reaching legislation without a full appreciation of the extent to which our people, your constituents, are going to prosper or going to suffer.

Now, the answer to that second question that I said the consumer is going to ask, who is going to pay. Well, it's always the consumer. But the answer really -- that doesn't address what they are really trying to ask, because at the heart of this thing, we know that some of those consumers are going to suffer more than others.

We know that history tells us, any time we apply a one-size-fits- all approach nationally, there is going to be a disproportionate burden placed on some members across the country. And ultimately, it falls on the consumers who are least able to afford it.

That's communities of color, that's the elderly, that's those living in poverty, those living on fixed incomes; they are going to pay an inordinate amount of their monthly income on energy.

So I have to agree with the nonpartisan statement that came out of the congressional budget office that characterized that particular effect as being regressive.

It said and I quote, "Price increases resulting from a carbon cap would be regressive; that is, they would place a relatively greater burden on low-income households than on higher-income ones."

We know that in '08, the average American family that had a disposable income of $52,500 a year last year spent 12 percent of that income on energy. We also know that those who were making less than $50,000, which essentially is 51 percent of all U.S. households, spend 24 percent on energy.

And those making between ($)10,000 and $30,000 actually spent 26 percent of that income on energy. We also know that in a way the African-American households as well as Hispanic households with incomes less than ($)50,000 spend over a quarter of that income on energy. So it's not surprising that consumers are going to be concerned about how much more they're going to be asked to bear from any type of legislation.

REP. MARKEY: If you could summarize, please, Mr. Bassett?

MR. BASSETT: Well, in summary, we are concerned that the bill should address in totality all of the costs that are going to be incurred. One we'd ask the legislation go through a rigorous cost analysis. Second, we'd ask that you would consider mechanisms that establish some type of floor or ceiling with regard to carbon allowances, so that you can mitigate any type of unintended consequences.

Mr. Chairman, I'd like to thank you for the opportunity to testify, and Empower Consumers certainly looks forward to working with this committee as we go forward.

REP. MARKEY: Thank you, Mr. Bassett, very much.

Now, we'll turn to questions from the subcommittee members. The chair will recognize himself. And let me turn to you, Mr. Cowart, and you Mr. Greenstein, so that I can ask you a little bit of a question, so that you can both get a chance to expand on the impact on consumers.

Can you talk a little bit about what happens if we put together a good formulae dealing with energy efficiency, recycling revenues, and the cost of inaction. We saw the price of a barrel of oil spike to a $147 a barrel last year, if we don't put together a plan to break our dependence upon imported oil. Mr. Cowart?

MR. COWART: I'll start. My message is plain here that cost- effective energy efficiency is the cost containment mechanism you are looking for. And I encourage all the subcommittee members to look really carefully at all the mechanisms in this legislation that would promote and use energy efficiency.

And I suspect that Mr. Greenstein and I are going to agree that that is one of the ways to bring prices down across the board for everybody. And secondly, that in particular, we should support targeted low-income energy assistance that would direct cost-effective energy efficiency, particularly to low-income families, through such things as dramatically expanding the weatherization programs.

So there are a lot of mechanisms here to help consumers both directly and indirectly by lowering carbon prices and lowering power prices through aggressive energy efficiency actions.

REP. MARKEY: Okay. Now, let me go to you, Mr. Greenstein.

MR. GREENSTEIN: I think things like energy efficiency and consumer relief go hand in hand. The way that we think of and the way we recommend -- you think of and I think the way the committee, as I understand, that is thinking of consumer relief, is that the consumer relief be related to some share of the permits.

The more effective that efficiency and shifts to alternative forms of cleaner forms of energy via the price signal are, then the less will be the amount that the allowances sell for, and the smaller will be the hit on consumer's budgets.

I don't think this bears one way or another on the form of the consumer relief. But under the proposal that I've suggested with tax credits, payments from social security, and veterans, and the debit card mechanism, the amount of the rebate would be tied each year to the price that the allowances were selling for, and thereby to the overall impact on consumers.

So the better one -- the better the results one gets from investments and efficiency and alternative energy, the less the burden both on the overall economy and on consumers. And if "x" percent of the permits are going for consumer relief, the dollar amount of that relief will be less because the impact on their budgets will be less, because the efficiency is working.

REP. MARKEY: Thank you, Mr. Greenstein.

Mr. Sterba, in my home state of Massachusetts, there are two large coal-burning power plants, the Salem Plant and the Brayton Point Plant. Since our state required utilities to spin off these plans as part of its restructuring plan, they are not subject to great regulation by the Massachusetts Department of Public Utilities.

If we were to give Dominion Power which owned Salem and PGE, which owns Brayton Point free allocations, what would prevent them from pocketing that financial windfall rather than passing on the savings to the consumer?

MR. STERBA: Mr. Chairman, the primary benefit that will go to those consumers is the allocation that would be made to the LDC that serves the consumers in that area. The purpose of a small allocation, and we're talking about less than 10 percent of the total allocations to the electricity sector that would go to coal generators.

The purpose of that is to help cover the costs that are not recovered by that coal generator through the price of electricity caused by the imposing of a cap and trade. So it's a -- it helps cover that small component of cost that is not recovered through the market price.

Yes, they will sell it. Yes, that generates revenue to them. What it does do, and let me use Texas, where I'm more familiar, Mr. Chairman, because I operate there, is it helps ensure that that coal resource stays viable for a period of time, because those -- the allowances that are allocated to that generator would decline. But it helps ensure that you don't end up causing that unit to be shut down or mothballed and replaced with gas generation.

REP. MARKEY: Okay, let me go to, if I may, Mr. Sterba, Mr. Morgan, do you agree with that?

MR. MORGAN: I agree in part that the benefits to consumers come through the allocation to the LDCs, but I don't see how any -- the consumer gets any benefit from giving a free allowances to the generator, because those benefits are -- we have no way to make sure that they get passed along.

The company in fact wouldn't necessarily even keep that plant operating if it becomes uneconomic because carbon is being priced. The allowance allocation is based on the baseline and they would get this perpetual stream of allowances into the future even if the plant has been retired.

So there really isn't any incentive for them to even keep the plant running, and there is every opportunity for them to pass along those -- the value of that future allowance stream to the shareholders and really no way for it to get to the --

REP. MARKEY: My time has expired. We have to continue this conversation, I think. And my time has expired.

The chair recognizes the gentleman from Michigan, Mr. Upton.

REP. UPTON: Thank you, Mr. Chairman. As you know, a number of states are -- actually exceed 90 percent of their powers produced from coal. And I have always been a supporter of clean coal technology.

And Mr. Sterba, you indicated that you thought that there should be free allowances until technologies in place that'll actually reduce those emissions.

I was a co-sponsor of the Boucher bill last year. I hope that we can proceed on it this year.

But if it works, and I hope that it does, it's still 8 or 10 years probably away before it's actually in place, and you can actually see it begin to be implemented with a number of different facilities around the nation, particularly in the Midwest.

So assuming that that's all accurate, you would want a free allocation until that technology is on the shelf ready to use, is that right?

MR. STERBA: Yes, sir. In fact, I think that free allocations in order to help mitigate consumer impact should last longer than just 8 to 10 years. I think -- but they would be declining as the cap declines. So to me, you should be thinking about allocations that would last 20 to 30 years, but it's a declining amount and that's for the consumer protection purposes.

REP. UPTON: Yeah. Now, as we talk about consumers getting money back, in essence a rebate, our state, Michigan, in my state Michigan, we've lost 150,000 jobs in the last number of months. Estimates that were released earlier this week by the University of Michigan show we are going to lose more than 230,000 before the end of the year.

We already provide 79 weeks of unemployment benefits, and you might have seen the news this morning that GM is expected of closing all of their facilities, or virtually all of them, for nine weeks beginning next month, which will impact even more than what was shown by the U of M.

I know that there is a lot of thoughts about rebating consumers; of the panel here, how many believe that consumers also should be employers, eligible for such rebates that you might impose, as Mr. Greenstein indicated, for those -- Mr. Sterba, anyone else that believe that employers should be able to receive rebates as well as individuals?

Just two? Would you -- can I have a show of hands, three.

Mr. Morgan, you are no then, is that right?

Mr. Greenstein, are you a no?

MR. GREENSTEIN: My sense is the most efficient way to do this is employers will have some increased cost that they'll pass through to consumers. In the system I recommend, this is part of the impact on consumers that would be compensated.

REP. UPTON: Okay.

Mr. English, you indicated that you are looking for an out. Was it 4 million megawatts, is that what it was?

MR. ENGLISH: Well, I'm suggesting that as far as --

REP. UPTON: Exemptions.

MR. ENGLISH: -- small utilities are concerned, that's what small business administration identifies as small utility exemptions. So yes, I would suggest that on the renewable electricity standard.

REP. UPTON: Okay, and what is the average renewables now? I support renewables, wind, solar, the whole number -- hydro. What is the average of your members in terms of membership, in terms of what they've now provided for renewables? What percentage?

MR. ENGLISH: Well, I think it depends on what you define as renewable. That's part of the difficulty we have. Different states have different definitions. What we would include, which would include hydro, is about 11 percent. And you're talking about roughly, we use about 9 percent of the power that electric cooperatives use does come from renewable energy, that's hydro.

REP. UPTON: No, if you include a broader base, include hydro, include a whole number that waste energy, do you support the 25 by 25?

MR. ENGLISH: Well, I'm a member of the steering committee of the group; no one is 25 by 25 that has that as an objective. And I think that does come down as to how flexible you are going to be, how inclusive?

Let me also add very quickly. There's another problem here. And that is if we're going to produce renewable energy on a large scale, then, we would advocate that that's what needs to be done if we're going to meet these standards; that the one thing that you're going to have to have as a part of this legislation is siting.

REP. UPTON: Well, that's my last question. I've got 28 seconds. I want to go -- come back to a degree with Mr. Morgan.

Mr. Cowart, there is nothing as I read this bill. As we look at renewables, we've had a problem in California. I support renewables whether there'd be in -- off Nantucket or whether they'd be in Lake Michigan for wind. With that also comes the siting or the connection to the transmission lines.

And we've seen a pretty vocal struggle in California, where the senior senator there has announced that the Mojave Desert should not be a place for solar. We've seen off Santiago, a major solar park being the transmission lines trying to be cited, sued by the Sierra Club.

Is there a length of time that the local PUCs should make a decision before FERC comes in with a heavier hand?

MR. COWART: I think it's going to have to be very, very short time if in fact we're going to meet these objectives. That's the whole point. If you're going to have a carbon cap on it, and we are going to rely heavily on renewable energy, we've got to have siting and have it very, very quickly.

And I would suggest that that has to be focused primarily on renewable energy on the building of that high voltage transmission.

REP. UPTON: Mr. Morgan, you agree?

MR. MORGAN: Yes, if I could add. There -- the amount of time available for commissions to review. First of all, we don't see any evidence that that's a problem right now. There are many other problems associated with siting transmission lines, and a lot of the problems particularly in the West have been associated with siting lines across federal land.

And we do, in fact, have a legislation in place now that provides a federal backstop where commissions don't act within a certain amount of time. We'd -- NARUC would prefer to give a chance for this law to work. We don't see any evidence that it's not working, and we are, in fact, opened to discussions about further changes in transmission policy. But we do -- we would like to see the current law given a chance to work.

REP. MARKEY: Okay. The gentleman's time has expired. The chair recognizes the gentleman from Pennsylvania, Mr. Doyle.

REP. MIKE DOYLE (D-PA): Thank you, Mr. Chairman.

Mr. Sterba, Mr. Morgan stated that he is opposed to allowances for merchant generators. I wonder if you would like to explain why you think it's important to allocate credits to merchant generators as called for in the U.S. cap report?

MR. STERBA: Yes, sir. Thank you. First, I only believe that it's appropriate to allocate to some merchant generators. In the typical markets in the United States, natural gas sets the market clearing price.

So that -- included in that price will be the cost of allowance for natural gas. Natural gas emits about 50 percent of the carbon that a coal plant emits. So part of that, that 50 percent is already being reflected in the price.

The only thing we are proposing in this, I -- in this comment I will represent both EEI and U.S. cap, is the coverage of the other 50 percent for unregulated coal generation. If we do not maintain, for a period of time, that level of unregulated coal generation, which represents about 16 percent, 17 percent of all generation in the United States, we run the risk of a switch and a rush to gas, which will increase natural gas prices for all consumers.

That's a very hidden cost that is real. And we've seen what happens when natural gas prices move from ($)4, ($)5, $6, to ($)14, ($)15, $16.

REP. DOYLE: How do you feel about that clarification, Mr. Morgan?

MR. MORGAN: Well, first of all, the -- having those allowances available which are based on the baseline does not provide an incentive to keep that plant running if the plant is not economic because of price in carbon.

The most efficient thing for the company to do is shut the plant down and keep the allowances. And you'll have the rush to gas anyway. Really what it is, is just a -- it's -- as I said earlier, it's kind of a golden parachute for these old dirty plants to help cover their obligations to their shareholders. It's not going to keep the plants running. It's not going to help solve that problem.

MR. STERBA: Mr. Doyle, if I could. And this is a personal statement. As an owner of unregulated coal generation in Texas, if I don't have a plant running, I shouldn't get allowances. I agree with that.

REP. DOYLE: All right, let me ask you also, Mr. Sterba, the draft calls -- the draft text calls for alternative compliance payments to be set at $0.05 per kilowatt hour. Would -- how does that affect your membership in the real world? What would the effect of that be?

MR. STERBA: Well, the effect is to increase cost. The -- I believe that somewhere in the $0.025 cent alternative cost is appropriate. I think $0.05 cents imposes a heavy burden on consumers.

One of the biggest concerns I've got is that we will do the right thing by putting in place carbon legislation. But we do -- but if -- but we do it in a way in which electricity prices increase to a point where we get a consumer backlash. We've seen it happen in California, in the California kerfuffle of 2001.

We've seen it happen elsewhere where things happen and consumers respond by saying no more. We need to do this smartly, and if we had -- we create systems that cause prices to go up too much too fast, we'll get that consumer backlash.

REP. DOYLE: Mr. Cowart, many of us on the panel here have concerns that the 25 percent renewable standard is going to be very difficult to meet in the certain regions of the country. And one of the ideas -- one of the ways to lesson that burden would be to expand the list of qualifying energy sources to recognize things such as methane recovery and waste of energy and distributed generation. What are your thoughts on expanding the list of qualifying energy sources to meet a 25 percent standard?

MR. COWART: Well, with respect to the list you just gave, I support it. I think that a -- there are good reasons to expand -- certainly the qualified renewables to include methane conversion which is, as you know from a global warming perspective, that's a double winner, and definitely ought to be encouraged.

I think that there is some merit to allowing a piece of a renewable portfolio standard to be met by accelerated achievement in energy efficiency as well. It's a general matter we'd like to keep them separate.

And there are good reasons for that. But some -- for some regions of the country where they think that it's going to take longer to get the renewables going, allow some efficiency -- early action on efficiency to qualify.

REP. DOYLE: And just a final because I just have seven seconds left, just a show of hands. How many on the panel would support a 100 percent auction of these credits?

MR. : Now or later?

REP. DOYLE: Now, in the bill -- of course later, but right now. Just one? Okay, I see my time is up, Mr. Chairman.

REP. MARKEY: Thank you. The chair recognizes the gentleman from Texas, the ranking member of the full committee.

REP. JOE BARTON (R-TX): Thank you, Mr. Chairman. I'm not sure where to start. I guess I'll start by complimenting, Mr. Sterba. It's good to see you. When I walked in, you kind of changed your look. I thought I was looking at Ming the magnificent of Flash Gordon.

(Laughter)

Which is a good look, not a bad look.

MR. STERBA: I appreciate your taste, sir.

REP. BARTON: Yeah, let me just start out by clarifying something that our distinguished subcommittee chairman said. One of the reasons we're apparently doing this bill is to become less dependant on imported oil, which I support, the goal.

How much imported oil is used in the generation of electricity among the member companies of EEI?

MR. STERBA: Mr. Barton, I don't recall the specific number, it's fairly small.

REP. BARTON: It's a -- it's close to zero.

MR. STERBA: It might be in the one percent range.

REP. BARTON: Yeah. So we are not going to get a lot out of this bill, because the imported oil is going to -- for the transportation industry, it's not going for the power generation industry?

MR. STERBA: That's correct. And I think that's were plug-in hybrids come in for the future.

REP. BARTON: You know, well, speaking of plug-in hybrids, hybrids are made in my district, down in Arlington, Texas. The additional cost of the hybrid is such that it never pays for itself.

At $4 a gallon gasoline, it took somewhere between 10 to 15 years, at $2 gasoline, you are buying a hybrid just because you want to buy a hybrid. It didn't -- there's no payback to it. And in any scenario, the GM plant in my district that makes the GMC hybrid, the Cadillac hybrid, they have the capacity to make approximately 60 per hour in the entire country.

I'm told they're selling about 30 a week. So let's don't kid ourselves. Unless we force America, and I mean force them, this theology that everybody is going to transit to an electric vehicle or hybrid vehicle unless it's mandated by federal law backed up by their army, it's not going to happen.

I do want to thank you, Mr. English, for reminding the committee of jurisdiction that when we passed the Clean Air Act amendments of 1990, which I voted for too, we explicitly didn't include CO2. It wasn't serendipitous that we just kind of forgot about it.

We debated it, and thought about it, and we didn't think that CO2 was a pollutant, and needed to be regulated as a criteria, pollutant, under the Clean Air Act. The republican alternative is going to -- when we put it out for this bill, is going to have a provision from Congresswoman Blackburn, a member of the committee that explicitly states that, which is something that, I think, the committee members need to keep in mind.

Mr. Michaels, I wanted to ask you a question since you talked a little bit about cost. Could you explain to the committee and to me how raising the price of any commodity, in this case CO2, can be absorbed without being passed on to anybody in the economy, which is apparently what my friends on the other side think they can do?

MR. MICHAELS: The fundamentals of supply and demand say that no matter what kind of increase in price, increase in tax there is, this is going to be part of it, it is going to borne by consumers. Part of it may be borne by producers; by consumers as higher prices, by producers as having lower profits, fewer funds that they can reinvest in their businesses.

The exact details of all the numbers break down in the carbon case is a subject of considerable debate and certainly in California, they haven't settled that issue yet.

REP. BARTON: Well, let's assume that by some miracle Mr. Doyle, my good friend can come up with an allowance system that didn't cost anybody, anything. Then there is no reason to use less of the commodity that's being capped is there if there is not cost to it?

MR. MICHAELS: But the only way that could happen would be if allowances were redundant, then it was as good as if they didn't exist at all.

REP. BARTON: Well, my time is about to expire. Mr. Chairman, I do want to compliment you. Yesterday, I learned that the oil and gas in Alaska is there as a result of continental plate shift. And I'm sure that I may learn something of a similar value as this hearing progresses with the other 20 witnesses that we have today.

So I'm going to yield back the balance of my time.

REP. MARKEY: I thank the gentleman.

The chair recognizes the gentleman from Washington State, Mr. Inslee.

REP. JAY INSLEE (D-WA): Thank you. I'm glad my friend Mr. Barton mentions Alaska, because as we speak, the tundra of Alaska is melting because of carbon dioxide. The polar ice cap is disappearing because of carbon dioxide. The oceans that sustained the salmon fishery of Alaska are becoming much more acidic because of carbon dioxide.

So I just want to ask you a preliminary question to the extent I hope you can answer yes or no pretty much to this question. I want to just ask each of you very quickly to answer this.

Do you believe that the threats associated with the pollutant carbon dioxide and the threats of changing the climate and the acidity of our oceans are significant enough to the United States that we should endeavor to cap, to limit the amount of this pollution in the atmosphere?

Mr. Sterba?

MR. STERBA: Yes.

MR. ENGLISH: I think we're doing it no matter what.

MR. CRISSON: Yes, Mr. Congressman.

MR. SOMERHALDER: Yes, Mr. Congressman.

MR. MORGAN: Yes, NARUC supports taking federal action on to reduce carbon emissions.

MR. COWART: Absolutely.

MR. GREENSTEIN: Yes.

MR. MICHAELS: The science is not yet -- (off mike)--

REP. INSLEE: Could you turn on your microphone, so we could hear this?

MR. MICHAELS: Oh, I'm sorry. The science is not yet clear enough to make a decision on as drastic a policy as this.

MR. BASSETT: Yes.

REP. INSLEE: The reason I asked that question is that we have two very significantly different approaches. One side of this committee believes that this problem demands action. One side believes that this is not a problem and therefore has not proposed any action to deal with this problem.

So I take the majority of your answers to be that these industries suggest we need action. And there has been and there will be much criticism of the proposal we have made to take action on this problem.

But we have made a proposal. We have stepped up to the plate to suggest one course of action. We have come up with ideas on how to solve this problem. And simply snipping at this particular proposal, although in the finest American tradition, is not going to help us solve this problem.

And I look forward to one day where all members of this committee can start being part of the solution rather than being part of the problem and not taking any action. So I want to ask about the action that we should take.

First, a question I want to ask is, could someone help us on the best way to assist the siting of transmission. I do believe in this bill there are some additional measures we should consider that as these renewable sources start to come online with concentrated silver (ph) offshore wind, we are going to see a significant increase for a need for transmission lines. And I think we need some backstop federal authority to site those.

I'll turn to Mr. English for his thoughts in this regard?

MR. ENGLISH: Well, thank you very much and let me just say, I would respond it. We've got a more practical situation in front of us right now. I think Clean Air Act is going to be used to address this issue, and I think that this committee and the Congress needs to make sure that we have something that is deliberately passed to address the carbon issue.

Second is renewables got to play a huge role in this thing and from a practical standpoint, we've got to move very rapidly if in fact this legislation is going to be timely as far as, and I think that's what you intend.

REP. INSLEE: Are you -- when you say move rapidly, you are referring to transmission, Mr. English?

MR. ENGLISH: I'm -- and particularly transmission. I think efficiency, we've got to be very aggressive on it and quite frankly, I don't think we're anywhere close to what would need to be done on that.

Second thing, I think, as far as transmission is concerned, I understand, not in my backyard, I don't want any part of it; but quite frankly, if given the amount of reliance that I expect that we are going to have on renewable energy and what, I think probably the authors of this bill intent, we have to have that siting, probably we need the siting yesterday, not tomorrow, not two years from now, not five years.

We cannot bill the renewable energy that's going to be necessary to move this country forward and to even approach 15 percent or 20 percent, much less 25 percent unless that siting is done within the next two years.

REP. INSLEE: We'll be making some suggestions to the committee about how to move that forward in the future drafts of the bill, and we hope any of -- any and all of you could help us with your insights on how to draft that.

Very quickly, as we recycle the money from the auction proceeds, and I do believe there should be a 100 percent or high level auction except for the permits that Mr. Doyle and I have fashioned a measure to go back to energy-intensive manufacturing industries.

But as we recycle that, what is the best way to do it if we want to encourage the use of those recycled dollars back to consumers to use it for efficiency improvements. Is it just increasing the weatherization program or should we need some voucher program, take about a 20-seconds answer, if the chair allowed from someone.

I'm going to allow, Mr. Cowart.

MR. COWART: We need an entire suite of energy-efficiency programs. It includes weatherization, it includes assistance to industries, it includes assistance for retooling factories, it includes commercial energy efficiency as well.

The local distribution companies or other trustees appointed by and supervised by state regulators are the best means to ensure that these dollars are returned to customers in the form of enhanced efficiency.

REP. INSLEE: Okay. Mr. Greenstein, I'm kind of out of time. I want to respect the chair's quick --

REP. MARKEY: Quickly, Mr. Greenstein?

MR. GREENSTEIN: Just going to say, in terms of consumer's efficiency investments, you are going to get consumers investing more in home efficiencies themselves if they see the price signals and their utility bills, and they are made whole by a direct payment, so they still see the -- if you artificially keep the bill down, there's going to be less incentive for them to themselves take conservation and efficiency seriously.

REP. INSLEE: Thank you.

Thank you, Mr. Chair.

REP. MARKEY: Gentleman's time has expired. The chair recognizes the gentleman from Oregon, Mr. Walden.

REP. GREG WALDEN (R-OR): Thank you very much, Mr. Chairman. First question I have for each of you, and I want a yes or no answer. Have you read the draft discussion bill yourself in its entirety? Mr. Bassett?

MR. BASSETT: Yes.

REP. WALDEN: Mr. Michaels?

MR. MICHAELS: No.

REP. WALDEN: Mr. Greenstein?

MR. GREENSTEIN: In its entirety, no, parts of it, yes.

REP. WALDEN: Mr. Cowart?

MR. COWART: Same answer.

REP. WALDEN: Mr. Morgan?

MR. MORGAN: Same answer.

REP. WALDEN: Mister --

MR. : Same answer.

MR. : Not entirely.

MR. : Not entirely.

MR. : Not entirely.

REP. WALDEN: Thank you. I haven't either, but I'm just about there. Six hundred and forty-eight pages, and I think I'm down to about 603 right now.

Reason I asked that is not to put you on the hot seat, except that our job here is to legislate. So every word matters, despite what my colleagues -- the other side may think that we're not supposed to ask questions, I intend to ask questions. And I intend to pursue this pretty aggressively, because I think we're about to put into law a policy that will have enormous ramifications for consumers, small businesses, every American and our future.

And so I am going to take my time, and I may invoke my rights under the House rules, which cannot be superseded by this committee to get five minutes for each of you for questions. Because I think it's that important of an issue. So let's start out. Mr. English.

I appreciate your testimony today and your work on behalf of the Rural Electric Coops. You have a very good organization, and I work closely with the members in my district. Explain to me how the provisions in this bill affect your members, a lot of them very small little cooperatives out across very rural landscapes when it comes to them participating in an auction.

Can you explain to me how they compete with a five-member board or a 10-member board out in Hood River or John Day or somewhere?

MR. ENGLISH: We don't think even our largest members can compete in that kind of an environment in an auction. It would be extremely difficult for us to do so. And let me also say that doesn't even take into account the regional ramifications of an auction.

REP. WALDEN: And yet, in the northwest, we have enormous wind energy, a lot of it in my district; I'm proud of it. But I also know that one of the great synergistic actions there is being able to use the hydro system as a storage battery.

There are provisions in this legislation that both completely discriminate against hydroelectric power as renewable, if it was online prior to 2001, as well as any new hydro is not considered renewable if in some way it affects the pool level behind a storage facility at any time or any location. Doesn't that pretty much rule out new hydro as a battery for wind?

MR. ENGLISH: I think it is a mistake to eliminate any kind of renewable whatsoever, I -- you know, we are looking at biomass, we're looking at all different aspects of generating renewable energy. But again, I want to go back that the biggest limitation on renewable energy is transmission, and is the question of siting.

REP. WALDEN: I'm going to bring this up again. This is Bonneville Power's hourly measurements of wind energy in the northwest. And you see the dramatic drop in output of wind; you have to have something to balance it out.

We're going to move forward with renewable energy, which is a good thing. But it cannot be done in a vacuum. So can somebody explain to me how you do not need other power sources that you can bring online rapidly to balance this out? The same would go with solar at night.

MR. ENGLISH: I'll just say very quickly, you're -- you're right.

REP. WALDEN: Appreciate that. Let's talk about natural gas. Does anybody believe here that this legislation will not drive up the cost of natural gas?

MR. SOMERHALDER: For the reasons that were mentioned earlier, clearly, even your example related to intermittent sources of power from renewable that will require generation that can back it up. Natural gas is the quickest source of new facilities that could come on the quickest to back that up.

REP. WALDEN: And so everybody's agreeing, yes, natural gas -- anybody disagree? And I don't mean to move fast, but I -- I'm down to a minute. Smart grid. I'm going to go back to Mr. English on this.

As I read this legislation, everybody with -- that serves a power customer's going to have to have a plan put in place rather rapidly on how to deal with plug-in hybrids and a smart grid technology. Now, out in Fossil, Oregon, there's one person for every nine miles of power line.

Can you explain to me if there's a cost associated with that smart grid technology, and that plug-in requirement here and how that would be addressed?

MR. ENGLISH: Well, first of all, let me just say that we don't --

REP. WALDEN: And I drive hybrids by the way, despite my ranking member's --

MR. ENGLISH: First of all, we don't have a clear definition of what smart grid means. Second, we're very proud, of course, Electric Cooperative seem to be well in advance of the rest of the industry according to the Federal Energy Regulatory Commission in this area.

Third is, we think the very need for efficiency is going to drive a good deal of new technology. And fourth, you have to have flexibility to address the kind of situation that you have locally.

REP. WALDEN: Mr. Chairman, I realize my time for this round has run out. I would encourage you each to read this bill in its entirety, word for word, because every word in this bill has an enormous impact.

And I can't wait till we get into trying to figure out biomass, which is -- if it comes off of federal land, is not renewable, and probably not even off private forest land, and why municipal solid waste converted into energy is not renewable.

There are a lot of questions here, Mr. Chairman, I hope we get time to ask them.

REP. MARKEY: I thank the gentleman.

Chair recognizes the gentle lady from California, Ms. Matsui.

REP. DORIS O. MATSUI (D-CA): Thank you, Mr. Chairman. The main electric utility in my district is the Sacramento Municipal Utility District, popularly known as SMUD. It's -- consistently receives high marks of customer satisfaction while investing significantly in energy efficiency and renewable energy development.

SMUD supported transparent cap-and-trade system to get greenhouse gases under control. It's also undertaken a number of positive and voluntary programs that have helped people control their energy usage and increase the amount of energy they use from renewable sources.

SMUD is highly supportive of allocating emission allowances directly to the LDCs of which SMUD is one. The idea behind this is that LDCs are able to pass potential savings directly onto the ratepayers avoiding windfall profits.

Mr. Sterba, I know that SMUD agrees with you that allocation should be distributed directly to LDCs. I know this is one of the main issues that this committee will have to deal with before marking up the draft legislation before us.

So I'd like to delve a little bit more deeply into the details. SMUD tells me that giving allowances directly to LDCs will protect against windfalls to generators and eliminate opportunities for market manipulation. Why do you think that LDCs are in a better position than anywhere else along the energy supply chain to protect the consumer welfare and guard against windfall profits?

MR. STERBA: The distribution company is -- in our instances, for shareholder-owned utilities, are regulated. The regulator is familiar with how to handle the costs and the benefits of trading and allowances. It's done today relative to SOx, and in many instances, NOx.

So we have proven mechanisms by which those benefits from -- on allowance, are flowed through to customers. And I know that that would continue to exist.

REP. MATSUI: Let's assume for a moment that some of the emission allocations under this bill will be auctioned. In the case of an auction, is it your opinion that LDC should also receive the lion's share of the auction revenue to pass through to the ratepayers?

MR. STERBA: In the instance that you -- for the allocated share of allowances associated with electric generation, as it is allocated, I mean -- I'm sorry, as that auction moves on, I believe, that Congress should consider providing the value of those allowances, cash, if you will, back to the regulated entity to help mitigate impact if it chooses not to do an allocation.

The much simpler way is to allocate and allow the commission in each state to oversee how those values are provided back to consumers.

REP. MATSUI: Okay. Just a follow-up on that, I -- we need to ensure as much discretionary auction revenues go toward complementary policies to mitigate and adapt to climate -- climatic change.

How are the LDCs' position related to other entities in the supply chain to ensure that the auction revenue is spent on activities that would reduce further global warming, emissions, weatherization and renewables efficiency, et cetera?

MR. STERBA: I think there are certainly other things that can be done with proceeds resulting from auctions. For example, in helping ensure there's a very robust weatherization program. It -- the use of that funds -- those funds to invest in technology. If what we're about is creating a mechanism or a set of mechanisms to reduce our carbon footprint, why should not all of the value that's associated with imposing these costs on the economy be used for that purpose.

REP. MATSUI: Okay. In your testimony, you referenced the oil fund payment that Alaskans receive every year, I was thinking about the Alaska situation earlier this weekend. It seems to me that returning money directly to consumers in this way might sound good politically, but would create problems down the line when the emissions cap starts to dry down the amount of revenue generated from the cap and trade program.

How can we best ensure that consumers are assisted with temporary higher energy costs without making them dependant on a rebate payment from the federal government?

MR. STERBA: The absolute simplest way is to provide an allocation to the LDC such that that cost is never incurred by the consumer. Prices at -- I agree with Mr. Cowart that prices don't drive everything. And so having that allocation made to the LDC such that that cost is not passed back on to consumers is an -- is the best appropriate strategy.

REP. MATSUI: Okay. So the role that LDCs play in ensuring the allocation revenues can -- you can really believe the LDCs can really play an effective role in essence in the allocation revenues?

MR. STERBA: Yes, I do.

REP. MATSUI: Okay. Looks like my time is almost up, so thank you.

REP. MARKEY: Great. Gentle lady's time has expired.

Chair recognizes the gentleman from Illinois, Mr. Shimkus.

REP. JOHN SHIMKUS (R-IL): Thank you, Mr. Chairman. This is a great start to start really hashing out the numbers as we tried to address yesterday. And I would appeal to the chairman that once they decide on a mark, that we have a hearing on the numbers.

I also appeal to the chairman that -- I know you want to move this fast -- that enough time is given for everyone to score this out. And let me just ask that to the question -- to the panel. I did this yesterday.

Do you agree that transparency is better than the lack of transparency in this process? Everyone agreed with that, -- we don't -- everybody shaking their head, yes. Would it be better for us to know the numbers that are proposed a week prior to the markup of a bill? Is everyone agreed with that; transparent process? Everyone agreed?

MR. : Uh-huh.

REP. SHIMKUS: Yes, everybody's shaking their head yes.

I'm assuming everybody's shaking their head, yes. No one is willing to go on record saying no, we'd rather not have a full and a transparent process -- a -- at least a week -- amount of time.

Should we have time in a full transparent process, and time to allow people who are making the economic analysis -- the numbers, so that a proper economic analysis of the impacts, good or bad, those that will help move to a green economy, and those that may -- don't you -- does everybody agree that that should be part of this process, a full transparent regular order process so we can debate this?

Anyone disagree with that? So everyone is agreeing, Mr. Chairman. So I would hope that, in this -- and there is great divergent opinions, and we've got a lot of committees and a lot of processes -- you know, the marker's really down for these numbers to be laid out in time for us to really have a credible debate.

Now, why are these -- why is this important? It's important, because there is going to be job losses. There is a supposition that there'll be job gains. There are some people claiming that there will be an equal amount of job losses to job -- I reject that proposal. I think the Spanish study also rejects it for every one job created, there were two jobs lost.

And so we will continue to focus on job creation. Why is this important to me? You -- we've talked -- you all talked about the Clean Air Act, the 90 amendments. We cannot use the 1990 Clean Air Act amendments and say that the cap and trade provision on a small amount of emittance with available technology is related to the huge amount of captured -- emittance, if you want to call carbon dioxide -- and the inability to have any technology to do it at this time.

Peabody mine number 10, Kincaid, Illinois. Fuel switching, Mr. Chairman, that's what this natural gas debate is. Fuel switching cost 1200 mine workers -- the United Mine Workers jobs in one coal mine. And the commodity was switched, there was a fuel switch -- these guys lost their jobs.

Done poorly, with no transparency, you're going to have fuel switching, and I'm going to lose more. The number I like to use is even more, and that came on our hearings with the chairman's -- to the chairman's credit, we had the Ohio mine association here a couple of weeks ago. You know how many mine workers jobs were lost during the 1990 Clean Air Act amendments in Ohio? Thirty-five thousand mineworkers jobs.

Now, what does that mean to rural America? For this piece of coal, from Willow Creek Mine underground employment, 411 miners. The prep pan (ph) has 51. This is just mine -- 462 jobs, this is in rural poor, Southeastern Illinois. The total economic impact for this one mine in poor southeastern Illinois is a $123 million. That's money that goes to the local schools, to the local roads, to the local county, to hire sheriffs. That's what's endangered if we don't do this right.

If we're going to fuel switch to natural gas, these jobs are lost, natural gas is high -- especially, Mr. Chairman if we don't move to more exploration, location and recovery of natural gas emissions. Appreciate your panel, and then the fight continues. I yield back my time.

REP. MARKEY: The gentleman's time has expired. The chair recognizes the gentleman from California, Mr. McNerney.

REP. JERRY MCNERNEY (D-CA): Thank you, Mr. Chairman. You know, the issue of allowances at -- is really at the heart of cap and trade; it's difficult and it's politically difficult. So I appreciate the diversity of opinions that are expressed here this morning. And I think this panel represents the diversity of the opinions of the American public.

So if we can work in the face of this diversity to find something that's passable by this committee and by the House, I think we'll have something that'll be beneficial and it'll work. Personally, I believe -- and in terms of allowances, allocations that -- we should go -- as far upstream as possible, but I realize that politically for a number of legitimate reasons, that that isn't going to happen.

And so I appreciate the spirit of compromise shown by Mr. Greenstein in biting your tongue and saying well, okay, well, we'll work with the LDC. So I hope that the committee can work in that spirit and find a legislation that we can live with. I have a couple of questions. Mr. Sterba, I think your presentation was very good, I appreciate that.

I -- I'm -- I lived in New Mexico for many years, so I understand the situation. We've seen though in the past -- recent past the opponents of clean energy crying wolf in the 1990 Clean Air Act amendments and to a lesser degree with the Montreal protocol, and yet those catastrophic predictions were never borne out. In fact, we saw good benefit at very little cost. So I'd like to ask you what you think made these estimates so wrong, and what lessons can we learn from that experience?

MR. STERBA: I think in the instance of the Clean Air Act amendments for sulfur dioxide, for example, it is that -- and the point that was made by Mr. Shimkus is true, there were technologies that could be used, and what happened is that they ended up costing a lot less than people assumed, and it's the power of a market.

And that's the value, I think, of a cap-and-trade system, is it capitalizes on that power of a market to drive the costs for compliance down. So where $3,000 was an expected value for the cost of an allowance turned out to be $300.

So I think that's -- and that's one of the things we want to capture. The difference here is there are some new technologies that must be developed. Carbon capture in storage -- to ensure that it is available. And that's what we have to get to.

REP. MCNERNEY: Well, thank you. One of the things that's sticky in California particularly, is that we've invested a lot in efficiency, and how do we get credit for that early efficiency? Mr. Cowart, could you take a stab at that, how could we give credit in allowances for this?

MR. COWART: There are actually two answers to that question. First is the good news. And the good news is that as I talked to people in California, they think they have an advantage in an environment that -- such as the one that we're entering, because in California, you know how to do energy efficiency. And that actually, you're not disadvantaged by the fact that you have in place the human capital and the experience to do the job.

But to answer your question directly, it's through the selection of a baseline period for the allocation to LDCs. We're proposing an allocation to LDCs, in part, based upon consumption levels, and it's important that that selection of consumption level be done in such a way as to reward successful performance over time in the delivery of efficiency.

So that if you're successful tomorrow, for example, in delivering efficiency to your customers, that next year your allocation doesn't go down just because of that. And the same thing could be said in terms of backcasting to a baseline.

REP. MCNERNEY: Thank you. Well, you know, the Edison Electric Institute is leading the effort in terms of small grid and I appreciate that, because I spent many years, in 1990s developing a smart grid utility meter for residential use. So I think there's potential there. One of the things that I think gives the greatest potential is the marrying smart meters with hybrid vehicles. Could you comment on that Mr. Sterba?

MR. STERBA: Well, the smart meters are a part of the smart grid, and it's an essential component of it that allows communication to occur in two directions instead of only just in one. And we'd -- absolutely, in order to, facilitate plug-in hybrids, which today have a cost disadvantage, but frankly I personally believe that will change dramatically over time.

We have to be able to help ensure that those vehicles cannot just be users of electricity, but also storers of electricity for the benefit of the grid. And that means that you have to have a meter with a capacity to measure electricity going both ways, and to communicate price signals so that the ability for someone who owns a plug-in hybrid to support the grid can be recognized on an economic basis.

REP. MCNERNEY: Thank you. Looks like my time's expired.

REP. MARKEY: The gentleman's time has expired. The chair recognizes the gentleman from Pennsylvania, Mr. Pitts.

REP. JOSEPH R. PITTS (R-PA): Thank you, Mr. Chairman. Dr. Michaels, we often hear that California's a leader in climate change policy.

You testified that people using California as an example of effective energy efficiency policy have an untenable case, would you elaborate on that?

MR. MICHAELS: I just went through several basic points about it. Yes, there are some California energy efficiency programs that have delivered, but as the simple fact, the California Energy Commission has always looked at projected resource needs in the future, and they have almost invariably overestimated what the likely contribution of efficiency is going to be.

REP. PITTS: If you could look at the policy of California on climate change, what would be the main lesson that we could draw from California utility policies?

MR. MICHAELS: It's infinitely more complicated than anyone could imagine, and there's no precedent for it. Everybody who talks about using some model to get numbers, the bad news is you're talking about something unbelievably complex, as much so as the whole economy, plus the whole ecosystem. We don't know how to do this.

The projections you get if you look at the federal figures use models from the Energy Information Administration, which itself has shown what incredibly poor predictors of things they are in its own documents.

REP. PITTS: Some of your fellow panelists advocate different types of allocation schemes to protect consumers. Are there any schemes that will truly insulate consumers and small businesses from the cost impacts of this cap and trading scheme?

MR. MICHAELS: How could there be. After all, what you're doing is making something that was formerly free, namely the right to emit carbon, scarce. All you've done is you've increased the cost of doing business for businesses, you've increased the cost of living for consumers ultimately, because some of that's going to be passed on to them.

There's no way to insulate the entire economy or even a major segment of it from as massive a scarcity as we're thinking about creating here.

REP. PITTS: You've said, Dr. Michaels, every major provision of this bill is at base a tax. Would you elaborate on that, why is the renewable electricity standard a tax for instance?

MR. MICHAELS: Renewable electricity standard is not a federal tax that's going to be explicitly paid to this government, but what it is is it's a mandate upon states that their utilities catch a certain fraction of their power from renewables over the course of time in the future.

Renewables are not cost-effective now; we don't know when, if ever, they're going to be. Even wind, which is the most common renewable -- and renewable is almost a synonym for wind -- still is not cost-effective without a federal subsidy, production tax credit and accelerated depreciation. We're talking about people's electric bills rising, because regulators have to fold these costs in for regulated utilities; that's as good as a tax.

REP. PITTS: From your understanding of the issue, Dr. Michaels, would imposing this tax on energy lead to any meaningful global emissions reductions?

MR. MICHAELS: I'm not an expert on that, but I'm aware that as a fraction of global emissions, the U.S. is relatively small, and my understanding -- and I'm not an expert again, is that it's going to take a much larger increase than is ever contemplated in this legislation to do -- to make a dent in it.

REP. PITTS: Now, you say the bill will have massive effects on both consumers and small businesses, does anyone in the panel disagree with that? Mr. Cowart.

MR. COWART: Well, I disagree to this extent. To the degree that we're smart about how we implement it, and to the degree that we recycle revenue that advances highly efficient technologies, the impacts on consumers and businesses can be quite moderated.

MR. BASSETT: I think the impact is going to be disproportionate and that's why I've underscored any approach should be an approach that recognized regional differences. Obviously, some consumers in certain parts of the country are going to be disproportionately impacted, because of their coal dependency. And so any formula needs to take that into consideration.

REP. PITTS: Mr. Greenstein, you want to --

MR. GREENSTEIN: I think -- it all depends on how the legislation is designed -- well-designed legislation that makes appropriate use of auction proceeds and permanent allocations, as I've indicated, can hold low and middle income consumers harmless generally and with regard to businesses while I don't think -- I'm going to amend the answer I gave earlier to Mr. Upton -- while I don't think it makes sense to do allowances generally for businesses, there may be particular businesses or particular sectors that need transition help of some sort, whether it's through allowances or other mechanisms, I don't -- I'm not sure what the best mechanism --

REP. PITTS: Dr. Michaels, what's your response to that?

MR. MICHAELS: It's not at all clear to me how, again -- it simply reduces to a question of scarcity. All you are doing is making something scarce that was relatively abundant before, and there's no way -- there are ways to make a little bit more or a little bit less, be borne by one class of customers or another. But by and large, this is very, very small relative to the totality that's being contemplated here if I look at the bill.

REP. PITTS: My time's up. Thank you, Mr. Chairman.

REP. MARKEY: The gentleman's time has expired.

The chair recognizes the gentleman from Texas, Mr. Green.

REP. GENE GREEN (D-TX): Thank you, Mr. Chairman.

Mr. Morgan, currently, what percentage of the District of Columbia electricity is produced by what's defined as renewable electricity in this bill?

MR. MORGAN: Well, the District of Columbia currently imports more than 98 percent of its electricity from outside, so it's a little bit hard to answer that question. We do have some solar generation on some federal facilities and universities and a growing number of homes --

REP. GREEN: But you don't have a percentage?

MR. MORGAN: I don't. It is -- I can tell you, it's very small.

REP. GREEN: Okay. I think as a customer -- and some members are customers, I remember -- you know, on a yearly basis, we get arrears in our bill, showing what percentage -- and it is very small. I think less than 1 percent, at least from the --

MR. MORGAN: Actually, we do have a requirement to -- for the load-serving entities to report on the energy mix. Most of that power is imported and includes renewables and --

REP. GREEN: Well -- again, whether you imported or what, because we import power -- in fact, that's the goal of this bill, is be able to import power from parts of the country that generated to parts that don't. So -- but it's still -- still the mandate would cover it. And I noticed the public counsel for Columbia -- people's counsel, Betty Noel, was concerned about the 20 percent mandate that the district's standard would cost about $26 million annually. Does DC currently have a 20 percent mandate?

MR. MORGAN: The -- yes, the city council recently increased the renewables portfolio standard for the District to eventually reach 20% in the year 2020. That's correct.

REP. GREEN: Okay. Let me ask our other -- from groups, the coops, EEI, and the public sector, what are the percentage -- Glenn, or does Coops actually have -- and I know you had a discussion on what is considered. I know the bill actually considers qualified hydropower.

But what is the percentage of the Rural Coops that have? And what would be defined as renewable energy in the bill?

MR. ENGLISH: As I mentioned, it would be 11 per -- as defined by the bill it would be about -- down to about 2 percent. It would be roughly what we --

REP. GREEN: Because general hydropower is not, quote, "Qualified."

MR. ENGLISH: That's correct.

REP. GREEN: Okay.

MR. CRISSON: Same in the case of the publics, Mr. Congressman. As customers of the Power Marketing Administrations they use a lot of hydroelectric. But if you're not including hydroelectric from either the PMAs (ph) or the generation assumed by our members is right around the industry average, which is about 3 percent.

REP. GREEN: Okay.

MR. STERBA: And I think on the investor-run side that may be a little higher than the general average because we are complying with mandates in a number of states, but it's certainly in -- no higher than 4% overall.

REP. GREEN: Okay.

And I guess the last one would be the -- well, and that's EEI, I guess, the investor-run. Okay. Thank you.

That's, I guess, our concern on the electric -- the national standard of 25 percent although 25 by 25, and to get there. And I know in the state of Texas we're doing so many things with wind power and actually our Public Utility Commission committed $5 billion to transmit that power within the -- to get to the Dallas-Fort Worth, the urban markets, to Austin-San Antonio and Houston-Galveston.

And the legislature now is expanding solar compared to what they did with wind power. But there is some concern we still may not be able to do 25 percent in 2025, even with the growth that we're doing.

Is there a response to that compared to other states?

MR. CRISSON: Mr. Congressman, I'd just add that the 15 percent limit that we support for a federal RES is really a very aggressive standard. When you look at the fact that right now the total national renewable resource capacity excluding hydro is about 3 percent in 2008, we're talking about a five-fold increase in a little over 10 years with 15 percent.

And even with the recent state renewable energy standards Mr. Sterba referred to in the recent years, the year-over-year increase has been about 5 percent. To get just to 15 percent you're talking about nearly a 14 percent year-over-year increase. And it's a very aggressive standard.

REP. GREEN: Okay.

MR. STERBA: I would echo that, Mr. Green, and add one other thing, that the -- it's not just the percentage, but it's also what qualifies. And that can dramatically change whether or not you can get to that standard. There is also an electrical stability issue associated with intermittent generation, you have to be careful.

REP. GREEN: Okay.

Mr. Bassett, in the few seconds I have left, some have discussed the EPA's preliminary and economic analysis, and have you had a chance to review it?

MR. BASSETT: Yes.

REP. GREEN: And it does not assume an RES or a low carbon fuel standard. Do you have any thoughts on the EPA's analysis, economic analysis?

MR. BASSETT: Well, I said earlier I thought it was a great first step. But it doesn't go far enough because there are overlapping mandates in this particular draft that have to be taken into consideration.

I would think the committee would be remiss if they would move forward without having a complete analysis of all of the variables that are included in the draft and then further understand what the simultaneous implementation of all those provisions would have that impact on consumers.

So while I applaud it as good first step, I don't think it goes far enough and dealing with the other provisions in the draft.

REP. GREEN: Thank you, Mr. Chairman.

REP. MARKEY: Gentleman's time has expired.

The chair recognizes the gentleman from Oklahoma, Mr. Sullivan.

REP. JOHN SULLIVAN (R-OK): Thank you, Mr. Chairman. And my first question is for Mr. Sterba, and Mr. English, and Mr. Crisson. What is your position with regards to implementing a domestic cap-and- trade program before there is a substantial and verifiable commitment to emissions reductions by China, India, and similar emission-heavy developing nations?

MR. STERBA: EEI's position is that we believe that the U.S. should provide leadership and go forward with some form of climate change legislation. But it must be in the context of international negotiations to help bring along the other countries, because if we're the only ones that do it, we don't get there. But neither do -- and this is my personal statement -- do I believe we can just say we won't do anything until the others do it first.

MR. ENGLISH: We agree that other countries should be included, and certainly someone of the magnitude of China needs to be a party to this. I think there is an issue of who goes first. And so the problem that we face right now is if we're going first unless the Congress wants to stop that through the Clean Air Act. I think the Supreme Court started that ball rolling nearly two years ago. So I suppose we're leading. But I certainly think that Congress needs to do everything they can to get other countries to join with us.

MR. CRISSON: Yes, Mr. Congressman, we would support moving ahead with a workable and sustainable cap-and-trade system, some kind of mechanism to address climate change in order to show leadership in the international community. We would be very concerned however if there was not some kind of reciprocity shown in the very near future by countries like China and India.

REP. SULLIVAN: All right.

And the next question is for, I guess, all of the panelists. What are your concerns on our position on leakage, the process by which companies will move business operations to foreign countries to avoid higher cost in the U.S.?

Just go down the line. Yeah. Go ahead.

MR. MICHAELS: In California that's been a very, very major issue with the implementation of the state program. And even the most optimistic projections that are coming from people who have been analyzing the state program -- I don't place much faith in them, but the even most optimistic ones are that California is going to lose a very substantial fraction of what industrial load is left.

Essentially what's going to be left in California is only the kind of businesses that can't move because of their closeness to the consumer. Electrically, you're going to be seeing the same issue, and that's being played out once again, not just in California, but in the negotiations over the western climate initiative. If California outlaws coal-fired power imports, it just means the plants in other states are going to produce electricity for those residents.

MR. BASSETT: I think my answer to that question is obvious. Anytime there is a possibility for loss of jobs, whether it's major corporations, or small businesses, that will certainly be affected by this draft. They are concerned. And so that's why I think that going forward we need to make certain that we're considering all of the variables, and that's why I've underscored my initial concerns earlier.

REP. SULLIVAN: Anyone else?

MR. COWART: Leakage is certainly a problem in any cap-and-trade regime. And we need to be really careful about how we approach it. It's one of the reasons that we need a national program, frankly, because of the state to state competition problems that cause leakage across state borders.

And with respect to international arrangements I support transitional assistance to industries that are affected by international trade concerns. And I think I echo the comments of those made earlier that we as a nation need to be engaged quite actively with other countries to make sure that we create over time as level a playing field as we can.

MR. MORGAN: I agree with Mr. Cowart. I think we need to look at the issue of leakage in the context of an internal approach. The fact that the United States is thus far not part of international agreements already is creating a leakage problem in the other direction.

What we really need to do is work together with other nations to address this problem. And I also wanted to highlight the issue of leakage when you're looking at state or regional programs which are already in place in parts of the U.S. And as Mr. Cowart said, that is a problem that can be solved by developing a national program and having arrangements for dealing with interchange between U.S. and Canada of electricity and that sort of thing.

MR. SOMERHALDER: We have already seen in the past the comment about rush to gas. We have seen that impact businesses and industries in our areas when we had gas used so much for power generation. What this has a potential to do is, in addition to increasing the demand for natural gas, if we have carbon allowance cost for residential customers and small businesses, it has the potential to impact their businesses and do just what you fear.

So for those reasons we think it's necessary that we deal with the allowances and allocating those in the appropriate way to mitigate that impact.

MR. CRISSON: Yes, Mr. Congressman, we share that concern. And as Mr. Somerhalder pointed out, this is one of the big advantages of 100 percent allocation of allowances, particularly in the transition, the early years, as we move to a low carbon energy system.

MR. STERBA: I agree. The -- one of the biggest challenges that we can face is not just thinking about what's the impact on electricity, but what's the impact on the mix.

If we throw coal out prematurely out of the mix, we can have a significant impact on natural gas prices that not only affect residential customers, but all of the industries that use it as feedstock and the inability for them to remain competitive in an international market.

REP. MARKEY: Thank you.

Gentleman's time has expired.

REP. SULLIVAN: Thank you --

REP. MARKEY: Thank you.

The chair recognizes himself for five minutes.

Two of the issues that have been raised constantly among others are the impact on jobs, but also the impact on cost, the cost to the consumer.

Mr. Cowart, welcome. You and I worked together in Vermont, and appreciate the work you did there, and around the country and the world. I'd ask you to further elaborate on the potential of efficiency as a means of reducing energy cost. I mean, if we are going to be concerned about the consumer, as we must, residential consumer and the business consumer to elaborate on how efficiency can be their friend.

MR. COWART: Thank you, Mr. Chairman.

I think the efficiency opportunity is well demonstrated throughout the country. The reservoir is large and it's largely untapped. And it can be tapped at low cost. We know that in the power sector we could achieve at least 1 percent, probably 2 percent a year in total demand reduction incrementally through aggressive energy efficiency programs. That would be cost effective. They would save customers more money than they cost.

And what happens when you do that is really four things. First of all, the -- every customer who is participating in an efficiency program or is investing in efficiency will see a lower bill, that's the first benefit.

The second benefit is that by reducing demand for electricity and natural gas we reduce the clearing prices. And those benefits occur to everybody on the system. So the upward pressure that we're worried about here on clean energy and on energy prices generally can be significantly moderated by energy efficiency at the customer level.

The third benefit is that by reducing demand for consumption we actually reduce demand for carbon allowances, and this is part of the answer to Dr. Michaels' concern about scarcity. I mean, one of the ways to affect any scare resource is to reduce demand for it, which can be done through energy efficiency, reducing demand for carbon allowances.

And then the last point, for the half of the United States that exists in a competitive wholesale power market arena, is that when you reduce clearing prices, and when you reduce carbon prices, you're reducing the cost of power across almost all megawatt hours across the entire grid. So the benefits from being a lot smarter about efficiency can be quite widespread.

REP. MARKEY: Okay. Thank you.

Mr. Greenstein, given your proposal and your concerns about LDCs, but the objective you have to protect consumers, what are your thoughts on allocating allowances -- 15 percent I think is the figure people have used to LDC -- specifically for efficiency to reduce cost to consumers?

MR. GREENSTEIN: I don't have any specific percentage. I agree with Mr. Cowart and others that efficiency is important. I'm not an expert on what is the best way under this bill to achieve the efficiency gains to the degree that allocating permits to LDCs, specifically for efficiency, would be the best or one of the best ways to get efficiency gains. If that's the case then I would think it's a good idea. I certainly think --

REP. MARKEY: Yeah.

MR. GREENSTEIN: -- that there ought to be some efficiency investment under this legislation.

REP. MARKEY: Okay. Mr. Sterba, what about you. Has efficiency got to be a core component of any approach to address this problem?

MR. STERBA: Absolutely. And I think that's one of the areas where state regulators come into play in helping develop along with utilities the elimination of disincentives and the provision of incentives such that we maximize energy efficiency capacity.

REP. MARKEY: And would you define is the specific disincentives to utilities to aggressively promote efficiency?

MR. STERBA: One that exists in many jurisdictions today is the fact that the -- you're incented to sell more of a product, that's wrong.

REP. MARKEY: Right.

MR. STERBA: We need to change that fundamental business model.

REP. MARKEY: Which we would do by what?

MR. STERBA: Well, it can be done by a number of mechanisms. People use the phrase, "Decoupling," as one. The problem is it means a lot of different things to different people. But there are clearly mechanisms that we can change that business model.

REP. MARKEY: Okay. Thank you. My time has expired.

The chair recognizes the gentleman from Arizona.

REP. JOHN SHADEGG (R-AZ): Thank you, Mr. Chairman.

I want to thank the members of the panel.

Let me try to go through a series of questions. Mr. Sterba, let me begin with you.

Certain energy sources are subsidized by the federal government. What I'd like to do is, see if you can tell me -- if you can quantify it for me how much, whether it's by kilowatt or by megawatt, the subsidy for natural gas is. Do you know that number?

MR. STERBA: I do not.

REP. SHADEGG: Would you assume it is zero or near zero?

Does anybody in the panel know?

How about the subsidy for coal per megawatt or kilowatt? Mr. English.

MR. ENGLISH: I -- when you get in and you talk about the issue of subsidy, that's gets to be very misleading, if you're talking about using the tax code and providing benefits on the tax code as being part of that subsidy, then I think every fuel has a subsidy, every fuel receives assistance --

(Cross talk)

MR. ENGLISH: -- so I don't have amounts.

(Cross talk)

REP. SHADEGG: -- I'm trying to get the relative amount of the subsidy. We know there is a substantial subsidy for solar. Is that correct? Does somebody know how much it is per megawatt?

MR. STERBA: Currently the production tax credit is, I believe, $2.1 for renewables. And then it could also be investment tax credit, which is 30 percent I believe.

REP. SHADEGG: So can you give me a number per megawatt for solar --

MR. STERBA: Well, the production tax credit will be $2.1 or $21 a megawatt hour.

REP. SHADEGG: Okay. And then the other one you mentioned.

MR. STERBA: Well, that would be applicable at any renewable at this time. I would agree with Mr. English. There are certain built subsidies that have occurred at different stages of fuel being developed. Any fuel source that was developed probably had some subsidies at different points --

REP. SHADEGG: Do you know what the current subsidy for wind is?

MR. STERBA: It would be -- on the production tax credit it would be the same, the $2.1 per kilowatt hour.

REP. SHADEGG: I thought it would be useful to know what those subsidies are, relative one fuel to the other, natural gas or coal, relative to solar and wind.

Let me -- the next question I like to ask is to the entire panel. And I like to get a yes or no answer from each of you, if I might. Do you agree that the legislation -- this legislation will increase the cost of energy produced in the United States, yes or no?

Mr. Sterba.

MR. STERBA: Yes, the degree to which it does is dependant on --

REP. SHADEGG: Yes or no? I'm short on time.

MR. ENGLISH: Yes.

MR. CRISSON: Yes.

MR. SOMERHALDER: Yes

MR. MORGAN: Qualified, yes.

MR. COWART: Qualified, yes.

MR. GREENSTEIN: Yes.

MR. MICHAELS: Unqualified, yes.

MR. BASSETT: Yes.

REP. SHADEGG: If you agree that it will in fact increase the cost of energy in United States, do you also agree that it will increase the cost of all goods which require energy to produce them?

MR. STERBA: Right.

REP. SHADEGG: Steel or anything.

MR. ENGLISH: Yes.

MR. CRISSON: Yes.

MR. SOMERHALDER: Yes.

MR. MORGAN: Yes.

MR. COWART: To the extent efficiency substitutes for energy, no.

MR. GREENSTEIN: Yes.

MR. BASSETT: Yes.

MR. MICHAELS: In general, yes.

REP. SHADEGG: Dr. Michaels, did I get my unqualified yes?

MR. MICHAELS: Yes, sir.

REP. SHADEGG: Thank you very much.

Let me just ask you another thing. Isn't it in fact -- and I think either Mr. Cowart, or Mr. Greenstein, you made this point. One of the goals of the legislation is to increase the cost of energy to induce the efficiency that you talk about, Mr. Cowart, and to discourage the use or the consumption of energy. Isn't that correct?

Mr. Sterba.

MR. STERBA: I think the purpose is to provide a price signal for a commodity that is by public policy opinion being made scarce.

REP. SHADEGG: Which you do by increasing cost, right?

MR. STERBA: Yes.

REP. SHADEGG: Thank you.

Mr. English.

MR. ENGLISH: I'm not going to interpret motives here. But let me just say, I think we have to stay on the front end of it, that is basically to reduce the emission of carbons.

REP. SHADEGG: By sending a price signal.

MR. ENGLISH: It does set a -- by putting a limitation on the carbon being used in the country, yes, that sends a price signal.

MR. CRISSON: Combination of cap and price.

MR. SOMERHALDER: I agree.

MR. COWART: I actually don't think that the purpose is to raise the price. Purpose it to reduce emission.

REP. SHADEGG: Did Mr. Morgan not respond?

MR. MORGAN: Yeah. I'm sorry.

MR. : He jumped ahead.

MR. MORGAN: Well, I do agree that the purpose is to send a price signal. Putting a cap on the quantity is one way of doing that. But price of all --

REP. SHADEGG: When you're putting a cap -- you know, it's not putting a cap on the total quantity. You're putting the cap on the quantity per industry and then charging for that -- for anyone. Actually you might charge for that initial cap, and then also charge for exceeding the cap. And --

MR. MORGAN: Well, either way. I mean, you are trying to make the product more scarce as Dr. Michaels pointed out.

REP. SHADEGG: By increasing the price and sending a price signal.

MR. MORGAN: That's correct. That is certainly part of the purpose. Of course, as we pointed out there are some ways to offset that.

REP. SHADEGG: Sure. Yeah, I -- we're not talking about offsetting it. But I'm just -- does it in fact send a price signal, or isn't that a part of the structure of the bill?

Mr. Cowart.

MR. COWART: I think that a price signal is useful. But that the other policies that are inherent in the bill are actually more important.

REP. SHADEGG: Thank you.

Mr. Greenstein.

I really was looking for, does it, you know --

MR. GREENSTEIN: A key goal --

REP. SHADEGG: -- because one of the goals to send a price signal or increasing the price or the cost of the energy so that we consume less, and therefore reduce CO2 emissions.

MR. GREENSTEIN: A key purpose is to send a price signal, both so that we consume less, but also that we switch to cleaner sources of energy. But the fact that it sends a price signal should not be interpreted to be a negative for the economy.

REP. SHADEGG: I was just asking the -- don't read motives in my question, just --

Dr. Michaels.

MR. MICHAELS: It's a price signal. The real question with prices though is what are you getting for it? If in fact we're getting very little in the way of solutions to the whole world's carbon problem then all we are doing is -- it's a burnt offering type of sacrifice.

REP. SHADEGG: Mr. Bassett.

MR. BASSETT: I won't ascribe motives to the drafters or to your question, but I will say that the net effect of setting a price signal in this instance will raise prices.

REP. SHADEGG: Thank you very much.

Unfortunately my time is -- (off mike.)

REP. MARKEY: And I was asking whether -- Mr. Michaels, it was in the Old Testament or New Testament, which --

(Laughter)

MR. MICHAELS: I'm ready to go on that debate, Mr. Chairman, anytime.

REP. MARKEY: The gentleman from Louisiana, Mr. Scalise.

REP. STEVE SCALISE (R-LA): Thank you, Mr. Chairman.

Early on, I think some people involved in the discussion have implied that this is the only piece of legislation that's out there that addresses and energy policy. I would direct them to an alternative plan that's been on the table for about a year now. And it's actually still out there on debate, something that we're going to be presenting.

Most of the components of this bill, the American Energy Act, that was filed in the last Congress will be filed again and debated as part of an alternative to this cap and trade energy tax.

But it's a bill that actually involves in all of the above energy policy that will not only support, and in fact fund research and development to advance the alternatives like wind and solar, but also make recognition of our natural resources here in this country. To explore additional natural resources like oil, like natural gas, sources that we're using today, clean coal technology, and also nuclear power, which is a very reliable, efficient source of energy many other countries are using that this cap and trade energy tax does not contemplate at all. And then also encourage people to make those efficiencies that they are making today that many more will make.

So anybody who suggests that one group of people on this committee is just against everything, they're being very disingenuous because this is a bill that's been out there for about a year now, many of the components of which will be presented as an alternative, a bill that will actually create American jobs here in this country, create those green jobs that's we're talking about, but not invoke policies that will export millions of jobs out of this country, which the cap and trade energy bill clearly will do. No one has disputed those findings.

And so with that I go to the bill that we're debating today, and specifically the allocation policies that this panel is discussing. And I'm going to have some questions.

But first, for those of us that have been going through this bill, one of the big frustrations that we feel is not only a frustration to us as members, I'm sure many of you who are trying to do analysis of this bill, but also to the American people who are trying to contemplate whether or not this is good policy or bad is the main details of this bill, especially what this committee is talking about today on allocation policies.

If you go to page 478 of the bill, which actually is supposed to be talking about the main source of how this whole cap-and-trade scheme would work, let's go through, disbursement of allowances and proceeds from auctions of allowances, subsection A, allocation of emission allowances. "The administrator shall allocate emission allowances established under section 721 in the following amounts." So you want to go read those amounts? It says, "To be supplied." Section is blank.

You go next to next to section B, auction of emission allowances. "The administrator shall auction emission allowances established under section 721 in the following amounts. To be supplied."

Subsection three. Funds established. "There is established in the Treasury of the United States the following funds, the strategic reserve fund," one. Number two, "Other funds. To be supplied."

We're talking about what many people have described as one of the most important initiatives brought before this Congress in decades, the most important change in energy policy our country has probably seen. And the bulk of the details don't even exist today, aren't even presented to the public.

Now, there is discussion that many of these details are being worked out behind closed doors. And some of those deals are being cut as we speak.

Unfortunately, none of that is being done here in this committee meeting where the transparency is supposed to be, where people can actually watch and participate in a discussion where experts can actually give detailed analysis of the components of the bill and the policies that would affect every consumer in America.

And so with that I want to ask Mr. Bassett because you've testified that -- you talked about the rigorous cost analysis that you would like to see done on it. When it comes to the details of this bill that are completely left unanswered, how do you do a real cost analysis to estimate how much this is going to cost American families, how many jobs will be exported to foreign countries, when so many of the details are left out?

MR. BASSETT: Well, you can't. And that was -- that's a concern that I had as I reviewing the bill, and I know that consumers across the country are going to have. And so what I would do is, encourage this committee before you move, is to consider cost estimates on every provision that's in the bill, and then go further, as I've said earlier, then test for the impact that a simultaneous implementation of those are going to be.

I just don't see how you can reach a conclusion as grave as this. I mean --

REP: SCALISE: And I know we're running out of time, I'm sorry to cut you off. I would ask anybody on the panel if they would address the question should we -- as is it responsible to go forward with a debate on a bill this important when so many of the key components are not even included that we can assess, analyze, and discuss. Does anybody think it's responsible to be going forward with this right now?

Nobody responded. I yield back my time.

MR. GREENSTEIN: If I could say, there is every reason to have debate on all the issues we already know, all the parts of the bill that are filled in. And what a number of us think or are recommending today should be in there for the parts of the bill that aren't filled in. And I presume at the appropriate time you will get a fully filled in bill, and you will all have further debate on it at that time. So this --

REP: SCALISE: Right. And with nine panelists we probably have nine different ideas that are very divergent on how that should be. Unfortunately, we should be all debating one set, because ultimately this committee would pass one set plan, not nine different plans. Unfortunately, we can't debate that one set plan, because it doesn't exist, and it's not before us today.

Thank you.

REP. MARKEY: The gentleman's time has expired. And unless the gentleman from New York has questions then all time for questioning for this panel has been completed.

But you have provided a very valuable set of testimonies for the committee, and I can actually see some -- I won't call them deals, but I can actually see some new working arrangements that could be constructed out of your testimony to create a format, to create a formula that we might be able to use.

And amongst your testimony I think that it has been perhaps the most productive that we've had so far, because these are very thorny questions, but yet I can see a lot of desire to find a working formula that we could use, and we thank you for your --

REP. WALDEN: Mr. Chairman.

REP. MARKEY: The gentleman from Oregon.

REP. WALDEN: Yeah. I'm not going to trigger the House five- minute rule. But I would just -- following on what you said, because somebody here on the panel mentioned importance of worker transition during this process, I don't remember who it was, but somebody did. And I would refer them to page 568 where the section 424 for worker transition is. I would encourage you to read it fully because all we can read is, "To be supplied."

REP. MARKEY: I thank the gentleman very much. And we thank all of you for your testimony. And we would like to stay in close working cooperation with you in the next month or so.

Thank you.

(Sounds gavel)

Now, we would ask our second group of witnesses to please come up and to take their places at the witness table.

(Sounds gavel)

REP. MARKEY: Welcome. Welcome to the second panel and this panel will deal with the issue of ensuring U.S. competitiveness and international participation. Our first witness is Mr. Jack McMackin; he is a principal in the law firm of Williams & Jensen and a director of Owens-Illinois, a leading producer of glass containers. He is here today on behalf of the Energy-Intensive Manufacturers Working Group on Greenhouse Gas Regulation.

We welcome you, Mr. McMackin. Whenever you are ready, please begin.

MR. MCMACKIN: Thank you, Mr. Chairman. The Energy-Intensive Manufacturers Working Group on Greenhouse Gas Regulation appreciates this opportunity to testify today. I am Jack McMackin, a principal in the law firm of Williams & Jensen. And I have served for 15 years as a director of Owens-Illinois. O-I is headquartered in Perrysburg, Ohio and it is the world's leading producer of glass containers.

As this subcommittee is aware, our group was formed early last year for a limited, but important purpose, to engage constructively with members of Congress, the environmental community, labor and all interested stakeholders to attempt to solve the economic and environmental problem that is known as carbon leakage or job leakage.

Our focus has been exclusively on the Inslee-Doyle type grant of free allowances or allowance value rebates. Since I appeared before the subcommittee last month, our working group has expanded. We include representatives of all of the traditionally recognized energy- intensive sectors as well as companies from smaller sectors that our work has identified as subject to leakage.

Our members include AK Steel, Alcoa, Corning, Cliffs Natural Resources, Dow, Holcim U.S., NewPage Corporation, Nucor, Owens Corning, Owens-Illinois, PPG, Rio Tinto, Terra (ph) Industries, U.S. Steel, and Weyerhaeuser.

Much has changed and much progress has been made since last month. The upshot is that we are more convinced than ever that the leakage problem can be adequately addressed in climate legislation.

Since our earlier testimony, Congressmen Inslee and Doyle have introduced a new and strengthened version of their anti-leakage bill and the discussion draft in turn has adopted much of the Inslee-Doyle mechanism.

As a result the discussion draft contains a structure that can work. That said, the draft also leaves critical decisions unmade and critical issues unfinished. The success of the anti-leakage provision hangs in the balance. Before turning to what we view as the two most important remaining issues, let me briefly mention one of the draft's key advances.

The discussion draft, like the new Inslee-Doyle bill, has adopted a principled data driven mechanism for determining which sectors or subsectors should be eligible for anti-leakage allowances. Industries meeting specific energy-intensity and trade-intensity levels would be presumptively eligible and others may make individual showings.

This was a mechanism we advocated. We believe it is a major advance and that it brings a reasonable level of certainty as well as fairness to the process. Now, for the two key remaining issues.

The first is funding of the provision with an adequate number of allowances. The discussion draft, of course, is silent on this issue. My written testimony updates, in some detail, our submissions to the committee on this critical issue.

In short, we believe the provision requires in the range of 850 (million) to 900 million allowances that represents about 16 percent of the allowances in the discussion drafts highest year, its fifth.

The second issue is the facedown or termination of the anti- leakage allowance program. The solution to the problem cannot be phased out or terminated before the underlying problem of regulation cost, production cost, disparity is solved.

And the underlying problem will be solved only when other countries producing energy-intensive materials adopt climate change legislation that imposes on their industries costs comparable to what the ACES bill would impose on ours. We believe that the Inslee-Doyle bill is very close to creating a workable mechanism to govern phase down and termination of the provision but that the ACES bill has yet to do so.

Chairman Markey, I'd like to mention one final other matter, an issue upon which you, in particular, have shown persistent leadership and that's recycling. Use by energy-intensive industries of recycled materials in lieu of raw materials produces enormous savings in energy and even greater reductions in carbon emissions, greater because not only combustion emissions, but also process emissions are greatly reduced.

Those of us in the packaging industry for instance can make a bottle or a can out of recycled bottles or cans with a fraction of the carbon emissions. Yet we cannot get enough recycled materials. We urge you to include muscular effective provisions in the bill to enhance the opportunities for all energy-intensive industries to obtain and make use of recycled materials.

In summary, Mr. Chairman, we commend you and all who have worked so hard to make possible the remarkable progress on the anti-leakage provisions. And we very much look forward to cooperating with you in any way that we can.

REP. MARKEY: Thank you, Mr. McMackin, very much.

Our second witness is back again. We welcome you sir. Rich Wells, he serves as vice president of Energy for the Dow Chemical Company. He has also has a lead position in management of Dow Chemicals global advocacy activities in the areas of climate change and energy policy. He was appointed to the Michigan Climate Change Action Council in 2008.

We welcome you, sir. Whenever you're ready, please begin. Could you turn on your microphone, please?

MR. WELLS: I apologize. I appreciate the opportunity to provide our views in the competitiveness provisions of the American Clean Energy and Security Act. I am vice president of Energy for Dow Chemical, a leading specialty chemicals and advanced materials company with over 50,000 employees, half of which are located in the U.S.

Today, I'd like to address Dow's position on climate change. As a member of U.S. Climate Action Partnership, or USCAP, Dow supports enactment of environmentally effective, economically sustainable and a fair climate change legislation.

As a representative from an energy-intensive and trade-exposed sector, I'd like to give you a glimpse into what the chemical industry is doing to save Americans energy and reduce their greenhouse gas emissions.

Since 1990, the U.S. chemical industry has achieved energy- efficiency gains of 28 percent. At Dow, that number is 38 percent. In Dow's case, we have saved over 1,600 trillion BTU's of energy since 1994, the electrical equivalent to power every home in California for one year.

And our track record on greenhouse gas emissions reduction is equally impressive. At Dow, we've reduced our greenhouse gas emissions by over 20 percent. This has resulted in preventing more than 86 million metric tons of CO2 from entering the atmosphere.

The U.S. chemical industry, as a whole, can report similar numbers, numbers that would have exceeded Kyoto Protocol targets. The chemical industry also contributes a number of energy-saving products and materials to American society.

This includes building and appliance insulation as well as material that enables solar and wind power and other energy efficiency applications such as lighting. Simply put, the American chemical industry uses energy to save energy.

In fact, a soon-to-be-released McKinsey study show that the products of chemistry reduce, on average, three tons of greenhouse gas emissions for every one ton produced in our manufacturing process. As you can see from an energy and greenhouse gas reduction viewpoint, this is an excellent story.

However, from an economic standpoint the situation is much different. Over the past 10 years, the U.S. chemical industry, a $660 billion enterprise, has lost over 120,000 jobs or approximately 15 percent of our total workforce.

For the most part, this loss of jobs can be attributed to high and volatile energy prices. As an example, Dow's energy and feedstock costs have gone from $8 billion in 2002 to over $27 billion in 2008.

In order for a cap-and-trade system to be economically sustainable, it must be designed such that American energy-intensive and trade-exposed manufacturers remain globally competitive. We see the approach included in the discussion draft as a positive step towards protecting U.S. manufacturers.

This approach defines these sectors based on objective criteria and includes provision to reduce or eliminate the allowances when the potential for carbon leakage has been reduced or eliminated. However, I would caution that it's critical the number of allowances be adequate to compensate those sectors that meet the eligibility criteria.

If Congress does not set aside enough allowances to address the carbon leakage issue then it will fail to protect American jobs in the manufacturing sector. We also believe it's critical that the allowances not be reduced or eliminated until the competitive disadvantage is reduced or eliminated.

Targeted assistance to energy-intensive industries should be terminated only when the carbon leakage problem is solved through an international agreement. In addition to the provisions that pertain to energy-intensive and trade-exposed sectors, other provisions in the bill also would impact the competitiveness of U.S. manufacturers.

For example, the bill would provide compensatory allowances to companies that use fossil energy as a feedstock material rather than as a fuel source. Unfortunately, this provision is unworkable in its current form and we recommend that it be modified to ensure that non- emissive uses of fossil energy are properly compensated.

Dow also recommends changes to the bill to avoid excessive fuel switching from coal to natural gas in the power sector. These changes would include establishing a trigger price for the release of additional allowances and offsets from the strategic reserve to avoid the so-called "Dash to Gas."

In conclusion, Congress should pass energy and climate change legislation that maintains the competitiveness of U.S. manufacturers as we transition to a low economy -- low carbon economy.

I thank you for the opportunity to speak today. And I look forward to your questions.

REP. MARKEY: Thank you. Thank you, Mr. Wells, very much.

Now, let us welcome Tom Conway. The international vice president of the United Steel Workers, he has been in the steel business since 1978. Since working with the United Steel Workers, he has been involved in most of the major collective bargaining efforts within the United States' steel industry.

We welcome you, sir.

MR. CONWAY: Thank you. Good afternoon.

On behalf of the members of the steel workers, I'd like to thank Chairman Waxman, and Markey, and the committee for holding the hearing. And in particular, recognize your leadership and the hard work you are doing crafting difficult climate policy that will ensure the competitiveness of U.S. workers in our industries.

My name is Tom Conway; I'm the vice-president of steelworkers union. The USW has long been a leader in the labor movement on environmental issues. And we support the advancement of a climate policy.

Our members work in nearly every sector of the economy. We produce a wide range of products including paper, glass, cement, chemicals, aluminum, rubber and of course steel. All these products are produced in facilities that are as efficient as any in the world.

And we're ready to lead the way in the development and production of the next generation of clean energy products that will help you vitalize the American economy and reassert our nation's leadership on the cutting edge of new technology.

But we can only answer that call if our jobs are not squandered to the law of unintended, but not necessarily unforeseen, consequences. A well-designed climate policy can fuel America's recovery and ensure that the economy comes back stronger and cleaner than before, but a poorly designed policy can have the opposite effect and cost thousands and millions of Americans, jobs.

In commodity based industries, such as ours even small differences in production cost can have a huge effect. In crafting legislation, Congress must address the critical need to mitigate the competitive disadvantage that will be placed on these industries as well as the carbon leakage that will occur as a result.

Only by fully addressing the leakage issue can Congress meet their environmental and investment goals that will ensure that the jobs that exist today in energy-intensive industries are not lost, nor the manufacturing of these products offshored. Failure to fully address these issues not only endangers our recovery from the current recession but will likely result in making the problem of climate change worse instead of better.

For the purpose of time, I'm going to get straight to our suggested improvements to the competitiveness provision. But I ask that members refer to my full testimony, which I've submitted for the record.

One of the most delicate balancing acts in designing an economy- wide climate change policy is powerfully constructing transition assistance to specific industries that develop clean energy process and products. We're keenly aware of all the concerns such as quantity, time length of assistance and windfall profits associated with this assistance.

And from that perspective the Inslee-Doyle approach of tying allocations and rebates to output is the best and most effective allocation system that's been proposed to date, as eligibility is targeted very narrowly to those industries which demonstrate a high energy-intensity profile and a potential for a significant competitive disadvantage. However, while an allocation system such as output- based rebate system seeks to mitigate the cost differential between domestic and international products by reducing the effective cost of complying for domestic producers, it is not designed to completely eliminate that differential.

In the discussion draft, manufacturers in covered sectors or subsectors would be rebated 85 percent of the sector average carbon cost of producing each covered good. This rebate level would not only penalize the worst performers in a sector, but would impose an unrebated cost and a competitive disadvantage on a majority of companies in these sectors.

As long as that differential exists at any level, a commensurate amount of leakage will be unavoidable. Therefore the rebates must be coupled with a border adjustment to equalize carbon costs if the carbon leakage issue is to be fully addressed and America's environmental and economic goals achieved.

On such a border adjustment, once such a border adjustment is enacted, the rebate level can and will act as an incentive to producers to reduce emissions. Until then however, it will not eliminate the threat of leakage.

In the interim, we must ensure that these cost pressures do not effectively destroy critical sectors of the economy until the full extent of the competitiveness program could be implemented.

On the rebate levels, rebates to companies in covered sectors and subsectors should be increased to 100 percent of each firm's direct or indirect compliance costs from the date of enactment of the domestic program until the date of the enactment of an effective border adjustment.

Once the border adjustments are in place, we would recommend that the rebates be paid at 100 percent of this sector's average per unit of output. This will ensure that producers who are better than average for their sectors will not be penalized despite their high performance.

And will provide below average producers an incentive to reduce emissions to avoid paying an unrebated cost of compliance. As these below average companies improve their performance, this will drive this sector average emissions down prompting top companies to continue to reduce emissions.

A border adjustment should be enacted as quickly as possible. Although, we're aware of the arguments that suggest some period of time is necessary before it can be done to allow for negotiation of an international treaty and to meet U.N. international obligations.

As such, we're prepared to accept whatever length of time is necessary for this to be done right as long as we eliminate leakage concerns during the interim through a full rebating of compliance costs.

On the issue of presidential discretion, we've strong concerns with the discretion given to the president under the international reserve allowance program in the discussion draft. Under that provision in 2017, the president is directed to make a determination on whether the rebates have been effective at preventing leakage and no requirement that he make any subsequent determination.

If the president does determine that leakage is occurring then that leakage and the job loss that goes with it will be allowed to continue for an additional two to three years, while regulations are written before a broader adjustment -- a border adjustment is enacted to prevent it.

If he decides no leakage exists on that day in 2017 there is no recourse, should leakage develop later either when the rebates begin to phase out or if foreign competitors simple wait until after that day to flood our markets with dirty products.

Finally, the decision to implement a border mechanism should not be left to the discretion of the president or any one else. The legislation should require that the border adjustment begin on a certain date and direct the president to issue regulations in sufficient time that it may begin on time.

Addressing the potentially catastrophic issues posed by climate change is a challenge of our generation. In meeting that challenge we'll require the mobilization of everyone in the world behind a common purpose. It is time for America to reclaim its position of leadership in the world economy and the United Steel Workers are ready to do everything in our power to assist that process.

Again, I'm grateful to Chairman Waxman and Markey for holding this hearing, for the leadership provided by them particularly, Mr. Inslee and Mr. Doyle. We look forward to working with you and the committee now and in the future.

REP. MARKEY: Thank you, Mr. Conway, very much.

Our next witness, Trevor Houser is visiting fellow at the Peterson Institute for International Economics. Mr. Houser's work focuses on analyzing energy markets and climate change. We welcome you, Mr. Houser -- Dr. Houser, I'm sorry.

MR. HOUSER: Thank you very much and thank you for holding this important hearing. My name is Trevor Houser; I'm a visiting fellow at the Peterson Institute for International Economics.

In conjunction with the World Resources Institute, we published a book last year called Leveling the Carbon Playing Field. And I've been actively engaged in this issue of how to ensure that U.S. climate policy doesn't undermine U.S. competitiveness and it's my honor to be here speaking on that topic before you today.

I would just like to point out before I start that my comments are those of my own and not of the Peterson Institute. The climate policy will impact the competitiveness of the U.S. economy in several ways and our ability to maximize the upside and minimize the downside breaks down to roughly four factors.

The first, our ability to create a level playing field for carbon intensive industries, the topic of this hearing today, but it's not limited to that of course. It's our ability to capture opportunities in low carbon technology, reduced dependence on imported foreign oil, and catalyze improvements in productivity more broadly.

I'm going to focus my comments on the first because that's the topic of this hearing, but it's important to keep in mind that the impact of climate policy on trade-exposed carbon intensive industries is just one component of broader U.S. economic competitiveness.

The bill before you today reduces emissions -- U.S. emissions along the lines necessary at a global level to avoid the catastrophic impacts of climate change and I commend you for that effort.

It also puts the U.S. in a leadership position for international negotiations. But as the outcome of those negotiations remains unclear, it's appropriate that we think about ways to prevent aggressive action here at home from undermining the competitiveness of our industry and risk that it would force industry to relocate, thus undermining the effectiveness of climate policy here at home.

In our work, looking at trade-exposed carbon intensive industries that are vulnerable to leakage, we find that it's a limited group of industries accounting for about 0.5 percent of U.S. employment and 1.5 percent of U.S. GDP.

Now, I don't say those numbers to say that leakage isn't a challenge, it's to say that it is a manageable challenge and one that we can deal with affordably through an allowance revenue within the context of a broader bill.

Using the criteria laid out in the Inslee-Doyle provision, we assessed how many industries at a six-digit NAICS level would qualify. And it's a fairly affordable undertaking, about 11 percent of allowance value in the year 2014, would be required to hold the industries that qualify by the explicit criteria in the Inslee-Doyle provision, harmless.

Of those industries a fair amount are agriculture and mining industries. And one of my comments to the committee would be to assess whether that was explicit intent to include agricultural industries and mining industries in the criteria.

As our view is that they face different economics than manufacturing that if you're in mining or you're in agriculture the factor endowment, where you can actually grow the crops or mine the copper is generally a more important consideration than carbon costs. So, it's one issue I'd ask the committee to consider.

We believe that this provision will be sufficient to address emissions leakage. If it is sufficient then trade measures are not required. If it is not sufficient then trade measures are required. What's important is that to the extent that a price is put on imported goods that that's discounted by the amount of support that we provide for our domestic industries.

It's critical that we don't double-pay our industries through domestic support and adjustments at the border. That's important because it's a violation of our trade commitments, but also because it would set a bad precedent for other countries to do the same to outwardly subsidize their industries under climate policy.

The more important question, I think, is what this transitions to. Domestic supports are transitionary measures and I think everybody on this panel would agree that the goal ultimately is to get to an international agreement that can effectively address emissions leakage.

I think what's important in thinking about this legislation is how it can inform that process and how it can be specific about what types of international agreement will be necessary to phase out output-based rebating here in the U.S. I think that that, in the draft so far, there's been some vagueness there and I think that that bears clarification.

Let me turn to make a couple of comments about the international environment. We've moved a long way from where we were in 1997, and the outlook for a global agreement I would say is good, but that isn't -- that doesn't necessarily mean the same commitments by all different countries, right.

Europe is going to reduce emissions more aggressively, likely than here in the U.S. And countries in the developing world are going to reduce emissions less aggressively than we are. Now, from an environmental standpoint that's okay as long we all get to the same 2050 endpoint, but that means different carbon prices for a transitionary period, which has impacts for trade-exposed carbon intensive industries.

Now, over the long term, we can deal with that through a harmonized carbon tax globally or through linking cap-and-trade systems. But as we get that infrastructure set up we'd like to see, coming out of international negotiations, some specific commitments on key industries among other major producers to level the playing field.

If we can get that type of agreement between major producers then that will more effectively address the issue of emissions leakage and will make sure that we're reducing emissions of steel produced in China and not just in China for export to the U.S.

I think that the bill before you today makes an important start in specifying costs at an industry level that would be necessary to reduce output-based rebating. I would ask that, in going forward, you provide guidance to the negotiators on what you'd like to see.

REP. MARKEY: Thank you, Mr. Houser, very much.

And our next witness is Mr. Eliot Diringer; he is vice president of International Strategies from the Pew Center on Global Climate Change. He has a long, very impressive history in this area. We welcome you sir. Whenever you are ready please begin.

MR. DIRINGER: Thank you, Mr. Chairman, members of the committee for the opportunity to appear before you today. An essential compliment to a strong domestic climate program is an effective international agreement ensuring that other major economies contribute to their fair share to what must be a global effort.

U.S. domestic legislation must therefore be designed to maximize prospects for such an agreement. The Pew Center believes that, on the whole, the Waxman-Markey discussion draft provides a strong basis for effective international engagement.

I'd like to highlight the draft's many strengths and suggest ways it could be further refined to help achieve a fair and effective global agreement. To facilitate strong U.S. participation in the global effort, domestic legislation must do several things.

First, the legislation must set a solid foundation for a verifiable international commitment by the United States by establishing ambitious mandatory targets through 2050. The discussion draft would indeed provide the basis in domestic law for a corresponding U.S. commitment under international law.

The United States will have greater leverage in international negotiations however if it has the flexibility to take additional actions that can encourage stronger commitments by others. One way this can be done is by facilitating emission reductions outside the United States above and beyond those required for domestic compliance.

The discussion draft would establish one such mechanism by using a portion of emission allowances to reduce deforestation in developing countries. We encourage the committee to consider allowing the use of allowance value to facilitate other types of mitigation, action in developing countries as well.

Second, the domestic climate action must create positive incentives for emission reduction commitments by the major emerging economies, both through public finance and through market-based mechanisms. With respect to public finance, the Pew Center recommends a phased strategy providing some immediate assistance to developing countries and greater support once countries commit to effective climate policies.

The international clean technology fund proposed in the discussion draft would constitute an important element of such a strategy. We believe the draft could be further strengthened in several ways. It should authorize immediate appropriations for two purposes.

First, to support capacity building activities in developing countries and second to fulfill the United States' pledge to fund the World Bank's new Clean Technology Fund. For the longer term, the legislation should designate a portion of allowance of value for sustaining support for technology deployment. As proposed in the discussion draft, this support should be conditioned on a recipient country's ratification of an international climate agreement.

With respect to market-based approaches, the Pew Center strongly supports the use of international emissions offsets, both as an incentive for developing country action and as a mechanism to contain costs in the U.S. cap-and-trade system. We believe the offset provisions of the discussion draft would provide a strong incentive for developing countries to assume reasonable climate commitments.

Importantly, the draft would recognize credits issued by an international body under a new climate agreement. This would enable the United States to influence the redesign and reform of the existing clean development mechanism or the design of a new international crediting mechanism.

Third, domestic climate legislation must dedicate resources to help poor, vulnerable countries adapt to the impacts of climate change. The draft would establish a stronger framework for delivering direct bilateral assistance. And importantly, it would reserve 40 percent to 60 percent of the support available for U.S. contributions to an international adaptation fund.

To help secure a strong climate agreement, the legislation must establish a clear, predictable, and sustained source of funding for these efforts. The Pew Center strongly supports designating an appropriate portion of allowance value for these purposes.

Fourth, domestic climate legislation must facilitate the linkage of the United States emissions trading system in a global greenhouse gas market. We believe the discussions hereafter will lay the necessary foundation for linkage to other market-based systems by recognizing allowances from programs establishing sectoral targets it would provide another important incentive for stronger efforts by countries not yet prepared to take on economy-wide targets.

Finally, domestic climate legislation must include transitional measures to address potential competitiveness risks to energy- intensive, trade-exposed industries. The discussion draft takes a very sound approach to managing these risks.

The use of output-based rebates as proposed would address the transitional competitiveness concerns likely to arise under a cap-and- trade system, while maintaining the environmental integrity of the program and providing an ongoing incentive to producers to improve their performance.

Critically, the draft contemplates the use of unilateral trade measures only as a last resort, and only if the president determines that the rebate program has not been effective. This preserves trade measures as an option, but defers their use to allow a reasonable period to assess the efficacy of the rebate program and to achieve effective international agreements.

In conclusion, Mr. Chairman, the Pew Center believes that with modest improvements, the Waxman-Markey discussion draft would effectively position the United States to lead efforts toward an equitable and effective international agreement. I look forward to your questions.

REP. MARKEY: Thank you, Mr. Diringer, very much.

We have been notified that there are seven roll calls on the floor of the House. We have three-and-a-half minutes for the members to go over to make these votes.

So what we'll do is we'll take a one-hour recess until quarter of 2:00 so that the members can make these votes. And our witnesses, if they'd like, can grab a bite to eat, but we will re-adjourn -- and we will recommence at that point in time, and we apologize to all concerned. We have no control over the floor schedule. So we'll take a one-hour recess.

(Recess)

REP. MARKEY: Who's the next witness?

MR. : Next witness will be Mr. -- Pastor Smith.

(Sounds gavel)

REP. MARKEY: Thank you all so much for being here. This is a little bit like the 1950s, when your mother was still home, so when you went home for lunch as a break in school, and you came back all energized, ready for those final two classes before you went out into the school yard. So, we thank you all for being here.

And -- our next witness is Lee Lane, who is a resident fellow at the American Enterprise Institute and is co-director for AEI's project on climate engineering. Mr. Lane was previously a consultant to Charles River Associates International, where he produced analysis of climate and energy issues.

Welcome, Mr. Lane. Whenever you are ready please begin.

MR. LANE: Thank you very much, Chairman Markey. It's a pleasure to be here this afternoon to discuss with you a piece of legislation that's obviously, quite ambitious and important. I refer, of course, to the American Clean Energy and Security Act.

The draft bill is an ambitious effort to grapple with what, I believe, is a very serious challenge posed by rising levels of greenhouse gases in the atmosphere. With climate change though, there are no easy solutions and many purported solutions are actually likely to amount to costly errors.

If enacted, this legislation would work far-reaching changes on the American economy, yet the bill's approach appears to be based on assumptions that clash with, what I think, are four basic realities of current climate policy. And my statement focuses on these and let me just summarize them briefly, if I may.

First, the cost of the proposed emissions cutbacks would very probably exceed their benefits. Rapid emission cuts like those called for in the bill's cap-and-trade provisions will lead to needlessly high costs.

Furthermore, the draft bill's regulatory mandates are likely to raise costs without adding benefits. You heard some allusions to the problem of a duplicative system this morning in some of the testimony from the first panel. I suspect that this is potentially a serious problem.

Secondly, deep unilateral U.S. emissions cuts will not improve the prospects for reaching an effective global accord and may actually harm them. I suspect this is a place where there are some disagreements on the panel, but I think it's an issue worth discussing.

Greenhouse gas control is -- as an issue -- is 85 percent about striking a global bargain. It's only about 15 percent a matter of domestic energy and emissions control policy.

Enacting this bill, in its current form, would amount to giving away America's biggest stack of bargaining chips, its willingness to incur costs in domestic greenhouse gas controls. And it would amount to giving it away for free and before the serious bargaining has really even begun. The U.S. has not used this kind of strategy in its bargains on trade negotiations or arms controls or other important negotiations and I think for very good reasons.

Third, with the legislation or without it, the conditions that would be required to reach an effective global greenhouse gas control accord are in fact absent. For many key nations, the costs of a greenhouse gas control agreement exceed its perceived benefits. Globally, the benefits are both very unevenly distributed and highly uncertain. These same factors have defeated previous attempts to reach agreement. My greatest fear is that this bill could become a step toward another agreement that is, like the Kyoto Protocol, both costly and ineffectual.

Fourth, the U.S. can and should take action on climate change. My answer to Mr. Inslee's question earlier today is that yes, I take climate change quite seriously. But realism about climate change demands a serious but patient approach to greenhouse gas curbs. A combination of gradual emissions cuts, basic science research, and adaptation can, I think, protect U.S. national interests without incurring excessive costs and without costing undue conflict with other global powers like China, India, Japan and Russia.

Some features of the draft bill reflect what I believe are valuable insights. For example, I believe that it is right to stress adaptation and the need to advance technology. These are crucial aspects of climate policy, in these areas my statement offers a few suggestions about how it's efforts, the bill's efforts, in these directions might be made more cost effective. I hope those suggestions are useful and that as the bill evolves it -- it does so in ways that will increase its benefits and decrease its costs. Thank you very much.

REP. MARKEY: Thank you, Mr. Lane, very much.

Our next witness is the Reverend Douglas Smith. He is the executive director of the Virginia Interfaith Center for Public Policy. He was formerly on the staff of the World Council of Churches in Geneva. Welcome, sir.

MR. SMITH: Good afternoon Mr. Chairman, thank you so much, members of the committee.

REP. MARKEY: Microphone -- could you move the microphone in, a little bit closer, please.

MR. SMITH: I am Doug Smith, the executive director of the Virginia Interfaith Center for Public Policy, an organization that seeks to address hunger, poverty, and the care for God's creation through the development and adoption of sound policy. While the faith community is so diverse that no one can really claim to represent it completely, I would like to share with you the perspective of many of us, including the National Council of Churches and a number of our ecumenical and interfaith organizations.

First and foremost, we applaud the inclusion of strong international adaptation assistance measures in the draft of the American Clean Energy and Security Act. We see this as a necessary component of any U.S. legislation, particularly, as we work to ensure strong and robust responses to a post-Kyoto Agreement. I would like to speak to the importance of this section as understood by the faith community.

We must ensure that generations know that we acted in good faith to protect all people from the impact of global climate change. Because of the interconnectedness of God's creation, we share not only the need to provide adaptation funding for developing countries but also the responsibility as people of good conscience and for many of us, of common faith.

Our best scientists and global security analysts tell us that climate change will impact hunger, poverty, and war very nearly. By the middle of this century, 1 billion people will likely face significant water shortages. And with 75 percent of persons in developing countries subsisting on agriculture, they can be assured of a famine-filled future and sadly, we can be assured of an unstable geo-political future if we do not act with boldness, act with compassion and act with immediacy.

In the faith-based NGO community, we are already witnessing how climate change is complicating our capacity to serve others internationally. The Evangelical Lutheran Church in America and the Virginia Interfaith Center recently sent one of my staff to Nicaragua. Mr. Rinn tells the story of Santa Marta, an ancient East Coast indigenous Miskito community whose language had never needed a word for hurricane. And yet in 2007, Felix, a category five hurricane, practically wiped Santa Marta off of the map. As weather patterns shift, as a result of global climate change, people like the citizens of Santa Marta are struggling to adapt to emerging realities for which they are unprepared. This is why it's so important that we provide adaptation funding to developing countries. It's because the international consequences of global climate change are already today impacting millions of people, and that leads the faith community to be united in our call to provide for international adaptation assistance, to protect the most vulnerable communities around the world. We urge the committee to support the language included in the American Clean Energy and Security Act but we do ask for the following legislative priorities to find their way into any final bill. Number one, the funds should be appropriately targeted in terms of recipient countries; they should go to the most vulnerable developing countries, and no more than 10 percent should go annually to any one country. Two, local communities must be engaged in a participatory process with adequate monitoring, evaluation and transparency. Number three, the funds provided should be in addition to current funding levels of official development assistance. Number four, the funds should be appropriately targeting adaptation around climate impacts, around drought, natural disasters, disease, and migration. And number five, legislation should also enhance developing country efforts to reduce greenhouse gas emissions by reducing deforestation, encouraging reforestation and by transitioning to cleaner energy technologies.

We, in the U.S., have a moral responsibility to those in need during this global crisis. I would say that loving our neighbors includes equipping them to protect themselves from climate change. And I would like to ask you today to commit to providing substantial financial support annually of no less than $7 billion per year. That is the minimum that we should be able to do for those in desperate need. I thank you for this opportunity to testify on these important matters, and for your time this afternoon.

REP. MARKEY: Thank you, Reverend, very much. The chair now turns to recognize the gentleman from Washington State, Mr. Inslee.

REP. INSLEE: Thank you. Mr. McMackin, Mike Doyle and I have been working on an effort to provide some security against job leakage for sometime. We introduced a bill in October. It's just been last week or two we've heard about concerns from the oil refineries which surprises me, frankly, that this is now arising. Have the oil refinery folks attempted to join your coalition or asked to be involved in your efforts?

MR. MCMACKIN: No, Mr. Inslee, and in some ways I guess I'm not surprised in that it's always been seen as a unique case. The witness from ConocoPhillips yesterday, I think said it right, there were two studies, and those two studies maybe outdated but they indicated that the oil industry might be able to pass along these costs unlike the other energy intensive industries in our coalition. I do think it's a special case and it ought to be treated specially, different than our -- than the provision for the energy intensive trade exposed industries.

REP. INSLEE: I think there is good cause to believe they are in a different situation. It doesn't mean we shouldn't think about that particularly, small refineries but I think there is a different case. I want to ask Dr. Houser about this, you've written a book about this, and I think that there's a concern about treating them the same where they are different.

Do you think that petroleum refineries are different from other energy intensive manufacturing industries from a job and carbon -- from a job leakage perspective?

MR. HOUSER: Sure, thank you very much. First, I would say, in our analysis of the criteria as you've laid it out in the Inslee-Doyle provision, refineries do not qualify under either the energy intensity or the carbon intensity metric. So in our assessment, the energy cost as a share of shipment value for refineries is about 2.5 percent and the cutoff point is 5 percent. At 2.5 percent, there's a lot of other industries that no one would think of as being energy intensive that are at that same line.

The refineries have suggested that we look at still gas which is not included in the purchase value in the surveys that are outlined in the Inslee-Doyle provision. We did that and even including a fairly high price assumption for still gas does not put refineries over the threshold to qualify. As Mr. McMackin said, the empirical studies that have been done in Europe exposed looking at the impact of the phase II of the EU emissions trading scheme on refineries found no evidence of leakage there.

I guess the additional point that I would make is that the output based nature of the re-bidding program that you have developed with Representative Doyle is to try to ensure that these goods that we need for a low carbon future like steel and glass can still be manufactured here in the U.S. The goal of climate policy is to move away from fossil fuels, and so we don't want an output tied allowance for fossil fuels as it goes against the goal of the program.

REP. INSLEE: So, in bottom line, even though we are all justifiably concerned about job leakage, at any sector of our economy, you think there is a significant reason to distinguish the oil refineries from the energy intensive manufacturers, is that fair statement?

MR. HOUSER: I think it's right and there may be legitimate competitiveness concerns that refineries face. I think that if they can demonstrate that it should be dealt with under a separate provision not the output-based rebate.

REP. INSLEE: Right, and I think, and I would suggest that if those special provisions have specific proposals, we hope they will come forward actually there is an ad hoc coalition for small business refiners that have made a proposal. We are happy to look at these proposals but I think it's going to be a unique case that would require specific criteria in that regard. So I would be looking forward to any suggestions in this regard.

I want to appreciate Reverend Smith's comments. Reverend, just from a non-ecumenical standpoint, is there any faith that you are aware of, Buddhist, the Hindu, the Baptist, the Catholic, for the full spectrum of human faith, is there any faith that you think, non-action dealing with climate change, would be really consistent with the, sort of, stewardship views of those faiths?

MR. SMITH: Mr. Inslee, I would say that I'm unaware of any faith community who would not want action taken to protect the one earth that we have and I'm aware of only concern within the faith community about climate change.

REP. INSLEE: So this is one like -- by taking action, fair to say, we might unite all the Creator's children on this one is that -- is that about a fair statement?

MR. SMITH: It's a fair statement.

REP. INSLEE: We hope to do that. That would be another good reason to pass this bill. Thanks a lot.

REP. MARKEY: Thank you very much. We were engaged in a brief conversation. At this time, the chair recognizes the gentleman from Michigan, Mr. Upton.

REP. UPTON: Thank you, Mr. Chairman. And I apologize for not being here for the testimony of all the witnesses. I do have a couple of questions and hopefully, the time won't expire before I'm done.

Mr. Conway, I have two nuclear plants in my district and we are hoping to add some reactors, thus adding jobs in the future. And it's my understanding that the steel workers are very supportive of additional nuclear across the country and as you know, our energy needs are going to grow by about 30 to 40 percent by the year 2030, nuclear has no greenhouse gas emissions, thousands of jobs -- when my two plants were built, 85 percent of the components came from within the United States.

Today, they are looking at a new plant in Congressman Dingell's district -- the Fermi plant on the other side of the state of -- from where I live. If they are successful in getting that reactor approved by the NRC, it's likely that 85 percent of the components are going to come from some place else, other than the United States. They are currently repairing a steel turbine at one of my facilities, 500 some jobs for while they are repairing it, it was made in Germany.

Would the steel workers support -- this bill, as you may know, has nothing on nuclear in it. Would the steel workers support adding a title to, to try and streamline the process, to bring back nuclear in maybe a little faster way than not, knowing that it will add lots of jobs?

MR. CONWAY: Now, as you know we have workers in that industry and work hard on behalf -- their behalf as well as everyone else and we don't believe that a comprehensive energy policy, going forward, excludes nuclear, and like everyone else I guess, we struggle with storage and issues like that, but we are not naive about that. So we would support anything that does that. More importantly your discussion about the supply chain that centers around that facility and the manufacturing facilities that are around and located to it. We think that's been lacking and a lot of the discussion in creating a renewable sector in this country and that the country hasn't built out a manufacturing supply chain. So we would welcome and we would be glad to work with you on that.

REP. UPTON: As much as I would like to see the issue of the disposal of high level nuclear wastes addressed in this bill, I confess that we probably -- that's not a doable thing, but we can, in fact, streamline the process and I think switch the light from red to green and your support would be helpful. And I think that it would be strongly bipartisan as we embark on that issue.

I don't know if you saw last week's Washington Post but there was a headline, India rejects calls for emission cuts; officials say growth will be compromised, it goes on to say no way, they are not going to participate. I know that it's in the interests of a number of members, I believe, Mr. Inslee and Mr. Doyle have an amendment of it, it's going to be the part of this, that calls for a border adjustment so that we would, in essence, be able to have a tax on imported goods, steel is an example from countries that don't have a cap and trade program. If, however, the WTO rules that that is not compliant, would the steel workers support an off-ramp -- or in essence the jettison of that provision?

MR. CONWAY: Look, we believe it is complying with the WTO provisions and I guess we would cross that bridge when we get to it. But we think that a border adjustability doesn't come into play if you are going to make your product the right way. And so the way we view it, it is sort of like severance pay, you ask a company for severance pay, if they are going to fight about it, they intend to lay off some people. If people are going to fight about border adjustability, you have to sort of worry about what their intents are going to be and the way they intend to make it.

Right now, we face steel expansion in China 400 million, 500 million tons over the last decade and if you think about it, it is the newest steel production that's gone on in the planet but still China emits to two and a half three times U.S. industry. So it's easy to deduce that the best of statements may not match up with intentions.

And one way to make sure that people are honest in a time of growth in nations like China and India is that there's a border adjustability and if you make it the right way, and you make it clean, you don't have to worry about it. But if you don't, you would pay for it as if you had --

(Cross talk)

REP. UPTON: But if they rule this out -- and Susan Schwab sent a letter last year to our committee saying that she did not think it was going to be WTO compliant; so let's say the jury is out today, you got evidence on both sides, but ultimately, if they say thumps down --

MR. CONWAY: We are not particularly thrilled with what everything the WTO says anyway so I would --

REP. UPTON: Yeah, I know.

MR. CONWAY: I would not look to posit a position on that --

REP. UPTON: Yeah.

MR. CONWAY: Until we hear from them.

REP. UPTON: Right. I know my time is expired; thank you, Mr. Chairman.

REP. MARKEY: The chair recognizes the gentleman from Oregon.

REP. WALDEN: Thank you, Mr. Chairman. I appreciate --

REP. MARKEY: We've run out of D's, can you believe that?

REP. WALDEN: I didn't realize you had already gone, so my apologies.

REP. MARKEY: Yes.

REP. WALDEN: And that's fine with me if you have run out of D' -- we could do that more often, maybe when we vote? No, I am just kidding.

Let's see, Mr. Lane --

(Cross talk)

REP. MARKEY: -- for a minute of inquiry.

REP. UPTON: Is it possible now to call up the bill and we can dispense it real quick?

(Laughter)

We can all catch our planes, going home today and not worry about --

(Cross talk)

REP. WALDEN: I'm staying for tomorrow. I'm reclaiming my time.

Mr. Lane, would border tariffs and other trade measures motivate China to go along and impose stiff emission cuts?

MR. LANE: Sir, I don't believe that they will, nor do I think the prospect of a -- of an updating subsidy provision will have that effect. I think there's every reason for thinking that China and India will continue to resist imposing on their economies the cost of significant restrictions on greenhouse gases. And frankly, I don't believe that there's anything that the United States and its government is able to do that will -- at reasonable cost to us to ourselves --

REP. WALDEN: Right.

MR. LANE: That will change their attitudes on that point.

REP. WALDEN: And do you think they're big enough and capable enough they'd just pay the tariffs anyway and move on?

MR. LANE: They probably wouldn't even have to. My own assessment would be that they would simply increase their exports to countries like Japan --

REP. WALDEN: Oh, and work around to --

MR. LANE: And change the geographic pattern of trade flows rather than actually reducing their exports at all.

REP. WALDEN: So your point is that these countries who don't participate in a cap and trade scheme could get very creative and work around the tariffs --

MR. LANE: Yes -- very easily.

REP. WALDEN: Putting our workers at disadvantage?

MR. LANE: I believe so --

REP. WALDEN: Costing us manufacturing jobs.

MR. LANE: And eliminating most of the point of greenhouse gas controls, because if they don't control --

REP. WALDEN: They're actually worse, aren't they? Is it true that China's building two coal fire plants basically a week, right now?

MR. LANE: I've heard numerous figures, and I don't know whether it's one, two, or more. But they are, clearly, rapidly increasing their coal fired electric capacity.

REP. WALDEN: Right. And I'm going to ask this panel, like I have, I think, every other panel that's been here. Have you all read the bill? Simple yes or no. Mr. Lane, Reverend Smith?

MR. : Not in its entirety, sir.

MR. : Partly.

REP. WALDEN: Mr. Dirin (ph)?

MR. : Not in its entirety.

REP. WALDEN: Dr. Houser?

MR. HOUSER: Same answer.

REP. WALDEN: You're a good man. Mr. Conway?

MR. CONWAY: No, not entirely.

REP. WALDEN: Mr. Wells?

MR. WELLS: Not in its entirety, no sir.

REP. WALDEN: Sir?

MR. : All of the cap and trade title, not all --

REP. WALDEN: I'm talking about the whole bill.

MR. WALDEN: No, sir.

REP. WALDEN: Then, I guess, I would ask you a question on page 527 of the bill is -- they've inserted a private right of action, so that any individual can sue anybody for enforcement even for fairly de minimis additions of carbon.

And I'm going to flip to that real quick, because I want to know whether you support that provision of the bill, because they define a harm that would include any effective air pollution including climate change, currently occurring or at risk of occurring and the incremental exacerbation of any such effect or risk that's associated with a small incremental emission of any air pollutant.

And then it goes on from there and the person would only have to say they might be affected in the future.

Do you support that private right of action in this legislation? Mr. McMackin?

MR. MCMACKIN: Yes. Congressman, our group is focused solely on perfecting the anti leakage provisions, but I probably wouldn't be going too far out on a limb to say that we would have considerable problems --

REP. WALDEN: All right.

MR. MCMACKIN: -- with a private right of action that's not robust.

REP. WALDEN: Mr. Wells, yes or no.

MR. WELLS: As you've described it, no we would not support that --

REP. WALDEN: Mr. Conway?

MR. CONWAY: No, I would need to read it more and understand it.

REP. WALDEN: Got it. Dr. Houser?

MR. HOUSER: I need to review -- (off mike.)

REP. WALDEN: Dr. Diringer -- Mr. Diringer, sorry.

MR. DIRINGER: I understand this is similar to standard provision and many environmental statutes have played an important role in the enforcements of those statutes over the years --

REP. WALDEN: So you would support it?

MR. DIRINGER: I would have to look at the precise language.

REP. WALDEN: All right. Reverend Smith?

MR. SMITH: I'm not familiar with the language.

REP. WALDEN: All right. Mr. Lane?

MR. LANE: Let me withhold final judgment while saying I'm extremely skeptical about anything that has so much potential for generating litigation.

REP. WALDEN: All right. I appreciate that. I want to go on to one of my favorite topics which is hydro power. I represent a district that has lots of dams along the Columbia River and gets most of its power or a good percentage of it at least from the hydro system.

And Mr. Conway, I know steel workers used to have aluminum plants in my district -- there are aluminum plants that had many of your members -- relied very much on that hydropower for the production of aluminum. Those plants now are closed and gone. Does anybody on this panel think hydropower should not be considered as a renewable energy source?

Mr. Lane?

(No audible response)

REP. WALDEN: Reverend Smith?

(No audible response)

REP. WALDEN: Mr. Diringer?

(No audible response)

REP. WALDEN: Dr. Houser?

(No audible response)

REP. WALDEN: Mr. Conway?

MR. CONWAY: No.

REP. WALDEN: Mr. Wells?

MR. WELLS: No.

REP. WALDEN: Mr. McMackin?

(No audible response)

REP. WALDEN: So you all believe hydro should be considered as renewable? Okay, good. Now, Mr. Wells, Dow Chemical, I want to ask you this question: If I vote and we enact a cap and trade system, which necessarily raises energy costs -- everybody else has testified that it will -- will your company guarantee me you won't chase cheaper energy for your manufacturing offshore?

MR. WELLS: If the competitive provisions I've -- I testified to are included in the cap and trade and energy prices for trade-exposed and energy-intensive manufacturers stay competitive, no, we will not. We will go where the energy is competitive. And as the provision --

REP. WALDEN: So you will go where the energy is competitive, and China and India would not be involved. Are you saying China and India have to be involved in the same scheme?

MR. WELLS: For this bill to make sense for a trade-exposed and energy-intensive manufacture, it would have to have those provisions that allow us to stay competitive from an energy perspective with them.

REP. G. K. BUTTERFIELD (D-NC): Gentleman's time has expired. This time the chair recognizes the Chairman Emeritus of the full committee, Mr. Dingell.

REP. JOHN D. DINGELL (D-MI): Thank you for your courtesy. I'd like to continue on the questions my colleague just finished. Going across -- starting at your right and my left, if you please gentlemen, yes or no, are you content with the provisions of the bill that deal with countries such as India or China, which do not have a cap of their own? Yes, or no, please.

MR. LANE: No.

REP. DINGELL: Sir?

MR. SMITH: I believe the United States needs to be a leader.

REP. DINGELL: I'm sorry?

MR. SMITH: I believe the United States needs to be a leader in this realm.

REP. DINGELL: So you think it's good that they should not have a cap and we should?

MR. SMITH: No, Mr. Chairman. That's not at all what I said. I think that the United States should be a leader, and should --

REP. DINGELL: Just yes or no. I don't want a lot of toe dancing, just do you think that -- are you content with the provisions that deal with the United States, but don't deal with India and China?

MR. SMITH: I am, yes sir.

REP. DINGELL: You are. And you, sir?

MR. DIRINGER: Yes.

REP. DINGELL: And you?

MR. HOUSER: I think they come pretty close.

REP. DINGELL: And you, sir?

MR. CONWAY: No, not entirely.

REP. DINGELL: Why?

MR. CONWAY: We think there's a transition period where our industries who have to come up to speed ought to be rebated the full cost of compliance for a period of time, and then go to an average sector.

And so we think eventually it's there, but there's an initial period where we need to phase in and protect the jobs that we have.

REP. DINGELL: Next panel member, please sir.

MR. WELLS: We're supportive of -- again, as a transition that it protects those industries that would be in competition with those places that do not have a cap.

REP. DINGELL: And after the competition?

MR. WELLS: Excuse me?

REP. DINGELL: And after that time?

MR. WELLS: If the transition -- those protections would have to stay in place until places like China, India would have a similar situation.

REP. DINGELL: Do you know that or do you just hope?

MR. WELLS: Through working with people like Mr. McMackin we're comfortable with that, yes.

REP. DINGELL: And you sir? Our next panel member, please. Are you satisfied with the provisions that deal with countries such as India and China, which may or may not have a cap on -- of their own, yes, or no?

MR. MCMACKIN: Yes, Mr. Chairman. Our group has been focused exclusively on perfecting the anti leakage provisions to the extent possible. We believe those have to be a bridge to an agreement that leads to a situation where we have equalized cost with foreign producers.

REP. DINGELL: Thank you. Now, going across same direction again, yes or no. Is there any more that you would like to see in terms of protections for American industry included in the legislation; yes or no, if you please.

MR. LANE: My answer would be yes, principally in the form of controls on the overall cost of the bill.

REP. DINGELL: And you sir?

MR. SMITH: I would say sir that I'm not familiar with those provisions within the bill, because I'm here specifically to speak about international adaptation.

REP. DINGELL: Thank you, and you sir?

MR. DIRINGER: Like to reserve judgment as I focus particularly on the bill's relation to international negotiations, and there may be other aspects of the bill, with respect to your question, that I would want to look at.

REP. DINGELL: Next panelist.

MR. HOUSER: I feel like the phase out portion of the bill could use a little bit more clarification.

REP. DINGELL: And again, sir?

MR. CONWAY: We think it needs a border adjustability provision at its onset, and remains in place during the life of the understandings.

REP. DINGELL: Thank you. Next panelist.

MR. WELLS: Yeah, we would like to see the feedstock exemption for the chemical industry perfected a bit more.

REP. DINGELL: And you sir?

MR. MCMACKIN: And Mr. Chairman, we think the leakage provision needs strengthened, and some of the other provisions, as Dow has testified like the non emissive, provisions need better definition.

REP. DINGELL: Thank you. Gentlemen, I happen to think that Mr. Doyle and Mr. Inslee have done a good job of directing their attention to protecting trade-exposed industries in this legislation. Do you feel that the draft bill does an adequate job of protecting those industries? Starting again, if you please, sir, on your far right.

MR. LANE: I would say that it probably does a better job of protecting those industries than it does of leveling the playing field for the US economy as a whole.

REP. DINGELL: Next panelist, please.

MR. SMITH: I would say, sir, that that's not my specialty within the bill. So I'd --

REP. DINGELL: Thank you. Next panelist.

MR. DIRINGER: We're very comfortable with the general framework laid out in the bill.

REP. DINGELL: Next panelist.

MR. HOUSER: Yes.

REP. DINGELL: Next panelist?

MR. CONWAY: Not quite. We think it's close, it needs some more refinement as we discussed earlier on the board of adjustability and the 100 percent rebate on compliance.

REP. DINGELL: And our next panelist.

MR. WELLS: As long as it -- the -- that protection stays in place until such time as there's an international level playing field, yes, we're comfortable.

REP. DINGELL: (Off mike.)

MR. MCMACKIN: It's an excellent structure, Mr. Chairman. A lot will depend on whether it's adequately funded with allowances. We think that would require between 850 and 900 million allowances a year.

REP. DINGELL: Thank you.

Mr. Chairman, you've been very courteous. Thank you.

REP. BUTTERFIELD: Thank you, Mr. Chairman.

At this time, the chair is going to recognize the member of the full committee, she's not a member of the subcommittee, but certainly she's welcome and recognized at this time for five minutes, the gentle lady from Tennessee.

The members of the subcommittee will obviously have priority. At this time, the chair recognizes the gentleman from Louisiana.

REP. CHARLIE MELANCON (D-LA): Thank you, Mr. Chairman. And we've heard some testimony from a few of you about operations you have in other countries. I think, Mr. Wells, you talked about maybe 50 percent of Dow Chemicals workforces out of the country. What are some of the factors in deciding whether or not you are going to build a plant or expand a plant in the United States versus going to another country?

MR. WELLS: Certainly, the implications of the cost of the other region. And for us a large part of that is energy, as I have testified today, and testified in front of this group before. And then certainly the closeness to the market, where does the market develop, and you -- when you apply those two things together.

When you look at what's happened to our industry, the US chemical industry over the last let's say eight years, and you look at what energy prices have done, natural gas from 2002 to 2008 has gone up by nearly 500 percent, chemical industry has gone from being very positive from a trade perspective; one of the highest in the country to now we have a trade deficit --

REP. MELANCON: And so what are some of those other -- what are some of the top countries that you go to when Dow goes to another country as opposed to here?

MR. WELLS: From an energy perspective, it's certainly the Middle East where we can get our feedstocks, which are byproducts of the energy process, natural gas, byproducts of oil. So the Middle East is where we can get low cost. And then, of course, we are moving into the expanding market some places like China, India.

REP. MELANCON: Do any of those countries that you've just mentioned, do any of those have any kind of cap policy on greenhouse gases, specifically carbon?

MR. WELLS: None of the ones that I mentioned, no.

REP. MELANCON: And so -- and you know, some of us look at the bill and of course there are a lot of details that are left out, but one of the things if we go back to President Obama's actual budget that was passed by the House just a few weeks ago, his budget envisions raising about $640 billion from a cap and trade energy tax.

So clearly whether or not the details are in the bill and then, of course, many of the details are not, on how this whole trading mechanism would work, and who would get these free allowances. Ultimately, the president's own budget says that they've got to come up with some kind of mechanism that raises $646 billion in new taxes in essence.

And so if a bill is going to come out of this committee -- I hope a bill like the one presented does not, as I talked about earlier. The American Energy Act is a true alternative bill that we propose for comprehensive natural energy policy that will fund the alternative sources of energy, create those new jobs while also not running off the existing jobs we have, and encouraging things like clean coal, encouraging more nuclear power which emits no carbon.

And so there is another alternative out there, but the bill that we're discussing today clearly has a big cost, $646 billion. How would a company like Dow react if these new conditions come on and you're not given the allowances you think you might be getting, and then you've got to make a business decision as you have in the past to keep those jobs in the United States or to move them to one of the countries that doesn't emit or that doesn't control emissions. Ultimately, have you all started making any of those decisions, are you waiting for this bill to come out to see what you're going to do?

MR. WELLS: If the bill -- the bill that comes out does not look at such things as carbon leakage, doesn't handle such thing as carbon leakage; the feedstock exemption is extremely important to the US chemical industry and then avoiding the dash to gas as we've talked about many times. If a bill does not have those things, then it's safe to say, what you've seen happen because of the rising energy prices over the last decade would continue to happen, and be exasperated by the Climate Change bill.

REP. MELANCON: Thanks.

And Mr. Conway, in relation to the steel workers, I'm familiar with a steel plant that is proposed to be built. Right now, it's proposed to be built in the United States, in fact, in south Louisiana. But they're looking at two sites; they're looking at the United States, the south Louisiana facility, or Brazil.

And they've made it clear, now they've -- a few months ago, they pulled back on any decisions until they see what happens with cap and trade energy tax bill, and they said if -- basically, if this bill passes they're going to build that plant, but they're going to build it in Brazil.

And we're talking about a $2 billion investment, 700 good jobs, steel workers, that would be created and that will be created, and the question is will they be created in the United States, which has environmental controls already in place that are much better than Brazil, or will it be built in Brazil where they will not have the same controls. And in fact, if somebody's control -- concerned about carbon emissions, more carbon will be emitted if that plant is built in Brazil.

Yet passage of this bill will dictate whether or not those 700 jobs and the $2 billion investment go to Brazil. Do you when you're looking at that -- as especially as your workforce issues are going to become more concerned by legislation like this that would run some of these companies off, what are your thoughts on how that would affect employees in your industry?

MR. CONWAY: Congressman, we think there's much of that going on anyway. And if in fact the purpose of the bill is to try and reduce carbon on a global basis, we understand that this leads to a global sectoral agreement where people across the world agree on what emissions ought to be in a sector, as there are a lot of --

REP. MELANCON: Of course, countries like Brazil and then we've heard earlier, China and India will not comply --

MR. CONWAY: -- a company, a German company who's moving into Alabama, who intends to put up half a steel plant, because it intends to run the other half of the plant in Brazil where it could emit a lot of carbon, and it will import -- (inaudible) -- there. That doesn't solve the carbon problem.

And if what we're here to do is try and solve the problem of carbon emissions, then we need that global sectoral agreement. And our position is simply until we reach it we ought to treat that steel made in Brazil as if it were made the right way and the clean way and --

REP. MELANCON: Right. And of course, we know it's not and those remedies are not in this bill unfortunately. So I appreciate your testimony, I yield my time.

REP. BUTTERFIELD: Gentleman's time has expired. Thank you.

At this time the chair will recognize himself for five minutes. Let me just take a moment to join my colleagues who have been discussing this today and say that I agree that it is critical that we must protect our industry and manufacturing base in this legislation. Without question, we must do that. And so I want to go on record publicly thanking my colleagues Jay Inslee and Mike Doyle for their hard work in developing a plan, and to make sure that these jobs stay right here in America.

In my district down in the eastern part of North Carolina, there are a number of different energy-intensive trade-exposed industries such as Nucor steel, which is in a same town named Winton in North Carolina. That industry employs nearly 500 people, good paying jobs, produces 2.8 million tons of steel plate from recycled scrap each year. And these are the kinds of jobs that we can ill afford to lose in a district where 21 or 23 counties have more than double-digit employment.

And so I want to thank these two gentlemen for their work as well as the other members of the committee. I also want to thank all of you for your testimony today. Specifically, I want to address this to Mr. McMackin. Do I understand from your testimony sir -- both your testimony today and back in March that you think that allocating 15 percent of allowances should be sufficient to support the eligible trade-exposed industries?

MR. MCMACKIN: Yes, Congressman, with this footnote. That 15 percent which was the same number that was in the original Inslee- Doyle bill, same number that, by the way, was over in the Senate, in the Brown-Stabenow amendment was based upon the number of allocations in the Lieberman-Warner bill, about 5.7 billion. The annual allocations in this bill are a little lower. So actually, I think the math comes out to about 16 percent.

REP. BUTTERFIELD: I understand that you believe that the problem at hand can adequately be solved with using free allocation to eligible trade-exposed industries, and that, as you write in your testimony, the draft has adopted a structure that can really work. Is this correct?

MR. MCMACKIN: That's right Congressman.

REP. BUTTERFIELD: Let me now speak briefly to Pastor Smith. Thank you for your testimony and for your work in general thank you so very much. Can you, Pastor, briefly paint a picture for us about how money to a country like Zimbabwe provides security for that country as well as our country?

MR. SMITH: Sir, many of us are aware of the situation in Zimbabwe currently, where we have millions of people now that face famine, we have civil unrest in places. It's really a dangerous cocktail when you mix famine and poverty with a government which is non-democratic. When we add the issue of climate change in that it really becomes quite difficult, because what was previously the breadbasket of Africa then creates an unstable situation continent- wide in this kind of a situation, because what ends up happening is the investments that we've made in the past in development essentially gets wiped out.

And so when we create opportunities for international adaptation through funding through US Congress, what we do is we ensure an investment today helps us keep countries like Zimbabwe able to continue to feed their people, able to participate in a global economic system, able to resist the various groups that may try to go in and coup up a very difficult situation in the country. And ultimately, it also helps to secure the investments that we've made through the NGO community and USAID in the past years in order to lift that country out of the desperate situation it finds itself.

REP. BUTTERFIELD: Thank you. Finally, Mr. Wells, do you concur with the 15 percent assessment by your colleague to the left, you think that would be sufficient?

MR. WELLS: As a member of his organization we sure do.

REP. BUTTERFIELD: Yes. So 15 percent you want to go on record saying that 15 percent --

MR. WELLS: With the caveats that he's already talked about, yes.

REP. BUTTERFIELD: All right. Well, thank you. The chair yields back the balance of his time.

All right. Now, we'll go to the gentle lady from Tennessee the member of the full committee, Ms. Blackburn, five minutes.

REP. MARSHA BLACKBURN (R-TN): Thank you, Mr. Chairman. And I'll try not to take all five minutes. I do appreciate being recognized, and I appreciate that you all would be here. I'll tell you it's fascinating listening to your responses. I think I'd like to hear from you on some questions after you all have had an opportunity to read the bill, and weigh back in with us at that point.

Dr. Houser, I want to just ask you -- in my district, I've got -- I mean, Tennessee has a lot of rural area ag offsets that EPA would be able to structure under this bill, they'd have pretty broad discussion on structuring those ag offsets.

And when we talk about competitiveness and global competitiveness, I would -- I'm curious what your opinion is on how EPA should go about handling the agricultural offsets that they'll be able to put in place. And also if you think that the imposition of cap and trade will diminish the competitiveness of the American agricultural community.

MR. HOUSER: I think it's an important point to bring up to think about how this bill impacts competitiveness more broadly, and agriculture is obviously an important sector there. Offsets -- domestic agricultural offsets are important for several reasons.

Primarily, because they'll help reduce the cost of a bill. The EPA assessment -- the Waxman-Markey bill that came out earlier this week shows that international offsets and domestic offsets will have a lot of the same cost benefits, reduce the cost of compliance for a climate bill by half.

And so domestic agricultural offsets will play an important role there to the extent that agricultural entities are not capped themselves, so they don't face direct domestic compliance costs, but are recipients of offset investments, then that agricultural industry will have a competitive advantage vis-a-vis its counterparts in other countries, because it has no direct compliance costs, but is receiving from offset value.

REP. BLACKBURN: Well, do you see this driving up the cost of our domestic food supply, of our domestic yarn and clothing supply?

MR. HOUSER: The fossil fuels in the economy -- well, the price of fossil fuels will certainly increase. The increase in the EPA economic assessment was fairly modest, but it will certainly increase. So then the question is how quickly can we improve efficiency so that an increase in energy prices doesn't translate to an overall increase in energy costs.

Dow Chemicals has spoke to -- spoken of how over the past 18 years they've reduced the energy intensity of a unit of production 38 percent. That type of improvement in agriculture and manufacturing is possible, and is spurred on by a carbon price. So we can have higher energy prices and not higher energy costs; it just all comes down to efficiency.

REP. BLACKBURN: How long do you think it takes us to get to the efficiency that would allow them to be competitive?

MR. HOUSER: I think that the rate of improvement that companies like Dow and that the US steel industry has demonstrated over the past decade, they've improved efficiency faster than the current bill would reduce emissions, right? So just an -- on a business as usual trend, they're outpacing what the increase in energy price would be. So I'm optimistic that other sectors of the economy have that ability as well.

REP. BLACKBURN: Okay. Thank you. I'll yield back.

REP. MARKEY: Great. I thank the gentle lady. Let me give each one of you 30 seconds tell us what you want us to know as we're putting together this legislation over the next several weeks. You got 30 seconds each, give us your closing point that you want us to remember. We'll begin with you, Mr. Lane.

MR. LANE: Thank you, Mr. Chairman. The single -- I guess, the single point that I would emphasize is that as long as the cost of the bill is so high because of the speed of the emissions reductions, it's bound to have a negative impact on the US economy.

REP. MARKEY: Thank you, Mr. Lane. Thirty seconds apiece, Ms. Smith, Reverend Smith, rather.

MR. SMITH: Mr. Chairman, I think the one thing that I would want to leave the committee with is the need to have very realistic numbers within the bill specifically on international adaptation funding and knowing that any funding we put today towards adaptation is investment in the future. And I believe, and many in our coalition believe, that $7 billion is the very minimum where we need to start.

REP. MARKEY: Okay, thank you. Mr. Diringer?

MR. DIRINGER: The prospects for agreement in Copenhagen will be greatly enhanced if Congress can provide some certainty as to the US ability to help fund technology deployment and adaptation efforts internationally.

REP. MARKEY: Thank you. Dr. Houser?

MR. HOUSER: That the competitiveness issues that we're talking about here today are manageable and can be dealt with affordably in the context of an economy-wide cap.

REP. MARKEY: Okay, thank you. Mr. Conway?

MR. CONWAY: That we would be naive to believe that the rest of the world that produces products will voluntarily reduce theirs -- cap carbon on their own without a border adjustability mechanism.

REP. MARKEY: Thank you. Mr. Wells?

MR. WELLS: We have the ability here to do a real win-win. We can work on solving this problem at the same time maintaining the competitiveness of US manufacturers.

REP. MARKEY: Mr. McMackin?

MR. MCMACKIN: On the leakage problem for energy-intensive trade- exposed industries the bill has an excellent structure by adopting the Inslee-Doyle structure. The key will be adequate funding of that provision. Through allowances, we think that would be about 850 (million) to 900 million allowances a year.

REP. MARKEY: Okay, thank you, Mr. McMackin. Thank you -- I thank all of you, and I subscribe to Mr. Conway's philosophy here, that we must act in ways that deal with human nature even as it's reflected in other nations' behavior, and we must ensure that as we act in a way that is responsible that we don't expose ourselves to others' actions, which will be irresponsible.

And we must ensure that we construct this legislation in a way that guarantees that American workers are not affected adversely, because we have not dealt with the reality of the fact that nations and human beings think the same and that proper protections must be built in to ensure that there are no innocent victims that we are creating.

So thank you so much. We will now, with the thanks of the committee, request that you remain available over the next several weeks so that we can continue to consult with you. And we will then move on to the final panel. Thank you.

Okay, let me see the headline on the final panel. The final panel is on "Move to a Low Carbon Electricity Capture and Storage Renewables and Grid Modernization Issues."

(Audio break) -- of the US Department of Energy's Energy Information Administration. He has worked extensively on electricity policy issues and economy wide energy modeling for 25 years. He is a friend of this committee; so a source of information on an ongoing basis. We welcome you back, Doctor, if you could move that microphone in, we would appreciate it, and whenever you're ready, please begin.

MR. GRUENSPECHT: Thank you Mr. Chairman, and members of the committee. I appreciate the opportunity to appear before you today to discuss the Energy Information Administration's analysis of the renewable electricity standard or RES program in title-I.

REP. MARKEY: Can I just interrupt you for one second?

MR. GRUENSPECHT: Yes.

REP. MARKEY: Because it's like being in Yankee stadium --

MR. GRUENSPECHT: Is that right, you want me to speak up?

REP. MARKEY: No, no, no. It's like being in Yankee stadium, and all of a sudden, you know, in walks Lou Gehrig or in walks Mickey Mantle, and in walks Bobby Garcia, the former great Congressman from the State of New York. So it's so great to see -- you know --

MR. GRUENSPECHT: You know, I grew up in New York also.

REP. MARKEY: You know -- well, you know, it's like being in Cooperstown, you know, so -- when one of the all-time greats walks in. So we'll start all over again, Dr. Gruenspecht, okay.

MR. GRUENSPECHT: Okay. All right well, I'm -- Mr. Chairman, thank you again. I appreciate the opportunity to appear before you today to discuss the Energy Information Administration's analysis of the renewable electricity standard or RES program in Title I of the American Clean Energy and Security Act discussion draft.

EIA is the independent statistical and analytical agency within the Department of Energy that produces objective, timely, and relevant data projections and analyses, to assist policy makers, help markets function efficiently and inform the public. We do not promote, formulate, or take positions on policy issues, and our view should not be construed as representing those of the Department of Energy or the administration.

Since I appeared before the committee two months ago, EIA has updated its "Annual Energy Outlook" reference case to reflect enactment of the American Recovery and Reinvestment Act or ARRA, which provides significant new federal funding, loan guarantees, and tax credits to stimulate investments in renewable energy.

The potential impact of the ARRA provisions on the projected use of renewable generation is large enough that an analysis of the RES that did not include ARRA in the reference case could provide misleading results, and we do include it in this analysis here that I will discuss.

The RES proposal sets a target of 25 percent of covered sales of electricity in 2025 and beyond be provided by eligible renewable energy. However, because of exemptions provided to small sellers, and to sales of electricity from certain generation sources, and the possibility that credits for qualified state energy efficiency programs could be used to meet a portion of the RES requirement, the amount of eligible renewables as a share of total electricity sales required to comply with the RES would be lower than the nominal target.

EIA modeled two RES policy cases for this analysis. One case assumes that the maximum level of efficiency credits, up to one fifth of the RES target in any given year, are claimed. While the other case that assumes that states cannot qualify for, or elect not to use, efficiency credits.

Turning now to some of the main results from our analysis; power sellers will turn to a mix of renewable fuels to comply with the RES. In absolute terms, the key fuels are projected to be biomass and wind, but other renewable fuels including solar and geothermal are also projected to grow significantly in percentage terms.

The high renewable generation stimulated by the RES leads to lower coal and natural gas generation. The increased use of renewables stimulated by the RES also leads to lower electricity sector carbon dioxide emissions. Electricity sector carbon dioxide emissions in 2030 are between 7 percent and 12 percent below the reference case level in the two RES cases.

Given the amount of eligible renewable generation projected in the reference case, the RES is not expected to affect national average electricity prices until 2020. As the required RES share increases to its maximum value in 2025, the value of the RES credits increases and the impacts on national average electricity prices become evident.

The projected peak effect on national average electricity prices is between 2.7 percent and 2.9 percent in our two RES cases. Because of regional difference in electric -- electricity market structure, state RES requirements, and the different availability of resources in different areas, price impacts may vary by region as show in my written testimony.

The quantitative results I've just discussed reflect the modeling analysis of the RES provisions on a standalone basis. We recognize that the RES could have significant interactions with other programs in the chairman's discussion draft. For example, in previous analyses, EIA has generally found that a cap and trade program for greenhouse gases leads to significant growth in the use of renewable energy for electricity generation, which becomes more attractive when the cost of using fossil fuels goes up.

To the extent that the proposed cap and trade program induces more renewable resources than required by a concurrent RES proposal, one might expect RES compliance cost to be reflected in the value of carbon dioxide allowances. Therefore adding our standalone estimates of the cost of an RES to a standalone estimate of the cap and trade program cost would overstate the projected combined cost of implementing the two programs concurrently.

In contrast, an energy efficiency resource standard, which can reduce or eliminate projected growth in electricity load, and therefore the need for additional generation capacity makes it more likely that a given RES target will require that generation from new eligible renewable capacity replace generation from existing capacity rather than from other types of new capacity. The cost penalty associated with backing out existing capacity whose capital cost has already sunk is typically much larger than the cost penalty associated with backing out alternative types of new capacity.

Mr. Chairman and members of the committee, this concludes my testimony. I'd be happy to answer any questions you may have.

REP. MARKEY: Thank you, Mr. Gruenspecht, very much. Our next witness is Dan Reicher; he is director of climate change and energy initiatives at Google. He was previously co-founder of the New Energy Capital Corporation, and served as assistant attorney general for Environmental Protection of Massachusetts. So we thank you for being here.

MR. REICHER: Thank you, Mr. Chairman, and members of the committee. I -- first, I want to applaud the subcommittee's work on this path breaking and comprehensive bill. I'll make three points in my opening statement related to the renewable energy standard, energy project finance and energy information.

First, Mr. Chairman the renewable energy standard in the bill is technically and economically achievable. Our nation has more than adequate renewable energy resources to meet the RES and with continued technological advances and policy support, they become more cost effective every day. And by implementing the RES in conjunction with the energy efficiency resource standard we can dramatically cut the need to add additional generation.

In my testimony I highlight what may be the sleeping giant of renewable energy. Enhanced Geothermal Systems or EGS uses a common technique in the oil industry to fracture hot rock deep below the earth surface. Water is injected into the rock where it is heated to produce steam and piped to the surface to generate electricity. A 2007 MIT study found that just two percent of the heat below the continental US between 3 and 10 kilometers is equivalent to over 2500 times total US annual energy use.

At Google, we've mapped the EGS resource state by state, and I'd like to submit the 50-state map for the record, Mr. Chairman. Our calculations show that just 2 percent of the EGS generation potential in South Carolina is almost two thirds of current generating capacity.

In Texas, it is double, in Arkansas it is triple, in Maine it is quadruple, in Oregon it is nine times, and Idaho 32 times the existing capacity. And Mr. Chairman, only half-jokingly if the big dig in Boston had been vertical instead of horizontal we might be powering a good chunk of Massachusetts using EGS.

The beauty of EGS is that it provides base load generation 24 hours a day. The US once led in EGS technology, but leadership is now in Australia where commercial projects are under construction, and Europe where demonstration projects are at -- at the megawatt scale are already operating. We have a chance to catch up thanks to $400 million for geothermal in the stimulus legislation.

In addition to adopting an RES, the House should look at providing a credit multiplier for base load technologies like EGS. The House should also authorize an appropriate significant federal support for EGS R&D beyond the stimulus. I'd also suggest Mr. Chairman an oversight hearing on this potentially transformational technology.

Turning to my second point, the legislation we're considering does not directly address a critical issue in advancing our clean energy economy; increasing access to capital for the deployment of literally trillions of dollars worth of clean energy projects that will be essential to meeting our climate and energy goals including an RES and EERS.

Last week Senators Bingaman and Murkowski jointly released a discussion draft of a bill that would create the 21st Century Energy Technology Deployment Administration or CEDA. I know Congressman Inslee has also been advancing this concept in Congressman Hollen introduced a separate proposal. The mission of CEDA would be to encourage wide scale deployment of clean energy technologies particularly to those that are perceived as too risky by commercial lenders, but with high potential to address our environmental economic and security challenges.

Moving a technology from small pilot project to full commercial scale plant is often the point at which at many promising energy technologies die. We call it the valley of death. I urge the committee to consider incorporating the CEDA approach into the legislation we are considering today in order to address this critical problem.

My third and final point involves improving access to energy information. With the national RES and EERS, Congress should also ensure that electricity consumers, large and small, have a more accurate picture of their electricity usage as well as the source and mix of their power. Congress should work to ensure that utilities provide consumer access to energy information through smart meters and other devices in as near real time as possible.

President Obama has talked about how the smart grid funding in the stimulus bill could support the installation of as many as 40 million smart meters. However, draft guidance issued by the DOE on the smart grid problem may discourage large scale smart meter deployments. Congress should push DOE to support large investments in smart meter deployments and ensure consumer access to data.

Finally, I'd like to urge the subcommittee to work with the new administration to determine how the energy information administration could play a much more vital role in providing consumers and businesses with critical energy information. For example, with the national RES and EERS, the federal government will need to collect data at an unprecedented level in order to ensure compliance. Congress should ensure that EIA has timely access to critical data to gauge progress on key clean energy programs. This will require an extension of EIA's role and an increase in its funding. Thank you very much.

REP. MARKEY: Thank you, Mr. Reicher, very much.

Our next witness, Dian Grueneich has been Commissioner of the California Public Utilities Commission since 2005. She is a nationally recognized expert in energy and environmental issues. And to be honest with you the reason that I've asked her to come here today is that she's the only witness I've ever heard who knows how to make energy efficiency sound exciting. And so since I've heard her do it before, I thought I would give her another chance. So welcome back.

MS. GRUENEICH: Well, thank you so much. I would love to be talking on energy efficiency, I've slipped it in a little bit, but I'm actually here today on transmission, renewables, and smart --

REP. MARKEY: Transmission needs even more work to be -- to sound exciting.

MS. GRUENEICH: Well, I'll start with my first promo.

REP. MARKEY: Okay, please.

MS. GRUENEICH: We're building transmission in California. We're building it to make renewables. If California with all of our environmental rules and all of our environmental activists can do it, everywhere in the country can do it. This is the Tehachapi wind project it's under development, and when finished it's going to bring 4,500 megawatts of wind into the transmission grid. So there we go, if that's exciting. But getting back let me first of all, thank you for having me today.

I am speaking on my own behalf, but I also bring greetings from Mike Peevey who's president of our commission, he has reviewed my testimony, and wanted to make sure that I passed on that he personally feels very strongly about these remarks as well and agrees with them.

Let's start with renewable energy. As Dan Reicher just said, there really is no question that the United States is blessed with renewables.

This is not a question that we don't have the resources, it's not a question that we don't have the technical capability, it's a question of political will to make it happen. That's the very good news.

As of January of this year, 33 states had RPSs or renewable goals, 33 states. At the state level, what we are waiting for is the national renewable standard. It will make a dramatic difference in our ability if we can have as a nation, all the states, all the utilities moving ahead. In California, we have a 20 percent renewable standard. But our governor has now signed an executive order to have our state get to 33 percent renewables by 2020, and our legislature is now considering the bills to codify it.

If California can set RS (ph) goals at 33 percent again, the rest of the country really can get to the levels that we're talking about in this bill. There are some really smart flexible items in the bill on renewables. One of the items that Dan talked about was the part that you can meet your renewable provision through energy efficiency.

In a pure world you probably wouldn't do that. You'd probably just say go with renewables. But this is a bill in my mind that's really trying to make this workable. Every state can do energy efficiency. We need to make sure that that provision is sensible, that it's not just a loophole, but it lets the states that may be farther removed from renewables really come in and go after the renewable section.

Another part that I think is very creative that we frankly hadn't thought of in California, but I've now talked with our legislators and suggested they think about it, is the provision that says that you can have a credit of three times the renewables if you do local distributed generation. That's' a really smart thing to put in the bill. Because what it does is that when you're building renewables out to the areas like the Tehachapis, believe me, it takes years to plan and permit and finance and build those transmission lines.

But when you can instead look to do renewables right in your neighborhood, I mean, you can put solar photovoltaics on the rooftops of Costcos and Wal-Marts, you can have people in the neighborhood start to say we'll even make it in our own homes, on our roofs. And when you give it a three times credit, in my mind we can have some states who have never even had renewables before start to become the leaders, and I hate to say put California and Texas to shame, but that's what we may start having by some of these very creative provisions in the bill.

Let me turn to transmission planning quickly. The interesting thing about the bill is the most important provisions on transmission planning are not in the transmission planning section. These are the provisions that make it a sensible way to do transmission planning. They are the energy efficiency provision, they are the renewable electric portfolio standard, they are the enhancement of the smart grid; they are the focus on distributed generation.

All of those are the factors that let you reduce the need for transmission, because we don't build transmission just to have transmission lines. We build transmission, because it carries electricity, and by having in this bill, the fundamental building blocks that make you look at an entire system that will minimize how much transmission you need, you've got it right. This is in many ways the best way that I've seen looking at electricity in 30 years, because you've put in place those building blocks that say when you're doing transmission planning you're actually doing it in the context of a very sensible approach.

The other thing that I'll say about transmission is that it directs FERC to take into account all of these demand side aspects when they have an expanded role in transmission planning. That is absolutely critical. If Congress is going to give FERC or any other agency at the federal level a larger role in transmission and particularly in transmission planning, it's essential to have in there the provisions that they must look at the demand side.

In fact, I think that the bill should go further and direct FERC in all of its decisions with regard to transmission, including approving transmission investment that it does not discriminate against the demand side or against distributed generation.

Let me just end with the smart grid that I think that again it's got it right. The one part that I would add would be to have some provisions that provide increased technical assistance to the states. Smart grid is going to happen, because there are thousands of decisions that government and the private sector is going to make.

What you heard form Dan about increasing the information available, that's critical. But we're all going to need much better technical assistance and that would help. The very last thing that I'll say is to thank you very much for letting me testify today.

REP. MARKEY: Excellent, Thank you very, very much. Our next witness is James Robo; he is the president and chief operating officer of Florida Power and Light or FPL Group. Mr. Robo previously served as vice president at that company. We thank you so much for testifying today.

MR. ROBO: Thank you Chairman Markey, Ranking Member Upton and members of the committee. I'm the president and chief operating officer of FPL group, North America's largest producer of renewable energy. And it's my pleasure to be here today to talk about the importance of enacting a renewable electricity standard this year.

FPL group is the nation's number one producer of electricity from the wind and from the sun. Our wind fleet can power approximately 1.5 million homes and makes up a quarter of the entire US wind energy market. Our solar power plants in California's Mojave Desert are the largest in the world. In Florida, we're building 110 megawatts of solar power, enough to vault the state into second place in the nation in solar production in the span of only 18 months.

And just this week, FPL announced Energy Smart Miami, one of the country's largest implementations of smart grid technology to improve energy efficiency and reduce carbon emissions. We're proud that FPL group has one of the lowest CO2 emissions rates of any electric power company in the nation. In fact, if every utility were as clean as FPL group, CO2 emissions from the power sector would be reduced by nearly 50 percent; total US carbon emissions would be reduced by 20 percent, which is the equivalent of removing 209 million cars from the road, roughly 80 percent of the nation's vehicles.

Renewable energy holds tremendous potential for the United States. Each year enough solar energy strikes a 90 by 90 mile patch of the Mojave Desert to meet the annual electricity needs of the entire country and enough wind power sweeps across the Dakotas to meet more than half our electricity needs. We've barely begun to tap this nearly unlimited resource.

To do so it's vital that Congress enact a renewable electricity standard this year and here's why. First, an RES will help create a clean energy economy. Many countries are betting that the world of the future will thirst for low carbon energy in the way it thirsts for oil today. We can't afford to remain on the sidelines while the renewables industry and jobs that go along with it are created elsewhere.

We're already falling behind even Europe in this regard. In fact, nearly every one of FPL group's largest renewable energy competitors is from outside the United States. Second, an RES will give the renewable energy industry certainty, and will give utility decision makers a sense of urgency. In the electric power sector, we make capital decisions with a 30-year time horizon. We can't spend billions of dollars to build a clean energy economy without confidence that demand for low carbon power will remain strong.

A federal RES with timelines extending to 2039 will send the clearest possible signal to investors that demand for renewables will continue. And the targets that utilities must meet along the way will provide the urgency needed for prompt action. The best incentive to ensure timely and proactive utility decision making around renewables is a reasonable yet firm target.

Third, a federal RES will drive down the cost of renewables. Make no mistake, in many markets today renewables such as wind are competitively priced despite the fact that their disadvantage versus fossil fuel is due to the lack of a price on carbon. The cost of wind power has fallen by roughly 25 percent over the past decade even as the average electric bill in the US has risen by nearly 50 percent. By stimulating demand, an RES will continue to drive down the cost of renewables overtime.

Fourth, a federal RES will ensure that only the most cost efficient renewables get built. The current patchwork of more than 30 different state regimes is cumbersome, costly and creates incentives for bad decisions. For example, many states require utilities to buy only in state renewable energy even if it costs more than renewable energy purchased from elsewhere. That's like forcing grocery stores in Maine to buy oranges grown only in Maine; it makes no economic sense.

And finally, an RES is essential to address the threat of climate change. That threat isn't just environmental it's economic. Those who say the cost of addressing climate change is too high assume that doing nothing is free. On the contrary, unchecked climate change could cost the United States tens of billions of dollars over the next two decades.

But no matter what your beliefs are about climate change, investing in renewable energy makes sense for America. It will replace finite fossil fuels with the infinite energy of the wind and the sun. It will result in cleaner air, it will conserve precious water, it will strengthen our energy security and evolve the world. And finally, it will keep us competitive in the race to build a clean energy economy. Mr. Chairman, thank you for the opportunity to testify this afternoon.

REP. MARKEY: Thank you, sir, very much.

Our next witness is Gregory Kunkel. He is the vice president of environmental affairs at Tenaska. Mr. Kunkel directs environmental compliance, permitting, and water resources issues at that company. We welcome you, sir.

MR. KUNKEL: Chairman Markey, Ranking Member Upton, and -- happy birthday by the way -- and members of the subcommittee, for this opportunity to discuss Tenaska's two commercial scale electric generation projects using carbon capture and storage technologies, Trailblazer in Texas and Taylorville in Illinois.

My name is Dr. Greg Kunkel, and I'm vice president of environmental affairs of Omaha-based Tenaska, one of the largest independent power producers in the United States. Tenaska currently employs nearly 700 people and has developed approximately 9,000 megawatts natural gas fired electric generating capacity across the United States.

Our affiliates market natural gas, electrical power, and biofuels, and also are involved in private equity fund and acquisition management focused on the energy space including renewable energy, infrastructure development, natural gas pipelines and storage and electric transmission. The Natural Resource Defense Council benchmarks Tenaska's power plants as having the lowest carbon footprint of any of our peers; less than half the national average emission rate of greenhouse gases.

However, as clean as our fleet is, like a number of our peers in the independent power sector, our older long term contracts did not explicitly anticipate the cost of carbon control. To ensure that these clean efficient facilities can keep operating, we urge the committee to provide a mechanism for hold these contracted facilities harmless for the duration of their contracts.

Now, with regard to carbon capture and storage, Tenaska's current initiatives, Trailblazer and Taylorville, may give the subcommittee some sense of the CCS projects that we believe can be built with today's proven technologies. When Tenaska embarked on developing these utility scale CCS projects, natural gas prices were high and volatile and there was a glut of gas generation. This encouraged us to consider coal for base load power facilities.

However, we recognized that new federal, regional and state greenhouse gas emission controls were very likely during these plants' 50-year life. Of course, just last week EPA issued its endangerment finding, and is considering comprehensive rule making to regulate carbon emissions. And now Congress is taking up the issue in earnest.

Tenaska's objective has been to find ways to develop the base load resources required for the electricity market. But we weren't willing to invest in solid fuel projects without addressing the climate change issue. So the question before us was how to reduce greenhouse gas emissions in the design of projects today. To that end, we needed to assure ourselves that carbon capture technologies were ready for a utility scale project, a secure home was available for captured carbon dioxide, and the economics and long term financing arrangements for such projects could work.

On February 19th 2008, Tenaska announced the Trailblazer Energy Center, a 760-megawatt gross and 600-megawatt net output supercritical, pulverized coal electric generation facility with the capability to capture 85 to 90 percent of its carbon dioxide. The site is near pipelines to the world's largest market for carbon dioxide, Permian Basin enhanced oil recovery.

Two rail roads serve the site and the electrical interconnection is also nearby. The comment period on Trailblazer's draft air permit closed on April 17 and the Texas Commission on Environmental Quality will be working toward a final permit over the next months.

We've received competitive proposals for the facility's design, and construction are working on detailed engineering studies to support the financial closing and a construction start in 2010. Commercial operation could be as early as 2015.

Through our work with leading EPC contractors and equipment manufacturers, Tenaska's increasingly confident that we can finance the project and negotiate suitable terms for the plant's construction. Local and state governments have provided tax incentives for building the plant and are encouraging oil producers to use the facility's CO2.

We still need some form of federal incentive participation to make the project work, but that seems increasingly likely. Trailblazer's significance is that it will demonstrate post combustion capture technology for existing power plants that today contribute two billion tons to the US emission inventory and 10 billion tons to the worldwide emission inventory. By locating near a viable CO2 market, Trailblazer can pioneer this technology at a reduced cost.

The Taylorville Energy Center is a hybrid integrated gasification combined cycle electric generation facility being developed by Christian County Generation with Tenaska as the managing partner. The project will manufacture pipeline quality substitute natural gas or methane from Illinois bituminous coal; SNG will fuel the power block. The amount of SNG produced will significantly exceed our requirements annually freeing up 10 billion cubic feet of SNG for eventual sale offsite.

The facility will employ 1,500 hundred construction workers and create hundreds of permanent jobs in the coal and power sectors. Taylorville will capture 50 to 60 percent of the carbon dioxide that would otherwise have been emitted, remove moisture and sulfur compounds and compress the carbon dioxide stream for pipeline transport either to nearby geologic sequestration wells or for use in EOR operations elsewhere.

The power island will have criteria pollutant emissions equal to those of a combined cycle natural gas generation facility. No electric generation facility utilizing coal derived fuel operating anywhere approaches the proposed emission performance of Taylorville.

REP. MARKEY: If you can try to summarize, sir.

MR. KUNKEL: Yet the project relies exclusively on proven technologies for coal gasification, gas processing, and power generation. The one important thing for all these types of projects -- and we think they are real projects that can come off in the near future and begin construction as early as next year -- is providing some sort of regulatory framework and certainty for these projects.

We've provided specific comments on aspects of the ACES draft in our testimony. And we, you know, look to those provisions, but there is a whole variety of ways that the bill could support these types of projects.

REP. MARKEY: Thank you, Doctor. And how much CO2 can you take out of the coal?

MR. KUNKEL: The Trailblazer project in Texas would take 90 percent.

REP. MARKEY: Thank you. I appreciate it.

Mr. Hawkins -- Mr. David Hawkins, the director of the Climate Center at the Natural Resources Defense Council, one of the most frequent visitors to this committee in its history. He has been working on air pollution issues for over 30 years. We welcome you back. Whenever you are comfortable please begin.

MR. HAWKINS: Thank you very much. Thank you for inviting me to testify today. I'm going to focus today on a pathway for coal. NRDC, as an environmental organization, is a strong supporter of efficiency and renewable energy resources, but we also believe that it is important to have a pathway for advanced coal.

It's important in order to get the policy support for the protection of the climate programs that we need. And it's important to actually make those climate protection programs happen more easily in the real world. We think we can get deep cuts in carbon dioxide emissions faster and at lower cost if coal with carbon capture is on the table as part of the toolbox. And that's why we very strongly support it.

NRDC is a member of the U.S. Climate Action Partnership and we put forward in that document what we believe was an integrated package of policy support for carbon capture and disposal. There were four things that we recommended.

The first was a requirement for the government to get its act together, in terms of developing the necessary permitting rules. The second was a program to do early government financial support so that we could get 5 gigawatts of coal capacity with carbon capture deployed by 2015, sounds like Tenaska could be part of that 5 gigawatts.

The third element would be a transitional program where the early movers in the carbon capture world would get a financial incentive. This is very important to overcome the competitive barriers to these kinds of technologies even in the early years of a cap-and-trade program.

And the fourth thing we recommended was a set of mandatory emission standards for new coal plants so that we would have clarity and an assurance that we didn't have to rely just on market forces, but we'd have that good old fashion regulation that says here's a performance standard you need to meet it. And by the way, there will be financial incentives to help you do even better.

The ACES discussion draft does a great job of embracing these concepts and articulating them. And while there are a few places where some added detail would be helpful, we think that it is a very great job and we're very supportive of it.

In our view, carbon capture and disposal is a real option. It can be made into a reality, out in the world, if it has adequate policy support. That policy support has been lacking, but it can be provided through the kind of provisions that are in the ACES draft and for that reason we support it.

Mr. Chairman, we've heard lots of concerns over the last couple of days about whether the technology is available or whether it is available at a reasonable cost. And there have been lots of concerns, and legitimately expressed concerns, about the fact that this may cost too much that we simply can't afford to do what's being proposed in this legislation.

Well, 73 years ago, the predecessor of this committee heard from then Chairman Sam Rayburn about the need to have a major energy advance. It was called Rural Electrification Act of 1936. And some of the same arguments that we've heard mounted today about the need to protect the climate and whether we could afford to do it were put forward then.

It was said that the technology did not exist to bring electricity to rural Americans. It was said that if it did exist, it would be simply too expensive and ruinous. Well, 73 years ago, this committee acted and it passed out by one vote the Rural Electrification Act of 1936 and the result was an economy that the world still cannot beat.

This is the world's greatest economy. And it's brought to that level in large part by electrification. It was that kind of technological advance and willingness to say, you know, we think these challenges can be met.

Today, the challenge is even greater and the stakes are higher and the rewards are greater. But it's going to come down to the same thing, the men and women of this committee voting to do what we need to do to create the future that we need to create. Thank you.

REP. MARKEY: Thank you, Mr. Hawkins. And it comes in full circle, doesn't it? Seventy-three years ago we were voting to bring electricity to rural America. Now, we're going to be voting on bringing electricity from rural America -- the sun, and the wind, and biomass -- to urban America. And we might only win by one vote.

(Laughter)

But that will be the perfect circle then, when it's completed, perfect. Our next witness is Eugene Trisko on behalf of the United Mine Workers of America. Mr. Trisko has represented the United Mine Workers for more than 20 years. He is a member of the Environmental Protection Agency's Clean Air Act Advisory Committee and has appeared before the U.S. Court of Appeals for the District of Columbia concerning the Clean Air Act. Welcome, sir.

MR. TRISKO: (Off mike.)

REP. MARKEY: If you could move in a little bit closer and turn on your microphone.

MR. TRISKO: (Off mike.)

REP. MARKEY: I could -- I'm not sure that the microphone is on yet.

MR. : There you go.

REP. MARKEY: Okay.

MR. TRISKO: I'm pleased to be here today, to testify on behalf of the United Mine Workers. UMWA has sought technological solutions to the environmental challenges facing coal for decades. UMWA recognizes that climate change legislation poses potentially the greatest threat to its membership and to the continued use of coal.

In July 2007, the Mine Workers and other industrial unions endorsed the bipartisan Bingaman-Specter climate change bill. Achieving the proper balance among technology incentives and the timing and stringency of emission reductions will be essential for obtaining bipartisan support for climate legislation.

One-half of our electricity today is generated by coal. Twenty- three states rely on coal for more than half of their electric supplies. To reduce coal in our energy mix means using another fuel to replace it for baseload generation, most likely a combination of natural gas and nuclear.

There is a great deal in this proposed legislation that UMWA supports. We strongly endorse section 114 incorporating the Carbon Capture and Storage Early Deployment Act reintroduced this year by Representative Boucher and a bipartisan group of cosponsors.

The programs called for by this section will provide critical non-budget support for the early demonstration of CCS technologies on a commercial scale. CCS technology is the principal means for assuring that coal can continue to supply a significant share of our electric generating needs. These technologies also can provide a major source of new well-paying low-carbon jobs.

Our statement summarizes a recent study showing that deployment of 65 to 100 gigawatts of new advanced coal capacity with CCS could create 5 to 7 million job years of employment during construction and more than one quarter of a million permanent jobs.

UMWA supports the objectives of the CCS incentives provided in section 115. The Mine Workers recommend that the committee develop an allowance based mechanism for funding qualifying CCS facilities. Such incentives will be critical to attracting capital investment in new and retrofit applications.

The timing and availability of section 115 support should provide planning certainty. We regard the period from 2020 to 2040 as critical for avoiding a large scale loss of coal markets. As to scale, we recommend a range of 65 to 100 gigawatts of new and retrofit capacity based on U.S. EPA's analysis of previous climate bills.

The Mine Workers recommend that the bill avoid specifying CO2 performance standards limited to coal-based generating units. NSPS are unnecessary for these sources since all capped sources will be required to comply with the bill's declining cap. To avoid the risk of WTO challenges we suggest that the bill's international border adjustment provisions be modified consistent with IBEW and AEP's suggested changes submitted to the committee on April 17th.

UMWA favors the largest possible use of allowance allocations to the electric distribution and independent generation sectors and to vulnerable manufacturing industries. We support the recommended approach to allocations outlined in the recent letter to Chairman Waxman by the IBW and the utility workers.

UMWA is mainly concerned about the 20 percent reduction target for the year 2020. This target is well above the 6 percent target proposed by the Dingell-Boucher December 2008 discussion draft and President Obama's proposed 14 percent target.

Commercial use of CCS by 2020 is likely to be limited to a handful of early-mover plants. Recent modeling of similar emission control proposals shows that one-third to one-half of coal-based generating capacity could be retired between 2015 and 2030.

EPA's preliminary modeling of the bill shows this occurring by 2040 even with aggressive CCS assumptions. Such impacts must be avoided if the nation is to retain domestic coal as a principal energy supply.

UMWA thus urges moderation in the choice of the 2020 target recognizing that the majority of the emission reductions required by the bill occur later in the program when technological advances should facilitate the continued use of coal. Thank you, Mr. Chairman and members of the committee.

REP. MARKEY: Thank you very much, Mr. Trisko.

Our next witness, Jonathan Briggs, who is regional director of Americans for Hydrogen Energy. Mr. Briggs is responsible for managing Hydrogen Energy's project in California and developing other Hydrogen Energy business opportunities in North America. Thank you, Mr. Briggs.

MR. BRIGGS: Mr. Chairman, members of the committee, thank you for inviting me to testify before you today. HEI or Hydrogen Energy International offers commercial scale deployment of low-carbon hydrogen fuelled power plants with carbon capture and storage. It offers the ability to bring together the complimentary skills of its two parent companies, BP and Rio Tinto.

Hydrogen Energy, HEI, is currently developing two projects, one in Abu Dhabi, the other in California. Our project in California is located in Kern County and will distribute 250 megawatts of much needed baseload low-carbon power.

The project's primary feedstock is petroleum coke, a base -- a refinery by-product along with coal as needed, and will capture and store 90 percent of its CO2 emissions in the Elk Hill oil field for sequestration and enhanced oil recovery. The project has been designed and developed to provide numerous environmental and economic benefits for the state.

It will conserve freshwater resources by using brackish groundwater with zero liquid discharge. It will create 1,500 construction jobs and 100 permanent jobs in an economically depressed region of the state. And the project will also significantly boost state and local tax revenue from EOR.

Just two months ago, the PUC voted five to zero to a direct ($)30 million of support to our project. This is unprecedented and a demonstration of political leadership that first-mover projects such as ours need. And while I have the opportunity, I would like to thank CPC -- CPUC including Commissioner Grueneich for recognizing the need for in-state, low-carbon baseload power.

We filed for the planning permit and the site license and will be up and running by 2015 contingent on the development of appropriate policy support framework. In order to meet the aggressive emission reduction goals that are outlined in the draft ACES bill, CCS must be widely deployed and quickly to drive down the costs of future plants.

Just as pre-combustion capture technology is proven, so is the storage of CO2. In the U.S. there are more than 3,500 miles of CO2 pipelines to support enhanced oil recovery, an activity which has been conducted safely and without incident for the last 30 years.

We believe that storing CO2 in existing oil and gas fields in connection with EOR will significantly advance the near-term deployment of CCS by bringing down the costs of early moving projects -- early-mover projects such as ours. Like other forms of clean energy, CCS is more expensive than conventional energy. The majority of the extra capital cost lies with the power plant rather than the sequestration activity.

The cost of CCS today is more than $100 of CO2 -- per ton of CO2. That may seem like a lot, but remember, this technology is still in the early development stages and despite other technologies having enjoyed years of learning low-carbon hydrogen power with CCS is competitive with nuclear and renewable energies. So cost, while important, is not a reason to forego or stall the rollout of this technology.

The draft ACES bill is a welcome first step to identifying CCS as a needed technology to mitigate GHG emissions. HEI appreciates the support shown for CCS in the Waxman-Markey draft, particularly, fixed incentive payments, where critical, to project sanction; feedstock neutrality, and recognition of geologic sequestration combined with enhanced hydrocarbon recovery.

In addition, we hope that any climate change bill would also recognize the need for early movers, provide clear and definitive performance qualification terms, and tie fiscal support to the levels of CO2 capture such as the 90 percent that I referred to earlier.

Before I close, I would like to leave the commission -- leave the committee with one other recommendation regarding this -- the regulatory certainty needed to allow CCS to move forward. We need one regulator, one set of regulations and acknowledgement that EOR and sequestration can act simultaneously.

I'd like to thank the committee for inviting me to testify before you today and remind you that CCS is ready today, we just need fixed, near and medium-term incentives to get these projects off the ground. Thank you.

REP. MARKEY: Thank you, Mr. Briggs. You have 10 seconds left, I'm just dying to know, do you -- is your sequestration through pumping into oil fields? Is that the sequestration you're using?

MR. BRIGGS: It will be.

REP. MARKEY: Thank you very much. That was most interesting.

Our next witness is Mr. James Kerr, who is partner with McGuireWoods LLP. He's previously served as commissioner on the North Carolina Utilities Commission and as president of the National Association of Regulatory Utility Commissioners for '07-'08. Today, he's appearing on behalf of the Electric Reliability Coordinating Council. Thanks, Mr. Kerr.

MR. KERR: Thank you, Mr. Chairman. My perspective today is that of a former utility regulator and -- where I examined regulatory policy to be sure that it was both cost effective and equitable among and between customer classes and across regions. My testimony focuses on the RES and the CCS portions of the bill that's before the subcommittee.

Let me first focus, in these remarks, on what I believe to be certain inequities concern and cost-effectiveness concerns with the RES. I am concerned that the bill as drafted will be both cost- ineffective and inequitable for ratepayers in the Southeast and Midwest where cost-effective renewable resources are limited.

First with -- the first concern is that the RES conflicts with a market-based cap-and-trade program. Renewables are simply one option to decarbonize power fleets and reduce carbon. They may or may not be the most cost-effective option for doing that.

However, and the price signals sent by the cap is supposed to decide this issue. Since the RES is a performance based standard that must be complied with regardless of cost, it undermines the cap's basic least-cost approach. In effect, the RES is a bet that renewables and not some other alternative would be the most cost- effective solution for carbon reductions under the cap all the way up to the full amount of the RES.

Most troubling to me is that there appear to be no economic studies supporting the fact that a 25 percent RES by 2025 will provide the most cost-effective carbon reduction -- more cost-effective carbon reductions than the cap program itself. Hence I refer to the RES as a bet. Second, the REF -- RES gives ratepayers and resource-poor states three compliance options, each of which is uneconomic to them and provides little benefit.

My second concern is that ratepayers in resource-poor states will be assessed significant costs to comply with the RES for which they will receive no benefit. Instead, the monies will flow to the benefit of the ratepayers in resource-rich states and either subsidize those ratepayers' RES compliance costs or those ratepayers' fleet de- carbonization efforts and associated carbon cap costs.

To illustrate this, I thought I would use example -- (inaudible) -- a utility owner, or a regulator, or for that matter simply a citizen in a resource-poor state, where renewables tend to cost more than in research-rich states. I will have three choices available to me under this legislative proposal.

First, I can build above-market, by that I mean higher cost renewable power than the prevailing REC price, renewables facilities in my state. That will ensure the green jobs and investment capital provided by ratepayer remains in state. And that will provide some benefits towards carbon compliance in state. But the costs for compliance with the RES will be higher than if other alternatives are adopted.

However, since I also get a carbon benefit if I build my own renewables facilities, I need to subtract that cost savings from my renewables cost. And those economics will likely make me build some and perhaps many above-market renewable facilities. That result makes sense to me and my ratepayers because it is the lowest cost solution to the dual compliance obligations of the carbon cap and the RES.

But it makes no sense as national policy. The result will be nationally more above market renewable facilities in the Southeast and Midwest and fewer economic renewables facilities in resource-rich states. And of course, since renewables will be part of the compliance with the carbon cap and the overall cost of renewables is higher than it need to be because above market facilities are built, the cost of compliance with that cap nationally will be higher than they would be without the RES.

My second choice is to produce -- is to purchase RECs, to fund construction of renewable facilities in another state with better renewable resources. If I do that my ratepayers compliance cost with the RES -- with the RES will be lower, but I will have to go back to them for more money to fund investments in carbon reductions for my system. Since I have received no carbon benefit from the renewable power facility funded by my ratepayers REC dollars.

In addition, I will have funded the creation of green jobs in the resource-rich state, but not my own, and I will have funded fleet de- carbonization efforts in the resource-rich state through construction of a renewable facility, but not my own. As a consequence, I've subsidized the carbon compliance costs of the ratepayers in the resource-rich state, who will not see rate increases to fund the carbon reductions my renewable power facility has made for them.

My third choice is to make an alternative compliance payment this option would also allow my ratepayers to comply with the RES at a lower cost, but again they see no carbon reduction benefits for the payments. And I'll have to go back to them for additional monies to fund my own carbon reduction efforts.

In addition, the monies I spend making alternative compliance payments are returned to the resource-rich states that complied with the RES and presumably refunded to those ratepayers. Thus my alternative compliance payment subsidize RES compliance cost of citizens in resource-rich state, but my ratepayers see no benefits.

As a former public servant and citizen, I do not like any of these choices. None make any economic sense to my ratepayers and they do nothing to address climate change since the cap already requires carbon reductions independent of the RES.

Frankly, I'm baffled as to why I would have to make a choice between such -- three such poor options. No one has told me that renewables up to the full amount of the RES are the most cost- effective way to reduce carbon. And no one has told me that the U.S. renewables industry cannot sustain itself based on the price signal, the cap will send the existing plethora of state -- 33 state RES requirements and other financial incentives available to renewables.

It seems to me that the primary effect of the RES requirement is to pick winners and losers and that the ratepayers in resource-rich states will be the clear winners while ratepayers in resource poor states will be the clear losers. I want to clear; I'm not against renewables in any way. They are an important part of the toolkit to address climate change and they will be employed at scale under any carbon cap up to the point that they are the most cost-effective alternative.

What I am against is the imposition of a very large federal renewables mandate that effectively advantages ratepayers in resource- rich states and disadvantages ratepayers in resource-poor states for no compelling reason. While I do not see the need for any mandatory federal RES, my written testimony does have some suggestions that will limit, but not eliminate these inequities.

Finally, with respect to CCS, the ERCC supports the efforts in the bill to generate research, development, and deployment of CCS. We also however provide a couple of comments that might shape that piece of the legislation. Thank you, and I'd be happy to answer any questions.

REP. MARKEY: Thank you, Mr. Kerr.

Our next witness is Dr. Jay -- is it Apt, sir? Dr. Jay Apt who is executive director of the Carnegie Mellon Electricity Industry Center and an associate professor at Carnegie Mellon University. We hope Dr. Apt feels very much at home today because he has been in space flying four times and logging more than 35 days in that environment and over 10 hours in spacewalks. We hope this is his easy experience. Dr. Apt, thanks for being here.

MR. APT: Thank you, Mr. Chairman. I'd like to tell people that I'm probably the only person in the room who owes their life to solar cells. I appreciate not only the invitation, but your stamina. As you said, at Carnegie Mellon, I'm a faculty member in both the engineering school and the business college.

I've studied the electric power industry for many years at our Carnegie Mellon Electricity Industry Center. Burning any appreciable fraction of the estimated fossil fuel resources on this planet without carbon dioxide control is going to send CO2 levels to places that humans have never experienced and cause really dangerous climate change.

There is no question that the singular focus, our goal, ought to be controlling CO2. Renewable energy sources are going to be an important part of whatever we do in this country. But I caution that a singular emphasis on renewable energy is not the best way to meet that overriding goal of controlling CO2.

We spent about 3 percent of GDP annually on electricity. Removing 80 percent of the CO2 from electric power with the most cost- effective technologies will take about two-thirds of a percent of GDP. That turns out to be just about what we spent on the Clean Air Act. That's affordable, but if we try to specify which technologies like renewables are the only ones that need apply and don't allow the least expensive technologies to compete, cost can grow to unaffordable levels.

It's important to develop competing low-carbon technologies to keep cost low, rather than trying to select technologies based on attributes that have little to do with controlling CO2. Our national RES is a costly way to reduce CO2 emissions because renewable and low greenhouse gases are not synonyms.

There are several other practical and often less expensive ways, and you heard about some of them just now, to reduce CO2 from electric power generation. As you know, renewable energy is concentrated only in certain states. The Southeast doesn't have either good wind or good solar. It does have biomass, but that's going to be needed for production of liquid fuels.

Legislation should give each region the greatest flexibility to reduce CO2 at the least cost including renewables, efficiency, conservation, fossil fuels with CCS, and nuclear. Mandating technologies can be much more expensive than mandating performance. Renewable performance standards unnecessarily increase costs in an attempt to eliminate the use of uranium, coal, natural gas, and large hydropower.

What's needed instead is a carbon performance standard that lowers the limits, in a predictable fashion, on the emission of CO2 for every kilowatt hour produced. To affordably lower CO2, we're going to need everything that works. No power source is free of problems.

Our research has examined what was then the largest solar array in the country in the desert in Arizona. It had a duty cycle, what we call the capacity factor of 19 percent averaged over two years. All the wind farms in Texas, last year, added together had a capacity factor of 29 percent. That means that 70 percent of the time you've got to use something else.

And our research shows that natural gas turbines used to provide fill-in power, as the wind rises and falls or clouds cover the sun, produce more CO2 and much more NOx, nitrous oxide, than they do when running steadily. That lessens the beneficial effects of wind or solar. One solution is to store large amounts of electricity when these sources are generating.

The discussion draft doesn't appear to me to contain significant incentives for large scale storage and I think it ought to. If our industries are to be able to afford electricity it's essential that demonstration coal plants with carbon capture be built to improve the technology and show that we can sequester CO2 without leakage in a range of geology.

The section 114 incentives seem to me to be at the low end of what's required to demonstrate the commercial viability of sequestration. It's also essential that we build half a dozen nuclear plants using new technology to assist their costs and performance or we're going to be importing that technology from abroad.

I hope that you'll keep two principles in mind. First, focus on reducing carbon dioxide rather than singling out renewables as the answer. The significant savings from letting all the technologies compete in satisfying the goals of lowering greenhouse gas emissions and increasing energy security, while ensuring that energy prices aren't so high that they derail our economy. Second, ensure that efficiency gains in generating electricity as well as in using it can count in any low carbon legislative mandate such as section 231 of the discussion draft. Thank you, very much for the opportunity to testify.

Along with my written testimony, I provided the subcommittee with one of our published papers. I think the research outlined in the paper might be of interest and value, and would ask that, that be included as part of the hearing record.

REP. MARKEY: So ordered with no objection. Dr. Apt, thank you very much.

We'll start questioning with Tammy Baldwin.

REP. TAMMY BALDWIN (D-WI): Thank you, Mr. Chairman, and thank you all for your patience and your testimony here this afternoon. We just returned to session from a recess. And over the course of my recess, I had a chance a do a great tour of some of the most innovative Wisconsin-based companies that are doing all sorts of exciting things in the energy area in anticipation of the work we're doing on the climate change bill.

One of the places I visited is a company called Orion based in Manitowoc, Wisconsin. And they're manufacturing a solar light pipe technology that can illuminate factory floors electricity-free by concentrating daylight. Just last month the company was even touted by President Obama for having innovators in creating jobs that will foster our economic recovery and create clean technology to power our long-term prosperity.

Now, like the solar light pipe, there exist a number of distributed renewable energy resources such as solar water heaters, solar air heating and cooling, geo thermal heat pumps that deliver measurable and verifiable renewable energy at the load source. These technologies help businesses and homeowners lower their utility bills and because they produce clean energy at the load source they certainly lessen the burden on our nation's transmission infrastructure.

As I understand it, and have looked into it, some states have included these technologies in their renewable portfolio standards and others have not because these technologies do not actually generate electricity even though we can, sort of, monitor virtually with meters the electricity consumption displaced by these technologies.

So I want to ask, I think, Mr. Reicher and Commissioner Grueneich. Do you think these types of technologies should be considered as a part of our renewable energy technologies and can they provide benefits under a national renewable portfolio or electricity standard?

MS. GRUENEICH: Yes and yes. Let me also say, I want to congratulate your state, we're not talking about energy efficiency, but in a recent report you're ranked number five in the country. And I'm very happy to hear about some of the technologies that's being developed. And I think that this is an example where we see innovation at the state level and I think that it definitely is an example of the types of new technologies coming online that can and should be included when we're looking at the renewable standard.

MR. REICHER: And I would add that, as you know, there is already a 3x multiplier for onsite generation, it would be interesting to take a look at whether -- what, of these technologies, might be included and if not how that might be adjusted that's number one. Number two of course, the energy efficiency resource standard would capture some of the value of this as well by cutting electricity demands.

So I think the interplay between the two of those should at least help these technologies. What we may want to do is look a little bit further and see whether there is ways to move them forward even better.

REP. BALDWIN: And that was precisely my second question. Should this be -- this technology be a part of the energy efficiency resource standard and you sort of jumped to that answer already. On the distributed generation multiplier another one of my stops on my tour last week was to an anaerobic digester on a dairy farm.

Now, all of -- I think Wisconsin is the leader in the country in deployment of anaerobic digester systems, but all of them are smaller than two megawatts. The one that I visited is generating enough electricity for about 600 homes in the area and the proposed definition in our draft discussion bill, right now, would exclude small biomass generation systems from receiving the distributed generation credit multiplier because they rely on combustion.

And the proposal appears to make distributed solar and wind more valuable than a distributed biomass. And, I guess, I would want to ask your opinion also on this, you know, what guidance you would give our committee as we get into the details of the bill on this issue or should it count or not. Again, Commissioner.

MS. GRUENEICH: I'll say that, we're facing in California as we've had now a couple of years under our belt -- I guess three or four now -- on our renewable standard that as the technology is improving and we've got a project that Pacific Gas and Electric Company is doing also with one of our dairy farms.

Where we're seeing that we do have to look at modifying our definition of what qualifies and I think that it'll be important for the committee to really take a look throughout country at what are the different projects that have emerged. Take a good look at the definitions and I totally concur with Dan.

Let's make sure that things don't fall between the cracks of what's considered a renewable or what's considered in energy- efficiency and it doesn't qualify for either one. So I think that's real good homework, we want to capture the most innovative projects.

REP. BALDWIN: Thank you. Chairman, I was going to ask a question to our carbon capture and sequestration experts. I see my time has expired. I don't know if you will do it.

REP. MARKEY: Well, the chair is extending an additional minute to all -- all committee members who are so dedicated to be here.

REP. BALDWIN: (Laughs.) Oh, well, thank you. Along with my other staffs on my energy tour, I got a chance to visit a coal plant owned by We Energy in Wisconsin, it is doing a demonstration project on carbon capture, not the sequestration part, but they're right now succeeding in capturing 90 percent of the CO2 emitted, but only doing this demonstration project on 1 percent of the flue gas.

So it's a small demonstration project. A larger scale project, sort of, 10-fold the size will be underway soon, I think, in West Virginia. I would love our CCS experts to address a couple of quick questions. One is the job creation potential; the second is if we do not have a cap in the end, would you expect full scale commercial deployment of this technology without it. I have concerns that we wouldn't.

And then finally this is a huge issue, but Wisconsin has -- is not particularly geologically -- we don't have the geological formations necessary for storage in state, which brings up transportation issues. And I wonder whether the funds collected by either CCS provisions of the bill will apply to research into transportation for CO2 and the costs associated with that. I know that's broad, but I would love to hear our CCS experts address those three areas.

MR. : We've been following the We Energy's project there too and they are tackling one of the most interesting parts of this that that could have big promise for reducing the costs of it, which is the energy efficiency penalty using ammonia technology and we think that's very promising. And we are following, you know, that technology and considering it very closely. That sort of goes to one of your questions.

Your second question was jobs and, you know, that the --

REP. BALDWIN: (Off mike.)

MR. : Yeah. Certainly, large-scale deployment won't happen without there being some kind of a market value, if society doesn't value the reduction of emissions some way. And that has to happen, and what we're working at is getting the cost of that down where it happens at a reasonable, reasonable price. And we believe that that can happen as well.

Jobs, our projects in both Texas and Illinois will -- for one thing, they take a long time to build, it is like a four-year construction cycle, 1,500 jobs, you know, at the peak and even as many as 2,000 in some cases. So, you know, for a retrofit project that would be much less, but it's still a very substantial project employing a significant number of people.

REP. MARKEY: Thank you

We are now moving on to Mr. Upton.

REP. UPTON: Thank you, Mr. Chairman. Dr. Apt, I want to come back to your testimony you talked about a carbon performance. So, if you looked at that as the base for an RPS, you probably could include nuclear as part of that, right because it's got no greenhouse gas emissions that would be eligible.

MR. APT: Certainly, one of the statistics that I like to tell people is in my home state of Pennsylvania. We are nearly last in renewables, but we're first in low carbon because of the percentage of nuclear that we have.

REP. UPTON: Now, why -- you said that the solar array in Arizona was only 19 percent, which means that it's out.

MR. APT: Sure. I mean, you know, it can't be more than 50 percent -- (cross talk.)

REP. UPTON: I know they don't have daylight savings time as far as -- that's probably another hour that we could have --

MR. APT: The thing that surprised us was that it wasn't higher than it is and it's because of the intermittency caused by the clouds. We've taken a look at some of the other solar arrays in other locations. The DOE has a solar roof here and that's 11 percent, as it turns out.

REP. UPTON: Now -- thank you. Mr. Robo, you mentioned that you are managing the largest solar bank in the world. Is that right?

MR. ROBO: That's right.

REP. UPTON: In the Mojave desert. How big is it? How many -- what is the size?

MR. ROBO: Three hundred megawatts. And it --

REP. UPTON: What's the footprint? How big is the --

MR. ROBO: The footprint is tens of acres. It's about 1 acre per megawatt, so around 300 acres.

REP. UPTON: And you know, there is been some debate that I've seen in the press. We mentioned this, either today or yesterday, one of these hearings that the senior senator from California has not been all that supportive. Is that true or not of the -- (cross talk) -- is it this project or is it another one in the Mojave Desert?

MR. ROBO: No, it's not ours, it's not our project. Our project is already built.

REP. UPTON: So this is -- is this another project that is going to rival you as the largest in the world then?

MR. ROBO: We -- there are several new projects that are being considered in California. We have several that are under -- they are trying to be permitted right now. Other folks are being -- other folks are trying to permit projects. Our, actually, two projects that are furthest along in the permitting process are outside of Senator Feinstein's area.

REP. UPTON: Now, when you began the construction of this or get the licensing and the approvals, did you have trouble hooking it into the transmission lines? And how long did that take?

MR. ROBO: These projects, the projects we have right now in California are actually quite old. They were built in the late '80s, early '90s. And it took several years to develop. Any large scale solar project, in any of the areas that we are looking at, and we are developing large scale solar projects in Florida, California, Arizona, Colorado. And they -- you know, it really depends on the jurisdiction.

We've built 110 megawatts of solar in Florida --

REP. UPTON: So would you --

MR. ROBO: -- in the space of a year.

REP. UPTON: So would you like to see if --

MR. ROBO: In California, we take five years

REP. UPTON: Would it be helpful in this bill, if this bill moves forward, to have some type of allowance to allow FERC to step in if folks like your seatmate there are not entirely cooperative in getting things hooked up?

MR. ROBO: We think having FERC have --

REP. UPTON: Would that be constructive?

MR. ROBO: We think having FERC have ultimate siting authority -- (cross talk.)

REP. UPTON: Is a good thing. Okay.

Ms. Grueneich, a quick thing. You talked about California going to 33 percent by 2020. I seem to remember that at one point they were 20 percent by next year. Is that right?

MS. GRUENEICH: We have -- our current law is 20 percent by next year. There is some -- what is called flexible provisions that will allow it to be another year or two probably. But we are on target.

REP. UPTON: So you think they will hit it?

MS. GRUENEICH: Yes.

REP. UPTON: I'm -- again, I'm not from California.

MS. GRUENEICH: Yes.

REP. UPTON: We need to -- (off mike) -- question. Okay. Last question I have in my minute that's remaining. Mr. Briggs, Kerr, and Trisko -- as we look at the issue of carbon capture, something that has to be part of coal's future. There is nothing in this bill, as I understand it, relating to the long-term liability issues. Does that need to be part of this? Does it?

MR. BRIGGS: Yeah.

REP. UPTON: If you could each comment on that. I don't know if you had it cited in the longer part of your testimony or not.

MR. BRIGGS: The bill contains a provision for research on long- term liability issues and we think that that underscores the need for resolution of the long-term liability question.

REP. UPTON: Would the others -- does Kunkel would -- Dr. Kunkel, would you agree? I mean it just may be, just to speed this along in my remaining five seconds.

MR. KUNKEL: Yeah, I do think there is the need for a, kind of, a study. And -- but there is also, sir, we have a project that we want to take to financing next year. So I think there needs to be some consideration for the pioneering projects, a first group of projects, and to take care of those.

MR. : And just very quickly, one of the advantages of parent companies being familiar with the subsurface, we are willing to move ahead of the source of frameworks not being defined, because we are comfortable with it. But we've also been -- we've also suggested a framework for liability as it moves through a project from operator- ship to post-closure.

MR. KERR: Congressman Upton, I would yes completely. And I would also point out -- and I think Representative Baldwin mentioned the transportation issue in your question. There are a number of these issues around CCS that are very important. And that -- and one of the things that this subcommittee needs to focus on is when you look at EPA analysis of this bill and bills in the last Congress, there are very aggressive assumptions about wind resources like CCS will be available. And yet, they don't match up with what the realistic issue is like liability transportation.

So I think when you look at the analysis, look at the assumptions, and then realize there are a plethora of what seem like sort of minor issues. The sooner we deal with those in a bill like this, I think the more rapidly we can deploy those technologies, which then will maybe justify some of the assumptions being used in the economic analysis.

REP. UPTON: Dr. Apt.

MR. APT: At CMU, we've started a large project on the legal and regulatory environment for deep underground sequestration. And a lot of paths through the thicket lead to dead-ends. We've put out a draft of a working paper on that, we gave a presentation on January, we will be happy to talk with you more about it. We are expecting to put out a final on that later in this summer. And we love to work with you all. Thank you.

REP. UPTON: Thank you.

REP. INSLEE: Thank you Chair -- (inaudible.) Mr. Reicher thanks for being here. Thanks for Google's vision and the work they are doing. I want to ask you -- you alluded to the necessity for some financing mechanism across what has been called the valley of death, particularly for the first commercial projects.

There are a couple of approaches that have been proposed -- I have proposed one approach. And we've tried to focus on our approach somewhat more narrowly than others to make sure we really target the risky adventures that really do not have access to commercial lending credit, narrower in as far as a target, but broader as far as allowing the use of the full financial tools that could be available multiple systems to really finance these. I just wonder if you want to comment on those approaches and what you think we need.

MR. REICHER: Congressman, I think the approach that, I know you're looking at, which is quite similar to the approach that Senators Bingaman and Murkowski are looking at. I do think that is the right way to go and let me explain why I reached that conclusion.

The issue we face is the following. There is today, in developing new energy technology, both private and public capital to get technologies to the pilot stage, we have a burgeoning venture capital, where there is a variety of funding available at the federal level for the lower cost development of this to the pilot stage.

The valley of death begins when you get a technology, whether it's renewables, efficiency, clean coal, a whole host of technology, when you get to that successful pilot stage, and you've got to go from there to large commercial deployment. But it is those first few large commercial projects that the bankers will say, too risky, we are not interested, come back when you've built the first couple and talk to us then.

That's the valley of death and that's what your bill and that's what Senator Bingaman and Murkowski's bill will deal with well. The tools, as you say, are quite broad. Loans, loan guarantees, other credit enhancements, and also secondary market support, so that we could, in fact, develop clean energy backed bonds as well.

So a whole set of tools focused right on that really critical moment, where so many technologies across the entire energy spectrum die between pilot scale and multiple large commercial projects being built.

So I salute you on what you're doing. Senators Bingaman and Murkowski are doing a hearing next Tuesday to try to advance this.

REP. INSLEE: Great, thank you very much. Dr. Kunkel your effort, the Tenaska project, I'm told is in Taylorville, Illinois, is that right?

MR. KUNKEL: Yeah, Taylorville, Illinois.

REP. INSLEE: Yeah. Is that Mr. Shimkus's district, do you know?

MR. KUNKEL: It is.

REP. INSLEE: It's a great district, he is a great Congressman of course. So if we are -- if you're successful, and we've got a cap- and-trade bill that helps drive investment into your project, because your project would be more cost competitive once we have a cap-and- trade system, would that allow people to continue to mine coal, also create jobs associated with your project and continue the coal-based economy in that area?

MR. KUNKEL: It would definitely spur the development of these types of projects and that project in particular.

REP. INSLEE: And would the existence of a cap-and-trade system increase your attractiveness to investors to invest in that coal sequestered technology? Would it make it more attractive vis-a-vis other technologies?

MR. KUNKEL: We believe it's going to be attractive in any case, because of the particular conditions of the project but certainly that would, you know, be helpful and kind of setting a framework in which those investments are going to be encouraged in the future.

REP. INSLEE: Well, I will happily fulfill the responsibility of conveying that to Mr. Shimkus that a cap-and-trade system could help a business in his district and employee perhaps 15,000 people. Thank you for that.

Dr. Apt, you said something that was really interesting to me. I think, and I want to make sure that I understood your assessment and I think you bring up a very interesting point.

As I understand, what you told us that if we are successful in policies that do in fact find the least costly ways of dealing with this, and I understand that's an if at the moment, you have some critique of that effort. But if we are successful in that regard, do I understand that the costs you've assessed are about two-third of a percent of GDP, which are in the range of what we did successfully in the Clean Air Act?

MR. APT: That's correct, if the costs are kept to $35 to $50 a ton of CO2. The difficulty is that that applies to things like coal with CCS; it does apply to things like natural gas with post- combustion capture that could be about $80 a ton of CO2. At the moment, the best solar PV or solar thermal are many multiples of that.

REP. INSLEE: So if I can how much loss of -- to the GDP the no action scenario -- if we do nothing, if we do what some have suggested here, which is basically nothing not to address this issue of climate change -- is the amount of loss to our GDP due to drought and, you know, changes in the climate perhaps some health related impacts.

Do you think those reductions of our economic well-being will exceed what we try to avoid in the Clean Air Act? Is this a worse problem than what we tried to solve in the Clean Air Act?

MR. APT: The answer is a complicated one because it depends on the details regionally of what happens. In California, one of the things that drove people to action there was the prediction that the snow pack in the Sierra would be much worse off a few years from now without control of CO2.

That's not going to be the case every place. There is going to winners and losers. In the Clean Air Act there was a clear -- or I should say a dirty and present danger. It's a conceptual thing at the moment for most people. That's why downscaling studies like the Sierra snow pack are so very important in making people understand how it affects them.

REP. INSLEE: Well, if I -- let me just -- I don't want to take too much time, but I'll just tell you one congressman's assessment is that the danger to our communities and the danger to our nation has the capacity to be quite a bit more severe than what we were suffering under the Clean Air Act for the whole variety of different reasons. And that -- because of that an investment anywhere close to what we did with the Clean Air Act would make sense because of the potential danger we face.

MR. APT: I would concur. Any investment of the type the two- thirds of a percent of GDP that we did in the Clean Air Act not only make sense, but it's clear that we accepted that although with a great deal of kicking and screaming. Anything much more than that, certainly many multiples of that, is probably a very different animal.

REP. INSLEE: Thank you. I appreciate that.

Mr. Walden of Oregon.

REP. WALDEN: Thank you very much, Mr. Chairman.

Dr. Apt, I am going to go back to you because you said solar is about $80 a ton carbon equivalent?

MR. APT: No, that's -- (cross talk) -- natural gas with post- combustion capture at the moment. Solar PV and solar thermal are many times that, all right.

MR. WALDEN: Many times that.

MR. APT: You know -- (cross talk) -- at the moment you could bring in a good solar thermal plant for perhaps $200 a ton of avoided CO2 and Mr. Robo would --

REP. WALDEN: The reason I asked that is yesterday we had testimony from the EPA administrator, Ms. Jackson, who indicated their analysis of this bill given whatever they plugged in. I thought she said, in the first few years it was $17 a ton for carbon that that's what they used as a price and then maybe as much as ($)20 or ($)30, we're trying to get all those data points. And so, I find it fascinating, you're saying ($)35 to ($)50 and maybe as high as ($)80.

MR. APT: It's one of the reasons why I think that a carbon performance standard is going to be much more affective than a, let's say, $17 a ton because it's going to affect -- investment is going to take $35 to $50 a ton to really affect investment in the area I know about, the electric power industry.

REP. WALDEN: All right.

MR. APT: Or you can do a carbon portfolio standard that says as California has done, you can admit no more than X, in that case, 1,100 pounds of CO2 per megawatt hour and that declines.

REP. WALDEN: Okay. I'm going to move now down to Mr. -- is it Greenspec or?

MR. GRUENSPECHT: Gruenspecht.

REP. WALDEN: Gruenspecht. Thank you, sir. Because in your testimony -- and I've now worn out a pair of reading glasses, so I apologize the lack of one side. In absolute terms, the key fuels are projected to be biomass and wind, but other renewable fuels including solar and geothermal are also projected to grow significantly in percentage terms. What would constitute the biomass that you reference?

MR. GRUENSPECHT: Well, there could be both cofiring of biomass in existing plants that currently burn coal.

REP. WALDEN: And that would be like woody biomass?

MR. GRUENSPECHT: That would be woody biomass. It could be used, you know, in a modest proportion --

REP. WALDEN: Okay.

MR. GRUENSPECHT: -- as part of the feed to that existing plant. That's attractive to the extent there is not a big capital investment involved.

REP. WALDEN: Would that be the primary source you're looking at when you use the term biomass?

MR. GRUENSPECHT: Well, you could have a dedicated biomass crops, you could have switchgrass as well, it can be burned as well as --

REP. WALDEN: Because -- and I've raised this issue every other chance I've had -- it is to deal with woody biomass of federal land.

And Mr. Hawkins, I understand the NRDC is the one who's responsible for the language in the '07 energy bill that precluded fuel sources made from woody biomass of federal lands from being applied toward the renewable fuel standard, is that correct?

MR. HAWKINS: We supported safeguards so that we would not have adverse land use changes associated with the renewable --

REP. WALDEN: So it was your language then or you were the ones principally --

MR. HAWKINS: Well, I wish we had the power to actually write language and have it show up in --

REP. WALDEN: So did you have any role in the language regarding biomass in this draft, discussion draft? Did NRDC have any role in this biomass language in this draft?

MR. HAWKINS: We didn't review any draft before you saw it.

REP. WALDEN: Did you submit draft language? Did you participate in the discussions in what you thought ought to be -- that's not a bad thing by the way -- I'm just trying to figure it out.

MR. HAWKINS: I don't believe we submitted any language on -- of the biomass provisions, but if we did --

REP. WALDEN: Do you support these biomass provisions that are in this bill?

MR. HAWKINS: Do we support them?

REP. WALDEN: Yeah.

MR. HAWKINS: Yes.

REP. WALDEN: And so you think it's okay to exclude all woody biomass of federal lands from being considered as biomass?

MR. HAWKINS: We think that until and unless we have safeguards in place that address everyone's concerns about the impact of sourcing some of these biomass resources that it's an appropriate safeguard, yes.

REP. WALDEN: To just simply say woody biomass of federal land isn't biomass. That's what you say.

MR. HAWKINS: To say that it shouldn't be an eligible source of a resource for purposes of complying with this obligation -- (cross talk) -- appropriate policy, yes.

REP. WALDEN: And obviously, you can have that opinion. I disagree vehemently with it, as you might have noticed by now, and hope to change it. Ms. -- I'm sorry, I can't read your -- Grueneich.

MS. GRUENEICH: Not to be confused with Gruenspecht.

(Cross talk)

REP. WALDEN: And it's turned as well.

MR. GRUENSPECHT: It's a very -- it's very green panel.

REP. WALDEN: It is, it is.

MR. : The German --

REP. WALDEN: The German end of the panel -- and Mr. Reicher too. First of all, Google has got a facility in my district and one of the reasons is because of our low-cost hydropower, which I think is renewable, but this bill does not. But I want to go to geothermal because I think both of you may have mentioned that -- I was told by our scientists at Oregon Institute of Technology we could replace two- thirds of Oregon's electricity generation needs with geothermal.

I've also been told by University of Washington scientists you could replace all of Oregon's gasoline consumption with methanol made from woody biomass due to the backlog on our forests. So it looks to me like there are some enormous opportunities here to use new energy types in a very effective way.

When we move off of that though and into distributive energy, which I think is also a key element and get to the real issue of transmission, which you've raised, we've got a huge fight out across my district right now about the siting of transmission lines principally because they go over federal land. In one case a company, I believe, is trying to avoid any federal land because of the siting fights.

So now, we're going to try and drive right over everybody's farm and field, which is another huge problem. In the other case, we may deny an entire wind project over 180 acres of BLM ground that they need to run the supply line to private land. How do we address these issues?

MS. GRUENEICH: I've spent four years on transmission permitting. And I just will say it's not in the bill. I think one of the most significant provisions that somebody needs to put in a bill on transmission, the planning part is great and I'll talk more about that, but we have huge problems with the federal land use agencies in transmission permitting.

And I hear a lot about the problems with the state agencies, just about every permit -- every transmission project in California, and it sounds like in Oregon, and it's a lot in the West, ends up going through federal lands. And we need somewhere on all these bills that are going through on transmission, something, in my -- this is my personal opinion, that really talks about the federal land use agencies having to streamline their transmission permitting projects.

We do MOUs with BLM and U.S. Forest Service on a regular basis that has schedules. And they never stick to the schedules. We've had projects that an entire year has been lost after we've permitted them under our CEQA, our environmental review, which is tough --

REP. WALDEN: Right.

MS. GRUENEICH: And we're still waiting another year to finish the federal permitting. So I am a strong believer that this cuts both ways, that the federal land use agencies and the little bit of language in there that has them streamlining some of their processes could help.

There's a terrific process, I'll just be real quick, going on in the entire Western United States called Western REZ, Renewable Energy Zone --

REP. WALDEN: Right.

MS. GRUENEICH: -- that's looking at every single state. And nobody is worried about red, green, blue, anything. That's really going down to the level, again, of transmission planning we need of what are those resources in the states. And we're finding some really good information.

We talk about -- we think that states are resource poor on renewables? When we are actually spending time looking at this, we are finding that there's a lot more frankly that we thought about.

And so I do think this is a ray of hope that we're going to be able to come together. And once we know those resources, that's where we're able to look at what are the transmission lines that are going to make sense. And then get our act together. And if they are the ones we need, let's get them built.

MR. REICHER: Mr. Walden, if I could just add.

REP. WALDEN: Yes.

MR. REICHER: One of the other aspects of this is improving citizen engagement, getting people involved earlier, giving them the information they need to understand what the options are in terms of transmissions. We've been working with some organization including actually NRDC at actually building mapping capabilities, using Google tools and other kinds of tools to get this information to people.

You engage them earlier. Earlier. If you give them the options and walk them through the process, often some of this, some of the opposition can be overcome. But I would second what Commissioner Grueneich said about the critical need to engage federal agencies more readily.

REP. WALDEN: Right.

Mr. Chairman, I know we're over -- are we going to have a second round of opportunity for questions? This is such a great panel, but there's so many of them.

REP. MARKEY: Okay, and there are so few of us, so I think we can do that.

(Laughter)

Perfect, I think it works out well.

REP. WALDEN: Thank you, Mr. Chairman.

REP. MARKEY: The chair will recognize himself at this point for a round of questions. And, you know, I think there's two ways you can look at the renewable issue. You can look at in a rearview mirror or you can look out the windshield at the future as it is arriving.

So you can use two sets of numbers. One set of number can be, oh, my goodness, only one or two or three percent of electricity comes from renewables excluding hydro. That's not a good picture how we're ever going to be able to provide the electrical generation we need for our country in the future.

Of course, another way of looking at is 2008. 8,500 new megawatts of wind generated in our country. 400 new megawatts of solar generated in our country. 205 new megawatts generated in our country. 138 new megawatts of geothermal generated in our country. Only 1,100 new megawatts of coal and 9,700 megawatts of natural gas, zero in nuclear.

So, my goodness, when you add it all up, 45 percent of all new electrical generation in the United States in 2008 was from renewables. And that's before we passed a national renewable electricity standard.

So if we were looking out the windshield, looking ahead, and we had a national renewable electricity standard, and we had the incentives that were put on the books in order to give incentives for states and individual companies to deploy renewables, if you look at the State of Texas having the legislature authorize $5 billion to build a transmission out to the West in the state to capture the wind and the solar, if you look at the Florida Power and Light initiatives -- how many new megawatts of solar in Florida, Mr. Robo?

Mr. Robo: Hundred and ten.

REP. MARKEY: Hundred and ten? You can see that all over the country, there's massive new interest. And Mr. -- Dr. Kunkel, you have a technology that you believe is going to give coal a big future as well because you believe that you can capture the carbon that is generated from coal burning. Is that correct?

MR. KUNKEL: Now, that's right. And we think there's technologies that we can get financed and go to construction next year.

REP. MARKEY: I am feeling so good, you know, after this panel. And that's why I do want a second round. This is just -- this is -- you guys are like walking antidepressant pills, okay, sitting at this panel.

(Laughter)

So thank you for coming in today.

Mr. Trisko?

MR. TRISKO: Thank you, Mr. Chairman. We didn't comment directly in our prepared statement on REZ requirements, but your question recalls --

REP. MARKEY: Can I say this? That was not a question. My question there was in the form of an answer, okay?

(Laughter)

So just to be honest, I was just playing out what the answer is going forward, but you can take it as question and please comment.

MR. TRISKO: I will interpret it as such, Mr. Chairman.

REP. MARKEY: Thank you.

MR. TRISKO: It calls to my mind Commissioner Kerr's comments regarding the effects of a cap and trade program on providing significant incentives in the market to bring new renewable energy supplies on. That very much will be the case, particularly if allowances as we advocate are given to the wires companies, to the distribution companies.

The first power sources that they will want to obtain to sell to their customers will be power sources for which they don't have to give up an allowance, that are zero carbon-based sources. So that will create the correct market incentives in the renewable resource- rich states that the commissioner referred in order to develop those in a very cost-effective and rational manner.

REP. MARKEY: Thank you, sir, very much. So in listening to the testimony -- and Mr. Robo, you're making money on this all across the country. You're very optimistic about the --

MR. ROBO: We're very optimistic.

REP. MARKEY: -- the vast capacity for our country to generate electricity from renewable sources.

MR. ROBO: That's right.

REP. MARKEY: It's going to be a profit-making business?

MR. ROBO: It is a profit-making business. And you can successful being green. And I think that's been a critical part of our strategy over the last decade.

REP. MARKEY: Thank you. And, again, back to you, Dr. Kunkel, do you have reason to give really a sense of confidence to the coalminers, the coal industry that there's a real future ahead for them and the technology will catch up and make them compatible with our goals in reducing greenhouse gases?

MR. KUNKEL: Yeah, we do look at it differently. I mean, we're developers of power projects. That's what we do for a living. And for us the impediment is not these rules, but the lack of rules. What we need is a set of rules where we can move forward, we can finance projects knowing what the rules are going to be in the future. And the absence of those rules is quite an impediment to coal-based development.

REP. MARKEY: So in your opinion, the best friend of the coal industry will be that we put predictable consistent rules on the books, and then the technology will come into place that makes that electrical generating source compatible with the goals that we're setting for the country?

MR. KUNKEL: I think there have been legitimate concerns about the viability, the technology, some things -- things that we're doing are going to be many times larger than the next largest one. And so do we need some time to go through the scale of process. But we're convinced we can do it and we can move forward. And once those pioneering projects have demonstrated themselves, I think the opportunities for broad deployment are definitely there.

REP. MARKEY: Great. And again, I would like to -- perhaps you, Mr. Briggs, you could deal with that decline in the cost of generating renewable that Mr. Robo was talking about, this 25 percent decline that's occurred over the last decade. Do you see the same thing happening over in CCS? Do you see the -- kind of the -- once the marketplace is established, that we'll see a development of a technology, but then a declining cost curve for the deployment of that technology?

MR. BRIGGS: I believe so, yes. I mean, that the main thing is to get out there and start, getting on the learning curve. And I just wanted to go and answer your that question that you just asked in yes, we can.

REP. MARKEY: Yes. Thank you, sir.

MR. BRIGGS: The technology is there today.

REP. MARKEY: Thank you. Now, I appreciate that, thank you. My time has expired. Let me turn and recognize the gentleman from Texas, Mr. Burgess.

REP. BURGESS: Thanks, Mr. Chairman. I don't want to create any new depression for you, but actually --

(Laughter)

REP. MARKEY: (Laughs) -- he's a physician, so he won't do it. I know he won't do it.

(Laughter)

REP. BURGESS: I find myself agreeing with you a lot of times.

REP. MARKEY: The Hippocratic Oath.

(Laughter)

REP. BURGESS: And I'm so happy that you recognize the vision and contribution of not just our current governor of Texas, but our former governor, and that would be George W. Bush who had the foresight and vision to create this renewable portfolio and standard which allows us to be the number one wind-generating state in the country.

REP. MARKEY: I come here to praise Governor Bush for what he did in the 1990s.

REP. BURGESS: I think.

(Laughter)

On -- and I'll have to tell you too that I find -- I didn't expect to be encouraged today, but I have been. It's probably more muted than your encouragement.

But Dr. Apt, your testimony -- and I really appreciate your honest and recognize that there are a lot of areas where we disagree, but your last two thesis statements that you have in your written testimony that you related to us probably may be the most important testimony that we've received in the last thousand hours of testimony we've had on this subject in this committee.

Focus on reducing carbon dioxide rather than singling out renewables is the answer. I mean, it's almost -- it's the simplicity, it's almost, I'm going to use it like a haiku or something that I can repeat to myself this is the correct direction in which -- for us to go.

I've been terribly disturbed by what I see are some of the inequities in the draft language for a state like Texas that has made the incredible investment to get to where it is. And yet, if we have the federally mandated renewable energy standard, we may not produce the percentage that's going to be required although as far as the number of megawatts we're producing with the renewable energy, we're far ahead of everyone else.

But your concept of let all technologies compete in satisfying the goals would mean to me then that the technology of energy conservation and some of the newer things that are happening with Attic (ph) systems and insulation, Lowey (ph) glass, high efficiency air conditioners, tankless water heaters, that those should be eligible to be considered just the same as the newest nano technology photovoltaic solar cell.

So I'm encouraged when I hear you say that. And I hope that we're -- unfortunately, the chairman was out of the room. That's why I wanted to be sure I repeated it. The chairman was out of the room when you gave your testimony.

I think this is something that I would like to see us work on in that draft language there is, to limit the number of the percentage that a state like Texas could take credit for -- in creating efficiencies. It does not seem to be fair the creation of a standard that is almost unattainable in a state that is as large as Texas and produces as much power as we do.

Those concepts have been very troubling to me that we may mandate a federal system that sends our already robust state system and moves it into a condition of noncompliance or one where our ratepayers may be punished because we can't quite get up to the percentage standard.

The -- I am, and I remain concerned about some of the distributional problems we have, again, a state as large as Texas. Mr. Reicher, I apologize, I was out of the room when you gave your testimony, but picking up on what you were discussing with Mr. Walden, clearly there are more innovative ways of going about siting and providing the transmission capacity than what historically has happened in the past.

And our good friend, Boone Pickens, back home, who is anxious to get his electrons from Amarillo back to the Metroplex. Perhaps there are ways to do that without disrupting all the farmers and ranchers and landowners who live betwixed and between. And that has been tension and that's been the problem.

And then, of course, it's not just Amarillo and Dallas, it's out of interstate town and back to the Houston metropolitan area, the San Antonio metropolitan area. So we have a lot of wind generation capacity. It's just not where the folks are. And then bringing the electrons back to where the folks are has been the challenge. Not that they haven't made great strides in the last 10 years. They have. Yes, sir.

MR. REICHER: But Congressman, by way of another antidepressant, let me point out that your state of Texas, I'm looking at actually the resource map for enhanced geothermal systems. You have an extraordinary resource in Texas. Your total generating capacity today is about 100,000 megawatts. That's all sources, coal, gas, wind.

Two percent of your EGS, Enhanced Geothermal Source, would represent over 175,000 megawatts. I learned something that you probably know well. You have a, quote-unquote, problem in Texas called "hot oil." It turns out what hot oil is when you drill down, you find high temperature oil in many parts of the state. And that's because there's a really robust geothermal resource down there.

What oil companies in your state are now beginning to look at quite carefully is how can we both continue to extract oil and gas, but how can we also begin to develop the geothermal resource. And as I say, yours is a very vast one. It is well distributed. You would reduce the need for transmission capacity.

So I actually think you could get to a 25/25 quite readily. Given the wind resource, given this geothermal resource, given the solar resource, you can get there and you can be making money at it.

REP. BURGESS: But -- and I would not disagree with that, but I would also, to Dr. Apt's point, there's no point in discriminating against one technology over the other. And if we have two nuclear plants, one of which is being doubled in size in the next several years, why not get credit for that as well. If we have a robust program of going back and retrofitting homes with energy products that increase energy efficiency, why not get credit for that as well?

MR. REICHER: You do absolutely. The RPS, the RES, as written, would allow you to get one-fifth of the mandate met through energy efficiency.

That is in fact quite clear, and the -- and in my mind, quite an improvement of the --

REP. BURGESS: Let me just ask a question to Dr. Apt. Does that -- the fact that it's restricted to one-fifth, does that really comply with your philosophy of treating all carbon equally?

MR. APT: My view is that renewables are absolutely a part of the solution. But that by mandating a particular technology, whether it be EGS or solar or biomass, you're constraining the problem so that you increase cost. It may have other effects; EGS, the big effect in Texas would be water. I think that in general, you have got to focus on one issue. And here it's reducing CO2.

REP. BURGESS: And if you use the reduction of CO2 as the currency, then whether it's from energy efficiency, whether it's from other areas, it does not all have to be wind, solar and biomass, new hydro. Yes, sir, I'm sorry.

MR. KERR: If I might add -- one other point I tried to make was if you're going to have an REZ, you -- there will be favored and disfavored states based on the availability of the favored technologies.

REP. BURGESS: Yes.

MR. KERR: If you are going to have an REZ, and again, I'm not sure if it's consistent with the cap proposal, but if you would allow efficiency to operate in an unfettered manner, efficiency is available everywhere. Efficiency put on equal footing with generation would smooth out some of those resource discrepancies and then the associated cost inefficiencies and discrepancies that we felt. So if you're going to persist, and I'm not sure you should, I think it would be a huge improvement to allow efficiency to operate in an unfettered manner.

MR. BURGESS: Yeah, I really think it's a common ground that I have with Mr. Markey. And you can see that I have depressed him by going over time.

(Laughter)

REP. MARKEY: No, not at all, not at all. Again, I have nothing to do. I'm willing to do go on indefinitely on this subject. I love this subject. I find it exciting to be honest with you.

(Laughter)

So the gentleman from Utah, Mr. Matheson.

REP. MATHESON: Thank you, Mr. Chairman.

Mr. Kerr, I should tell you so many represents large public land state. Your comments about the challenges with federal land agencies and permitting, I'm certainly sympathetic to what you're saying.

And I think as part of a discussion about encouraging opportunities for new types of generation renewable energy to have an opportunity to get to market in this country, we do have to have serious discussion in this committee and in this legislature about how to encourage siting of transmission because it's not happening now and there are impediments to it.

And I think it's something where the draft legislation is a little light right now. And so any suggestions people have in that to beef up that part of the bill to encourage development of transmission infrastructure I think would be very welcome to everyone. I think that's one of the least -- I think everybody in this committee, actually in both sides of the aisle, has pretty strong feeling about the need for enhanced transmission infrastructure.

At the risk of going a little bit off topic of what this panel was to talk about, which is low carbon electricity and carbon capture and storage and renewables, I want to at least frame the issue also associated with renewable fuel standard that was passed by this Congress previously.

Do you think that this legislation ought to revisit that issue? And I may be asking the wrong panel this question, but it seems to me that the corn ethanol policy we've had in this country is actually creating far more greenhouse gases in the life cycle context than people first anticipated and a lot of organizations have come up with information to help validate that.

And the subsidy of corn ethanol, in my opinion is, personally, I think it's bad federal policy at this point. Do people think that we ought to take a look at opening that up as part of this effort as we look at broad-based energy legislation?

And again I apologize if folks in this committee, that's not their area of expertise. Has somebody ever thought on that? Yeah, go ahead.

MR. HAWKINS: Thank you, Congressman Matheson. I'm Dave Hawkins from NRDC. And NRDC is a part of U.S. climate action partnership and USCAP has recommended a low carbon fuel standard and recommended that it be one that is implemented as we transition from the renewable fuel standard.

REP. MATHESON: Okay, right.

MR. HAWKINS: And the speed of that transition, the timing of that transition, the conditions of that transition are things that this committee will need to wrestle with. But we do think that having a low carbon fuel standard that applies to all of the transportation fuel options including electricity, which actually does connect to the topic of this because if we do produce electricity with carbon capture and storage and use it to run plug-in hybrids --

REP. MATHESON: Then they can --

MR. HAWKINS: -- we can back out oil that way as well.

REP. MATHESON: That's right.

MR. HAWKINS: And that should be regarded as a low carbon fuel.

REP. MATHESON: And I concur. I think the low carbon fuel standard is the way to go and I think that the current RFSs should be phased out. So I think that's helpful. In terms of --

MR. APT: May I make just little comment?

REP. MATHESON: Sure, go ahead.

MR. APT: Which is that we've done some analysis of the California low carbon fuel standard. It's superb. It's really an excellent way to reduce greenhouse gas and it has the right structure. And --

MS. GRUENEICH: And here I was going to just bring it up. So I will defer to Dr. Apt -- (laughs.)

REP. MATHESON: (Laughs) -- but I think it's consistent with what you said before. You're not picking a specific technology. You're saying, set the standard, and let the market figure out the best way to reach it. And I think that is what we've seen in -- as opposed to Congress saying, oh, well, let's make ethanol from corn. And that has not been as adequate.

MR. APT: Let me make just one remark that harks back to something that was said earlier about transmission. Bringing in the folks early is really crucial. A federal eminent domain is unlikely to do anything more than get people to dig in their heels. It's just not going to go down that way.

REP. MATHESON: Well, those are fighting words where I come from, federal eminent domains -- (laughs.)

MR. APT: You know, I mean, what actually happens when you look at a lot of the transmissions that's gotten built is people monetize their pain. And it happened in Connecticut with the cross-sound cable, it's happening over West Virginia with AP's line. And folks get involved and they get their pain recognized, they get people to respect them and then the transmission gets build. It doesn't get build with eminent domain.

REP. MATHESON: Okay. Mr. Chairman, my time is about to expire. I'll yield back. Thanks.

REP. MARKEY: I thank the -- so we need Dr. Burgess back again because now are the pain management, okay.

(Laughter)

And -- but it can be managed, okay, that's not an issue -- willing to pay the price. Gentleman from Florida, Mr. Stearns.

REP. STEARNS: Thank you, Mr. Chairman. And I obviously welcome Mr. Robo who is the CEO of Florida Power and Light. I don't know when you got hired whether they told you as part of your job description to sit here on a Thursday afternoon at 5:15 answering these questions. But we appreciate you being here. And also Florida Power and Light is one of the leaders in Florida as renewable so that they have been way ahead of the curve and so they saw this in advance.

But my question is for Mr. Hawkins and Mr. Kunkel. In Polk County, Florida, which is a little north of -- south of my congressional district we have a state of the art coal gasification plant that has successfully produced electricity since 1996. This technology is well suited to carbon capture and so as we look to coal gasification and other clean coal technologies as part of the climate solution, the question would be what do you see as the best way to incentivize these technologies so that we can continue to have them available considering their efficiency?

MR. HAWKINS: Thank you, Congressman Stearns. The -- yes, the Polk County plant run by Tampa Electric is certainly one of the leaders in doing gasification in the United States. And one that has provided a great deal of operational experience, the first couple of years of that plant had some operational difficulties, but they have learned how to run that plant, to run it reliably. I think that their testimony today, if they were here today, would be that it's the most reliable unit on their system and the one that is dispatched the most.

It was built with some federal support. It doesn't capture its carbon. And if we want to create a structure that will allow plants to be built that actually capture their carbon, then we're going to need the kind of policy package, which is in the Waxman-Markey discussion draft; a policy package that combined clear regulator requirements, both for the storage of the CO2 and also for the performance of the new coal-fired power plants and coupling it with financial incentives that are bankable financial incentives for the early deployment opportunities in this area.

And it's very important that they be bankable, which means a different model than applying to the federal government for an award and hope that you win. The odds are better than the lottery, but they are not all that much more certain than the lottery. We need something that -- if we want to go to the Wall Street and get your project financed; you need something that's better than the lottery.

And the structure that is in the Waxman-Markey Bill I would commend to your consideration because what it says is that if you have a project which captures the CO2, you're entitled to get a payment of X dollars per ton captured. There's no government uncertainty there, there's no sort of file your application and hope that you win the lottery. You have an expectation that you can go to Wall Street with and that will help finance the project.

REP. STEARNS: Why hasn't the folks in Polk County done this?

MR. HAWKINS: Well, we don't have the policy enacted yet, but with your help maybe they will.

REP. STEARNS: So you're saying you need a policy before you do it for the coal sequestration or capture, the carbon capture, you wouldn't do this on your own, you'd need the incentives?

MR. HAWKINS: That's exactly right. We operate in an electricity generating system where the marginal operating cost determines how much the plant gets run. And if you don't have the marginal operating costs covered for this additional cost of capturing the carbon, then you're not install that kind of capture. It will only happen if you got the economics right. And for the early project, that means that you need a financial incentive payment.

REP. STEARNS: Mr. Trisko, I am just going to ask Mr. Kunkel and then I'll ask you. That would be good. Thank you.

Dr. Kunkel?

MR. KUNKEL: Yes, I really agree with it very much. And I would -- you know, when we -- the types of project development that we do are project-financed projects. In other words, we'll sell the entire output of electricity for 25 or 30-year project life right upfront with our some customer to whom we're selling this power. And then we'll operate that plant for them over the long-term.

These are large, large financings. Each of these projects we're working on are over $3 billion. And so these are very large financings. And one of the things that's happening to us in looking at this future commodity market of carbon dioxide is that it will be a highly volatile potentially commodity market.

So if there are incentive systems that give us a stream, kind of a known stream of financial support for these new technologies early on in the program when if it's designed right, carbon prices should actually be pretty low, that if there's a known stream for that, then that's something I can take to my finance guys to put in their proforma and they can persuade investors and lenders that that's real. So those aspects are critical to really moving these projects forward.

REP. STEARNS: Mr. Trisko, and I'm --

MR. TRISKO: Yes, Congressman, thank you. And I've also had the pleasure of visit the Polk County plan and its marvel of technology. I was just going to point out that we have a precedent in Title IV of the Clean Air Act, in the acid rain title, that was added in 1990 for the provision of bonus allowances for utilities that employed scrubber technology early in phase I rather than later in phase II.

And that bonus allowance program was so popular that it was over- subscribed. It was known before the allowances were to be given out that there was more demand for them than supply. And the Utility Air Regulatory Group basically did a allocation of the available pool among its membership so that everybody had certainty as to the amount of allowances they would receive.

And that pool, which was not nearly as large as the one that the United Mine Workers had advocated, was responsible for putting about 13 gigawatts of scrubbers on in phase I rather than waiting until phase II.

REP. STEARNS: Thank you, Mr. Briggs, for his answer, and then thank you, Mr. Chairman, for having --

MR. BRIGGS: Very briefly, Congressman, just -- I concur with the NRDC's comments, and also add, it's one of the reasons why in the early phases of these projects that you're looking for all the value you can get from enhanced oil recovery to supplement the value of CO2 as a commodity value in the absence of incentives. And it's obviously dependent on states, one of the reasons where in California, you're looking at states who'll go ahead of that policy mechanism and take the lead.

MR. : (Off mike.)

REP. MARKEY: Okay. Great. Can I just ask Mr. Robo, what do you think by 2025 is the achievable goal for Florida under a national renewable electricity standard? You think Florida has a capacity for 25 percent of its electricity to come from renewables?

MR. ROBO: Chairman Markey, I'm very bullish solar PV economics. And we've seen just in the last year the cost of solar photovoltaic come down from July from our first project to the ones that we're proposing right now, come down by 20 percent. And I think by the middle of this decade we're going to see grid parity with solar PV in Florida. And so I think we have a real opportunity to have a big penetration of solar in Florida certainly by the middle of the next decade.

We've been very --

REP. MARKEY: You mean by 2050? But by 2025 do you think 25 percent is possible --

MR. ROBO: I do think it's possible.

REP. MARKEY: You do?

MR. ROBO: I don't know how quickly the technology comes down the cost curve, but I've been --

REP. MARKEY: Do you see --

MR. ROBO: Actually I've been personally surprised at how quickly it's coming --

REP. MARKEY: But do you -- is your gut now telling you that that decline in the cost curve now is inexorable and you can see how the economies of scale are kicking in?

MR. ROBO: Yes. Yes, Chairman.

REP. MARKEY: Okay. Thank you, sir.

Chair recognizes the gentleman from Vermont, Mr. Welch.

REP. PETER WELCH (D-VT): Thank you, Mr. Chairman.

The discussion draft witnesses includes energy efficiency resource standard, as you know, requiring that the utilities achieve a certain level of electricity or natural gas savings. In many cases, energy efficiency measures more than pay for themselves by reducing electricity bills -- not all.

But I want to ask a couple of questions about that and start with you, Ms. Grueneich. California has its own energy efficiency resource standards, and you've had some experience with this type of policy. Do you think that the energy efficiency resource standard in this discussion draft strengthens our prospects for success?

MS. GRUENEICH: Absolutely. The energy efficiency performance standard is certainly among the top three items that need to go into place.

REP. WELCH: Yeah, and I'd like you to elaborate on this because the debate we're having here is the apprehension about whether the action we take creates jobs or closes jobs, reduces cost or increases cost. And we're deeply divided on that. And those states that have taken steps that we're proposing be taken nationally are in a special place, I think, to offer some practical experience.

MS. GRUENEICH: Certainly. First of all, we in California as in everywhere in the United States and just about everywhere in the world, we're in terrible, terrible economic times. I haven't heard one person say and the reason why California is having all these problems is because you got ahead of the country on clean energy. I mean the economic problems we are suffering from are not stemming from the fact that we have engaged in clean energy.

In fact, a lot of the jobs that we have that we still have are because people are still pursuing energy efficiency and they're expanding, because people are looking at installing solar. And so the whole job conundrum actually, I think, in the little bit I've been listening yesterday and today, to me is turned around quite frankly. We should be looking at the jobs we've been able to grow.

And here, just quickly a study that came out from the University of Berkeley for the jobs that we have created in California over our -- from 1972 to 2006 on our energy efficiency is that we have created about 1.5 million full-time equivalent jobs with a total payroll of over ($)45 billion driven by well-documented household energy savings of $56 billion.

As a result of this, it was able to direct a greater percentage of its consumption to in-state employment-intensive goods and services whose supply chains also largely reside within the state, creating a multiplier effect of job creation. And I want to take a moment to recognize Vermont. You've got a terrific energy efficiency program, and you know, you're doing the same thing too.

REP. WELCH: Right --

MS. GRUENEICH: You're keeping those jobs within the state and growing them. And that's what this is all about.

REP. WELCH: Thank you.

MR. REICHER: Congressman, can I add that the --

REP. WELCH: Well, I was going to ask you a different question.

MR. REICHER: Yeah.

REP. WELCH: Mr. Reicher, good to see you.

MR. REICHER: Good to see you, Congressman.

REP. WELCH: Some folks are arguing that we should just include efficiency in the renewable electricity standard and skip the energy efficiency resource standard. And I'm asking your thoughts on that.

MR. REICHER: I think that what's proposed makes sense -- both standards, but with the carve-out of around 20 percent within the renewable energy standard. I think that how those get integrated is not completely clear in the bill right now, and needs some further flushing out. But I think the two concepts as -- multiple states have adopted renewable energy standard as we know, multiple states have adopted energy efficiency resource standards.

They're working well. I think it makes sense for the federal government to step up and do both. But as I say, make sure that there is integration across there. I just wanted to add one quick thing about energy efficiency. The hot new opportunity in the venture capital, the clean technology venture capital, well, right now is indeed energy efficiency.

As we sit here in Washington, there's a whole conference out in California called the Energy Efficiency Finance Forum. This is bringing financial people to the table saying, all right, how can we bring even more capital to energy efficiency, because that's the low- hanging fruit right now. And California, as the commissioner said, has made great strides keeping energy use flat per capita for the last 20 years while it's grown 50 percent in much of the rest of the country.

REP. WELCH: Okay. Thank you.

Mr. Robo, tell me how do you see the renewable electricity standard -- bottom line a job creator or a job killer?

MR. ROBO: We see it as a large job creator.

REP. WELCH: Thank you. I yield back. My time has expired. Thank you.

REP. MARKEY: Your time has not expired if you don't want it to expire --

REP. WELCH: I yield back to the chairman.

REP. MARKEY: Okay. Great.

Gentleman from Oregon is recognized for a second round.

REP. WALDEN: Thank you, Mr. Chairman. I want to pick up on a couple of comments here.

Ms. Grueneich, you talked about how we can create and grow jobs. And I want to get back on my soapbox here on biomass -- (laughs). I just can't resist, because Harney County, Oregon, is up to -- seasonally unadjusted 20 percent unemployment. Oregon is second to Michigan in unemployment overall. My district has 11 national forests, so a lot of interest in biomass.

But when you got a county that's 70 or 80 percent controlled by the federal government, and you get 20 percent unemployment, they don't get where Mr. Hawkins is coming from. And why -- when you have a forest like this -- (holds up a picture) -- looks -- may look good on a poster like that, but it's completely out of sync with nature in terms of being managed for old-growth characteristics for ponderosa pine. That is a fire waiting to happen.

Forest -- (holds up another picture) -- exact same scene has now been thinned. And that's how an old-growth forest should be managed. The issue before us is after you've done this work and thinned it out to where the biologists and botanists and everybody else say it should be, why shouldn't you be able to take the waste material that came out of that thinning project, and have it count toward biomass in renewable energy?

And this is the frustration we have. There was a biomass facility with green investors ready to go into Harney County who could not get a guarantee supply of woody biomass to make their investor satisfied. And yet, the forest there at the rate they're treating is 24 -- take 25 to 28 years at the current rate of treatment to get it in balance.

So you see why they don't get where Mr. Hawkins' organization is at when it comes to saying nothing of this federal ground can you count as woody biomass for renewable energy consideration. Does California have that standard?

MS. GRUENEICH: I honestly don't know. I'll be happy to look into it. It seems to me that the difficult issue here is the balancing that we know force our -- a way in which we are hoping to reduce greenhouse gases because of --

REP. WALDEN: If they're properly managed they won't go into fire.

MS. GRUENEICH: And what we want to avoid doing is on the one hand having more force cut down in order to then produce the biomass fuel --

REP. WALDEN: Right.

MS. GRUENEICH: -- to meet renewable standard to satisfy the climate change, and then on the other hand to think about how are we going to continue to have sustainable force. I am not a forestry expert. So where you draw the line --

REP. WALDEN: Okay. Let me -- and I'm going to --

MS. GRUENEICH: -- between going into the forest or not, I honestly don't know.

REP. WALDEN: And here is the deal, here is the deal. This legislation is so poorly written on those areas. First of all, it directs the Departments of Interior and Agriculture to come up with adaptive management plans for the forest dealing with carbon and do so in one year. Each forest already has to come up with its own management plan, follow full NEPA, and that's just to do the planning process. Those often take 5 to 8 years to develop a 10-year plan. I am not making that --

MS. GRUENEICH: That I'm aware of.

REP. WALDEN: You understand this. So this legislation has -- says to every agency in all federal ground, you'll create a plan in one year and report back. That is just never going to happen. I mean these timelines in this bill are embarrassingly poorly constructed, to be honest with you.

But then I go to, you know, like page 368 and it talks about electricity sources and it excludes renewable biomass from, I guess, the base load. And I don't know if any -- have you all, by the way, read the full text of the bill? I'd ask every panel this. Yes or no if you read the whole bill -- Dr. Apt? You read --

MR. APT: Only the parts a lawyer -- non-lawyer can understand.

REP. WALDEN: Oh, I stay in Holiday Inn, but I'm not even a lawyer.

Mr. Kerr?

MR. KERR: Not all parts --

REP. WALDEN: Mr. Briggs?

MR. BRIGGS: Not all parts, no.

REP. WALDEN: Mr. Trisko?

MR. TRISKO: Not all parts, sir.

REP. WALDEN: Sure.

Mr. Hawkins?

MR. HAWKINS: I've got mine already tabbed and indexed.

REP. WALDEN: So you've read the whole bill?

MR. HAWKINS: I've skimmed the whole thing and some pages faster than others.

REP. WALDEN: I understand. I'm struggling too.

Dr. Kunkel?

MR. KUNKEL: Not all parts.

REP. WALDEN: Mr. Robo?

MR. ROBO: Not all parts.

MS. GRUENEICH: Just about the whole thing, but I got to confess I think I skipped over the biomass definition.

REP. WALDEN: I'll go back to that.

Mr. Reicher?

MR. REICHER: Six hundred and forty eight pages -- I've looked at every page.

REP. WALDEN: Yes, sir.

MR. GRUENSPECHT: Absolutely not.

REP. WALDEN: Perfect. All right. I got it.

(Laughter)

REP. WALDEN: Well, see, I'm trying -- and I'm not -- as I say, I wear one pair of reading glasses, I've got another in my desk. But I'm trying to figure out even on page 368 when it talks about compliance obligations and then talks about electricity sources, it excludes renewable biomass as electricity source.

Now, renewable biomass is already defined early on to be all the -- to exclude all federal lands and all this. So can somebody tell me why renewable biomass would be excluded in this electricity source?

MR. GRUENSPECHT: I can answer that one. It's because if you make electricity from renewable biomass, you don't have to turn in an allowance. This is the compliance obligation section of the bill, and this is the benefit for renewable biomass.

REP. WALDEN: Okay. Good. But now we know that if you make it from woody biomass off federal ground which is occurring in my district now where they're heating -- they replaced an oil burning stove in a high school enterprise using hog fuel wood chips. They are saving -- I don't know, its enormous amount of fuel, replacing with wood, very few emissions, a lot less than that -- it doesn't qualify. How does that make sense?

MR. HAWKINS: Well, you know, what I would say these hearings are educational experiences for the witnesses some time too. And you've obviously thought a lot about this issue, Congressman, and I'm not the organizational expert on the biomass issues.

But if you have the time, we'd very much like to come in and visit with you on --

REP. WALDEN: I'd be happy to do that. My door is always open -- because the hospital in Harney County where this biomass filling, you know, they switched to wood pellet burning stove, and they cut their fuel cost by two-thirds. And DEQ -- our Department Environmental Quality -- at least the hospital folks told me, they said it has virtually no emissions.

And they take out a garbage can size -- regular -- of ash every two to three months. And it's from wood chips. And you know, Sweden -- 18 percent of their renewable energy now is from woody biomass. You've said from EIA or the Energy Information Agency, this is where we're going. We got the federal land -- 47 percent of the Forest Service budget spent fighting catastrophic fire. You know that in California, we know that in Oregon.

(Sounds gavel)

REP. WALDEN: And my time is way over. You've been most generous, sir.

REP. MARKEY: Thank you. We -- I'm learning a lot too. It's -- it is an interesting subject.

First the gentleman from Vermont wish to be recognized again.

REP. WELCH: Yes. Thank you, Mr. Chairman.

I want to talk a little bit about carbon capture and sequestration and address my questions to Mr. Hawkins. Mr. Hawkins, I just wish, if you would, elaborate on why USCAP members believe that we need a set of complementary policies in place for carbon capture and sequestration in more broadly of course for coal, and what would happen if we don't have a comprehensive approach?

MR. HAWKINS: Yes. The cap-and-trade program by itself in the early years, especially one that has a substantial number of offsets and cost containment provisions, is likely to have a fairly modest economic signal. And as Dr. Kunkel and others have testified, these early projects, whether it's for carbon capture or some advanced forms of renewables, these early projects are likely to have incremental costs that are higher than the carbon clearing price in the early years of these programs.

So if you rely solely on the market signal from the CAP as the only device, you're likely to get a bunch of decisions which look optimal from the standpoint of the individual investor, but in fact are suboptimal from the standpoint of where society needs to head. We've got a -- this is a marathon -- controlling carbon is a marathon.

And if you run it like a sprint, which is what tends to happen when you have the short-term economic signals and a high discount rate, you're not going to finish the race. So you know, we tend to think that having a multiple set of strategies which are enabled by the bill and incented by the bill is very powerful.

You know, I say that a bicycle is more stable than a pogo-stick, a tricycle is more stable than a bicycle, and a wide-stance four-wheel vehicle is more stable than all of them. And we have a bunch of platforms here that can be used to drive home CO2 reductions.

And so my variant on Dr. Apt's point is yes, the focus needs to be on CO2, but sometimes it's good to have a turtle strategy, you know, have a lot of eggs on the beach, because you're not entirely sure right now what's going to be the one that's going to get you to victory. And you probably need more than one. And having a strategy that gets all of these in the game so that you have as many things to pick from, we think, is the right way to do it.

REP. WELCH: So what -- just describe what will happen with the deployment of new coal-based power plants if these revisions are adopted?

And one of the concerns folks have been -- things we need to do, one of the concerns folks have expressed is this, dash for gas, you know, what the displacement would occur, and how that would effect the price in a very disruptive way. If you'd comment on that.

MR. HAWKINS: Yes, we discuss this at great length in the USCAP group. And everyone was concerned about the dash to gas being something to be avoided. And the -- that's why there is a package that says there is an emission performance standard for new coal, and there is a financial incentive, the stream of payments for carbon capture.

And our view is that that payment stream ought to be sized at a level where an investor that's looking at a fossil investment plant says, you know, this is a better business proposition to build, a coal plant that captures its carbon. And we get that financial incentive than it is to build a natural gas plant that vents its carbon, and we get no financial incentive.

REP. WELCH: Okay.

And there has been a lot of concern raised about the timing for deployment of the carbon capture and storage technology, saying that commercial deployment is not expected until '20 or '25. But those estimates assume there is no cost to emitting global warming pollution or requirement to use carbon capture and storage technology, and no significant financial support for the technology.

What do these estimates tell you about the timing for deployment of CCS technology if this legislation in its draft form or close to it is adopted?

MR. HAWKINS: Well, what we do is pay attention to witnesses like Dr. Kunkel form Tenaska and Hydrogen Energy. And Dr. Kunkel has testified that they could break ground next year on their project if they have the right policy support. And that could be up and running as fast as any coal plant that breaks ground next year.

Our view is that this can happen very quickly. There are a bunch of commercial operators that are ready to go as soon as the policy signals get straightened out.

REP. WELCH: Okay. Thank you.

Mr. (Teska ?), (Tesco ?)

MR. TRISKO: Trisko.

REP. WELCH: Trisko. Thank you.

MR. TRISKO: Congressman, Gene Trisko for the United Mine Workers. If I could elaborate on David's point. First from a practical standpoint, if you were talking about having a plant, an operating advanced coal plant equipped for carbon capture and storage that was online and producing electricity in the year 2020 that plant in effect would need to be in the permitting stage today.

Leaving aside all of the issues concerning the incentives, financial incentives in the bill and alike, to get a plant online by 2020, the plant needs to be in permitting today. We do not have at this point -- beyond the number of plants such as the AEP, the Duke plant, the Tenaska facilities, we do not have any assurance of significant penetration at a commercial scale by the year 2020 beyond the kind of 3 gigawatt level that is proposed in the Boucher Bill.

And the Boucher Bill is designed to handle the demand, if you will, for commercial scale demonstration facilities between now and 2020. It's after the year 2020 when we would anticipate that the second suite of financial incentives, those that are to be defined by what is now the open-ended section 115 that David has spoken about, those plants would come online after the year 2020. And the indications are that there would be significant demand for them going out to 2030 and 2040.

REP. WELCH: Thank you.

Dr. Kunkel, do you agree with the 2020 timeline assessment?

MR. KUNKEL: Well, not for us. And of course we are in permitting, and our project in Illinois has received a permit and so on. And of course it does take time to develop these projects.

One of the things I would point out is that in the post- combustion capture technologies that we're looking at, as opposed to IGCC that the period of time required to build that piece on the back of an existing power plant as a retrofit might be something like two- and-a-half years of construction time. I mean, these things all take significant amounts of time. But it's less than the full construction cycle of a power plant.

So if we could demonstrate that technology at commercial scale, let's says a trailblazer, by 2015, and run it for a year and convince people this really works, then, you know, the designs and so on could be perfected, and a new generation could be online and operating as retrofits, you know, within a couple of years after that point. Maybe that gets you around the 2020 time frame for that. I'd maybe let Hydrogen Energy talk more about the IGCC opportunity.

REP. WELCH: Okay. I'll yield back to the chairman.

It's up to you.

REP. MARKEY: Thank you. Gentleman's time has expired.

Chair recognizes the gentleman from Texas.

REP. BARTON: Thank you, Mr. Chairman.

I really came down here just to ask you to give this panel a meal voucher since they've been here all day, and probably didn't eat much lunch or whatever. But as long as I'm here I thought I would ask one question. I want to ask Dr. Apt, I believe.

First, thank you for your service to the country as an astronaut, and all that you've done. But I'm told that you testified that you think a performance-based standard based on the Clean Air Act model is much better to use in terms of some very complex cap-and-trade scheme. I just got a synopsis of Congressman Boucher's letter to Congressman Waxman, that single space, four pages of changes to the proposed cap and trade legislation.

And that's just a summary of the changes. So -- and the Republican alternative is yet to be unveiled. We're waiting to see the allocation scheme in the main bill. But we are going to have a republican alternative.

We use a performance-based standard for coal, based on the best available clean coal technology, and then put some incentives in, in terms of beating that standard of accelerated depreciation so that we could encourage new technology, but at the same time allow coal to be used as a fuel source for electricity. Could you comment on that?

MR. APT: Sure. Thanks very much.

In my view, best available technology has frozen technology in a lot of areas. I would encourage you to look rather at a emission standard that lowers with time.

As you know, the California standard is 1,100 pounds per megawatt-hour. That has the effect of saying, okay, we'll freeze things at natural gas or better. And that's okay if you just take a snapshot in time. But it would be better if it declined in time so that -- you know you've got to take 80 percent of the CO2 out of the electric power industry by let's say 2040, 2050, so that if you had something like that, that decline, then Mr. Briggs' plant that emits 400 pounds per megawatt-hour looks pretty good.

On the other hand, if you think it's going to freeze at 1,100, it doesn't look so good. So that's a modification that I hope you would consider.

REP. BARTON: Sure.

Thank you, Mr. Chairman.

REP. MARKEY: That's it? Great.

REP. BARTON: Yes, sir.

REP. MARKEY: Does the gentleman from Vermont have any other questions?

Okay. Well, let's do this then, with my apologies to the ranking member. I was going to give each one of these witnesses one minute to tell us what they want to remember, but given the size of the panel, that's double the time which any member would have to question a witness. But with unanimous consent I will make that motion that we give each one of you one minute opportunity to tell us what it is that you want to committee to retain as we go through the drafting and ultimate markup of this legislation.

We'll go in reverse order of the original panel, and we will start with you, Dr. Apt.

MR. APT: Well, since I got to get back to Pittsburg, I'll be short.

Two things, focus on CO2, renewables and low carbon aren't synonyms. And two, allow efficiencies all through the system, generation and transmission as well as on the customer side of the meter to count.

REP. MARKEY: Great, thank you.

Mr. Kerr.

MR. KERR: I think I would adopt those two points. And I would also say that you focus on what you're trying to do, and not put inconsistent or contradictory pieces of policy together in a way that will operate to make things less efficient, more expensive to rate payers.

And also there aren't just jobs following renewables. There are jobs that are developed by CCS and nuclear and other non-carbon emitting technologies. And a job is a job. They don't distinguish between renewable jobs or CCS or other sorts of jobs.

REP. MARKEY: Okay. Thank you.

Mr. Briggs.

MR. BRIGGS: Well, first, we're very pleased that CCS seems to be given as part of the mix. I would also say there is a distinction. We haven't really touched on it too much between our technology and Tenaska's technology pre-imposed. It doesn't really matter. CCS is available today. But I think the right incentive mechanism is important as we've covered, I think. And then one regulator to cover the actual policy framework around it is also vital.

REP. MARKEY: Okay.

Mr. Trisko.

MR. TRISKO: Ensure that the targets and timetables that are adopted in the bill, particularly in the short term are consistent with the expected wide spread availability of CCS technology so as to avoid the result, for example evident in EPA's analysis, preliminary analysis of the bill that suggest that generation from fossil-based electricity would decline from 4.3 terawatt-hours in the year 2050 to 1.3 terawatt-hours in the year 2050 under scenario three.

REP. MARKEY: Okay. Thank you.

MR. TRISKO: That to us in an unacceptable outcome.

REP. MARKEY: Thank you.

Mr. Hawkins.

MR. HAWKINS: First, I'd say avoid focusing on technologies, but keep in mind the facts on the ground that need to change to cut carbon emissions. And I feel quite confident in predicting that regardless of technology pathways, 50 years from now, we're going to have electricity, we're going to have vehicles, we're going to have fuels, we're going to have buildings. And we need strategies that are going to drive decarbonization in each one of those areas.

And you've got lot of policies in the bill that are aimed at doing just that. And there can be good and useful debate about how to focus on harmonizing those so they integrate well. But those are the four big alignment that we have to think about; electricity, vehicles, fuels, and buildings.

REP. MARKEY: Thank you.

Dr. Kunkel.

MR. KUNKEL: One of the most relevant things we can do as Americans on this large problem is to tackle the problem that the Chinese and Indians will have, which is CCS, basically. They are building a lot of coal-fired power plants, new ones, pretty good ones, I bet, and improving ones. But they don't have this technology. If we can find cost-effective ways to employ it, if we can develop that, then that will be a huge contribution.

REP. MARKEY: Thank you.

Mr. Robo.

MR. ROBO: Enacting a renewable electricity standard is really critical for the U.S. to continue to drive its success in the clean energy economy, and to retain its competitiveness globally. Cleantech is the way of the future, and we need to be competitive as a nation in that industry.

REP. MARKEY: Thank you.

Ms. Grueneich.

MS. GRUENEICH: Four points. One, the bill, you got it right. Let's get it passed. Two is, we do need the renewable portfolio standard. We can't just say, let's have carbon standards. To do transmission you need to plan for something. And we're just not going to be able to get the transmission we need unless we have that renewable standard set out there.

Three, states are your partners. In all of this legislation, think about how you can be really utilizing the states, helping the states working together. And four is I have two 15-year-olds, and they thank you. I don't want to go home without being able to say, you know, we've been working hard at the state level. We need the federal level to step up. And my children need that.

Thank you.

REP. MARKEY: Thank you.

Mr. Reicher.

MR. REICHER: Mr. Chairman, there are a broad array of ways that we can get at this climate crisis that we're facing. And there are smarts ways from both an environmental and an economic perspective. Energy efficiency is indeed the low-hanging fruit. We ought to go out and pick it. It does grow back because of the improvements in technologies.

Renewable energy is coming on strong. There is a huge array of opportunities. The resource base is vast in this country. We do need to crack the code on transmission or a lot of what we need to get done isn't going to happen.

I think the subcommittee's bill is headed in exactly the right direction. Please do look at this issue of making sure there is adequate capital. And I do commend the work that Congressman Inslee and also senators Bingaman and Murkowski are doing on that front.

And lastly, let's take a look at this geothermal stuff. It's the sleeping giant, whether it's Texas, or it's Alaska, or it's Florida, there is a lot there. The oil and gas industry is interested in it. Let's do a hearing and explore it.

REP. MARKEY: Okay, good. Thank you.

And Dr. Gruenspect.

MR. GRUENSPECT: (Off mike.)

REP. MARKEY: Could you turn on the microphone, please?

MR. GRUENSPECT: Mr. Chairman, beyond endorsing Mr. Reicher's surprise endorsement of my agency I'd say that EIA looks forward to providing the committee, both sides of the committee with data and analyses to support your policy deliberations.

EIA's first administrator, Lincoln Moses -- great name -- once said that there are no facts about the future. However, I think policy makers can definitely benefit from considering how transparent and objective, if not always prescient, projections are affected by the different policies that they have under consideration. So I'm from the federal government, the executive branch, and I'm here to help you.

REP. MARKEY: Okay. Thank you, Doctor.

And we'll leave you out with this final quick question. Do you think we -- well, I'll ask each one of you yes or no. Do you think we can construct a cap and trade system that can work and can be done consistent with the long-term economic goals of our country?

Mr. Reicher.

MR. REICHER: We can, and we must.

REP. MARKEY: Ms. Grueneich.

MS. GRUENEICH: Ditto.

REP. MARKEY: Mr. Robo.

MR. ROBO: Absolutely.

REP. MARKEY: Dr. Kunkel.

MR. KUNKEL: I think we can. I think the guy on the street needs to see the benefit to him, and he doesn't quite see it yet.

REP. MARKEY: Mr. Hawkins.

MR. HAWKINS: Absolutely. This is the most important work that you'll do in your career.

REP. MARKEY: Thank you.

Trisko.

MR. TRISKO: Absolutely. And the devil will always remain in the details.

REP. MARKEY: Oh, God, one or the other.

MR. BRIGGS: Absolutely.

MR. KERR: Absolutely. But timing, technology, and the avoidance of severe economic disruptions in the early years are key to gaining the public support for the long-term success.

REP. MARKEY: Thank you.

Dr. Apt.

MR. APT: Yeah. I think you can. But I worry that you will labor mightily and go forth with a cap and trade that will produce a carbon price that's too low to effect physical change and that really worries me.

REP. MARKEY: Okay. Thank you.

And by the way, Dr. Apt, you were born in Springfield, Massachusetts, and an astronaut, congratulations. And we're proud of you. Thank you.

This is just a fantastic panel. Thank you all so much for your great contributions to this discussion. Thank you.


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