Hearing of the Subcommittee on Energy and Resources: Energy Demand in the 21st Century: are Congress and the Executive Branch Meeting the Challenge?

HEARING OF THE SUBCOMMITTEE ON ENERGY AND RESOURCES: ENERGY DEMAND IN THE 21ST CENTURY: ARE CONGRESS AND THE EXECUTIVE BRANCH MEETING THE CHALLENGE?

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Mr. Issa. Well, my script, of course, says ``a quorum being present.'' We will waive a quorum being present. I will make an
opening statement, and presumably Ranking Member Watson will be here by the time I get through.

I would like to apologize for being late. We are marking up for the eighth time the same bankruptcy bill, and some people
had said it four times, five times, six times. But if you have not said it eight times, there is no point in waiving.

Energy drives and ensures our Nation's security. It determines our quality of life. The current volatility in fuel prices and supplies has raised real questions as to whether the current energy policy framework has failed the U.S. consumers.

U.S. oil demand is soaring, as is Chinese oil demand. Local domestic supplies are dwindling, forcing the United States to rely 60 percent on imported oil.

U.S. energy demand continues to increase. The U.S. Department of Energy has projected the total energy consumption from 2003 to 2025 will increase by 36 percent. Petroleum demand will increase by 39 percent, and national gas demand will increase by 40 percent. Overall, energy consumption will increase by more than 45 percent.

Growing U.S. energy demand must be viewed in the context of international demand for energy. The United States is now
competing for a world commodity that will see dramatically increased rates of demand; demand from China and India will continue to exert pressure in the world's energy markets.

World demand for crude oil typically grows annually at about 1 million barrels a day. In 2004, it grew 2.7 million barrels a day.

This begins to approach the total world production capacity. Electricity demand in the developing world is also increasing rapidly. In 2003, Chinese electricity consumption increased by 15.3 percent.

How the United States meets its growing demand and ensures its domestic supply of energy will require a full range of energy resources from proven sources like oil, coal, natural gas and nuclear to more renewables and development of new technologies like the recent hydrogen incentives.

This hearing today is intended to focus on the key issues confronting the United States. The subcommittee will attempt to determine whether Congress is asking the right questions, and whether the Federal Government's agencies are taking the right
actions to meet this growing demand, and to ensure our domestic supplies.

How does the domestic supply situation and the increasing international demand for energy effect the United States? How
can the United States continue to meet its domestic demand for energy, while ensuring the future reliability, affordability, and sustainability of the energy supply?

What factors contribute to the current volatility in the fuel prices? Are Federal Government agencies taking the right actions to meet the U.S. requirement in the 21st century? What issues or policies should Congress be looking at, as a way of meeting the energy challenge in the future?

We look forward to hearing from our three witnesses today, as this is the first hearing on these important issues. I am still not seeing the ranking member. I would be pleased to introduce Mr. Jim Wells, Director of Natural Resources and Environment at the U.S. Government Accountability Office. I have said ``GAO'' for so many years that saying it the long way is always difficult.

He has over 35 years of Government-related experience in energy, natural resources, and environmental issues. Thank you
for being here today, Mr. Wells.

Also with us is Mr. Guy Caruso, Administrator of the Energy Information Administration at the U.S. Department of Energy. Mr. Caruso has over 30 years of energy experience, with particular emphasis on issues related to energy markets, policy, and security. Thank you for being here today, Mr. Caruso.

Dr. Paul Portney is president of Resources for the Future, an independent research and education organization, and I assume this is a think tank, specializing in natural resources and the environment. Thank you for being here, Dr. Portney.

We are now in that unique position that I am delighted to see you, but we have to be patient.

Counsel advises that we can go forward. If each of you would raise your right hand for the oath. Also, anyone else who expects to advise or potentially speak, would you also rise to take the oath.

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Mr. Issa. Well, thank you, and in keeping with our bi-partisan efforts that you and I, as Californians, are committed to, we will be looking at those issues to the full extent of the committee's jurisdiction.

I do very much believe that your points are valid; that we have to take where we have come from to where we are going, and do it to that next step. To that extent, I am not going to ask a round of questions, yet. But I just want to put a little point into the record, which I think sets the principle of where we have been and where we are, and Ms. Watson says it very well, where we need to go.

Since 1970, the U.S. aggregate emissions of the six pollutants recognized in the Clean Air Act has been cut by 48 percent. At the same time, the U.S. GDP increased by 164 percent.

Energy consumption increased by only 42 percent, meaning more money per BTU, so to speak. We have increased fuel consumption, as I said, by 42 percent. But vehicular travel has increased by 155 percent. If you think the Chinese are driving;
boy, are we driving.

It is exactly that trend, that we have to do the good part of it; cut emissions by another 48 percent. But we also have to do a much better job of using our fuel per GDP dollar more wisely. With your indulgence, to my ranking member, I now call on Vice Chair Westmoreland, please, for 5 minutes.

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Mr. Westmoreland. Yes, I mean, in the supply and demand part of it, is there more demand for some of these different types of gases in different cities than it is capable for these refineries to try to refine and still keep the supply going to other parts that they are responsible for supplying the fuel to?

Mr. Issa. If I could help perhaps, with the gentleman's approval, with the refinery question a little bit more? I might suggest that you simply look at California, where every air quality board is allowed to independently and has independently made decisions leading to the greatest single number of boutiques of similar cities. It is just a suggestion to look at what I believe is described as the worst case in any one State.

Mr. Westmoreland. Right.

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Mr. Issa. Thank you, and I will do some additional questions, and then if you have any more, that would be just great.

Regarding the role of coal, here in the Congress, we speak in flowery terms like, clean coal. Cleaning up coal does not sound as good as clean coal. So I think we speak in less exact terms than the reality that it is a dirty fuel, that we are making ever cleaner. But at best, coal is only going to be as clean as, in a perfect world, natural gas, I suppose, is today.

Having said that, and with the recognition that as we burn fossil fuels, ultimately, we have a carbon monoxide and carbon dioxide component coming out of any of our processes for burning fossil fuels.

I would leave this to each of you, but I think particularly for Mr. Caruso, where do you see nuclear/other zero emission fuels, you know, like solar, wind, and we speak of those a lot, but they are relatively small parts of the equation.

But where do you see nuclear, particularly in light of the prediction that there will not be a new nuclear facility coming on line, at least until 2025? By that time, every single nuclear power plant on line today, if it is still on line, will be on multiple extensions. So how would you view nuclear, in the component of those fuels that you mentioned that we had to do all of?

Mr. Caruso. Yes, nuclear is about 20 percent of our electricity generation, as we speak. We, in our long-term outlook, do not expect, or the model does not project, any new nuclear power plants being added to the fleet. But at the same time, we assume all existing plants are relicensed and continue operating through the 2025 timeframe.

There will be some improvements in efficiency and upgrading, so that the actual amount of electricity generated by nuclear power would increase. It will lose market share under our projections, mainly to natural gas. The coal, we expect, would stay about the same, 50 or 51 percent.

The reason we are projecting no new nuclear power plants is that the capital cost of building a new nuclear power plant is
higher than either combined cycled natural gas plants or pulverized coal. So when the model searches out where the next new electric power plant will be built and what fuel it will use, it chooses the less costly, in terms of capital costs, plant. That is how we come up with this.

Our best estimate of what it would take to build a new nuclear power plant, since we have not built one from scratch for more than 30 years, is about $1,900 per kilowatt. Now coal and natural gas can be built much cheaper than that. But, of course, there is a fuel component to it. But still, both coal and natural gas, at this time, the existing technologies are more efficient.

Now we have been criticized by the Nuclear Energy Institute and nuclear vendors that our cost estimates are too high and
that they can do better.

So what we have done is run two other cases in this year's outlook. One is using a $1,450 capital cost; and the lower one is what you would call the advanced technology case. Then we have taken the vendor cost estimates from Westinghouse and
others, which are around $1,100.

If you use those assumptions, $1,450 or $1,100, you do get some new nuclear power plants built in this country, particularly in the period between 2015 and 2025. At $1,100, you get a substantial amount of new nuclear power plants. So this is a matter of the economics and technology, in our view.

Mr. Issa. Let me have one followup question here. It is one that I do not expect you to be able to easily answer today; but if you could followup, if that can be done without specific authorization.

If one were to take nuclear as a category, and the U.S. Government were to absorb all extraordinary liability questions
and all extraordinary lawsuit questions in the citing; basically, we defend all the claims that come, every time you want to build a nuclear plant, and we take the extraordinary risk of insurance completely for zero cost to the vendor, leaving the remainder of the costs there, what would be the per kilowatt, from the industry, that they believe they would deliver for?

I would like it, if possible, in two bases; one, with fuel prices in the estimate, and then based on the fact that next generation nuclear can literally burn weapons, plutonium, which we have an excess of that we have been trying to get rid of, literally 10,000 years worth of fuel that, at some point, we are not going to want to keep sitting post-silo, and then at a zero cost.

If you could give us your best estimates of that, so that at least when we are having these discussions, and I agree with you, Mr. Caruso, they do not pencil out today, but taking out particularly those extraordinary costs that come when someone says, I want to build a nuclear versus alternate, where we would end up?

Then, as somebody who wants to see, if you will, the swords turned into plow shears and the burning of plutonium, once and
for all, and getting rid of as much of the weapons stockpiles as we can, that analysis, both of those are personally important to me, and I would like to know the cost benefit on them.

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