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Panel III of a Hearing of the Energy and Environment Subcommittee of the House Energy and Commerce Committee - The American Clean Energy and Security Act of 2009

Location: Washington, DC

Panel III of a Hearing of the Energy and Environment Subcommittee of the House Energy and Commerce Committee - The American Clean Energy and Security Act of 2009





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REP. MARKEY: Ladies and gentlemen, we apologize to you, but we had historic guests visiting the committee today. We are moving at a rapid pace to try to construct our historic legislation that matches the quality of the witnesses which we have appearing before us.

On this next panel we have a group of nationally recognized experts in their subject area, and we are going to begin with Ian Bowles. Mr. Bowles is the secretary of the Executive Office of Energy and Environmental Affairs for the commonwealth of Massachusetts. He also served as associate director of the White House Council on Environmental Quality and senior director of the Global Environmental Affairs Directorate at the National Security Council.

We welcome you, Mr. Bowles. By the way, I will introduce all of you, so you won't have to reintroduce yourself, which might save you 15 or 20 seconds in your testimony.

So whenever you're ready, Mr. Bowles, please begin.

MR. BOWLES: Thank you, Mr. Chairman, and for the terrific work in this legislation. I'm sure as you stare at this panel, it feels like Heartbreak Hill in the Boston Marathon. So I commend you for your patience in these proceedings, and thank you for having us here today.

Let me say at the outset, Mr. Chairman, that Governor Patrick and the work we've been doing on clean energy is very much aligned with the legislation that you and your team have produced, and we appreciate the thoughtful approach to developing a federal-state partnership that advances the goals of clean energy and greenhouse gas production.

I also want to note that many states have been leading in this area for recent years, and we all welcome this important legislation.

In short, the legislation builds on, buttresses and accelerates but doesn't supplant proven state programs on energy efficiency and renewable energy.

On energy efficiency, the bill creates a strong new set of federal standards, but also recognizes that much of the retail work of retrofitting will be done and implemented at state and local levels.

On renewable energy, the legislation recognizes the regional diversity of clean power solutions and the fundamentally regional nature of electricity markets and the need to bolster, not eliminate, such markets.

And on transmission, I think it carefully resists the call for some top-down central planning that would disrupt competitive energy markets such as we have in the Northeast and instead creates a market- based set of mandates that, in our view, is a superior way to accelerate renewable energy.

On regulation of greenhouse gases, the bill rightfully crafts a unified robust national program, but it still leaves the states tools to innovate and continue to contribute to low-carbon solutions.

As you consider the design of the cap-and-trade program, we in Massachusetts endorse the 100 percent auction approach. No other system provides the clarity and simplicity to the private sector, and it also allows the federal government, acting on behalf of the public interest, to put the proceeds to work to mitigate economic and consumer impacts, accelerate renewable energy and energy efficiency, and realign our public transportation infrastructure.

We say, in the case of our experiment with (REGI ?) in the Northeast, our permit auctions have run smoothly, and we're putting tens of millions of dollars to work creating jobs and reducing energy costs for our consumers.

As you consider a transition to the federal program, we believe such programs are needed and should be funded, not just for the (REGI ?) states but for all 50 states. And the federal recovery legislation begins that process with the state energy program funding. As you develop your priorities for spending auction proceeds, we really strongly encourage the committee to put a big push-on on energy efficiency and make it a large part of your investment.

The proposed Energy Efficiency Resource Standard also represents a complementary tool to accomplish this. In Massachusetts, we have restructured our electricity market so that efficiency now competes with power generation on price to meet the load demand. The EERS would create a similar mandate for other states.

For those who say the EERS may be too stringent, I would note that in Massachusetts we have met, through measures over the last decade, 8 percent of our load through energy efficiency investments. In rough terms, that would be equivalent to the 2017 mandate in your legislation. So I encourage the committee to retain -- include robust measures on energy efficiency, and I would encourage you also to add some more significant measures on monitoring and verification so that we can demonstrate to the public what these investments in energy efficiency are producing.

On building codes, I think the work, based on the IECC and the -- (inaudible) -- standards, is terrific. We in Massachusetts are building our new code currently on the 2009, not 2006 code. And I encourage the committee to look closely at the 2009 code potentially as the basis.

On transportation, the bill breaks new ground by incorporating greenhouse gas standards for vehicle emissions in transportation planning. I encourage the committee to go further even by tying federal highway funds to greenhouse gas reductions, consider incentives for vehicle mile travel reductions, and give the states some flexibility to set and enforce greenhouse gas targets.

On fuels, the proposal in the legislation is a transition to the renewable fuels standard -- to transition that standard into a low carbon fuel standard. We think that's the right policy. If anything, we'd encourage you to move the time line more quickly, but also to recognize some of the regional opportunities and the special considerations, such as we have in the Northeast, where we don't want to have leakage out of transportation fuels into things like home heating oil.

In a related vein, we fully support the higher efficiency standards for appliances, especially the provision that allows states to set more stringent standards where conditions warrant. As you may know, in the commonwealth we have state law that requires furnace efficiency standards for cold-weather states. We think there are some important regional differences there.

In sum, I would say this is a terrific piece of legislation. We commend you and your staff for your hard work. And I'd be delighted to take the committee's questions.

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

Our next witness, Dave McCurdy, is a former extremely distinguished member of the United States Congress, former chairman of the Intelligence Committee, and he is now using all of those political skills in intelligence as the president and CEO for the Alliance for Automobile Manufacturers. And he was previously the president and CEO of the Electronic Industries Alliance.

We welcome you back, Dave. Whenever you're ready, please begin.

MR. MCCURDY: Thank you, Mr. Chairman, for the opportunity, and Ranking Member Upton and Chairman Dingell. It's always a pleasure to be back.

I will tell you, I've chaired a lot of hearings in my career as well, but I'm not sure any would match the marathon of the last four days. So I commend you for your interest and your endurance.

And I'd respectfully suggest that if there's only one thing you recall from my testimony today, just remember that automakers are committed to reducing greenhouse gas emissions from the vehicles we sell and from our assembly plants. And today I'm going to focus on how we can work together to accomplish that.

To begin with, the alliance supports federal legislation for an economy-wide greenhouse gas emissions reduction program. We agree with the chairman, Administrator Jackson and others that a comprehensive legislative approach is superior to regulating greenhouse gas under the existing Clean Air Act.

When we look ahead and envision what a low-carbon future for automobiles will look like, here's what we see. It's going to require substantial investment in advanced vehicle technologies. Secondly, our country needs complementary policies for fuels. And third, we need a single national program for improving fuel economy and reducing greenhouse gas emissions.

Let me start with investment in technologies. Providing clean energy necessary for continued economic growth and prosperity will require rapid development and commercial-scale deployment of advanced technology across many sectors, including motor vehicles.

We strongly urge the committee to use revenues generated from the proposed cap-and-trade system to help fund research, development and implementation of new technologies and upgrading and retooling of manufacturing facilities to provide the next generation of green vehicles.

According to the endangerment finding released by EPA last week, light-duty vehicles -- cars, trucks and SUVs that we drive -- account for around 17 percent of man-made greenhouse gas emissions in the U.S. In order to realize the significant reductions we know we will have to achieve in our sector, we need sizable, sustained investments to take advanced low-carbon vehicle technologies from our laboratory to our customers' garages.

Front-loading investments in these technologies is particularly critical for automakers, given the long lead times to develop new technologies, the extended periods needed to ramp up production of new technologies, and the long-life nature of our products.

Given the importance of this sector, we urge at least 5 percent of annual allowance value, either in the form of allowances or revenue, to be dedicated specifically to development and deployment of advanced technologies for light-duty vehicles. We are open to further discussions with the committee on how to allocate such resources among manufacturers, suppliers and consumers.

With regard to fuels, the draft bill's approach of capping emissions primarily upstream at the fuel source allows for the broadest possible coverage, and also result in price signals at the rate of about 8.5 cents, eight and a half cents per gallon of gasoline for every $10 ton of carbon.

Clean vehicles need clean fuels. So the Alliance supports a low- carbon fuel standard such as the one included in Section 121 of the draft. Lowering the carbon content of the fuels we put into our fuel tanks will help lower greenhouse gas emissions from the fuel source to our tailpipes for years to come. And the benefits of cleaner fuels can be realized by all the 250 million autos on the road today.

Finally, a key concern for automakers is that we not be subject to duplicative and incompatible state and federal regulatory approaches, either for mobile sources or stationary sources. It is well-known that the Alliance strongly supports a single national program for motor vehicle greenhouse gas emissions and fuel economy to bridge state and federal programs.

We support the authors' efforts to clarify the roles of the existing regulatory framework and the states with regard to our manufacturing facilities. We will continue to work constructively with Congress, the administration and all other stakeholders to ensure a national vehicle program administered by the federal government that not only enhances energy security and addresses climate change, but also gives automakers a clear road map to compliance.

Before I close, I wanted to raise one other issue that is important to members of this committee. Last month President Obama pointed to a fleet modernization or so-called cash-for-clunkers program that has been successful in Europe, and he announced he would work with Congress to fund a program from existing dollars in the Recovery Act.

The Alliance welcomes presidential as well as congressional support for a fleet modernization program. We will continue working towards creating a program available to all manufacturers and consumers. A well-crafted fleet modernization program will deliver two important benefits. In the near term, it will stimulate auto sales during the current economic credit crisis, and in the long term it will help replace older, less fuel-efficient vehicles with cleaner, safer, more fuel-efficient ones.

In closing, Mr. Chairman, the transition to a new way of using energy and new energy sources requires that we collaborate with government and other industries like never before. The next generation of vehicles will require a new generation of fuels and supporting infrastructure. You have our commitment to continue reinventing the automobile. We will continue to provide Americans with a wide range of vehicles that are highly fuel-efficient. And we will be at the leading edge of the world's low-carbon economy, an economy in which green auto jobs are a fundamental part of the engine driving our communities.

Thank you.

REP. MARKEY: Thank you, Dave, very much.

Our next witness, Mr. Alan Reuther, is the legislative director for the International Union of the United Auto Workers. He is a member of one of the most aristocratic automotive families in the history of our country, and we're honored to have you with us today, sir. Whenever you're ready, please begin.

MR. REUTHER: Thank you, Mr. Chairman. I'm pleased to be here on behalf of the UAW, which represents over 1 million active and retired members, many of whom work for or receive retirement benefits from the auto manufacturers and parts suppliers. We appreciate the opportunity to testify before this subcommittee.

The UAW supports the provisions of Title 2 establishing an economy-wide cap-and-trade program to reduce greenhouse gas emissions. We welcome the inclusion of mechanisms to contain costs. However, we believe the provisions in Title 4 that seek to preserve the competitiveness of domestic industries need to be strengthened a number of ways. For example, these provisions should be expanded to include products such as auto parts that contain large amounts of energy-intensive materials.

Most importantly, the UAW believes a substantial amount of the revenues from the auction of carbon allowances should be used to help auto manufacturers and parts companies with the major up-front costs associated with meeting tougher vehicle efficiency standards. This includes at least another $25 billion to fund the existing Section 136 advanced technology vehicles manufacturing incentive program, as well as funds for the new program that may be established under Section 124 of Title 1.

In addition, revenues should be used to pay for other costs associated with meeting tougher vehicle efficiency standards beyond those linked to advanced technology vehicles. Because of their current difficult financial situations, the Detroit-based automakers and many parts suppliers do not have the resources to make the necessary investment.

UAW also supports the clean fuels and vehicles provisions in Title 1 of the discussion draft. The low-carbon fuel standard can make a contribution to reducing our nation's consumption of oil and greenhouse gas emissions. Provisions supporting large-scale demonstrations of electric vehicles can create demand for the production of these vehicles. And the provisions in Section 124 granting financial support to automakers to retool plants to build plug-in electric drive vehicles in this country can accelerate the introduction of these vehicles, but also ensure that they will be produced in the United States by American workers.

UAW applauds the transportation planning requirements in Title 2, which recognize that initiatives to reduce vehicle miles traveled must be an important part of any effort to reduce oil consumption and greenhouse gas emissions from the transportation sector.

Although the light-duty vehicle efficiency provisions in Title 2 take the commendable step of calling for the harmonization of standards that may be set by NHTSA, EPA and the state of California, they do not purport to establish any minimum benchmark for such standards beyond 2015. Instead they merely provide a green light for subsequent regulatory action by the state of California.

The UAW believes this approach has several deficiencies. It fails to provide any certainty that there will be guaranteed minimum improvements in vehicle efficiency over an extended period of time, and it fails to provide automakers with certainty as to what will be required of them.

In lieu of this approach, UAW submits that it would be preferable to mandate minimum national harmonized vehicle efficiency standards that must be met by the automakers for specified dates extending through 2030. These could be set as specific MPG targets or as percentage improvements from a certain (base line ?).

The UAW recognizes that this alternative approach would have to embody a negotiated agreement between NHTSA, EPA and the state of California, as well as other stakeholders. This could reflect the desire of California for more stringent reductions in vehicle emissions and oil consumption. However, we believe it also should reject some of the deficiencies in California Law AD 1493, including the exemption of foreign automakers, the one-size-fits-all flat MPG approach, and the lack of any anti-backsliding rule.

Under the alternative approach that we are suggesting, the legislation could specify that it is not altering existing law regarding the authority of California and other states after the end date of any negotiated agreement on a harmonized national vehicle efficiency standard.

In conclusion, the UAW appreciates the opportunity to testify before this subcommittee. We look forward to working with you, Mr. Chairman, and the other members of the committee and the entire Congress to craft improved provisions relating to vehicle efficiency standards and providing the resources needed by automakers and parts suppliers to meet new efficiency standards.

Thank you.

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

Our next witness is Dr. Dan Sperling. Dr. Sperling is the founding director of the Institute of Transportation Studies at the University of California Davis. He was appointed to the automotive engineering seat on the California Air Resources Board by Governor Schwarzenegger and served as co-director of the California Low-Carbon Fuel Standard Study.

We welcome you, Dr. Sperling.

MR. SPERLING: Well, thank you. It's a pleasure to be here. And it's a special pleasure because I bring important news on the low- carbon fuel standard from California. Last night the California Air Resources Board made history. We voted to adopt the low-carbon fuel standard. It will take effect in January 2011.

It requires a 10 percent reduction in greenhouse gas emissions per unit of energy for gasoline and diesel fuel by 2020. And I note that 11 other states have signed MOUs to also adopt the low-carbon fuel standard and that the European Union is also moving toward adopting policies that closely resemble a low-carbon fuel standard.

So I would like to point out that there are a number of reasons why the U.S. should follow California's lead and adopt the low-carbon fuel standard. One, it applies to all potential transportation fuels, unlike the current renewable fuel standard that Congress passed in 2007, which only applies to biofuels.

Another feature is the emissions are measured on a life-cycle basis. And this is the scientifically correct way to regulate greenhouse gases to include all emissions in the energy chain, from the oil wells, the coal miner, the corn field, all the way to the vehicle. Neither cap and trade nor the renewable fuel standards program are based on life-cycle measurements.

Another key feature is it uses a performance standard, not volumetric mandate, as is the case with the renewable fuel standard. And thus it allows industry and it allows customers to pick the winners. The winners are not picked and the losers are not picked by government in this case. It harnesses market forces to stimulate innovation. The low-carbon fuel standard allows the energy providers to buy and sell credits among each other, creating a market for these low-carbon fuel standard credits, and reducing the overall cost of developing low-carbon fuels.

And so what it's doing is it's creating a durable permanent framework for orchestrating the transition to low-carbon alternative fuels. The history of alternative fuels is one of ad hoc, short-lived policies. We've seen policymakers and the media jump from one solution to another, from synfuels to methanol, battery-electrics to hydrogen to corn ethanol, and now the fuel du jour and the technology du jour is plug-in hybrids.

We need a more permanent policy framework that sends consistent signals to industry and consumers and that doesn't pick winners. And very importantly, it also achieves both energy security and climate goals.

And I would note that producers of oil sands complain that they will be put out of business with a low-carbon fuel standard. And this is just not true. The low-carbon fuel standard does not preclude any fuel. Rather, it provides an incentive to produce fuels more efficiently and with less carbon. And indeed, senior oil executives have indicated to me that with sufficient incentive they could make gasoline from oil sands with less greenhouse gas emissions than gasoline from conventional oil.

And lastly, a low-carbon fuel standard reduces oil price volatility and it caps petroleum price increases.

So the proposed national LCFS is modeled on the California low- carbon fuel standard, but it has two differences. First is that the proposed national standard in this bill does not include biofuels until 2023. It assumes that the renewable fuel standard enacted in the (ESF ?) 2007 will handle the biofuels until then.

The result is that until 2023, the national low-carbon fuel standard only targets petroleum and non-biofuel options, mostly electricity, natural gas and hydrogen. Failure to integrate the renewable fuel standard into the low-carbon fuel standard until 2023 is problematic.

Keeping the biofuels separate from other alternative fuels reduces the flexibility of the market to respond to the target, and it also reduces incentives to produce the very lowest carbon fuels. So unlike the renewable fuel standard, the low-carbon fuel standard provides incentives for continuous improvement.

The other difference, the second important difference between the two, is that the national standard has more modest targets. The California low-carbon fuel standard has a target of 10 percent reduction in greenhouse gases per unit of energy by 2020, with further reductions to follow. The national one sets a target of zero percent improvement until 2022, and then in 2023, when the RFS and the biofuels are folded in, it jumps to 5 percent, but it's still considerably less. And then it goes to 10 percent in 2030. I would argue for higher targets.

Okay, so just -- so the recommendations, just very quickly: The RFS should be integrated into the national LCFS as soon as possible. Targets should be more aggressive, and the federal program should not preempt the state programs. But the priority is adopt this low-carbon fuel standard. It's a good idea, even in a limited fashion.

Thank you.

REP. MARKEY: Thank you, Dr. Sperling, very much.

Our next witness, David Friedman, is the research director of the Clean Vehicles Program at the Union of Concerned Scientists. Mr. Friedman has served on three major committees for the National Academy of Sciences, covering fuel economy, fuel-efficient tires and fuel cell vehicles.

We welcome you, sir.

MR. FRIEDMAN: Thank you, Mr. Chairman. And thank you, members of the committee, for the opportunity to testify before you today.

I'd also like to thank you specifically for your leadership on fuel economy. That was the important first step on transportation. But now, as we look to where we need to go from here, the discussion draft before us represents the essential next step. And as my testimony will show, the transportation system can go much farther than the progress delivered under the 2007 energy bill.

What America needs is a comprehensive approach that addresses transportation as a system of vehicles, fuels and infrastructure, and a strong cap that covers all parts of the economy, including transportation.

We released a two-year peer-reviewed study on Wednesday before the full committee. Our Climate 2030 blueprint demonstrates the need for a well-designed cap-and-trade system and a comprehensive set of policies for the energy and transportation sectors.

With this approach, we can accumulate $1.6 trillion in savings through 2030. Let me say that again. We can save money while tackling climate change. Now, if we remove some of the complementary policies, we will still save $600 billion, but it will go down. These complementary policies are essential to saving money while addressing climate change.

Now, the results of our study highlight that the draft bill will also require significant action by the administration to make these policies work. For example, the Environmental Protection Agency will need to set strong global warming emission standards for all vehicles and off-road equipment. There are opportunities to save money and cut carbon emissions from every vehicle, every ship, every plane.

The EPA must also protect and defend state authority to help bring about cleaner cars and fuels in recognition both of the unique circumstances in those states and the history of leadership on these issues, from California and many others.

Thanks in large part to California and the states that have supported its efforts, cars and trucks today are 90 percent cleaner when it comes to smog than those sold 40 years ago. So I believe that EPA can head a partnership with states and with NHTSA that provides the clarity and certainty that automakers need.

Now, automakers that don't invest in this future and in these clean and efficient technologies will be left by the side of the road. But as a result of this, in these hard economic times, it does make sense for the federal government to help the auto industry. However, taxpayers deserve a return on their investment, a requirement that automakers at least meet nationwide the same global warming emission standards adopted by California and 14 other states.

That said, we cannot, we must not, put all the responsibility on the auto industry. Oil companies and fuel providers must step up, and that is why EPA will also need to make a transition from a renewable fuel standard that covers only 10 percent of today's transportation fuels to a low-carbon fuel standard that covers all fuels and counts all direct and indirect emissions.

States, local governments and everyone who drives must also step up. The Department of Transportation will have to build on their plan to develop a smarter transportation, working with local governments to help get people where they need to go with fewer miles and less pollution. This will require investments in transit and support for pay-per-mile programs that will keep our roads and bridges repaired.

EPA also has a significant role to play here in setting up standards to evaluate local transportation plans. But there must also be consequences associated with making and meeting effective plans.

Finally, we need our scientists and engineers to step up and to deliver on the promise of fuel cell, plug-in and battery-electric vehicles and the lowest carbon fuels.

If Congress and the administration step up to the plate, the UCS Climate 2030 blueprint shows that the United States can cut carbon emissions from cars and light trucks to 40 percent below 2005 levels by 2030. We can hold carbon emissions from freight trucks steady, despite an 80 percent growth in the economy through 2030.

At the same time, we can deliver net annual savings of $120 billion to consumers and businesses in 2030 alone. Consumers specifically will save about $580 per household, per year. We're not talking about how much it will cost. We're talking about how much money they will save as a result of cutting global warming emissions.

Now, by 2030 we will also have additional benefits. We can reduce transportation's addiction to oil by more than 3 million barrels per day, more than we currently import from the entire Persian Gulf region. And this is all on top of the benefits that you helped deliver through the 2007 energy bill.

When you look at today's economy and the prospect of rising gas prices and rising carbon emissions once we beat this recession, we simply cannot afford to ignore this opportunity to invest in a cleaner transportation future and the jobs that investment will create.

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

And our next witness is Mr. David Gardiner. He is the founder and president of David Gardiner & Associates, energy and climate consulting firm. He previously served as the executive director of the White House Climate Change Task Force during the Clinton administration.

We welcome you, sir.

MR. GARDINER: Thank you, Mr. Chairman.

This morning Congressman Butterfield asked a question about what he could say to his low-income consumers in his district about this broad legislation. And we believe that a key part of the answer to that question is "We're going to deliver a lot more energy efficiency to you." And particularly as contained in your discussion draft, we should adopt an energy efficiency resource standard.

An energy efficiency resource standard, as in your bill, Mr. Chairman, would require utility companies to deliver increasing amounts of energy efficiency to their customers, specifically that we would deliver 15 percent more energy efficiency by 2020 in the electricity area and 10 percent for natural gas.

With this requirement, which we have in place in 19 states already today, what utility companies do is to turn around and offer rebates to their customers for investing in energy efficiency appliances and making energy-efficient homes. Colorado, for example, has just adopted a standard, and the utility there, Xcel, has recently launched two programs to offer rebates to home builders because it's cheaper for Colorado to pay for a more efficient home than it is to build a power plant to serve that.

Now, under your draft discussion bill, Mr. Chairman, this provision for an energy efficiency resource standard saves consumers $170 billion by 2020. It's exactly the kind of thing that Congressman Butterfield is looking for for his low-income consumers. It also creates 220,000 new net jobs. So there's a lot of jobs out there making homes more energy-efficient and building more energy-efficient appliances. It also will avoid the equivalent of 48 million automobiles' worth of greenhouse gas emissions.

Now, there are some who've suggested that what we should do is to merge the energy efficiency resource standard with a renewable electricity standard. That's an unwise path, because that will lead to less energy efficiency and it will increase consumer costs. Our own analysis indicates that could be as much as a $70 billion increase for consumers.

On the converse side, the energy efficiency resource standard and the renewable electricity standard actually lower the costs of meeting a cap on carbon dioxide, and they do so by approximately 15 percent. They do it because they eliminate the barriers that are out there for cost-effective investments in energy efficiency. The chief barrier to that is that in most states in the country, electric utility companies lose money if there are significant investments -- if they make significant investments in energy efficiency.

So an energy efficiency resource standard turns that around and makes energy efficiency a profitable venture for electric utility companies and starts to deliver the kinds of savings that consumers are going to want to need and can be an important component of making sure that the achievement of our greenhouse gas reductions is done at the lowest possible cost.

So we urge the committee to not only retain the discussion draft provision on the energy efficiency resource standard, but to make sure that we move forward as rapidly as possible to get this in place, because energy efficiency is a resource that we can start taking advantage of today. We can start saving consumers money today, and we can start creating those jobs in the energy efficiency field today. So it's urgent that the Congress move forward with adopting the energy efficiency resource standard.

Thank you.

REP. MARKEY: Thank you, Mr. Gardiner. And your testimony was consistent with your energy philosophy. You yielded back one minute to us. (Laughter.) We appreciate that; really a great gift to us today.

Our next witness, Mr. Jeff Gezner -- Genzer, I'm sorry -- Mr. Jeff Genzer -- is counsel for the National Association of State Energy Officials.

Mr. Genzer, we welcome you. And whenever you're ready, please begin.

MR. GENZER: Thank you, Mr. Chairman.

The energy efficiency programs within the bill are solid, and we generally support them. I won't focus on the appliance provisions since Mr. Delaski will be discussing that.

Number one, NASEO supports specific 30 percent increases in both residential and commercial building energy codes and standards. These should be federal and mandatory and need to happen quickly. The residential code should be adopted and effective on January 1, 2010, which represents a 30 percent increase over the 2006 International Energy Conservation Code.

It has become clear to state energy officials that the residential consensus code process has become dominated by interests that refuse to recognize the role that new homes play in energy use and climate change and that seek to maintain the status quo despite the very acceptable costs -- in fact, cost reductions -- for consumers of moving to much more efficient buildings.

On the commercial side, ASHRAE should be given an opportunity to achieve a 30 percent commercial building standard increase over ASHRAE 90.1, 2004. However, it needs to be effective on January 1, 2011. We cannot achieve our energy and climate goals without this. We have waited far too long already.

We simply cannot accept the ridiculous argument that it is never a good time to raise energy-efficient building codes -- never good in flush times, never good in bad times. Homeowners live in these homes and consume energy for a century. Every day we wait is another day of dollars out the pockets of homeowners and taxpayers. The cost of achieving the same gains in energy efficiency is an order of magnitude higher when we retrofit than during the initial construction.

Funding will be required for states and local governments to conduct compliance training and enforcement. The only possible source is at the federal level. But we would maintain that the national interest in reducing the 10 percent share of global greenhouse gas emissions that comes through our buildings warrants that federal investment.

Two, we support the retrofit for the energy and environmental performance program that was sponsored by Representative Welch. It will lead to significant increases in energy efficiency for homeowners, commercial buildings and public buildings. This will lead to local jobs, putting building contractors back to work, and it will produce real energy savings for real people and return dollars to communities.

Third, we support the rebate program to get homeowners out of the older, pre-1976 manufactured housing. We support the program sponsored by Representative Hill, Representative Baron Hill.

Number four, we support a building energy performance labeling program. We don't understand why anyone engaged in helping Americans make wise decisions when owning, operating, buying or selling a building would reject an effort to allow consistent, comprehensive and understandable information about that building's energy consumption being readily and indeed publicly available.

Fifth, most state energy offices support an energy efficiency resource standard but want to ensure the state-administered programs will be allowed to continue.

Sixth, the State Energy and Environmental Development Fund, the SEED fund included in the bill, is another positive program and would provide a good overlay for energy and environmental program initiatives.

We look forward to working with the subcommittee and the committee in examining these programs. A number of items that have been discussed and will be discussed at these hearings are certainly worth including. Commissioner Grunich (sp) discussed yesterday a proposal on state planning. Bill Becker will be on the next panel from NACAA. He'll be discussing our desire to avoid state preemption and permit states to run programs on the environmental side that are more robust than the federal program.

Third, Representative Van Hollen made a good proposal for a federal energy loan bank. While it is a good idea at the local level, we're concerned that it'll be very difficult for the Department of Energy, despite Secretary Chu's monumental efforts, to get their loan program going at DOE to run it from the federal level.

I want to, in my 19 seconds left, mention to Congressman Baldwin that my daughter is a junior at Wisconsin, and I have a rising freshman.

Thank you.

REP. MARKEY: We thank you, Mr. Genzer.

And our next witness is Mr. Charles Drevna. He is the president of the National Petrochemical and Refiners Association. He has more than 35 years of experience in that field.

We welcome you, sir.

MR. DREVNA: Thank you, Mr. Chairman and Ranking Member Upton and Congressman Baldwin. Thank you for having me here today.

Addressing climate change requires realistic long-term strategies that recognize the vital role that all forms of energy will play in maintaining our country's security, economic strength and quality of life.

NPRA supports the advancement and deployment of new technologies that will bring reliable, affordable and clean supplies of domestic energy to consumers. We do, however, have some serious concerns with the ability of the discussion draft, the American Clean Energy and Security Act of 2009, to achieve these goals, particularly in relationship to the transportation sector.

My written statement focuses on three or four major topics of concern regarding the discussion draft. But rather than attempt to simply condense the written statement in the time allotted, I will briefly reiterate some specific areas of concern.

These include the adoption of a low-carbon fuel standard. At best, the LCFS is redundant and overly costly. More likely, it's contradictory and punitive. We do not need the LCF. The fuels are regulated under the cap through a scientifically achievable time frame.

The compliance time frames in the discussion draft are, in our opinion, again, on the transportation sector, overly aggressive.

Another area of concern is that the refining industry, we believe -- and we hope to demonstrate that the refining industry is indeed energy-intensive and subject to international competition, as opposed to what the findings of the discussion draft state.

And finally, we have some questions concerning the allocation of emission allowances. There seems to be a dearth of knowledge on how those will be handled in the discussion draft. Now, I anticipate that the committee will have questions regarding these items, among others, and I look forward to discussing them with you.

In the remaining time I have, I want to focus somewhat on links, a rather rudimentary description of the petroleum process but one that must be achieved in order to facilitate the technological and commercial sector, the (degree of ?) arrangement of the links between and among hydrocarbon molecules.

It's been a very long time since refineries were described as structures that boil oil or simply are a bubble in the oil pipeline. Today's refineries are complex, sophisticated, state-of-the-art facilities that operate most efficiently while providing consumers with the reliable products that drive the nation's economy, from clean-burning gasoline, diesel and home heating oil to the petrochemical feed stocks that are the building blocks for a multitude of products -- asphalt to -- (inaudible) -- cosmetics to computers, heart valves to helmets, pharmaceuticals to patio furniture.

The domestic refining industry is the linchpin for these products. Transforming various hydrocarbon molecules, again, rearranging the molecular links of this oil, which is made in a technologically advanced, environmentally sound and economically viable fashion is vital to the success of the domestic refinement industry and the overall economy it drives.

There are more consequential links as well -- the link between energy and economic strength for the entire nation and the link between energy and American security. The question before this committee today, and ultimately for the entire nation, is will the current draft of the American Clean Energy and Security Act of 2009 or similar legislation forge stronger, more viable links in these vital chains, or will doing so lead to adverse economic impacts, not on just the domestic refining industry but on the nation's economy?

The answer to these questions must be fully investigated, understood and documented before enactment of any legislation. Most likely, we have but one chance to get it right. The nation simply can't afford anything less short of a complete understanding.

Lastly, the provisions of the draft legislation neglect to ensure one other link -- the link between international participation and the ultimate success of the initiative.

For example -- and we've heard this over and over today -- China continues to state that it will not participate in any program that restricts its emissions. International participation is a critical issue as we need to implement any program. One ton of CO2 emitted in Columbus, Ohio is indistinguishable from one ton emitted in Beijing, Mumbai or Moscow.

The possible consequences should determine the pace or else the pace could determine the consequences. Mr. McCurdy stated that you good people have sat here for four days in a marathon, and I commend you for that. Again, I really commend you for that. But don't try to sprint to the finish line. Keep the marathon going. It's a marathon, not a sprint. We have to know everything before we can go forward. And to that extent, I would ask that we have some more hearings on the transportation sector of this bill.

Thank you very much.

REP. MARKEY: Thank you, Mr. Delaski (sic/means Drevna).

I've been on the Energy Committee for 33 years, the Natural Resources Committee for 33 years, so that's 66 years of hearings that I've gone to. (Laughter.) And the speaker created a Select Committee on Global Warming and Energy Independence, and that gave me three more years of hearings that I've had on the subject. So I do think of it as a marathon, believe me. Most of these issues have been percolating around here for a long, long time. That much I can promise you.

Our next witness is Mr. -- and I don't think anyone else is ever going to try it again, to go to the number of hearings I've gone to on these subjects. You can already see the effect that today's hearing has had on our membership.

Our next witness is --

REP. : If (the chairman would yield ?), I don't remember whether Mr. Dingell had hearings -- (inaudible) -- a little faster.

REP. MARKEY: In many ways, they went a lot faster with that coffee in front of them.

Mr. Andrew Delaski is the executive director of the Appliance Standards Awareness Project, a coalition dedicated to advancing cost- effective appliance and equipment efficiency standards. He's joining us here today from my home state of Massachusetts.

So we welcome you, Mr. Delaski.

MR. DELASKI: Thank you, Mr. Chairman.

MR. SPERLING: (Off mike.)

REP. MARKEY: Yes, sir.

MR. SPERLING: I have a flight back to California out at Dulles now. I'm really sorry.

REP. MARKEY: And we apologize to you, Dr. Sperling. And, by the way, to all of the witnesses and those who are accompanying our witnesses today, you could, I think, capture the intensity of interest which the members had in the questioning of Vice President Gore and Newt Gingrich, so it went for an unexpectedly long period of time. And it is with our apologies to you that we request that you work with us over the next month or so towards developing a bill which does reflect the highest aspirations.

Thank you, sir.

MR. SPERLING: Thank you.

REP. MARKEY: Again, back to you, Mr. Delaski. Whenever you're ready, please begin.

MR. DELASKI: Thank you, Mr. Chairman.

Let me just say a word about ASAP. ASAP is a coalition project which consists of representatives of energy efficiency advocacy organizations, environmental and consumer groups, including low-income advocacy organizations, state government and utilities. Our mission, as you said, is to advance cost-effective energy efficiency standards for appliances, lighting and equipment.

My testimony today is limited to Subtitle B concerning the appliance and equipment standards in the bill. I'll summarize just a few key points from my in-depth testimony.

Congress first enacted national appliance equipment and lighting standards in 1988, as Chairman Markey well knows, in legislation that you authored, and you added new standards in 1992, 2005 and 2007.

In general, Congress has established initial standards by statute and directed the Department of Energy to review standards on a set schedule, increasing to higher efficiency levels if shown to be technically feasible and economically justified.

The American Council for Energy-Efficient Economy, ACEEE, estimates that, absent existing national standards, U.S. electricity use at peak electric demand would be about 10 percent higher in 2010 than currently projected. ACEEE also estimates the consumers and businesses which buy the affected products will net more than $400 billion in net savings from the already existing standards.

The enormous energy, environmental and economic benefits delivered by national product efficiency standards have contributed to a history of strong bipartisan support and cooperation for new standards and enhancements in the Department of Energy's program structure.

The bill before us today builds on this successful history. We thank Chairman Waxman and Subcommittee Chairman Markey for including the important appliance efficiency subtitle in ACES.

The subtitle consists of three parts. Sections 211 and 212 enact specific new standards for six categories of products, including portable electric spas, as we learned earlier. Section 213 provides critical enhancements to improve overall effectiveness and responsiveness of the DOE program. And Sections 214 and 215 (write ?) the voluntary programs, including Energy Star.

We estimate that the specific standards included in ACES will save at least 17 billion kilowatt hours annually by 2020, or roughly enough to meet the needs of one and a half million typical U.S. households. The standards included in the bill would reduce power sector carbon dioxide emissions by about 12 million metric tons per year in 2020.

I'd like to especially call out the outdoor lighting standard initially introduced by Representative Harman. This standard offers the lion's share of the savings from the specific standards in the bill. Discussions between members of the industry and the efficiency proponents that I work with are ongoing and remain optimistic that we'll have further joint recommendations to present to you shortly on outdoor lighting.

The program reforms in ACES are just as important as the specific efficiency standards. As we have gained experience with DOE rule- makings through the course of several administrations, we've learned of some of the shortcomings of the statutory structure which could stand in the way of cost-effective efficiency gains.

The bill contains several important reforms to address some of these shortcomings. And I'll highlight just two, but we support the entire package of reforms for the Department of Energy's program.

The two that I highlight -- first, ACES -- the bill makes it clear -- (inaudible) -- authority to apply more than one efficiency metric as part of a single product's efficiency standard. While Congress has set more than one requirement for at least a dozen products and statutes, DOE has recently held that the law prevents the agency from putting more than one requirement per product.

Often a standard for a given product must include more than one element to capture different aspects of the product's efficiency; for example, energy and water efficiency, gas and electric efficiency in the case of a furnace, which use both gas and electricity, or to capture the cost-effective savings from controls or other technologies that are not reflected in a product's test method.

For example, successful application of smart grid technology and demand response technology may depend on specific appliances, including particular control features. Such features are typically not represented in performance test methods but may be a critical feature of future energy efficiency standards. The department's current interpretation of the law would prevent this sort of requirement in future appliance standards. This provision passed the House in 2007, and we strongly urge you to act on it again.

Another area I'd like to highlight concerns the preemption limits that national standards place on safe building codes. House and Senate energy bills have proposed federal targets of 30 percent savings in new buildings in the near term, 50 percent savings later through better building codes.

However, the preemption associated with national appliance standards effectively puts savings (from space ?) in water heating and air conditioning off-limits, even when such savings would be very cost-effective for new construction and major renovations.

The discussion draft will create new flexibility for safe building codes while still preserving a basic structure -- a basic federal preemption framework.

There are several other program reforms which we also support. Suffice it to say that as a package, these reforms significantly strengthen the national appliance standards program and will pave the way for greater energy savings and benefits.

Finally, with respect to the voluntary programs, we're concerned that the limits on Section 215 which are placed on the Energy Star program would make some of the existing Energy Star programs, home furnaces and other products -- would end those programs. We urge that section to be modified.

In sum, we support the subtitle and look forward to working with the committee to make it even better.

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

And our final witness is Mr. Dwight "Sonny" Richardson. He is the chairman of the National Association of Home Builders Construction Codes and Standards Committee. He is also president of Richardson Home Builders in Tuscaloosa, Alabama.

Please begin when you are ready, Mr. Richardson.

MR. RICHARDSON: (Off mike.)

REP. MARKEY: Please hit the --

MR. RICHARDSON: (Laughs.) Sorry about that.

Thank you, Mr. Chairman, Ranking Member Upton and Ms. Baldwin. I appreciate the opportunity to travel to Washington to discuss the energy bill, the carbon cap bill, global (climate change ?) bill with you on behalf of the 200,000 members of the National Association of Home Builders, NAHB.

As you well know, we in the home building industry are facing devastating times in addition to the environmental and energy challenges facing our country. Building 2 million homes in 2006, we expect to construct less than 500,000 this year nationwide.

Nonetheless, amidst the worst housing downturn since the Great Depression, I can personally attest to the strides our industry has made in energy efficiency (and ?) sustainability for our nation's new homes.

According to the Energy Information Administration, newer homes, those built since 1991, account for only 2.5 percent of all energy consumed nationally. Our industry has pioneered development of the only national green building standard approved by the American National Standards Institute and has invested millions in an industry- transforming green building program, saving both energy and natural resources.

Drawing on my lifetime of experience -- I am a second-generation home builder -- in the construction field, I believe that some of the policy approaches put forth in the American Clean Energy Security Act draft are unlikely to produce the expected energy savings.

In particular, its provisions in Section 201 aggressively increase energy targets for new homes by greater authority for the Department of Energy to modify codes and give little flexibility to state or local areas with specific geographic and climatic conditions.

The current language is problematic for a number of reasons. In the broadest sense, seeking significant savings from new homes, the smallest, most energy-efficient -- (inaudible) -- market misses the target. Increasing costs and reducing affordability for newer, more efficient homes adversely affects lower and moderate-income families that spend the most, as a percentage of income, on energy.

Some instances, the provisions in Section 201 exceed a number of successful programs such as EPA's Energy Star for homes and many green building programs, not just the new national green building standard. Striving solely for small, incremental savings without accommodation of a more robust sustainability framework with a green program means that the more environmentally sound green homes could be non-compliant with the targets outlined in Section 201, yet these homes have a smaller carbon footprint because of sustainable design and resource considerations not covered by energy codes alone.

On the other hand, NAHB is pleased to see that Section 202 of the draft legislation provides resources to consumers to upgrade their existing homes and buildings. We're equally pleased that Vice President Gore supports this path. This will direct the resources of the federal government at the largest consumer of energy in the residential sector -- older homes. According to the Census Bureau, there are roughly 128 million homes in the U.S. today, and fully 74 percent, or 94 million, were built before the existence of modern energy codes.

Home builders have done their part and are doing their part to make newer homes more efficient. Now the federal government can help residents of existing homes continue to help to do their fair share to reduce energy consumption.

Despite our economic challenges, our home building industry has voluntarily taken the initiative to develop a rigorous national green building standard, continues to implement energy efficiency in new construction, and is working diligently to preserve housing affordability for the next generation of green and energy-efficient homes.

NAHB supports improving efficiency in national model codes and anticipates, along with many others, the development process of the International Code Council. Because codes, by their very nature, do not address all aspects of energy consumption in housing, NAHB hopes that Congress will carefully consider an integrated energy strategy for the residential sector. This includes many aspects beyond the reach of codes, such as equipment efficiency, occupant behavior, plug loads and appliance choices.

Our NAHB members are stakeholders in both the building and energy-efficiency industries. We look forward to working with the subcommittee to craft policies that effectively address the energy challenges facing our nation and housing.

My written comments provide original details -- excuse me -- additional details on these points, as well as recommendations for changes to the draft legislation the committee will soon consider.

Thank you for the opportunity to appear today and testify on behalf of my National Association of Home Builders.

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

And now we turn to questions from the subcommittee members, and we begin with the gentlelady from Wisconsin, Ms. Baldwin.

REP. TAMMY BALDWIN (D-WI): Thank you, Mr. Chairman.

And, Mr. Genzer, I'm not starting with you just because your daughter goes to UW-Madison, but I do have a question that I think you would be great to answer.

I've been telling and sharing with my fellow committee members about how I spent my spring recess, which included an energy tour of my home state and meeting with innovators and renewable energy producers. One of the sites that I had the chance to visit was Johnson Controls. Johnson Controls does a wide range of things, but they have a building energy efficiency segment of their business, and in fact we had a representative of Johnson Controls testify a few months back before our subcommittee.

Just a couple of weeks ago the company announced that they would be involved in retrofitting the Empire State Building using innovative processes and state-of-the-art tools that should help reduce the building's energy consumption by a pretty impressive 38 percent per year, with technologies that will pay off in a two-year timeframe. That would probably place it I think in the top 10 percent of all U.S. office buildings in terms of the use of -- or in terms of energy efficiency.

One of the things I found interesting in my discussions with employees at Johnson Controls was an interesting conundrum. Because many of the commercial buildings turn over ownership so often -- sometimes as rapidly as every three years or so -- the incentive of owners make energy efficiency improvements and investments often just don't exist. And so I would love to hear your thoughts about how we on this panel could incentivize this sort of energy efficiency improvement in some of these buildings. I've been tossing around a few ideas of my own, but I'd love to hear yours right now.

MR. GENZER: Thank you.

First of all, the whole energy service performance contracting program that Johnson Controls is really one of the leaders in is a great model.

In fact a lot of the funds that that came through the stimulus package targeted to state energy programs -- what we're seeing in a lot of the states is that a lot of those funds are being targeted to energy service performance contracts. So that's one of the real preeminent examples, and we can certainly give you more information on a state-by-state basis as that moves forward.

In terms of incentives for commercial building owners where they need payback periods in a shorter period of time, one of the elements of the bill -- of the draft bill now is a Retrofit for Energy and Environmental Performance program. It's in the bill. I think Representative Welch, the chief sponsor of that, included targets for commercial buildings on a per-square-foot basis for extra incentives. So we think that's a great idea; it's one of the steps. There's also additional things that could be done in terms of energy service performance contracts -- we're trying to do a lot more at the state level on that -- and extension of the commercial building energy efficiency tax deduction is another one that would be helpful. We're spending a lot of time working with commercial building owners on a state-by-state basis to try to see if there's additional incentives. So we certainly work with them and it's a great idea.

And also, I think Mr. Gardiner might have a comment about the tie-in with the Energy Efficiency Resource Standard.

REP. BALDWIN: Absolutely.

And I actually have another question and time limit -- so if you want to make a quick comment, Mr. Gardiner, and then I have a --

MR. GARDINER: Just that, as I said in my opening statement, that under an Energy Efficiency Resource Standard what happens is that the utility companies offer rebates, including to commercial building owners, to do this. And so it takes away the problem that you identified, which is one of the serious barriers to energy efficiency, which is the builder or the landlord isn't necessarily the person who's responsible for paying the energy bill, may not own the building for a long period of time. So the rebates that utility companies offer under the provisions of the draft discussion -- under the Energy Efficiency Resource Standard are, I think, a critical incentive.

REP. BALDWIN: Let me jump in quickly with my second question -- and I'm very supportive of the EERS in the bill. Based on information I've received from my constituency, I feel like Wisconsin is well suited to comply with the EERS through at least 2012. However, I do have a question: One of the things we talked about in another section of the bill is potential for widespread deployment of electric vehicles over the next 15 or more years. And if we see this widespread deployment, the base quantities for retail electricity distributors could grow quite rapidly, and thus, the amount of electricity savings they will be required to achieve could grow rapidly -- could kind of potentially transform the EERS savings required, making them a little bit more challenging to meet -- and expensive to meet. And I'm wondering if this is the intent, and if not, is there anything we should be looking at, modifying in anticipation of the potential of widespread deployment of electric vehicles?

MR. GENZER: The Energy Information Administration says today that actually if you look out toward the future that the amount of electricity that vehicles like that might consume is still projected to be relatively small. That could of course change in the way that you've suggested. We think that was a good idea.

So I think that there could be some provisions that would allow the secretary of Energy, for example, to modify that if he or she saw that the amount of electric vehicles were consuming a large amount of energy. But I think at the moment it looks like it's a relatively small problem, at least through 2020. But it is an issue, and I think it's certainly worthy of further discussion to look at.

MR. FRIEDMAN: If I could just make a quick comment -- our blueprint included a significant ramp-up in plug-in hybrids to reaching 20 percent of sales by 2030, so expecting very aggressive progress on that technology. And under our blueprint, when you invest in efficiency and when you invest in renewable electricity, the grid can handle it.

And, frankly, I would love to have the problem where we have too many plug-ins on the road. That is a problem I look forward to having someday.

REP. MARKEY: Great. The gentlelady's time has expired. The chair recognizes the gentleman from Michigan, Mr. Upton.

REP. UPTON: Well, thank you, Mr. Chairman. And I, too, sadly, will have to leave you with the last panel on your own, I'm afraid -- (laughter) -- I regret to say.

I do want to put -- before I start I want to put into the record a letter from the International Code Council addressed to yourself, Chairman Waxman, Barton and myself.

REP. MARKEY: We'll include it in the record without objection.

REP. UPTON: (Inaudible) -- and I want to focus just a little bit on autos before I get in my auto and depart.

Mr. McCurdy and Mr. Reuther are good friends of mine too -- appreciate all the work you've done for our state as we try to have the auto industry survive.

Mr. McCurdy, you talk a lot about having a single standard. And of course that is in the bill, but the standard is California, and the way that I read it, it allows them to in fact change the standard, and when they change it -- that is California -- so does the rest of the nation then follow their lead. Is that your understanding of it -- the way that it's in the draft as well?

MR. MCCURDY: Mr. Upton -- and thank you for your comments earlier too -- and very much appreciate working with you and I have for a number of years.

Section 221, I believe, is the section you're referring to and Sub 4. And that -- I think the draft made an effort to address at least three of the concerns in the first three sections about the standard. The fourth section, I think Mr. Reuther and I both would concur, needs work. And that's the area that we would like to see the committee continue conversations.

I think the Obama administration has an opportunity to create a single national approach that would be administered by the federal government so that we eliminate the duplicative and potentially conflicting standards. The reason there are concerns -- it's not just the question of stringency; the structure is one of the major challenges -- compliance, enforcement and several other provisions -- and that has to be harmonized. And I think the administration is going to try to address that, and I think they're going to have to work with Congress as well. So, again, I, you know, we do strongly support the single national standard.

One comment that my friend Mr. Reuther made with regard to the future -- it's clear that under the (ISA ?), the energy bill in 2007, which we supported, and the CAFE provisions -- that we can see our way to 2015. Beyond that, though, is an area of major concern. It's a concern because of the need for clarity and predictability because of the need to ramp up, to produce the kinds of technologies. Mr. Friedman mentioned 20 percent plug-in hybrids by 2030 -- that's an extremely aggressive number. We'd like to be there, but I'm not sure that without proper incentives, without a real energy policy that incentivizes consumers, there's certainly no guarantee that that will occur.

So we need -- there's not one single silver bullet of technology, but it's clear we need certainty and predictability. And I think that section is one that, on a bipartisan basis, that we should address and look forward to working with you on.

REP. UPTON: And, Mr. Reuther, do you want to comment on that at all?

MR. REUTHER: We read the draft bill a little bit differently. To us it appears to say, through 2015 there would be a harmonized standard but after that point in time nothing is clear except there's a green light to California to go ahead. And as I indicated in testimony, we would like to see longer-term harmonization and certainty, both for the environmental fuel savings benefits but also because it will assist the companies in knowing what is required of them, where they have to put their emphasis in terms of investments and technologies.

REP. UPTON: Now, both of you talk about substantial investment to be able to get to that point and I presume that that comes from, as you said, Mr. McCurdy, a 5 percent of the allocation? I would presume then that if the Obama administration's request of 100 percent option, therefore leaving nothing to be taken out of that for allocations, you all would be opposed to the bill? Is that right?

MR. MCCURDY: Well, I said either allocations or revenue, so if the question --

REP. UPTON: (Inaudible.)

MR. MCCURDY: I think that section in the bill is not clear. We were -- I'm sorry.

I'm sure it's something the committee's going to be working on. But the point, I hope, is clear, and that is if we're going to be held accountable or responsible for -- EPA's number -- 17 percent of the emissions, and we understand the incredible costs associated with addressing that, that there should be dedicated revenues or allocations for the investments that are needed for research and development, production, retooling, which is going to be quite substantial.

REP. UPTON: Just in closing -- I know my time is expired -- I was glad to hear you talk about the Clunkers Bill scrappage; I think that's very important to get the consumers back into the showroom and send the green light to all of our auto workers, whether they be suppliers or assembly folks. It's key and I'm glad that we have bipartisan support led by our colleague, Betty Sutton, from our committee and Candice Miller from Michigan, of which I'm a co-sponsor.

Thank you.

REP. MARKEY: The gentleman's time has expired. We recognize another sponsor of the Cash for Clunkers legislation, Mr. Inslee, for a question.

REP. INSLEE: Thank you.

Mr. McCurdy, several of us have been looking at the Project Better Place model of trying to improve infrastructure for charging and swapping out batteries. Could you give us your group's thoughts about it? How do we make that work or how can we do -- we do have a provision in the bill that would help development and infrastructure. I'd appreciate your comments on that.

MR. MCCURDY: Thanks, Mr. --

REP. INSLEE: And I don't mean to limit my comments to Project Better Place; there are other companies involved in this as well.

MR. MCCURDY: Exactly right.

Good to see you, and I appreciate your support.

As I indicated in my written statement that fuels and autos are a system, and for the past few decades I think the focus has been on the autos and not as much on fuels or the system.

If you move to the electrification of vehicles, whether it's -- and again, there are a number of business models out there -- we can't comment on which one is more -- most likely to succeed. It's clear the infrastructure has to be there, and we have to move now in order to pave the way for, whether it's plug-ins or fully electric vehicles; whether it's -- and that's what smart grid comes in. It's also where utilities, I think, are going to be incentivized to address that as well.

What you need is the ability to recharge, whether it's home, through a smart grid at night when the rates are lower, or your place of work, or if you're moving around urban environments. And it's clear the current infrastructure is not there to support that. So this is an important investment.

A Better Place that you mentioned is one where they have a different business model that they want to have charging -- fast charging or replace the batteries themselves. Again, we -- we're not going to down select one particular technology, but we think the infrastructure could be supportive of an entire electrification process.

REP. INSLEE: Great. Thank you. Appreciate it.

MR. MCCURDY: Thank you.

REP. INSLEE: I want to ask Mr. Sperling and Mr. Drevna -- the discussion about the low-carbon fuel standard. Mr. Drevna -- and I missed your whole testimony -- I'm sorry, but I was just reading your testimony. You were making reference that you thought that it was a possibility that the approach in the bill would discriminate against certain petroleum products -- I think you were referring to Canadian tar sands. And I don't understand that criticism. Basically the bill would -- it would have, quote, "some discrimination," but it's based on carbon content. All the creator's children would be treated the same; it's just dependent on how much carbon content is in each fuel source. So I don't consider the bill discriminatory in that sense. It simply judges each system based on its carbon content.

Perhaps Mr. Drevna and Mr. Sperling can comment on that.

MR. DREVNA: Well, I can -- thank you, Mr. Inslee. I would comment on that; unfortunately Mr. Sperling had to catch an airplane.

REP. INSLEE: Mr. Friedman right there -- (inaudible).

MR. DREVNA: Oh. Yeah. But -- (inaudible).

The question about the low-carbon fuel standard is -- what you're saying is -- there's two parts to it that we see. One is that the bill -- the draft itself has a cap-and-trade mechanism, and the bill also contains a low-carbon fuel standard. We view those two things as both -- as I said in my oral testimony, at best duplicative and redundant, and at worst as punitive and counterproductive.

We have no control over -- the only way to get a low-carbon fuel standard is to blend non-carbon fuels into gasoline or diesel. We have no control over technology, of advancing those new fuels; we have no control over the infrastructure.

If you have a cap, that's a performance standard. Then you're saying you have to do more to do a low-carbon fuel standard. And then when you look at the renewable fuel standard that we're still obligated under de facto five and then as amended by (ISO seven ?), we've got three potentially competing kinds of legislation and regulation you have to look at.

I think there's a misconception among a lot of folks that -- and I know you're -- I know the draft says, well, we're going to phase out the RFS as we ramp up the LCFS. In theory that sounds marvelous. In practicality, what -- it's very difficult for refiners to do so. We don't have a magic switch that we flip one day and say, okay, we're going to -- now we're out of the RFS and we're to the LCFS. It's almost like the proponents believe that, you know, there's two dimmer switches; one we're going to raise on the LCFS while we lower the RFS. Unfortunately, Mr. Inslee, it simply doesn't work that way. And again I go back to saying if you have a cap, you have a performance standard. You know, it's one thing to have a belt and suspenders, you know, but these two are competing. They could potentially be competing because there's many studies out there right now that suggest that a low-carbon fuel standard is actually more energy intensive than other ways of reducing carbon. And I'll be more than happy -- I don't want to use up all your time. I'll be more than happy to --

REP. INSLEE: I appreciate that. I think you came up with three criticisms I hadn't even heard yet, but --

MR. DREVNA: Well, and again, I'll be more than happy to discuss these. This is my suggestion that -- we would suggest whether -- another hearing on this for the transportation sector. We heard a lot this morning about a lot of things involving electricity. We really -- you know, from my parochial interest -- and I shouldn't even say parochial; this is the nation's interest. From our interests, we have to fully understand what the impact's going to be on transportation fuels because, as we all know, this is what drives the economy.

REP. INSLEE: I appreciate it, Mr. Drevna.

Mr. Friedman?

MR. FRIEDMAN: Thank you, Congressman. And thank you very much for your leadership on the low-carbon fuel standard. You've been very important to making progress in this area.

I think part of what we're seeing is when people don't want to make progress, they try to make things sound a lot more complicated than they really are. The low-carbon fuel standard is a very straight forward policy that creates market for cleaner fuels. And one of the problems -- one of the challenges with the cap-and-trade system is if we do it right, if we add in the complimentary policies, sure, we'll maybe increase gasoline prices 15 (cents), 20 cents a gallon. Well, it took a near-quadrupling of gas prices last summer to get significant change out of consumers. Fifteen (cents) or 20 cents a gallon is not going to stimulate low-carbon biofuels. It is not going to stimulate electric vehicles. It is not going to stimulate fuel cell vehicles. A low-carbon fuel standard will do just that.

Also, it's not just about alternative fuels. Refineries have the potential to increase efficiency 10 (percent) to 20 percent. We've got a wellspring of efficiency improvements that can be seen throughout the economy, and refineries are part of that. So there's a lot of potential. This is really a lot simpler than I think people make it seem. It's really the same case with vehicle standards. Once EPA sets strong enough standards, California has already made clear they will cede to EPA's authority when they set strong standards.

REP. INSLEE: Thank you. I'm over my time. I just want to make one closing comment. Throughout these discussions one of the things we're trying to do is really promote the creation of new technology.

We have to have new technologies here, and even if we could do certain things at zero cost today that don't get us to the ultimate goal, we've got to create these new technologies. I think this helps.

Mr. Chairman, my time's kind of up. I'll look forward to talking to you some more. Thank you.

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

I'd like to continue on a little bit with the subject that Congressman Inslee was discussing, and that is fuel economy standards and the automotive sector, and ask if I could, Mr. Reuther and Mr. McCurdy and Mr. Friedman, if we could just have a little discussion about the 2007 fuel economy standard -- 35 miles per gallon -- (inaudible) -- by 2020, combined with the $25 billion in the Green Car Factory Fund, combined with the $2 billion for the battery fund that has been created in the stimulus. And just give me some sense of your optimism about how we just might reach a tipping point in three, four, five years, where we move much more rapidly than even the law requires because of the adoption of these green car new technologies that will be manufactured by every company not only in the United States but around the world.

Mr. McCurdy?

MR. MCCURDY: Thank you, Mr. Chairman. We obviously applaud the efforts to dedicate some revenue or some funds after the passage of ICE and the $25 billion, Section 136 funds. As we know that was over a year ago. Those funds are just now -- the loans are just now starting to be made available.

The battery money is important. You have particularly strong interest in those technologies. That's a step -- a small step in the right direction.

If you recall, the NHTSA estimates for the cost to the U.S. sector for compliance with CAFÉ was going to be roughly $85 billion, so $25 (billion) is a down payment. I think it's an important step. But if you want to accelerate that, which is really where you'd like to go, it's going to take considerably more investment.

And it's not just a question of money. I mean, with all due respect to Mr. Friedman, it's not as easy as perhaps some would say in theory. I mean, you actually have to do -- go beyond the laboratory and get it deployed. And in the manufacturing world and when you're dealing with consumers, the real key is being able to have it where it's a warrantable product that will last, whether it's in the rather cold climate of Wisconsin in the winter or summers in Arizona. And so batteries -- that's a big challenge to battery and electrification.

But having said that, we're very optimistic and hopeful about the transformation to the new technologies, and we want to work with Congress and the administration in order to make that happen.

REP. MARKEY: Thank you.

Mr. Reuther?

MR. REUTHER: We believe that the 2007 law was a very good law, and we're optimistic that companies will be able to meet the standard in that law and perhaps do even better than that. And it's my understanding that already enough applications have been submitted to exceed the $25 billion that's already been appropriated for the Section 136 program, and that's part of why we believe that there's a need to provide additional funding going forward.

I also have to underscore, though, that the ability of the companies to achieve better results in the future is being impacted by the current severe recession in the industry, which is severely straining the financial resources of the companies. It's also changing the underlying assumptions. I mean, one of the key assumptions that goes into the cost-benefit analyses is the number of vehicle sales. That affects the reductions that you get in emissions; it affects the cost of diffusing the technology across the entire fleet. So I think everyone is going to have to go back and revisit the calculations on what can be achievable going forward given the dramatic change that we're seeing in the nature of the auto market.

REP. MARKEY: As the auto marketplace once again goes from 10 million cars a year back up to 16 (million) or 17 million cars a year which are sold in the United States -- and I do subscribe to Vice President Gore's analysis that as we recover and as the Chinese and Indian economies and other developing countries' economies continue to expand, we will see an inexorable rise in the price of gasoline here in the United States. Do you think that it's likely that the automotive industry will plan, now that they have this much lower demand, for that 16 (million) or 17 million vehicle world that will be recreated in three or four years, hopefully, in a way that has a higher percentage of vehicles coming from this energy efficient or plug-in hybrid or straight hybrid vehicles, Mr. Reuther?

MR. REUTHER: Well, I think a lot of analysts are questioning whether we will be getting back to the 16 (million), 17 million vehicle sales level. There may have been a long-term change in the overall demand, so I think that's an important thing. We do agree that over time the gas prices are going to be going to higher levels. And we believe there's a need for the government to try and incentivize and drive the electrification of the industry and to drive that process as quickly as possible. And we want to work with you to be supportive of that.

REP. MARKEY: I'm just working from my own personal set of assumptions, that maybe we do have to pay cash for clunkers -- which I think we ultimately will wind up doing here -- but there's going to be a point at which people spend their own cash for new cars, and that's when the economy recovers. And I think it's a pretty good bet that people will not like riding around in clunkers if they've got the cash back in their pockets, and I think that's a good planning premise.

Mr. Friedman?

MR. FRIEDMAN: Thank you, Mr. Chairman.

As I said in my testimony and I will reinforce today, I think that there are good reasons to try to help the auto industry through these difficult times -- to invest in the auto industry to help them get through these difficult times. Any time you invest in technology, you create more jobs. And if we invest in the auto industry, tied to performance standards -- anytime I -- the federal taxpayers put out money they should expect something in return, so there should be performance standards tied to those investments. If we make those investments, I do think the auto industry can make significant changes. In fact, we're already seeing it. This is an article from Business Week: "Detroit Finds Green in Recycled Fuel-Economy Ideas." It's about how Ford once nixed fuel economy savings -- fuel saving tricks from the '50s and is now using them to boost mileage and cut emissions.

The auto industry has the technology. The engineers and auto workers are incredibly talented. If you give them the chance, if you make the investment in them, if you trust them to help cut our emissions and make us less dependent on oil, they will deliver.

REP. MARKEY: Thank you, Mr. Friedman.

Let me ask you, Mr. McCurdy.

MR. MCCURDY: I just have one point on that, Mr. Chairman, as you and I have had long discussions and conversations about this. Four- dollar gasoline did more to move consumers to fuel efficient vehicles and choices than any regulation, any edict, any government action. And if prices do recover -- and just one other point: Your numbers are accurate on production levels. We've dropped from a high of 17 million vehicles to below 10 million vehicles currently annualized to sale. Assuming a v-shaped recover -- and that's an optimistic assumption -- you're looking at 2014, 2015 minimum to get back to those kinds of levels. We would welcome 12 (million) and 13 million unit sales at this point.

But the important thing is, even with this downturn, that this industry continues to invest more than any other industry in those technologies, in research and development.

REP. MARKEY: Thank you, Mr. McCurdy.

And let me ask you, Mr. Bowles, one final question, and that is to relate to us the lesson, if you can succinctly, that Regional Greenhouse Gas Initiative that Massachusetts and nine other states are a part of that has kind of an equivalent system out in California, the West Coast, and that other states are looking at -- what can we learn from what happened in terms of having a system in place that creates new incentives for reducing the amount of greenhouse gases that are admitted into the atmosphere?

MR. BOWLES: Thank you very much, Mr. Chairman, for the question. And really on behalf of the 10 RGGI states, I think we can report remarkable success. We learned from the experience of the European Union and the windfall profits that were given to power generators when they were given on an allocation basis their permits and then held them in reserve and ultimately sold them later at a greater price and ended up making money off the permits when the point was to reduce greenhouse gas emissions.

In Massachusetts we've adopted a 100 percent auction policy. We've been through three auctions in the nation's first functioning cap and trade program. The price of the auctions have gone up modestly at each point from about $3 a permit to about $3.50 a permit. In Massachusetts we've raised $43 million that we're plowing back into energy efficiency. We're seeing jobs being created by that and people saving money on their electric bills from those investments.

So I think what we've taken from it is that a auction system works. It works brilliantly. We haven't had big surprises. We've generated resources back for economically efficient returns that are protecting the environment and creating jobs at the same time.

REP. MARKEY: And can you give us some sense of what the response is in those 10 states to this system that right now is limited to the utility sector?

MR. BOWLES: Yeah -- very well. I mean, in Massachusetts we are -- we're spending about $150 million a year on energy efficiency anyway as a baseline. We're adding significant new resources and expanding those programs. So I would say it's been very well received in Massachusetts and I think across the footprint of the 10 RGGI states.

REP. MARKEY: Okay. Great.

Here's where I'm going to ask each one of you to give us your 30- second summary as we move forward in terms of what you want this committee to remember as we move forward over the next month on passing a climate change and energy bill out of this committee. We will go in reverse order and we will give you, Mr. Delaski, the first shot.

MR. DELASKI: I just reiterate our support for the subtitle concerning appliance standards and urge you to keep that subtitle strong and to maintain the reforms to enable the Department of Energy to set standards stronger than they have been before to get their program back on track.

REP. MARKEY: Thank you very much.

Mr. Drevna.

MR. DREVNA: Thank you, Mr. Chair. If I could sum it up in 30 seconds or less, I would urge the committee and the Congress to make sure we know all the consequences, intended and unintended, as we forge on -- as you forge on with the legislation. It's just too important and there's just not enough -- again, from my -- from the transportation sector, I think we should sit down again and talk about the transportation sector and talk about what is in the discussion draft and where we have some concerns and where we have some other ideas for you.

Thank you very much.

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

Mr. Genzer.

MR. GENZER: The stimulus package was a good start, a great start on energy efficiency funding, things you've been fighting for for 35 years. The Retrofit for Energy Environmental Performance program and the other elements of the efficiency part of this bill should definitely go forward, and it's also time to move forward aggressively on building codes, both at the residential and the commercial level.

REP. MARKEY: Thank you, Mr. Genzer.

Mr. Gardiner?

MR. GARDINER: The Energy Efficiency Resource Standard that's contained in the discussion graph is a great deal for consumers. It's going to save them $170 billion. It is also a critical -- coupled with the Renewable Electricity Standard, it's a critical cost- containment strategy that will yield the lowest carbon reduction -- cost of carbon reductions as we go forward to reduce greenhouse gas emissions.

REP. MARKEY: Thank you.

Mr. Friedman.

MR. FRIEDMAN: Thank you, Mr. Chairman.

The key to addressing transportation is looking at it as a system -- addressing vehicles, fuels and a smarter transportation infrastructure and more investment in transit. This bill deserves to pass because it addresses all of these issues. It requires leadership from the administration on top of that, but it sets us down the right path.

The thing that we have to do is prepare for a future, and if we look back at $4-a-gallon gasoline, one of the things that that did was it started moving consumers away from car companies that weren't ready and to the car companies that were ready with the best technology. We can't afford for that to happen again. We need to make sure they all have the best technology.

REP. MARKEY: Thank you, Mr. Friedman.

Mr. Reuther?

MR. REUTHER: The UAW believes the discussion draft has many excellent provisions. We look forward to working with you and the entire subcommittee to refine the vehicle efficiency standards, to provide longer-term certainty both on fuel economy, environmental benefits and certainty to the companies on directions they need to go with the technology. And we look forward to working with you to make sure that the resources are there so that the companies can do that.

REP. MARKEY: Thank you, Mr. Reuther.

Mr. McCurdy.

MR. MCCURDY: Mr. Chairman, as I said earlier, automakers are committed to reducing CO2 from the vehicles that we sell and the plants where we manufacture them. We want to work -- we think the discussion draft provides a platform for discussion. We share some of the concerns as indicated by Mr. Reuther and believe that we can work to improve those.

REP. MARKEY: Thank you, sir.

And Mr. Bowles.

MR. BOWLES: Mr. Chairman, thank you again for this hearing today and the opportunity.

Three points to recall: one is, please keep the strong federal- state partnership found in the draft. It builds on mechanisms that work and accelerates them without replacing them.

Second, with due respect, we urge you to get on with it. Congressional leadership on clean energy and climate change is long overdue. You have personally been a tremendous advocate. The movement through this body is vitally important.

And third, the promise of the clean energy economy is real. It's happening in the Commonwealth of Massachusetts. We thank you for your leadership.

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

And by the way, I just would like to say that any three of you would be a fantastic panel alone at an ordinary time. And I appreciate your understanding that time is of the essence. This is the year. Copenhagen is in December. We have to move, and we have to have these issues. And you are right -- we're getting it on, Mr. Bowles. You saw that today with the vice president and Speaker Gingrich, okay? We are in the middle of an historic debate in this committee. We thank you all very much for your participation.

While this committee -- while this panel leaves and the next one assembles behind their names, we'll take a two minute break.

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