TESTIMONY OF DAVID NEMTZOW, PRESIDENT,

ALLIANCE TO SAVE ENERGY

HOUSE SUBCOMMITTEE ON INTERIOR APPROPRIATIONS

FISCAL YEAR 2004 BUDGET REQUEST FOR ENERGY-EFFICIENCY

U.S. DEPARTMENT OF ENERGY

APRIL 3, 2003

My name is David Nemtzow, President of the Alliance to Save Energy , a bi-partisan, non-profit coalition of business, government, environmental, and consumer leaders committed to promoting energy efficiency worldwide to achieve a healthier economy, a cleaner environment and energy security. I am writing to request, generally, that funding for the energy efficiency programs of the U.S. Department of Energy be increased, and that the Buildings Technologies, and Industrial Technologies programs be restored to their Fiscal Year 2002 levels -- $9.8 million, and $41.3 million respectively. Specifically, our top priority recommendations, totaling $8.0 million, are set forth below.

The Alliance was founded in 1977 by Senators Charles Percy (R-IL) and Hubert Humphrey (D-MN). The current Chair is Senator Byron Dorgan, and Vice-Chairs are Senators: Susan Collins; Jeff Bingaman; James Jeffords and Representative Ed Markey. Seventy-six companies and organizations currently belong to the Alliance

The Alliance has a long history of researching and evaluating federal energy efficiency programs. We also have a long history of supporting efforts to promote energy efficiency that rely not on mandatory federal regulations, but on partnerships between government and business and between the federal and State governments. DOE efficiency programs are largely voluntary programs that further the national goals of broad-based economic growth, environmental protection, national security and economic competitiveness. The Office of Energy Efficiency and Renewable Energy does this through the development of new energy-efficient technology in cooperation with the national laboratories, by working with the private sector to deploy that technology, and by fostering energy efficiency activities in the states.

I appreciate this opportunity to comment on the fiscal year 2004 budget for energy-efficiency programs at the Department of Energy.

The President's FY 2004 Budget Request :

We have two general concerns regarding the FY04 request.

First, it proposes reductions of roughly 4 and 2 percent from FY02 and FY03 appropriations, respectively. Given the current volatility in energy prices, the continuing economic slowdown, and the insecurity of the nation's energy systems and supplies, we believe that now is not the time to be cutting back on investments in energy efficiency – the nation's cheapest, quickest, and cleanest energy resource.

Second, the FY04 request proposes cutting existing and successful programs in order to pay for increases for Weatherization Assistance and the fuel cell programs. The Alliance strongly supports both of these recommendations. We have serious concerns, however, that while the Administration is proposing $674 billion in tax cuts as a part of an economic stimulus plan there are decreases in other programs that have demonstrated their ability to create jobs and stimulate the economy.

In 2001, the National Research Council found that for 17 DOE energy efficiency programs they analyzed, there was a return of $20 to the economy for every dollar invested. These rates-of-return compare favorably with most investment opportunities including the stimulus effect anticipated from tax reductions. In a time of recession and high, volatile energy prices, we should be substantially increasing our investment in these successful programs instead of using them to fund other initiatives.

By our calculation, the FY 2004 budget request would reduce funding for non-fuel cell, non-weatherization programs by more than 20 percent as compared to FY 2002. That includes programs with proven cost-effectiveness such as: Lighting and Appliance Standards, Energy Star, the Federal Energy Management Program, Windows R & D, support for state adoption of building energy codes and other programs that have reduced national energy demand, cut energy costs for consumers, and created jobs through the commercialization of new technologies and products. We urge that funding for the Buildings and Industrial Technologies accounts be restored to their FY02 levels.

For example, the appliance standards program has been acknowledged by DOE to have reduced national peak electric demand by 2.5 percent. That is a huge accomplishment, achieved at a federal cost of less than $10 million per year. Equally large savings remain available assuming continued funding support. In fact, even the existing limitations on appropriations have caused DOE to fall years -- sometimes up to ten years -- behind on setting standards for products that could be providing savings for consumers and the economy. Moreover, Congress is poised to enact legislation that would substantially increase the number of rulemakings that DOE would be required to undertake. What is the logic of cutting this program?

Another program that was praised by the National Research Council is the Industries of the Future Program (IOF). IOF has historically worked in consultation with energy intensive industries to assess research needs and focus on the greatest value added for government R&D efforts. DOE seems to have largely abandoned this approach in the 2004 budget, cutting chemical, forest and paper products industries, and other program areas by more than 50 percent. In addition, the Administration has zeroed out efforts to continue similar successes in the buildings sector, eliminating its roadmap programs for lighting and windows. The justification for eliminating these programs appears to be that, if they are worth doing, then industry will fund it. Several analyses of government R&D efforts have shown that this does not hold true (Galvin, Yergin).

New Money Is Necessary

We have now had two gasoline and two natural gas price spikes in three years. Our energy prices and supplies continue their instability, costing consumers dearly to fill their gas tanks and heat their homes, and sending shocks through the economy. Robbing Peter to pay Paul is the wrong approach to national energy policy. The President's FY 2004 cuts in energy efficiency are the wrong approach. We agree that new energy efficiency research objectives need to be met, but funding should be increased to do so instead of cutting back on other equally important objectives.

Hydrogen

Hydrogen has potential to replace oil as the fuel to power our transportation system, but there are major technological problems to be solved. We cannot predict whether those hurdles will be overcome by the time those born this year will become drivers, as anticipated by the President in his State of the Union speech, or whether it will take much longer. Research and development. by its very nature, is uncertain. It is often compared to a financial investment portfolio. Diversity, and balancing risk are key considerations in developing an effective investment, or R&D, strategy. No one knows for certain whether large-scale use of hydrogen for transportation will ever become practical, let alone in the next 16 years.

Just one of the critical questions which has not yet been answered is; how to make the hydrogen? Currently, the best way to make hydrogen is from natural gas. But natural gas is currently used to heat 55 percent of American homes and is expected to fuel nearly all new domestic electric generation capacity added during the next decade. Surely, the addition of powering our extensive transportation system from natural gas will invalidate current assumptions about the future price and supply of natural gas – a commodity already undergoing tremendous price volatility.

Accordingly, we should not curtail work on increasing the efficiency with which our building and industrial sectors use natural gas, or DOE's work on improving hybrid technology and other transportation fuel efficiency technologies simply because hydrogen has the potential to be a long-term solution to transportation efficiency. Such a strategy does not properly balance the risks of failure with the likelihood of success.

Anomalies in the Budget Request

The Alliance is confounded by certain reductions in the President's budget request between fiscal years 2003 and 2004.

For FY 2003, DOE requested $6.2 million for the Energy Star program. That figure was supported in both the House and Senate Interior Appropriations bills passed last year – though reduced to $4.2 million by the Conference Committee under the stringent caps of the Omnibus legislation. The FY 2004 request is for $3.7 million, a 14 percent cut from FY 2003 actual appropriations and a 40 percent cut from the FY 2003 request. Why does Energy Star, a program which produces $75 in savings for every dollar spent, and which received glowing support in the National Energy Plan, merit such less consideration this year than last?

Another drastic change occurred in the request for the Federal Energy Management Program. For FY 2003, the President requested $27.9 million for this very successful effort to save energy in the federal government, the world's single largest energy user. FEMP has played a central role in the federal government's success in reducing energy use by 21 percent from 1985 to 2000. nevertheless, the FY 2004 request is $19.9 million. Again, there is no indication of why FEMP has been targeted for such significant reduction.

Program Management Funds

Since the reorganization of EERE last year, the budget request includes the new Program Management account, to be funded at $76.66 million in FY 2004. Previously, each of the energy-use sector programs had its own program management account to cover salaries and administrative costs. Now, these funds are consolidated in the Office of the Assistant Secretary to be disbursed at their discretion. While, the Alliance has no objection to discretion, such discretion need not preclude transparency. We believe that there should be greater disclosure regarding the intended allocation of these funds so that Congress and the public will have a clear view and understanding of the total budget that is recommended for each major program area. In fact, we remain confused about the FY04 funding levels for some programs because it is uncertain how much of these “program management” funds they will be receiving.

EERE Reorganization : Last year, our testimony presented several questions about the reorganization at EERE. After a year of experience, it is time to ask them again.

* Does the reorganization itself create shifts in program priority for EERE, and what are they?

* For which programs does the reorganization make it harder, or easier, to do business?

* How does the mandated routing of all communication activities through the Assistant Secretary's office enhance or detract from the office's ability to get its message out?

Recommendations

Generally, the Alliance to Save Energy recommends that the activities under the Building Technologies and Industrial Technologies sectors be restored to FY02 levels. Specifically, the Alliance recommends the following FY04 funding levels:

Lighting and Appliance Standards (under Equipment , Materials and Tools) – plus $2.0 million over the request, to $11.0 million;

Federal Energy Management Program – plus $2.0 million, to $22.0 million;

Energy Star – plus $2.0 million, to $5.7 million;

Industrial Best Practices (under Industries of the Future, crosscutting) – at the requested level of $8.24 million;

Window Technologies (under Building Envelop R&D) – plus $1.0 million to $4.5 million; and

State Building Codes (under State Energy Program, Building Tech. Assist.) – plus $1.0 million, to $2.8 million.

Other programs deserving of increased funding are: Thermal Insulation and Building Materials; Clean Cities; Industrial Assessment Centers; Industries of the Future – Specific; Building America; and Sensors and Control Technologies.

Finally, also with respect to FEMP, we urge the Subcommittee to include legislative language providing for a temporary extension of Energy Savings Performance Contracting (ESPC) authority. Currently, ESPCs tap over $200 million annually in private-sector funding to undertake energy efficiency projects in federal buildings. Unfortunately, this authority is due to expire on September 30th of this year. A short-term extension of two years is needed to continue the program until comprehensive energy legislation with a longer-term extension can be enacted.

Thank you again, Mr. Chairman, for offering the Alliance to Save Energy the opportunity to testify today, and for your support in past years for energy efficiency. We hope that you share our commitment to energy efficiency and to the economic, environmental, and security benefits it offers the nation. I welcome any questions that you or the Subcommittee might have.

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