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Testimony of Before the Senate Committee On Energy On Federal Programs For Energy Efficiency March 11, 2003 Introduction Mr. Chairman, Senator Bingaman, and Members of the Committee, thank you very much for the opportunity to testify before you today about the role of energy efficiency in serving as the foundation of national energy policy. My name is David Nemtzow. I am President of the Alliance to Save Energy, a bi-partisan, non-profit coalition of business, government, environmental, and consumer leaders dedicated to improving the efficiency with which our economy uses energy. Senators Charles Percy and Hubert Humphrey founded the Alliance in 1977; it is currently chaired by Senator Byron Dorgan and former CEO of Osram Sylvania, Dean Langford, with Senators Susan Collins and Jeff Bingaman serving as Vice Chairs. Over seventy companies and organizations currently belong to the Alliance to Save Energy. If it pleases the Chairman, I would like to include for the record a complete list of the Alliance’s Board of Directors and Associate members, which includes many of the nation's leading energy-efficiency firms, electric and gas utilities, and other companies providing economic savings and pollution reduction to the marketplace. The Alliance has a long history of researching and evaluating federal energy-efficiency efforts. We also have a long history of supporting and participating in 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. Federal energy-efficiency programs at the Department of Energy (DOE), the Environmental Protection Agency (EPA), and other agencies are largely voluntary programs that further the national goals of environmental protection, as well as broad-based economic growth, national security and economic competitiveness. Mr. Chairman, one thing that nearly everyone agrees on is that an energy bill should be a balance between measures to increase energy supply and demand, energy production and energy efficiency. President Bush again led the energy section of the State of the Union address with efficiency. House and Senate leaders have been unanimous in their call for strong efficiency measures as a cornerstone of an energy bill. There seems to be no argument. The only problem, Mr. Chairman, is that neither the President’s Energy Plan, the House Energy Bill of 2001, nor the Senate bill of 2002 includes adequately strong energy-efficiency measures. Each of those efforts amounted to missed opportunities whose great failing is that they aren’t really going to change things significantly. There were good provisions that we strongly support, such as tax incentives for efficient products and practices, new products for which DOE is to set minimum standards, and better guidance for saving energy in federal facilities. But in the larger picture, the potential of energy efficiency to help our economy, our environment, and our national security was largely left untapped. Mr. Chairman, my testimony will focus on what last year’s Senate energy bill did right, and where it failed. I recognize that you are holding separate hearings on transportation, electricity, fuel cells and other topics that I will discuss in this testimony; I include them because it is impossible to discuss energy efficiency without discussing these and other issues. Oil Dependence and the Economy Mr. Chairman, last year, even if the Conference Committee had successfully finished negotiations on the energy bill, it would have failed to propose any meaningful solution to our deadly dependence on foreign oil. I know that no one in the United States today needs to be reminded of the large – and growing – increase in oil prices that we’re experiencing today (nor of our stubbornly high natural gas prices). Unfortunately, Americans may also soon be reminded of the simple fact of economic history that every significant oil price shock in our history has been followed by a recession. A study by Oak Ridge National Laboratory estimates losses to the United States due to oil market turmoil – and the subsequent macroeconomic losses – at $7 trillion as of 1998. Such an incomprehensible figure doesn’t even include the downturn that began with the gasoline price shock of 2000, nor does it count the losses that are mounting daily as prices at the pump and fuel oil terminals have shot to all-time highs throughout the nation. While the uncertainty in Iraq and the Venezuela situation are the leading immediate causes of these increases, the key underlying cause is that over time U.S. and world petroleum demand is outstripping oil supply, pushing up crude and product prices for all oil consumers and depressing overall economic growth. That is why, Mr. Chairman, if – as holds a basic tenet of market economics – people acted truly in their rational economic self-interest, every CEO of a non-auto industry company would be in Washington, D.C. lobbying hard for an increase in fuel economy standards. They would be led by airline and petrochemical firms, and followed by all others with a stake in our overall economic growth with the clear message that unnecessary and excessive oil dependence leads to oil price shocks which in turn slow the economy and send consumer confidence plummeting. They cut profits, put Americans out of work, and endanger the well-being of families and children. The Alliance to Save Energy applauds President Bush’s initiative to accelerate research into hydrogen fuel cells. It is potentially a long-term solution that can help wean us from this cruel addiction to oil. It is not, however, a sure thing. President Bush sounded hopeful that we would have fuel cell cars on the market in 16 years. That may be very optimistic. Mr. Chairman, in the late 1970s, scientists told us that large scale use of fusion energy was 40 years away. The common estimate is that it is still 40 years away. We sincerely hope that widespread use of hydrogen does not turn out to be another "fusion." But we cannot rely on that gamble. Just last week, Senator Dorgan introduced S.461, the Hydrogen Fuel Cell Act of 2003 – a plan that would not only invest $6.5 billion over 10 years to develop hydrogen fuel cells, stationary cells, and the necessary infrastructure, but also set bold targets and timetables for bringing those vehicles to market with the tax credits to help make that happen. Senator Dorgan’s bill offers an aggressive Apollo-like program for a hydrogen and fuel cell future. But in the meantime, we must still ask the tough question: what will it take to lessen U.S. oil dependence? How do we get the auto industry to the table in a meaningful way? Congress can’t seem to force them to do anything meaningful on fuel economy. Do we take $50 billion out of the multi-hundred billion dollar stimulus package to make their vehicles more efficient? Can the industry be coaxed – dare I say "bribed" – with such an incentive? Are there other things that can be done beyond CAFE standards to make a dent? Are the tax credits for hybrid and fuel cells cars big enough? Should they also promote super-high efficiency traditional internal combustion vehicles? What will it take to solve the problem? This great nation restructured its economy to win World War II and rebuild Europe. We built the atomic bomb and won the Cold War. We put men on the moon. We’re the world’s only superpower – not just militarily but in IT and medical technology. Surely we can reduce demand for oil, and thus help to grow our economy, and that of the entire world. Lessening pollution and our deadly dependence on Middle East oil would seem a mere sideshow. Fuel Economy and Oil Dependence The fuel efficiency of America’s vehicles is at a 22-year low and slipping, while our oil consumption continues to increase – rising 15 percent in the last decade . Much of our oil comes from unstable, undemocratic regimes in the Middle East, many who have made the news lately as often as has Michael Jordan. It has – once again – become apparent that OPEC is driving our oil dependence, and we gave them the keys. As you know Mr. Chairman, last year, the Senate stripped out the only section of the energy bill that would have significantly saved oil – an increase in the Corporate Average Fuel Economy (CAFE) standards. Then, when Senators Carper and Specter introduced legislation that would have saved one million barrels a day by 2015, the Senate again denied Americans the chance to wean ourselves from our growing dependence on oil. But rather than go back and try to tackle this problem another way, Congress effectively chose to walk away from what is a bull’s eye on our nation’s economic and national security. Today, the auto companies just say no while Americans take the economic hit, despite the fact that enormous gains in fuel economy could be made affordably and safely just by better deploying existing technologies, as documented by the National Academy Sciences (NAS). Why? The winning opposition to fuel economy standards says that they are listening to market forces – which holds that consumers care more about false safety claims and onboard entertainment than the connection between their engines and our national security. National security and environmental protection may not be a top priority for Americans when purchasing a vehicle. After all, Americans elect Congress to make decisions on these public issues, to make the tough decisions that will strengthen our hand against the oil-producing nations who hold us hostage and to protect us against the longer term problem of global climate change. Tough decisions that take many forms – CAFE is one proven effective way of reducing our oil dependence. In fact, the National Academy of Sciences said that the current fuel economy standards currently save America 2.8 million barrels of oil each day . While some members of the Senate are clearly loathe to ask the automakers of this country to take any additional strides to protect this country, there are others who will. The Alliance to Save Energy continues to respectfully urge Members of this body to increase fuel economy standards. Mr. Chairman, there are other means of increasing the efficiency of our fuel use and reducing our oil dependence without touching the fuel economy standard but by fixing the system upon which the standard runs. One, Congress should establish standards for tires so replacement tires are as efficient as the tires are on a new car that drives off the lot, or even just a tire efficiency labeling system that would give consumers the information they need when they purchase replacement tires. Two, Congress should ensure that the fuel economy credits for dual fuel vehicles actually represent dual fuel usage. Because these credits are currently provided to vehicles that rarely see alternative fuels, they have increased the consumption of oil 18.4 million barrels beyond what would have been consumed in the absence of the credit. That loophole should be mended, or if not, ended. Three, Congress should require the testing procedures for the fuel economy of vehicles to represent real-world driving and call for "truth in testing" of the mileage ratings on vehicles. Four, and perhaps most importantly, Congress should consider allowing automakers greater flexibility by ending the light truck loophole, as Senators Feinstein and Snowe and others have called for, and adopting a single standard for all of a manufacturer's vehicles. Mr. Chairman, we are certainly not asking automakers to stop selling SUVs – just put the technologies currently available into these vehicles so that consumers who want to purchase a light truck can purchase an efficient one. It’s that simple. Manufacturers are currently using high efficiency technologies that could significantly and cost-effectively increase the fuel economy of their passenger cars and light trucks. Over the past few years, we have seen more hybrid electric vehicles on the road, and more manufacturers are finding an increase in consumer demand. Sport utility vehicles and other light trucks are incorporating this new technology. In January 2003, General Motors Corp. announced that it will offer optional hybrid powertrains on several of its most popular models including trucks, SUVs and mid-size sedans starting in late 2003 . In the same month, Toyota announced the first hybrid luxury vehicle in America, the Lexus RX SUV, will be offered in about two years and will play a role in Toyota’s plan to "bring 300,000 new hybrid vehicles to market annually by mid-decade" Ford is testing their Escape hybrid, an SUV hybrid with a fuel economy of "nearly 40 miles per gallon" that will "offer the same functionality and performance of the base product, including ensuring that the hybrid’s unique regenerative braking system delivers the same functionality and feel that have made Escape’s brakes best in their class," according to Mr. Pahokee Patel, chief engineer for the Escape hybrid. With this new light truck surpassing most passenger cars in fuel economy, there is no technological reason not to require a significant increase in fuel economy standards for all light trucks. Unfortunately without higher CAFE standards such technological and marketplace progress will be intermittent at best, and will not lead to improvements across the fleet of cars, SUVs, pickups and minivans. There are also vehicle, engine, and transmission technologies that can boost traditional internal combustion engines fuel economy, both safely and cost-effectively. There is a great deal of improvement that can be made to increase the energy efficiency of today’s cars and light trucks. About two-thirds of fuel energy is lost in the operation of our vehicles, much of that waste can be curtailed through efficient design and technology. In fact, the NAS report notes over two-dozen current and emerging technologies that can help to increase vehicle fuel economy. Many of these – such as variable valve control engines, lightweight aluminum engines, five-speed automatic transmissions, continuously variable transmission, and light weight materials – are being used in some cars and light trucks today. In addition, there are other technologies, such as turbochargers, which could make significant improvements in fuel economy if used more widely to increase fuel efficiency while lowering emissions and providing more power. Turbochargers can increase fuel economy and result in emissions reductions in CO2 and NOx of approximately 20 percent. An engine with a turbocharger may have a power output that’s as much as 40 percent higher than it would be without a turbocharger – delivering the same power with a smaller engine without having to reduce vehicle size. Of course, rather than set standards for auto companies it is possible to directly affect consumers’ calculus through price signals, such as by applying higher gasoline taxes. A gas tax – incorporating the externalities or the cost to the environment, our national security, and health impacts into the fuel – would force the consumer of the fuel in question to pay the consequences of its consumption. Yet, gas taxes are far more popular with economists than politicians, as Americans have been spoiled by artificially low gas prices. In the U.S., a gallon of gas is still cheaper than a gallon of milk and about half the price of a large latte in the "CUPS" coffee shop in the basement of Russell – yet as gas prices go over $1.50 and perhaps even $2, cries are heard around the country. And those cries will be heard this spring as retail gasoline prices are expected to set an all-time high with the U.S. Energy Information Administration predicting a peak of $1.76 a gallon as a national average next month beating the May 2001 record. Rather than making automakers to do the right thing through standards or convincing consumers through price signals, we can entice their progress through tax credits. This is not, in anyway a replacement for standards. Unless otherwise legislated, auto companies will still be taking fuel economy credits for making the vehicles on which consumers get a tax break. Senator Hatch and others reintroduced the bi-partisan CLEAR Act this year to provide tax credits for the purchase of high efficiency, advanced technology and alternative fuel vehicles. Not only did this legislation receive support from members of the environmental community and auto companies, but it was bi-partisan legislation largely incorporated into the Senate-passed version of H.R. 4 last year at a cost of a mere $1 billion over five years . Mr. Chairman, can’t we do more? With a national oil import bill of over $100 billion dollars per year , we seem to be sending money overseas to purchase oil rather than putting it into the pockets of Americans to spend or invest closer to home. Mr. Chairman, I encourage you and your colleagues to pass a tax credit for high-efficient, environmentally friendly vehicles this year. Product Standards and Various Authorizations Mr. Chairman, the federal appliance energy efficiency standards program began in 1987 and has been tremendously successful in saving energy, reducing pollution, and saving consumers money. At a cost of roughly $10 million annually to the federal government, the standards program, through the year 2000 had reduced U.S. electricity use by 2.5 percent (88 billion kwh annually) and reduced peak generating demand by approximately 21,000 megawatts. Even greater energy savings potential remains. By the year 2020, projected savings are expected to reduce U.S. electricity consumption by 7.8 percent – enough to displace 240 large (500 MW) fossil fuel power plants and reduce carbon emissions by 75 million metric tons. At the same time, consumers will save $186 billion – about $1,750 per household. We urge the Committee to include the package of standards agreed to last year by the House-Senate Conference Committee on H.R. 4. That package was composed of consensus energy-efficiency standards negotiated between energy-efficiency interest groups, including the Alliance to Save Energy, and the manufacturers of the products proposed for regulation. The agreement would have established standards, in law, for: torchiere lamps, dry-type transformers, exit signs, and traffic lights. It would also have required DOE to establish standards through rulemakings for: ceiling fans, commercial refrigerators, vending machines, unit-heaters, and so-called "vampire" or "stand-by" energy use by certain products that consume energy even when they are turned off. It was estimated that enactment of this package would result in cumulative energy savings from 2002-2020 of 12.8 Quads , making it the single most powerful energy savings element agreed to in last year’s conference. The annual savings in the year 2020 were estimated to be 100 Trillion Btu, and the resulting reduction in carbon emissions were estimated at 21.4 million metric tonnes. There are several additional standards that are currently under discussion with manufacturers, such as a standard for compact fluorescent lamps. These lamps have dramatically reduced the amount of electricity needed for lamps designed to accept the standard screw-in incandescent bulb. However, further work may be needed to assure that products meet acceptable quality and reliability standards. Negotiations are underway between energy-efficiency advocates and manufacturers to develop standards to resolve these concerns on a consensus basis. We ask the Committee to be open to including any agreement that may be reached in the coming months so that consumers can be assured not only of energy savings but of quality and reliability. Finally, we fully support and urge your inclusion of the other related provisions agreed to last year that would:
Since 1995, the Alliance to Save Energy has brought together private-sector companies and organizations with an interest in cutting federal government energy waste as the Federal Energy Productivity Task Force. I have already submitted the full testimony of the Chairman of the Task Force, Mr. Jared Blum, for the record and to summarize those views that also represent the position of the Alliance. It is important that the federal government lead the nation in energy efficiency by setting an example for wise energy use in its own facilities and operations. Few federal programs have been as cost-effective as the U.S. Department of Energy’s Federal Energy Management Program (FEMP). At an average cost of $20 million per year, FEMP has helped cut federal building energy waste by nearly 21 percent from Fiscal Year 1985 to Fiscal Year 1999 – a reduction that now saves federal taxpayers roughly $1 billion each year in reduced energy costs. Again, we urge the Committee to include the package of provisions that were agreed to in last year's Conference Committee on H.R. 4 including:
We commend Senator Bayh for his introduction of S. 1358 last Congress, the "Federal Facility Energy Management Act" and Senator Bingaman for including many of its provisions in the Chairman’s mark. In addition, the Alliance and the Task Force respectfully urge the Committee to include a provision to further expand the authority for ESPCs. Since 1992, nearly $1.1 billion in private-sector capital has been invested in energy improvement projects in federal government buildings. Given this success, it is now time to determine whether the ESPC model can be applied to projects outside of federal buildings – to transportation, where over half of federal energy use occurs, as well as to energy-intensive operations. There are uncertainties in how ESPC contracts would need to be modified in response to the differences between building and transportation (or "mobility") energy efficiency projects. Accordingly, we urge the Committee to authorize a pilot program that could gauge the level of interest in such expanded ESPC authority and that would allow agencies and private-sector partners to work through the necessary contract modifications for a range of typical non-building projects. The testimony of Mr. Blum sets forth this proposal in detail, including draft legislative language. The potential savings and benefits of the proposal are enormous. In a recent article, Amory Lovins, who was a member of the Department of Defense Science Board Task Force on Increased Fuel Efficiency , stated that the potential for DOD fuel savings alone are "upwards of ten billion dollars a year…" Given the success of the ESPC program, and the potential benefits from its expansion, we look forward to working with the Committee to determine its feasibility through this proposed pilot program The other big ticket area in which Congress failed to incorporate energy efficiency is the electric sector. Senator Bingaman had a provision in his original energy bill that could have saved upwards of 100,000 megawatts and drastically reduced the number of new power plants that will need to be built over the next 20 years to meet spiraling demand for power. It would have created a fund that would help more states invest in efficiency as more than twenty are doing on their own. But again, many utilities and others just "said no", and huge potential savings in the electric sector with significant reductions in carbon emissions will go unrealized because Congress ceased to consider energy efficiency in the debate over an electricity title. Again we need to keep asking the question, what will it take? If we do truly believe in energy efficiency – as nearly all say they do – we must keep working to find a mechanism that will help capture the potential saving that are available. How do we continue to change out end use technology that is wasteful and obsolete? Would a standard of increasing energy efficiency by 1 percent per year by utilities be unreasonable? How do we accelerate the adoption of new, more efficient generation and transmission technologies? Can’t we simultaneously stimulate investments in the grid that would make it "smarter," more demand responsive, more energy-efficient in moving electricity – and all the while more reliable? How do we capture available efficiency gains in the electric system? Mr. Chairman, I hope this is an oversight we can correct in the energy bill expected from your Committee. As I mentioned earlier, Mr. Chairman, the Alliance to Save Energy is strongly supportive of the package of tax incentives for energy efficient products and practices put forward by the Senate Finance Committee last year. We commend and thank the leadership last year of three Members of the Senate Finance Committee in particular, Senators Bingaman, Snowe and (Frank) Murkowski. We are confident that these provisions will help transform markets – particularly in the homes sector – to greater embrace energy efficient technologies and practices. Tax credits for highly efficient new homes will show home builders across the nation that incorporating energy-efficient technologies into homes is neither as difficult nor as expensive as they now think it is. Tax credits to upgrade the efficiency of existing homes will get homeowners back into the business of plugging leaky houses and help them cope with severe volatility in natural gas and heating oil markets. Tax credits for highly efficient refrigerators and clothes washers will encourage the manufacture and purchase of energy and water-saving appliances. The commercial buildings deduction will give business owners the incentive to outfit their commercial space with energy-efficient equipment, and thus save money in the process. The list goes on, including highly efficient appliances, fuel cells, combined heat and power, advanced meters, vehicles, and others. A comprehensive national energy policy must seize the opportunity to exploit energy efficiency in each of these critical areas. Public opinion is overwhelming that a true effort to increase efficiency is desired by the nation. Many times, Mr. Chairman, I have sat in hearings and listened to Senators and Representatives say that, despite our best efforts at energy efficiency, we still need to focus on production. I do not now, nor have I ever said that energy efficiency can do all that needs to be done to provide for the energy needs of this country. I will say, however, that – as a nation – we have not even begun to give our best effort to make our economy more efficient. We will need new energy production in this nation – but not before improved energy efficiency. A balanced, comprehensive energy policy must take aggressive steps to save energy wherever it is cost-effective and feasible. Energy-efficiency is our second largest energy resource, but it should be our first energy priority. Thank you again for the opportunity to testify before your Committee today. And I thank you Mr. Chairman for your career-long commitment to energy policy and for this and the extensive series of hearings that you are holding this year. I am happy to address any questions you might have. |
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