[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

IMPACT OF TAX POLICIES
ON THE COMMERCIAL APPLICATION
OF RENEWABLE ENERGY TECHNOLOGY

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON INVESTIGATIONS AND
OVERSIGHT
JOINT WITH THE
SUBCOMMITTEE ON ENERGY AND ENVIRONMENT

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

THURSDAY, APRIL 19, 2012

__________

Serial No. 112-78

__________

Printed for the use of the Committee on Science, Space, and Technology

Available via the World Wide Web: http://science.house.gov

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COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

HON. RALPH M. HALL, Texas, Chair
F. JAMES SENSENBRENNER, JR., EDDIE BERNICE JOHNSON, Texas
Wisconsin JERRY F. COSTELLO, Illinois
LAMAR S. SMITH, Texas LYNN C. WOOLSEY, California
DANA ROHRABACHER, California ZOE LOFGREN, California
ROSCOE G. BARTLETT, Maryland BRAD MILLER, North Carolina
FRANK D. LUCAS, Oklahoma DANIEL LIPINSKI, Illinois
JUDY BIGGERT, Illinois DONNA F. EDWARDS, Maryland
W. TODD AKIN, Missouri BEN R. LUJAN, New Mexico
RANDY NEUGEBAUER, Texas PAUL D. TONKO, New York
MICHAEL T. McCAUL, Texas JERRY McNERNEY, California
PAUL C. BROUN, Georgia TERRI A. SEWELL, Alabama
SANDY ADAMS, Florida FREDERICA S. WILSON, Florida
BENJAMIN QUAYLE, Arizona HANSEN CLARKE, Michigan
CHARLES J. ``CHUCK'' FLEISCHMANN, SUZANNE BONAMICI, Oregon
Tennessee VACANCY
E. SCOTT RIGELL, Virginia VACANCY
STEVEN M. PALAZZO, Mississippi VACANCY
MO BROOKS, Alabama
ANDY HARRIS, Maryland
RANDY HULTGREN, Illinois
CHIP CRAVAACK, Minnesota
LARRY BUCSHON, Indiana
DAN BENISHEK, Michigan
VACANCY
------

Subcommittee on Investigations and Oversight

HON. PAUL C. BROUN, Georgia, Chair
F. JAMES SENSENBRENNER, JR., PAUL TONKO, New York
Wisconsin ZOE LOFGREN, California
SANDY ADAMS, Florida BRAD MILLER, North Carolina
RANDY HULTGREN, Illinois JERRY McNERNEY, California
LARRY BUCSHON, Indiana
DAN BENISHEK, Michigan
VACANCY
RALPH M. HALL, Texas EDDIE BERNICE JOHNSON, Texas
------

Subcommittee on Energy and Environment

HON. ANDY HARRIS, Maryland, Chair
DANA ROHRABACHER, California BRAD MILLER, North Carolina
ROSCOE G. BARTLETT, Maryland LYNN C. WOOLSEY, California
FRANK D. LUCAS, Oklahoma BEN R. LUJAN, New Mexico
JUDY BIGGERT, Illinois PAUL D. TONKO, New York
W. TODD AKIN, Missouri ZOE LOFGREN, California
RANDY NEUGEBAUER, Texas JERRY McNERNEY, California
PAUL C. BROUN, Georgia
CHARLES J. ``CHUCK'' FLEISCHMANN,
Tennessee
RALPH M. HALL, Texas EDDIE BERNICE JOHNSON, Texas

C O N T E N T S

Thursday, April 19, 2012

Page
Witness List..................................................... 2

Hearing Charter.................................................. 3

Opening Statements

Statement by Representative Paul C. Broun, Chairman, Subcommittee
on Investigations and Oversight, Committee on Science, Space,
and Technology, U.S. House of Representatives.................. 24
Written Statement............................................ 26

Statement by Representative Paul Tonko, Ranking Minority Member,
Subcommittee on Investigations and Oversight, Committee on
Science, Space, and Technology, U.S. House of Representatives.. 28
Written Statement............................................ 30

Statement by Representative Andy Harris, Chairman, Subcommittee
on Energy and Environment, Committee on Science, Space, and
Technology, U.S. House of Representatives...................... 33
Written Statement............................................ 35

Statement by Representative Brad Miller, Ranking Minority Member,
Subcommittee on Energy and Environment, Committee on Science,
Space, and Technology, U.S. House of Representatives........... 37
Written Statement............................................ 39

Witnesses:

Dr. Molly F. Sherlock, Specialist in Public Finance,
Congressional Research Service
Oral Statement............................................... 41
Written Statement............................................ 44

Mr. John Parcell, Acting Deputy Tax Legislative Counsel U.S.
Department of the Treasury
Oral Statement............................................... 57
Written Statement............................................ 59

Dr. Michael Pacheco, Vice President, Deployment and Industrial
Partnerships, National Renewable Energy Laboratory
Oral Statement............................................... 74
Written Statement............................................ 77

Discussion 83

Mr. Rhone Resch, President and CEO, Solar Energy Industries
Association
Oral Statement............................................... 92
Written Statement............................................ 95

Mr. Terry Royer, CEO, Winergy Drive Systems Corporation, Elgin,
IL
Oral Statement............................................... 107
Written Statement............................................ 109

Mr. Steven Erby, Vice President, Monolith Solar Associates, LLC,
Rensselaer, NY
Oral Statement............................................... 111
Written Statement............................................ 113

Dr. Benjamin Zycher, Visiting Scholar, American Enterprise
Institute
Oral Statement............................................... 115
Written Statement............................................ 117

Dr. Margo Thorning, Senior Vice President and Chief Economist,
American Council for Capital Formation
Oral Statement............................................... 140
Written Statement............................................ 142

Ms. Lisa Linowes, Executive Director, Industrial Wind Action
Group, Lyman, NH
Oral Statement............................................... 158
Written Statement............................................ 160

Discussion 175

Appendix: Answers to Post-Hearing Questions

Dr. Molly F. Sherlock, Specialist in Public Finance,
Congressional Research Service................................. 188

Mr. John Parcell, Acting Deputy Tax Legislative Counsel U.S.
Department of the Treasury..................................... 192

Dr. Michael Pacheco, Vice President, Deployment and Industrial
Partnerships, National Renewable Energy Laboratory............. 197

Mr. Rhone Resch, President and CEO, Solar Energy Industries
Association.................................................... 232

Mr. Terry Royer, CEO, Winergy Drive Systems Corporation, Elgin,
IL............................................................. 253

Dr. Benjamin Zycher, Visiting Scholar, American Enterprise
Institute...................................................... 256

Dr. Margo Thorning, Senior Vice President and Chief Economist,
American Council for Capital Formation......................... 258

Ms. Lisa Linowes, Executive Director, Industrial Wind Action
Group, Lyman, NH............................................... 260

IMPACT OF TAX POLICIES
ON THE COMMERCIAL APPLICATION
OF RENEWABLE ENERGY TECHNOLOGY

----------

THURSDAY, APRIL 19, 2012

House of Representatives,
Subcommittee on Investigations and Oversight,
joint with the
Subcommittee on Energy and Environment,
Committee on Science, Space, and Technology,
Washington, DC.
The Subcommittees met, pursuant to call, at 9:42 a.m., in
Room 2318 of the Rayburn House Office Building, Hon. Paul Broun
[Chairman of the Subcommittee on Investigations and Oversight]
presiding.

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Chairman Broun. Good morning. This is a joint hearing of
the Subcommittee of Investigations and Oversight as well as the
Subcommittee on Energy and Environment. I call this meeting to
order.
Good morning. Welcome to today's joint hearing entitled,
``Impact of Tax Policies on the Commercial Application of
Renewable Energy Technology.'' In front of you are packets
containing the written testimony, biographies, and truth in
testimony disclosures for today's witnesses.
Before we get started, since this is a joint hearing
involving two Subcommittees, I want to explain how we will
operate procedurally so all Members will understand how the
question-and-answer period will be handled. As always, we will
alternate between the Majority and Minority Members to allow
all Members an opportunity for questioning before recognizing a
Member for a second round of questions. We will recognize those
Members present in the gavel in order of seniority on the full
Committee and those coming in after the gavel will be
recognized in order of their arrival.
And I recognize myself for five minutes for my opening
statement.
Taxes were due to the IRS two days ago. With this fresh on
everyone's mind, it is timely for the Committee to fulfill its
obligation under House Rule X Clause 2(c) to ``review and study
on a continuing basis the impact or probable impact of tax
policies affecting subjects within its jurisdiction.'' In this
instance we are looking at an important piece of our
Committee's jurisdiction, the commercialization of energy
technology.
As Congress debates extending renewable energy tax
provisions, it is important for this Committee to evaluate the
merits of these provisions as well as the President's overall
request. At a fundamental level, we have to understand whether
these subsidies have a positive net affect, not only on energy
production but also on jobs and the economy as a whole.
More specifically, we also need to evaluate whether the
mechanisms previously employed, the tax credits and grants, are
the most efficient ways to proceed.
Until the passage of the stimulus bill, the primary tax
mechanisms for incentivizing renewable energy were the
Production Tax Credit and Investment Tax Credit. The passage of
the Stimulus Bill brought about additional methods, including
the Advanced Energy Manufacturing Tax Credit, also known as
48C, and the 1603 Program, which provided cash grants in lieu
of tax credits. Both of these are administered by the
Department of Treasury with support from the Department of
Energy and the National Renewable Energy Laboratory. Altogether
the PTC, ITC, 1603, and the 48C and other renewable energy
provisions are estimated to cost $43.1 billion between 2011 and
2015.
A lot of attention has been paid to the failures of
Solyndra, Beacon Power, and Ecotality, which received
questionable support from DOE, and rightfully so. What many
don't realize, however, is that these direct expenditures from
DOE are a mere drop in the bucket compared to what these
technologies received from tax provisions. In 2011 alone, tax
preferences for all energy technologies cost $20.5 billion, far
exceeding the $3.2 billion in direct support from DOE.
Unfortunately, these significantly greater expenditures have
not shared the same level of oversight.
Today's hearing will examine the efficacy of renewable
energy tax policy, the Administration's 2013 renewable tax
energy proposals, and the 1603 and 48C Programs in detail.
Regarding the 1603 Program, it is important to understand
just how many new jobs were actually observed as opposed to how
many jobs a model predicts could have been created. It is also
important to understand the net impact on jobs and energy
production as a result of this specific provision, not simply
what is happening on one side of the ledger. I also want to
know how many of these jobs were actually created here in the
United States as opposed to overseas.
Ultimately, our goal should be to ensure an efficient, all-
of-the-above strategy with--that respects market decision and
does not pile more debt on our children and grandchildren that
they will have to pay in years to come. The current national
debt is over $15.6 trillion. China currently holds 1.18
trillion of our Nation's $5.1 trillion foreign-owned debt. It
doesn't make any sense for us to borrow more money from China
and then use it to buy foreign renewable energy components.
These technologies, I might add, are unfortunately not cost
competitive and will make our domestic energy more expensive.
All of this, by the way, is done to reduce our own
greenhouse gas emissions when China and the rest of the
developing world account for most of the emissions growth.
[The prepared statement of Mr. Broun follows:]
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Chairman Broun. Now the Chair will recognize Mr. Miller, I
guess, for his opening statement.
Or Mr. Tonko. I didn't see you sitting over there, my
friend. I will recognize Mr. Tonko, my counterpart on I & O.
Mr. Tonko. Thank you, Chairman.
To Chairs Broun and Harris, thank you for holding the
hearing today on renewable energy tax credits. Although the
legislation authorizing these incentive programs is not in our
jurisdiction, it is good for this Committee, I believe, to
examine the subsidies that can influence markets in those
technology sectors where we authorize research.
Here in the Science Committee we authorize the full suite
of research, development, and technology demonstration programs
that bring new ideas and new technologies forward. Many things
fall by the wayside along that path, but even the most
promising demonstrated technology still has to overcome many
barriers to entry into the marketplace.
We have a long tradition of government support for
business, particularly for the energy business: government
procurement, tax credits, government certification programs,
patent and copyright laws, and public, private partnerships to
name a few. All of these instruments and more have been used to
help businesses get established and flourish.
We have a pressing need for an affordable staple supply of
energy. Renewable energy must move forward and become a larger
share of our energy supply. The investment and production tax
credits, the 1603 Program, and the depreciation benefits for
renewable energy properties are all needed to accelerate the
entry into the market of renewable energy technologies, grow
the domestic market for these technologies, and certainly
create jobs.
I support these programs because they work. Some of them
need to be expanded to promote wider applications of new energy
technologies. A number of them need to be sustained for longer
periods of time that are more appropriate to invest horizons,
to investment horizons than the Congressional budget cycle.
On April 15 of last year I introduced H.R. 1659, a bill to
expand the existing credit for fuel cell motor vehicles to
include industrial-use vehicles. The United States is currently
the leader in the manufacture of fuel cell technologies. If we
grow the domestic market, we will continue to lead in this
area. But if we withdraw our support, as we did with solar in
the 1980s, we risk losing this manufacturing edge.
In my former position as president and CEO of the New York
State Energy Research and Development Authority, I saw how
effective and essential State and federal investment was to the
development of these businesses. The partnership between the
federal and State government, universities, and entrepreneurs
in New York State is paying dividends in the form of jobs and
energy.
I am very pleased to have Mr. Steven Erby sit before the
committee today. He is the vice president of Monolith Solar
Associates, which is a solar energy company from my district.
Mr. Erby and his associates know firsthand the value of these
tax policies to entrepreneurs. Starting your own business is
not a task for the faint of heart. Convincing customers to try
something new is, indeed, difficult. But, Mr. Erby and his
partner, Mark Fobare, have achieved success and continue to
create jobs and hire residents in the Capital Region.
This is an economic success story that I would like to see
repeated throughout our country. The 1603 Program helped them
to achieve success. It made the Federal Government a true
partner in job creation and deployment of solar energy in the
Northeast Region, and it put government on their side, not on
their backs. We need to make a sustained commitment to expand
alternative energy production and to improve energy efficiency,
the two most reliable ways to reduce our dependence on foreign
oil, insulate ourselves from volatile fuel prices, and maintain
a clean environment.
We have relied on fossil fuel since the start of the
Industrial Revolution, and we have invested a tremendous amount
of taxpayer funds to support the oil, gas, and coal industries.
Nuclear energy, the newer kid on the block, has received
federal support for over 70 years as we all know. The oil
industry has been in business since 1918, and made profits of
over $100 billion last year alone, and they will still receive
over $4 billion in subsidies each year.
It is impossible to make a case for the necessity of
maintaining this level of support for such a mature industry.
In fact, we might say it is mindless in terms of the handout of
that benefit.
Renewable energy technologies must compete against the
existing energy sources with federal support that constantly
threatens to pull the rug out from under their feet. A move to
renewable energy sources requires a similar level of support
and commitment to the one we offer to oil and gas and our
nuclear industry.
The renewable tax credits we are examining today are
working. They are working and need to be continued. We talk a
lot about supporting small business, having affordable
domestically produced energy, and a healthy environment. It is
meaningless if we do not back that rhetoric with real
resources.
I look forward to hearing from our witnesses today. It is
unfortunate that we are only examining the tax provisions
relevant to the renewable energy community. A fair evaluation
of our tax policy requires a view of the entire energy tax
landscape, including century-old oil and gas tax breaks. I hope
our colleagues on Ways and Means will move forward with the
renewal of these important clean energy tax provisions so that
companies eager to provide the market with clean energy
technologies will, indeed, have a fair chance, a fair chance to
deliver them.
With that I thank you and yield back, Mr. Chair.
[The prepared statement of Mr. Tonko follows:]

Chairman Broun. Thank you, Mr. Tonko. The Chair now
recognizes the Chairman of the Subcommittee on Energy and
Environment, Dr. Harris, for your opening statement. You have
five minutes, sir.
Dr. Harris. Thank you very much, Mr. Chairman. As you said,
as millions of Americans filed their taxes this week, many
surely stopped to ponder what happens to the thousands of
dollars they send to Uncle Sam. A good chunk of that money,
nearly $14 billion last year, according to CBO, is spent
offsetting the cost of renewable energy tax credits. Despite
their staggering price tag, which is more than five times
greater than renewable energy research and development
spending, these programs have operated in relative obscurity.
Today's hearing is intended to examine the impact and
effectiveness of these credits as Congress considers President
Obama's call to extend funding them with taxes on hardworking
American taxpayers.
As we evaluate these subsidies, it is important to remember
that the President promoted them as not only central to his
effort to fight global warming but also as generating jobs that
would drive America's economic recovery. By this metric, the
results have been extremely disappointing.
For example, a recent Wall Street Journal report found that
the Section 1603 Program created in the Stimulus Bill to
provide companies lump sum cash payments of up to 30 percent of
a project's cost resulted in far fewer jobs than expected. The
report noted that collectively applicants stated in program
applications that their projects would create more than 100,000
jobs. However, the Journal's analysis of $4.3 billion of those
wind projects, representing about 40 percent of the total
program funding, estimated that only 7,200 jobs were created at
the peak of construction and that those projects now employ
only 300 people.
Similarly, Reuters reported last week that the wind
industry has lost 10,000 jobs since 2009, while the oil and gas
industry added 75,000 jobs during that time.
In addition to concerns associated with the high cost and
weak job creation resulting from these programs, the
electricity produced by wind and solar represents less than
three percent of current generation, can cost up to five times
as much to produce per kilowatt hour, and must be backed by
additional baseload capacity to take over when the wind doesn't
blow and the sun doesn't shine.
Perhaps most importantly even with generous government
subsidies consumers are ultimately required to shoulder the
costs of renewable electricity directly in the forms of higher
electric bills and indirectly in the higher costs passed onto
them by businesses that also pay more for electricity.
This exact situation is currently under consideration in my
home State of Maryland, where Governor O'Malley continues to
push and mandate, push to mandate and subsidized with federal
taxpayer dollars development of a $1.5 billion offshore wind
farm. If adopted, his plan would increase significantly the
electricity bills of nearly every resident in the State.
I would note as an aside that this proposal has generated
concerns of Solyndra-like cronyism, as the governor's former
chief of staff is now managing partner at an offshore wind
energy firm that could stand to benefit from passage of the
plan.
As this debate continues, the free market in energy is
already providing a cost saving alternative in the form of a
technology-driven revolution in natural gas production that can
deliver clean, reliable, baseload electricity to consumers at
lower prices.
The contrast between these two paths is stark. The
President's one is a centrally planned, politically driven path
requiring taxpayers and ratepayers to pick up the tab for more
expensive energy. The alternative would allow technology in the
free market to determine the best and most affordable mix of
electricity sources without burdening hardworking taxpayers and
driving up already huge federal deficits.
As Congress considers the President's call to extend these
subsidies, I hope these choices are the subject of thorough and
open debate, taking into account the hardworking American
taxpayer and the hardworking American electricity rate payer.
Thank you, Mr. Chairman.
[The prepared statement of Dr. Harris follows:]

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Chairman Broun. Thank you, Dr. Harris.
The Chair now recognizes Mr. Miller for your opening
statement. You have five minutes, sir.
Mr. Miller. Thank you, Mr. Chairman.
It is funny to remember that when I was first elected to
Congress, first entered Congress nine years ago, I found
partisan warfare tedious and wanted to pick committee
assignments that would not just put me in one litmus test
battle after another. The issues I had worked on the state
legislature would have been in the jurisdiction more of the
Judiciary Committee or of the Education and Labor or Education
and the Workforce Committee, but those Committees were just
seen as partisan battlegrounds with one litmus test vote after
another and no real opportunities for imaginative, constructive
work by Members of Congress.
I apologize to the Members of those Committees if they
think that is an unfair characterization, but that was the
impression of those Committees and why I did not particularly
want to be on those Committees. I picked Committees that
traditionally had not been divided along partisan lines--
Financial Services and Science and Technology--now two
Committees that are one partisan litmus test after another, it
appears.
In the past, there seemed to be broad agreement about the
importance of science, the importance of research for its own
sake, to satisfy our curiosity--a deep human need--but also in
recognition that our economy depended upon research, and it
depended upon getting ideas from the laboratory to the
marketplace; that we prospered because we were the most agile,
innovative, energetic economy in the world.
Within our lifetimes, we have seen our economy transformed
by information technology, and that revolution, that
technological revolution, like others, has not been the result
just of an unfettered free market, but it has been the work of
the whole Nation--the public sector and the private sector. The
internet began as a DARPANET, created by government research,
and it is very clear, or should be very clear, that our energy
future is going to be different from our energy past, and we
need to be in the forefront of developing those new
technologies as well.
But instead of having that broad agreement about the need
to help emerging technologies that are obviously our future, it
leaves--had one partisan litmus test, vote, or issue after
another. There is doctrinaire opposition to clean energy as
picking winners or losers or crowding out private investment,
when in fact the conventional sources of energy have benefited
spectacularly over the last century from hundreds of billions
of dollars of taxpayer support. They have not been the result
of a free market, whether it is from outright subsidies or tax
breaks, limitations of liability. And if you wonder if the
Price-Anderson Act really is a significant subsidy for the
nuclear industry, look at what is happening right now in Japan.
Yes, there has been a large government involvement in
encouraging new energy sources. The ones that we have now had
benefited from that, and the energy sources of our future need
to as well.
I think we all on this Committee sometimes covet the
jurisdiction of other Committees, and we are frustrated at the
limitations of our legislative authority, our legislative
jurisdiction, and we take a more expansive view of our
jurisdiction for hearings. I was guilty of that when I was
Chairman of the Subcommittee, Oversight Subcommittee, this
Committee, for four years. We certainly had hearings where if
we had actually legislated, we probably would have been in a
fistfight with the Energy and Commerce Committee or other
Committees.
But this hearing does not appear to be within hailing
distance, within sight, of this Committee's jurisdiction if we
actually try to legislate in this area. I think we are
interested in how we need to help, or whether we should help
emerging energy technologies, but this is a very imaginative
reading of the Committee's jurisdiction.
With that, I look forward to hearing the testimony of our
witnesses today. Thank you.
[The prepared statement of Mr. Miller follows:]

Chairman Broun. Thank you, Mr. Miller. I would like to
remind you that the hearing is conducted pursuant to Clause 1P6
of House Rule X, which assigns the Committee on Science, Space,
and Technology jurisdiction over the commercial application of
energy technology, and Clause 2C of House Rule X, which
requires each standing committee to review and study on a
continuing basis the impact or probable impact of tax policies
affecting subjects within its jurisdiction.
So we do have jurisdiction over this subject today, and I
am sure my good friend from North Carolina has probably just
overlooked that.
Going forward, I thank Mr. Miller for your opening
statements and wish--if there are any other Members who wish to
submit additional opening statements, your statements will be
added to the record at this point.
At this time, I would like to introduce our first panel of
witnesses. First is Dr. Molly Sherlock, a Specialist in Public
Finance to the Congressional Research Service. Mr. John
Parcell, the Acting Deputy Tax Legislative Counsel of the U.S.
Department of Treasury, and Mr. Michael Pacheco, the Vice
President of Deployment and Market Transformation at the
National Renewable Energy Laboratory.
As our witnesses know, I think you all know, spoken
testimony is limited to five minutes each, after which Members
of the Committee will have five minutes each to ask questions.
Your written testimony will be included in the record of the
hearing. It is the practice of the Subcommittee on
Investigations and Oversight to receive testimony under oath.
We will use that practice as well today.
Do any of you have an objection of taking an oath?
Let the record reflect that all witnesses shook their head
from side to side in the common notion of no.
You also may be represented by counsel. Do any of you have
counsel here today with you?
No. Okay. Let the record reflect also that the witnesses
have indicated that none have counsel.
If you would now please stand, raise your right hand.
[Witnesses sworn.]
Chairman Broun. Yes. Okay. Let the record reflect, you all
may be seated, that all the witnesses have taken the oath of
truth.
We will now recognize our first witness from the first
panel, Dr. Sherlock, with the Congressional Record Service. You
have five minutes.

STATEMENT OF DR. MOLLY F. SHERLOCK,

SPECIALIST IN PUBLIC FINANCE,

CONGRESSIONAL RESEARCH SERVICE

Dr. Sherlock. Thank you. Mr. Chairman and Members of the
Subcommittee, on behalf of the Congressional Research Service,
I thank you for the opportunity to appear before you today.
There are three main points I was asked to discuss in
today's testimony. First, I will identify the primary tax
incentives that support renewable energy. Second, I will
briefly discuss renewable energy proposals in the President's
fiscal year 2013 budget request. Finally, I will note the
characteristics of an economically efficient energy tax policy.
These comments summarize longer written testimony, which has
been submitted for the record.
Historically, the primary tax incentives for renewables
have been the Renewable Energy Investment Tax Credit, or ITC,
and the Renewable Energy Production Tax Credit, or PTC. The ITC
was first introduced in 1978. Currently, a 30 percent tax
credit is available for investments in solar energy property,
fuel cells, and small wind systems. A 10 percent tax credit is
available for geothermal systems, microturbines, and combined
heat and power property. The ITC is scheduled to expire at the
end of 2016, although there is a permanent 10 percent ITC for
certain solar property. In fiscal year 2011, the renewable
energy ITC cost $300 million in terms of foregone revenue.
The PTC was first introduced in 1992. While the PTC was
introduced as a temporary tax incentive, in the past it has
regularly been extended. The PTC for wind is scheduled to
expire at the end of 2012. The PTC for other eligible
technologies, including biomass, geothermal, landfill gas,
municipal solid waste, certain hydroelectric, and marine and
hydrokinetic technologies, is scheduled to expire at the end of
2013. In fiscal year 2011, the renewable energy PTC cost $1.4
billion in terms of foregone revenue.
The American Recovery and Reinvestment Act of 2009
introduced two new tax-related provisions for renewable energy
that have increased the overall cost of renewable energy tax
incentives in recent years.
First, investors eligible for the renewable energy ITC or
PTC could elect to receive a one-time grant from the Treasury
in lieu of these tax benefits. This provision, often referred
to as the Section 1603 Grant, is only available to projects
that were under construction before the end of 2011.
As of March, more than $11 billion has been paid out under
the Section 1603 Grant Program. Of this, $4.7 billion was paid
out in 2011. Additional grants will be paid out as qualifying
projects are completed. Through the end of 2017, it has been
estimated that an additional $11.5 billion will be paid out in
Section 1603 grants, bringing the total estimated cost of the
program to $22.6 billion.
Also established as part of the Recovery Act was the
Advanced Energy Manufacturing Tax Credit. In January, 2010,
$2.3 billion in tax credits were awarded to 183 advanced energy
manufacturing projects. These tax credits were allocated
through a competitive process, and a number of technically
eligible projects were not awarded tax credits.
The President's fiscal year 2013 budget contains a number
of proposals that would extend and modify certain tax
incentives for renewable energy. The Administration supports
extending the PTC for wind, as well as an extension of the
Section 1603 Grant Program. Under the Administration's
proposal, the Section 1603 grant would be replaced with a
refundable tax credit starting in 2013. The Joint Committee on
Taxation has estimated that these proposals would cost $5.7
billion. The Administration has also proposed an additional $5
billion allocation for advanced energy manufacturing tax
credits.
I would like to conclude by noting some characteristics of
an economically efficient energy tax policy.
First, cost-effective incentives are those that encourage
changes in behavior rather than those that reward current
practices.
Second, incentives made available to a broad range of
technologies avoid picking winners.
Third, if the goal is renewable energy production,
incentives that reward production are preferred to those that
reward investment.
And finally, energy tax policy does not exist in a vacuum.
Tax policies may interact with, or be redundant to, other
policies supporting renewable energy.
Thank you, again, for inviting me to appear today. I am
happy to respond to your questions.
[The prepared statement of Dr. Sherlock follows:]

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Chairman Broun. Thank you, Doctor.
Our next witness is John Parcell, Department of Treasury.
You have five minutes, sir.

STATEMENT OF MR. JOHN PARCELL,

ACTING DEPUTY TAX LEGISLATIVE COUNSEL,

U.S. DEPARTMENT OF THE TREASURY

Mr. Parcell. Good morning, Chairman Broun, Chairman Harris,
Ranking Member Tonko, Ranking Member Miller, and Members of the
Subcommittees. Thank you for inviting me to testify before your
Subcommittees today. I appreciate this opportunity to discuss
the energy proposals in the President's fiscal year 2013
budget.
By way of background, the Administration believes in an
all-of-the-above energy strategy, a strategy that relies on
producing more oil and gas here in America but also producing
more wind power, more solar power, more fuel-efficient cars,
and other renewable power and energy-efficiency improvements.
The American Recovery and Reinvestment Act of 2009, or the
Recovery Act, took an important step in that direction by
providing more than $80 billion for investment in clean energy
technologies, the largest investment in clean energy in
history. As a result, the United States has nearly doubled
renewable energy generation since 2008.
With this as background, let me turn to the tax-related
proposals in our budget relating to renewable energy and energy
conservation.
First, the budget proposes to expand the Recovery Act tax
credit for investments in advanced energy manufacturing
facilities. This credit, under Section 48C of the Code, was
designed to help America take the lead in the manufacture of
wind turbines, solar panels, electric vehicles, and other clean
energy and energy conservation products.
The Treasury Department and the Department of Energy have
cooperated in awarding the $2.3 billion of credits authorized
by the Recovery Act, awarding credits to 183 projects in 43
States to support the development of a clean, of a domestic
clean energy manufacturing base and the new clean energy jobs
that entails.
The $2.3 billion cap on the credit has resulted in the
funding of less than one-half of the technically acceptable
applications that have been received. The budget proposes an
additional $5 billion in credits that would support at least
$15 billion in total capital investment. Because there is
already an existing pipeline of worthy projects and substantial
interest, this additional credit could be deployed quickly to
create jobs and support economic activity.
Second, the budget proposes to extend the Production Tax
Credit under Section 45 of the Code, and the Investment Tax
Credit under Section 48 of the Code, for wind facilities for an
additional year. Thus, the two credits would apply to wind
facilities placed in service in 2013.
In addition, the budget proposes to extend the Section 1603
Program. This program, as Dr. Sherlock pointed out, allows
taxpayers to receive a cash payment instead of the Section 45
and Section 48 credits. The proposal would extend the Section
1603 Program to all otherwise qualifying property placed in
service in calendar year 2012.
Under current law, property placed in service in 2012 would
be eligible for a Section 1603 payment only if construction had
begun before the end of 2011.
For property placed in service after 2012, the budget
proposes to replace Section 1603 Program with the Refundable
Tax Credit. This refundable credit would apply to all property
placed in service after 2012 that would be eligible for a
Section 1603 payment under current law, as well as to otherwise
eligible property that would not have been eligible under
current law because construction on the property began in 2012
or 2013.
Next, I would like to briefly mention some other tax
initiatives in the budget that will help spur the development
of America's renewable energy potential.
The budget proposes to focus the current nine percent
credit for domestic production activities more narrowly on
manufacturing and to increase the deduction for the manufacture
of advanced technology property to approximately 18 percent.
The budget also proposes to make permanent an expanded
research and experimentation credit to expand the tax credit
for advanced technology vehicles, provide a new credit for
alternative fuel trucks, and to convert the existing deduction
for energy-efficient commercial buildings into a more valuable
tax credit.
Finally, the budget proposes to extend through 2013 a
number of expired or expiring energy-related tax provisions.
The invitation to testify requested discussion of the
implementation of the Section 1603 and 48C Programs. I will
focus on the 48C Program and leave the Section 1603 Program to
Dr. Pacheco.
The 48C Program is administered by the Internal Revenue
Service. As in the case of Section 1603, it requires energy
and--engineering and scientific expertise from the Energy
Department, and we have contracted with the Office of Energy
Efficiency and Renewable Energy and DOE to assist in the review
process, which is largely complete at this point.
I see my time has expired. I thank you.
[The prepared statement of Mr. Parcell follows:]

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Chairman Broun. Thank you, Mr. Parcell, and I really
appreciate your being here and the Department working with us,
and thank you so much for working with us and giving us your
expertise.
Dr. Pacheco, you are recognized for five minutes. We are
fixing to have some votes. They are scheduled right now. You
will have time to finish, but we will not be able to get into
questioning. We are going to have to rush off to vote, so what
we will do is recess the Committee after Dr. Pacheco, so we
will have about a 25- to 30-minute recess. We will resume 10
minutes after the last vote begins, so if everybody would come
on back quickly so we can get through the questioning of this
panel and get to the second panel.

Dr. Pacheco, you are recognized for five minutes.

STATEMENT OF DR. MICHAEL PACHECO,

VICE PRESIDENT, DEPLOYMENT AND MARKET TRANSFORMATION,

NATIONAL RENEWABLE ENERGY LABORATORY

Mr. Pacheco. Good morning, Chairman Broun, Chairman Harris,
Ranking Members Miller, Tonko, and other Members of the
Subcommittees. Thank you for this opportunity to discuss the
technical role that the U.S. Department of Energy's National
Renewable Energy Laboratory or NREL has played in designing,
developing, and implementing and doing some preliminary
analysis on the impact of 1603.
Section 1603, the Grant Program, was created under the
Recovery Act to support the deployment of renewable energy
resources and to help address the financial crisis at a time
when the lack of financing, coupled with a steep decline in tax
equity investors, was severely limiting the ability of
renewable energy developers to move forward with projects.
1603 offered businesses the option of a one-time cash
payment in lieu of the Production Tax Credit or the Investment
Tax Credit found in Revenue Codes 45 and 48, respectively. To
be eligible for the program, projects originally had to meet
the requirements by the end of 2010, which was later extended
to the end of 2011.
NREL's involvement in 1603 began almost immediately after
the President's signing of the Recovery Act in 2009. Treasury
and Energy officials came to NREL requesting the lab's support
in implementing the newly enacted 1603 provisions.
Congress clearly intended, and economic conditions
demanded, that a working 1603 Program be rolled out quickly.
Pivoting from the existing tax credits to cash payments
required very careful scrutiny and deliberate execution of the
prior tax credit rules in the form of new cash payments, and
the development of an application, review, and payment
procedures. Working very closely, a group from NREL got
together the Internal Revenue Service, Treasury, Department of
Energy. This group worked for a period of several months early
in 2009, to develop and put in place the 1603 Program.
A key early task was developing the guidance document with
explicit definitions of which technologies would met the
requirements of the IRS Tax Code.
We also had to assemble a team of skilled individuals in
order to manage the application process and review the
applications. While assembling the project team, we also worked
on a daily basis with Treasury to design the most credible,
effective, and transparent review program possible. Our work
has also included the design, the development, and the
maintenance of an effective and secure Web-based system for the
applications in the data base for that information. This has
become known as the external face of the program.
We instituted a very rigorous review process to ensure
careful technical scrutiny of every application, making certain
the projects are eligible for the payment that they would
receive from Treasury. Reviews of submitted applications are
conducted in a systematic way by an interdisciplinary team with
experts educated in, and very experienced in, engineering,
accounting, legal, and a variety of other technical and
business disciplines.
The 1603 team also draws on the deep and broad expertise
across all of NREL to provide whatever technical expertise is
needed for the project.
We developed a staffing strategy early in 2009 to ensure
that the 1603 Project would have all the skills needed, and the
capabilities, plus the flexibility to flex the staffing up or
down as the applications increased or decreased, recognizing
that the review process and the staffing strategy had to meet
the statutory requirement to reply to applicants within 60
days.
Some of the applications are more, are much more complex by
nature and require a back-and-forth communication with the
applicant. All applications are rigorously evaluated against
the criteria based on the tax codes. Every application goes
through two reviews at NREL and then a third review at
Treasury.
On average, NREL completes our reviews in about 35 days.
Once our reviews are complete, the applications, along with our
recommendations, go to Treasury. Treasury officials conduct
their own review and make the final decision on approving or
denying the grants and fulfilling any payments that are
forthcoming.
To date, some 41,000 applications have been received, and
approximately 35,000 have been reviewed. About 3,000 are
awaiting completion to be processed and about another 3,000
have been withdrawn or disqualified.
Totally independent from our work for Treasury, the
Department of Energy's Energy Efficiency and Renewable Energy
Office asked NREL to conduct a study in late 2011, on the
economic impact of 1603. The study, entitled ``A Preliminary
Analysis of the Jobs and Economic Impacts of the Renewable
Energy Projects Supported by Section 1603 of the Treasury Grant
Program,'' found that as of November 10, 2011, up to 75,000
direct and indirect jobs, and up to $44 billion in total
economic output, were supported by just the PV and the large
wind projects that received a cash grant under 1603.
The same NREL study estimates that operation and
maintenance of these facilities will support another $5,000--
5,000 jobs per year and up to $1.8 billion annually in economic
output over the 20- to 30-year lifetime of these projects. If
that study were completed again today with the up-to-date
figures from 1603, the economic estimates and the jobs
estimates would be significantly higher.
Mr. Chairman, thank you for the opportunity to testify here
today, and I would also like to thank my colleagues at U.S.
Treasury and Department of Energy for calling on NREL to
support them on the implementation and the analysis of 1603.
I would welcome any questions after the break.
[The prepared statement of Mr. Pacheco follows:]

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Chairman Broun. Dr. Pacheco, thank you so much. You hear
all these buzzers going off. That is the indication on our
votes. What we will do is, if you all will just stand by, I am
going to recess the Committee until 10 minutes after the
beginning of the last recorded vote. We will hurry back so we
can turn you all loose, and I thank you all for your patience.
[Recess.]
Chairman Broun. Committee comes back to order. I thank you
all for your testimony. I want to remind Members that the
Committee rules limit questioning to five minutes per Member,
and at this point the Chair will open the first round of
questions, and I will recognize myself for five minutes.
Dr. Pacheco, a recent NREL study analyzing the jobs and
economic impacts of the 1603 Program estimated that it
supported between 50,000 to 75,000 jobs a year. Very quickly, I
would like to clear up some confusion as to what this report
does as well as what it does not say.
Did NREL attempt to calculate how many jobs were actually
created, or did it enter grant application data to calculate
how many jobs could have been created?
Dr. Pacheco. Congressman Broun, the NREL approach on that
was what we did was took the total number of projects, the
types of projects, and the size of those projects, and we used
that information on the--at the time the study was done around
23,000 projects as opposed to the current number. And from that
we went ahead and calculated how many jobs were supported by
those projects.
Chairman Broun. So formally we don't really know.
Dr. Pacheco. I wouldn't say that we don't really know. It
is based on the models that----
Chairman Broun. It was based on a model and not actual
calculation of jobs. Correct?
Dr. Pacheco. It is based on a calculation of jobs.
Chairman Broun. How many of the projected jobs are direct
jobs rather than indirect jobs, Dr. Pacheco?
Dr. Pacheco. I have the detailed numbers, but the split is
in favor of the direct jobs, and I would have to look at the
numbers to give you the exact numbers, which I have right here.
Chairman Broun. Could you do that quickly because----
Dr. Pacheco. Yeah.
Chairman Broun [continued]. My time is limited?
Dr. Pacheco. Yes, I can.
Chairman Broun. Okay.
Dr. Pacheco. So of those numbers the--well, actually, I
don't have the split that you are looking for.
Chairman Broun. If you would get that for us----
Dr. Pacheco. Sure. I will provide that.
Chairman Broun. And, again, is this just calculated jobs,
or is this actual--this is a calculation also?
Dr. Pacheco. It is calculated. Yes.
Chairman Broun. Okay. The study also estimated that only
between 30 to 70 percent of the components of projects, which
is a wide range of turbines, towers, et cetera, were
manufactured in the U.S. but also that these estimates,
``should not be construed as full bounding uncertainty.''
Could these projects contain less than 30 percent of
domestically produced components?
Dr. Pacheco. Yes. It is possible.
Chairman Broun. So we don't really know what it could be.
It could be 10 percent, it could be 70 percent, it could be
anything. Right?
Dr. Pacheco. That is correct.
Chairman Broun. Thank you. How many of these jobs and how
much economic support went to China, Europe, and elsewhere as
opposed to being here in the U.S.?
Dr. Pacheco. This was a very preliminary report, and we did
not have those details from this report.
Chairman Broun. So, again, it is just an estimation. Is
that correct?
Dr. Pacheco. That is correct.
Chairman Broun. Okay. The NREL study also indicated that
job estimates cannot be attributed to the 1603 Program alone
and that it does not calculate the net effects of displaced
jobs from other industry sources. NREL was very specific
characterizing what its report said, going to great lengths to
caveat its findings. DOE, on the other hand, has indicated that
the NREL study makes clear that projects receiving payments
from the 1603 Program has supported tens of thousands of jobs
``then.''
This is at odds with the findings of the February 24 Wall
Street Journal report that questions the actual job impact of
the 1603 Program. Additionally, last November, CRS Report on
the Section 1603 Program that Dr. Sherlock co-authored with
Phillip Brown stated, ``Any job creation estimate'' attributed
to the program ``be viewed with skepticism.''
Can the panel help me understand how many jobs were
actually created? Dr. Pacheco.
Dr. Pacheco. Congressman, that is a very difficult number
to actually calculate and estimate and really requires some
intense study. What we did in our study was to use the models
that we have and actually had to tailor those models slightly
for this particular application.
Chairman Broun. So we don't know. Anybody else? My time is
about to run off. I apologize for cutting you off. Anybody
else? Dr. Sherlock? Anybody?
Okay. To Mr. Parcell, has Treasury assessed the annual
reports from 1603 recipients to verify their projects are
operating and employing workers?
Mr. Parcell. Yes. Treasury requires annual reports from
each project that has received an award on how much--whether it
is generating energy and whether it continues to satisfy the
conditions for award.
Chairman Broun. Have you all audited assessments at all and
verified anything? Yes or no, please. My time has run out.
Mr. Parcell. Yes.
Chairman Broun. You have audited?
Mr. Parcell. The Inspector General has audited certain----
Chairman Broun. Please provide that for us.
My time has expired. Now I will recognize Mr. Tonko for
five minutes.
Mr. Tonko. Thank you, Mr. Chair. I am glad we are having
this hearing, because I think it is important that we
understand the role of subsidies in supporting our energy
economy.
I am a supporter of a broad array of tools to help this
country transform our energy economy. We need to diversify our
energy sources, and we need to reduce our dependence on foreign
sources of energy. So we need to reduce our emission of
greenhouse gases, also. We also need to change our energy
economy to grow industries that will keep American jobs here
and provide export opportunities for our products.
I am pleased to learn about how successful, listening to
the panelists, that the Section 1603 Program has been, and I
would like to see us extend it. For those who think it is
foolish to subsidize the renewable industry, I would like to
point out that there is no sector of our energy economy that
has ever developed without government subsidies and no sector
today that doesn't receive a wide array of government support.
I want to show just two charts to help illustrate my point.
They are both from a report by a venture capital firm, DDL
Investors, entitled, ``What would Jefferson do?'' The first
chart shows the aggregate level of subsidies for our oil, gas,
nuclear, biofuel, and renewable industries. The oil and gas
industries dwarf, dwarf all others, receiving $447 billion in
subsidies between 1918 and 2009. Nuclear ranks second with $185
billion, biofuels ranked third with $32 billion, and our
renewables are a distant fourth with just $5.93 billion between
'94 and 2009.
Now, we can quibble about what was included in this
analyst's count and what was left out, but the scale of the
subsidies would not change appreciably, even if we put in the
Carter era, solar investments, for example.
So when people say today that the government shouldn't pick
winners and losers, I look at this chart and have to respond,
it is a little late for that. The government has been
supporting the growth of different energy sectors for 100
years, longer if you look at early coal and timber support.
I want to point the Subcommittee's attention to a second
chart that shows the level of support for each of these four
sectors on an annualized average over the life of their
support. Again, oil and gas lead the pack with $4.9 billion in
annual support, and renewables take up the rear with just $370
million in average annual support.
Now, in the last few years, at long last, subsidies to the
renewable industry have passed those provided to fossil fuels,
but the gravy train to the oil and gas industry continues
nonetheless with annual tax supports of at least $4 billion a
year. These subsidies to the oil and gas industry are going to
an energy sector that is immensely profitable and immensely
rich. The top oil companies made over $100 billion in profits
in 2011, yet the subsidies continue. The subsidies to the
industry just keep coming.
Obviously, a permanent feature of the tax credit has meant
a great deal to the industry. So if there is a statement from
this hearing, I would think permanent relief for some of these
industries to get them up and running has made a difference.
Mr. Chair, that makes me question the seriousness of those
who say we should not subsidize the renewable energy industry
when oil and gas and nuclear sectors continue to benefit from a
panoply of subsidies. Where is the outrage that almost a
century after government subsidies to the oil and gas industry
began, we still are cutting them checks? Where is the sense of
fairness, Mr. Chair?
I look forward, Mr. Chair, to the follow-on hearing by this
Committee looking at the subsidies and their appropriateness
for the oil and gas industries and the nuclear industry as
well, the sectors that have received the lion's share of
taxpayer dollars over the years. That would be fair, and that
would be proper, and I certainly think that all Members would
learn a lot from a series of hearings of that kind. Let us
truly examine all of the tax subsidies over the years towards
the various sectors of our energy supplies.
I hope this is just the first hearing in that series of
hearings that will serve us and the Committee well.
With that, Mr. Chair, I yield back.
Chairman Broun. Thank you, Mr. Tonko. I am not sure I heard
a question in all that but anyway--okay.
Well, now, Dr. Harris, you are recognized for five minutes,
my fellow Subcommittee chair.
Mr. Harris. Thank you very much, Mr. Chairman, and, you
know, since this is all about the taxpayer and that is really
the charge of this Committee is to see whether government
monies are spent adequately, I would think that our taxpayers
would want us to invest in companies that actually make a
profit and pay taxes, and, you know, if we pay $4 billion in
subsidies and get tens and tens of billions of dollars in taxes
from oil and gas companies, I think our average taxpayer would
say that is a pretty darn good investment, especially since the
price of their energy is so low.
Let me ask about some of the claims about jobs, though. Mr.
Parcell, the--or actually, let me, Mr. Pacheco, let me ask you
a question. The graph from the NREL study or the table says
that there are supposed to be 4,500 to 4,900 operational jobs,
so permanent jobs at these, but when the Wall Street Journal
did--and they didn't use models. They actually called up
companies and said, how many people do you have employed, which
I think is the way we should be doing it, just the way we do,
we sample unemployment and employment. The Labor Department
doesn't make up their 8.2 percent. They actually call people.
They actually survey people.
They say there are only 300 people employed. Doesn't that
devastate the model you use? Doesn't it completely invalidate
the model you used that predicted there should be 5,000,
whereas there are 300? You are aware of the Wall Street Journal
article?
Dr. Pacheco. I am very aware of the article that you are
referring to----
Mr. Harris. Okay.
Dr. Pacheco [continuing], Congressman, and my recollection
of that article is the author talked about four or five
companies out of the 23,000 that were affected by 1603, and I
can answer Congressman Broun's question now if you would like.
Mr. Harris. Excuse me. Let me just--no. You got to answer
my questions, my five minutes.
Dr. Pacheco. Okay. Sorry.
Mr. Harris. No. You are wrong. I mean, the article says 40
percent of the funding, 4.3 billion went to 36 wind farms.
These are the largest. During the peak of the construction,
they employed about 72, they produced 7,200 jobs. But once the
construction was done, they only employed 300 jobs. Forty
percent of the funding from that program went to 36 wind farms.
So I know you can say, look, you know, we--look. I wrote
scientific papers. I know what you can do with statistics.
Certainly you can say, yes, you know, they only looked at 36
wind farms, you know, we looked at 2,500 or whatever. They
looked at the biggest ones. They looked at the ones that are
most likely to produce employment, so does that fact that they
could only find 300 people working there whereas you would have
proposed, I imagine, there should be thousands of people
working there, completely invalidate the model you used?
Dr. Pacheco. No, not at all, Congressman. So----
Mr. Harris. How do you explain 300 people as opposed to
thousands?
Dr. Pacheco. I would be happy to do that if you give me a
moment.
Mr. Harris. Go for it. You got about 30 seconds, though, if
you can--otherwise you will have to respond in writing because
I have other questions.
Dr. Pacheco. So--and this builds on the earlier question,
and I have found the proper table, and I can make this
available to the Committee, but the results of our modeling
would have predicted, it did predict that as of the datas of
November that we would be employing 770 people in the operation
of all the wind facilities, all the large wind facilities that
we were built with 1603 dollars.
Mr. Harris. This chart that I am looking at, which is the
estimate from the NREL report, says 4,500 to 4,900. Now, are
there multiple tables?
Dr. Pacheco. The number that you are looking at, sir, is a
total of the direct jobs, the indirect jobs, and the induced
jobs that would be involved in the operation of the facility.
If you go to the top of the table, what it says is that the
direct average jobs----
Mr. Harris. What was your testimony as to ratio of direct
to indirect jobs?
Dr. Pacheco. I didn't have that number. I have it now.
Mr. Harris. Your answer to the Chairman. What is the ratio?
Dr. Pacheco. The total ratio, if you take that number that
the estimate is 75,000----
Mr. Harris. Yes.
Dr. Pacheco [continuing]. Out of that total, and those are
construction jobs, not operational jobs----
Mr. Harris. Doctor, Doctor. I am talking only about the
operational jobs.
Dr. Pacheco. Okay.
Mr. Harris. They say there are 300. You say there are
5,000, and then you say, well, we are just going to account for
the difference----
Dr. Pacheco. No, I didn't say that.
Mr. Harris [continuing]. In indirect jobs.
Dr. Pacheco. I said that the 5,000 was the total of all the
jobs involved in all of the facilities' operation. It turns out
that for the operational jobs directly at the site----
Mr. Harris. Yes.
Dr. Pacheco [continuing]. Which are the ones that the----
Mr. Harris. Right.
Dr. Pacheco [continuing]. Article you are referring to----
Mr. Harris. Right.
Dr. Pacheco [continuing]. Our number in the table, I will
make this available----
Mr. Harris. Yes.
Dr. Pacheco [continuing]. Was 770.
Mr. Harris. Okay. So they called up the companies and said,
it is 300. Okay. That is only off by a factor of over 100
percent.
Dr. Pacheco. Well----
Mr. Harris. Let me tell you something. One hundred percent,
if I did a model, and it was 100 percent off, I would go find a
new model.
Now, let me just ask, Dr. Sherlock, did you review the Wall
Street Journal article or CRS, someone at CRS? Did they review
it to see if this, in fact, is true, if, in fact, the model
that NREL used is over, by the Doctor's testimony today, is
over, is wrong by over 100 percent, it mispredicts by over 100
percent.
Dr. Sherlock. CRS has not done independent analysis of job
creation of the 1603 Grant Program.
Mr. Harris. I may ask you to do that at some point.
Dr. Sherlock. Sure. Absolutely.
Mr. Harris. Finally--oh, I am sorry. I am over.
Thank you very much, Mr. Chairman, for--and I yield back.
Chairman Broun. Thank you, Dr. Harris.
I am going to keep a pretty tight time clock on everybody
because we have got a whole other panel, and we are going to
have some votes probably in about an hour or so.
Now I recognize Mr. Miller for five minutes.
Mr. Miller. Thank you, Mr. Chairman, and I don't want to
quibble too much about our Committee's jurisdiction. We do
disagree about the appropriateness of trying to encourage
emerging technologies, and that would be, tax credits for that
purpose would be within this committee's jurisdiction, but we
are not talking about R & D tax credits here. We are talking
about tax credits that were designed to create jobs, which is
not within our Committee's jurisdiction, and I think the
questions that this panel has gotten so far has made it very
clear that this really is about how many jobs were created, not
whether we have nurtured emerging technologies or the
commercialization of research through the tax credits that we
are talking about.
In the second, on the second panel Ms. Thorning, who is one
of the Republican witnesses, estimates that this has cost us
about $80,000 per job, which I think the Republicans think is
scandalously high, shows it is absolutely not worth it. But
later today, we will be voting on a proposal from the majority
party, from the Republicans, from Mr. Cantor, the Republican
leader, to give a tax break for small business, not what you or
I might think of as small, which would probably be more like a
Mom and Pop operation, but companies up to 500 employees. Their
own estimates are that that would be, that that would cost $46
billion in tax revenues. As the Republicans have already
pointed out that that really does, therefore, come out of the
pockets of everyone else, and would create 40,000 jobs. That is
their own estimate, which may be ambitious. That works out to
more than $1 million a job.
So the jobs created by this particular program actually
appear to be a bargain by comparison to other proposals.
Dr. Sherlock, you, can you tell us how the oil and gas
industry has already benefited in the past from tax credits and
other support from the Federal Government, and how emerging
alternative, unconventional resources, oil and gas resources,
also have tax credits and how they benefited from those, that
support over the last century?
Ds. Sherlock. Sure. So tax credits have been available to
oil and gas since the 1910s, 1920s. Up until about 1978, the
oil and gas sector was the primary beneficiary of targeted tax
incentives for energy. Beginning in the late 1970s, early
1980s, that is when tax credits that would have benefitted
renewables were first put in the Code. There weren't really
measureable revenue losses associated with those provisions
until recent years. In recent years, primarily due to expansion
in the wind industry and the PTC, as well as provisions enacted
as part of the Recovery Act, we have seen a shift towards the
total cost of energy-targeted tax provisions in that renewables
now do receive a substantial share of the targeted tax
incentives. But historically, oil and gas have received the
bulk of tax incentives that are targeted to energy.
Mr. Miller. Okay. You quoted President Reagan, well, you
didn't quote President Reagan, but you said the purpose or the
cited policy goal of the Reagan Administration to be more
neutral and less distortionary in the tax policy towards
energy. Do you think we have a free market, a perfectly free
market, or does government policy and tax policy already
distort energy policy, the energy market?
Dr. Sherlock. There are distortions that are created
through the tax code and even from an economic standpoint when
you look at the market for energy, the market for energy may
have certain market failures that may be a rationale for
government intervention in the energy market.
Mr. Miller. And how does that affect the entry into the
market of alternative energy sources, the fact that there are
already distortions based on government policy in the energy
market?
Dr. Sherlock. Since there are distortions based on
government policy, it can put renewables at a disadvantage.
Mr. Miller. All right. My time is not quite expired, but it
is almost expired.
Chairman Broun. Thank you, Mr. Miller. I appreciate and
thank all of you all--oh, Mr. McNerney. I didn't see you. Okay.
Mr. McNerney, you are recognized for five minutes.
Mr. McNerney. Thank you, Mr. Chairman. Thanks to the panel
for coming and testifying this morning. Although I don't
believe that this hearing is going to lead to any meaningful
legislation, it is more of a political sounding board for the
majority party, but I do have some questions.
Dr. Sherlock, what--I believe from your testimony that you
indicated that the most effective way for the tax credits to be
effective is to have a large number of people take advantage of
the incentives.
Do you have any suggestions for policymakers based on past
experience to get the most number of people to participate in
these programs?
Dr. Sherlock. The incentives will be most efficient not
necessarily based on participation, but when you have claims of
tax credits of people that would not have engaged in the
activity otherwise. So, you are actually causing people to
invest in solar panels, or causing people to build wind farms,
rather than rewarding those that would have built the wind farm
or invested in solar panels anyway.
One challenge with current policy is that with policy
uncertainty and expiring provisions, many of the projects that
take place are taking place in the face of that uncertainty and
may have gone forward anyways without the tax incentives.
So when the tax incentives are enacted temporarily, at the
last minute, they may end up rewarding projects that would have
gone forward anyways, diminishing the economic efficiency of
the incentive.
Mr. McNerney. So how can we best include the class of
people of that--or class of businesses wouldn't participate
without the incentives?
Dr. Sherlock. One step would be to have additional
certainty with the incentives and to either have long-term
incentives or some sort of credible expiration or to, on the
flip side, not have incentives and let the markets make
decisions there.
Mr. McNerney. Well, that is aligned with my experience in
the industry in which even the--a one-year tax extension
doesn't really help because it takes years to get projects
approved and get investors lined up. So this uncertainty in the
programs is most damaging. So I agree fully with that, Dr.
Sherlock.
Dr. Pacheco, just out of curiosity, how do the payments,
how are payments made for the production tax credits? Are they
adders to energy generation earnings, or are they something
that comes along with an investment-type situation, or how are
those payments made?
Dr. Pacheco. If it is okay, Congressman, I would like to
defer that question to my colleague on the right.
Mr. McNerney. Okay.
Mr. Parcell. Yes. The production tax credit is a credit
under Section 45 of the Code. It is claimed on the income tax
return of the person producing the electricity at the rate of
2.2 cents per kilowatt hour.
Mr. McNerney. Well, actually, I was referring to the 1603
Program. How are the 1603 Program payments made? Are they based
on energy production or some other means?
Mr. Parcell. No. The 1603 payments are based on investment
in the--it is based on the cost of the facility.
Mr. McNerney. Okay.
Mr. Parcell. It is really a substitute for the investment
tax credit under the Internal Revenue Code.
Mr. McNerney. Dr. Pacheco, can you provide an estimate of
how many jobs in both the solar and the broader renewable
energy sector have been impacted by the expiration of the 1603
Program, and what impacts we can expect over the next few years
if the program is not renewed?
Dr. Pacheco. I can certainly speak to our estimate of how
many jobs had been supported during the course of the program,
and that as of the November date when we did our study, the
jobs estimate at that time was up to the 75,000 total in
construction and up to the numbers I discussed earlier on the
operational phase.
I can also come back if you are willing to allow me to
clarify the earlier comment. I have the New York Times article
in front of me, and I would very much like to respond to the
earlier question, if that is okay.
Mr. McNerney. You got about 45 seconds.
Dr. Pacheco. I can do it in much less than that.
As I read the article that was referred to earlier, the
author cites that 40 percent of the funding went to 36 wind
farms and that those wind farms that were surveyed can account
for 300 employed people today. So if you were to extrapolate,
sir, that 40 percent up to our earlier estimate of the 770, I
think you would conclude that our models that are actually
quite accurate.
Mr. McNerney. Thank you for that comment----
Dr. Pacheco. You are welcome.
Mr. McNerney [continuing]. Dr. Pacheco. I yield back.
Chairman Broun. Thank you, Mr. McNerney.
I would like to state that this is the Oversight Committee,
so we do have a responsibility to have oversight as to the
rules of the Committee demand.
I thank you for your all's testimony. It has been valuable
time spent, and I appreciate all you all, in particular, Mr.
Parcell. I know, again, I want to thank you.
The Members of the Subcommittee may have additional
questions for all of you all, and we will ask for you to
respond to those in writing, and if you would do that
expeditiously, we would greatly appreciate it.
The first panel of witnesses is excused, and we will now
turn to the second panel. So thank you all very much for
coming.
And if the second panel will take their seats quickly
because we have got votes in about an hour, and we have got a
big panel and a lot of questions. So we appreciate it.
Okay. At this time I would like to introduce our second
panel of witnesses, and I appreciate you all's patience through
the interruption.
Mr. Rhone Resch, the President and CEO of Solar Energy
Industries Association; Mr. Terry Royer, the CEO, Winergy Drive
Systems Corporation; Mr. Steven Erby, the Vice President of
Monolith Solar Associates; Dr. Benjamin Zycher, a Visiting
Scholar of the American Enterprise Institute; Dr. Margo
Thorning, the Senior Vice President and Chief Economist of the
American Council for Capital Formation; and Ms. Lisa Linowes,
Executive Director of Industrial Wind. I thank you all for
being here.
As I noted before, it is the practice of this Subcommittee
to receive testimony under oath, and we will use that practice
with you as well.
Do any of you have any objection to taking an oath?
Let the record reflect that all witnesses are willing to
take an oath.
And you also may be represented by counsel. Do any of you
have counsel here today?
Let the record reflect that none of the witnesses has
counsel.
Now, if you would please stand and raise your right hand.
[Witnesses sworn.]
Chairman Broun. Let the record reflect--you may be seated.
Let the record reflect that all the witnesses have taken the
oath.
And I recognize our first witness from the second panel,
Mr. Rhone Resch, Solar Energy Industries Association. Mr.
Resch, before you start, we are going to have votes in about an
hour, so if you all would please try to limit your testimony. I
don't want to cut you short. I want to hear what each of you
have to say, but we also have questions, and we would like to
try to get through the line of questions before we have our
next vote.
So Mr. Resch, you have five minutes.

STATEMENT OF MR. RHONE RESCH,

PRESIDENT AND CEO,

SOLAR ENERGY INDUSTRIES ASSOCIATION

Mr. Resch. Thank you very much, Chairman Broun. Good
morning, Chairman Harris, Ranking Member Tonko, Ranking Member
Miller, and Members of the Subcommittee. I appreciate having
the opportunity to testify this morning.
My name is Rhone Resch, and I am President and CEO of the
Solar Energy Industries Association. There are more than 5,600
companies, the vast majority of which are small businesses that
make up America's solar industry today. SEIA is proud to
represent all of these domestic companies in the entire solar
value chain, from small installers to manufacturers to project
developers.
Access to a diverse, abundant, reliable, and affordable
supply of energy is in the national interest. Accordingly,
federal policy has for decades provided a framework that has
helped every major source of energy utilized in the United
States today reach commercial scale. The recognition that smart
policy is vital to developing our domestic energy resources has
contributed significantly to America's long-term economic
prosperity.
History has also shown that well-crafted federal tax
incentives can effectively leverage private sector investment
in new energy resources. This is clearly the case with federal
incentives such as the Solar Investment Tax Credit and the 1603
Treasury Program that are designed to promote and expand
deployment and use for solar energy.
Congress first enacted the 30 percent Investment Tax Credit
as part of the Energy Policy Act of 2005, and subsequently
extended the incentive through 2016. Here is what has happened
as a result.
There has been a sevenfold increase in solar generating
capacity and a 17-fold increase in photovoltaic or PV capacity
in the United States. Last year alone, PV installations
increased by 109 percent and were one of the fastest-growing
industries in the United States.
The solar industry now employs more than 100,000 Americans,
more than double the amount from just two years ago. The U.S.
PV panel manufacturing increased from 134 megawatts in 2005 to
865 megawatts in 2011, and today there are over 600
manufacturing facilities in the domestic value chain in the
United States.
Technological advances and innovative financing options
have driven down the cost for consumers. In 2011 alone, the
price of solar panels dropped by 50 percent. Businesses and
homeowners across the country are choosing solar because it
makes economic sense.
For example, Chairman Broun, there are more than 1,700
solar jobs in Georgia, six solar companies in your district,
and the largest ground-mounted solar project in the State is in
the Blairsville area, and that project came to fruition with
the help of the 1603 Program.
And Chairman Harris, in your district there are 12 solar
companies and more than 500 solar PV installations. This
represents $25 million in solar investment in your district
alone. In fact, there are more than five solar companies in
every district of the Members represented on these two
Subcommittees.
By any objective measure, the Solar Investment Tax Credit
is doing exactly what it was meant to do. Since the incentive
went into effect in 2006, the industry has made significant
strides towards grid parity. If current trends continue, and
costs continue to come down on account of economies of scale,
improved technologies, and enhanced efficiencies, need for
federal policy support for solar will be relatively brief when
compared to other conventional and renewable energy sources.
Let me also touch on the 1603 Treasury Program. Renewable
Project developers typically partner with investors who have
federal tax liability as a way to monetize energy tax
incentives.
Access to this tax equity provides a portion of the capital
needed to finance renewable energy projects. The 2008 economic
crisis and the ensuing recession have severely restricted
access to tax equity. The 1603 Program addresses this problem
by allowing companies to receive a grant in lieu of the
existing tax credit that they were eligible to claim. This
creates flexibility in how you finance these solar projects.
And I want to address three common misperceptions about the
1603 Program. First, under the 1603 Program, the government
does not pick winners or losers. It is the market that chooses
which projects go forward.
Second, the grant is not an upfront payment. Rather, it can
only be claimed when the project is completed, and it must go
through a thorough Treasury audit and an NREL audit, as we
heard earlier.
And third, I would urge you not to judge this program by
the legislation on which it was introduced but on the merits of
the results. The program has supported 22,000 solar projects
with an average size of $150,000. These are not huge projects.
These are projects developed by small businesses that are going
on schools and churches and community buildings in communities
around the entire country.
The 1603 Program lapsed at the end of 2011, and although
there has been a modest recovery in tax equity markets, there
remains a temporary need for the program. Absent the 1603
Program, financing available for domestic renewable projects
will be reduced by more than 50 percent. A reduction of this
magnitude will disproportionately impact small businesses, like
Steve's company, that lack the resources and scale to enter
into complicated tax equity transactions under these market
conditions.
Today, the solar industry is one of the most
entrepreneurial segments of our economy, and ultimately, it is
these entrepreneurs from the scientists developing more
efficient and cost-effective solar technologies to the small
business leaders making solar more affordable for consumers
that are responsible for the rapid growth and reduced costs
that are the hallmark of America's solar industry today.
Stable, reliable, and well-structured tax policy provides the
framework that allows for this market-driven innovation.
Chairman Broun. Mr. Resch, if you can go ahead and finish
up your testimony. You are over the time already, sir.
Mr. Resch. Thank you. If policymakers have the foresight to
retain these highly effective tax policies, the short-term
investment will yield significant long-term results.
Thank you for having me here today. I am happy to answer
any questions that you have.
[The prepared statement of Mr. Resch follows:]

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Chairman Broun. Thank you, Mr. Resch.
Mr. Royer, you are recognized for five minutes.

STATEMENT OF MR. TERRY ROYER, CEO,

WINERGY DRIVE SYSTEMS CORPORATION

Mr. Royer. Yes, thank you. Thank you, Chairman Broun,
Chairman Harris, and Ranking Members and Subcommittee Members.
I appreciate the opportunity to speak to--with you today about
the impact that tax policies have on the commercialization of
renewable energy, in particular, wind energy. I want to focus
my testimony today on one particular tax policy--the Production
Tax Credit.
While the wind industry has utilized other tax incentives
to gain a foothold in the U.S. energy marketplace, the
underlying PTC has, by far, been the most effective at
generating the private capital and investment certainty that
any industry needs to grow and prosper. Let me back up for a
moment to give you a little background on Winergy and where it
fits in this conversation.
Winergy Drive Systems Corporation, located in Elgin,
Illinois, was incorporated in 2001. Winergy is the world leader
of gearboxes for wind turbines. The gearbox is the key
component inside the wind turbine. We operate two factories in
Elgin, Illinois, just outside Chicago, and supply gearboxes to
the top wind turbine manufacturers and producers, who are all
located here in the United States.
Winergy started here in the United States assembling and
testing of these components in 2001 with 11 employees. In the
past six years, when the PTC has not been allowed to expire,
the demand it created has contributed to the expansion of our
company and has helped us weather the recent economic downturn.
In 2009, we were afforded the opportunity because of this
growth to build a new facility in Elgin. Today, we have 380
employees supporting our customers with the building of our
products. Revenue from the wind industry accounts for 100
percent of my company's total income.
As one of the nearly 500 companies that manufacture
components for the wind industry in the United States, we are
just one example of the critical role the PTC has played in the
growth of this sector. The access to financing, the overall
market certainty, and the PTC has provided to investors has led
to the accelerated growth of wind farms projects in the United
States. In fact, in just the last six years, 38,000 megawatts
of wind have been constructed under a PTC--under a consistent
PTC policy. This is over 80 percent of the total megawatt
installed in the United States, which started back prior to
1980.
These projects demand huge pieces of equipment, complicated
engineering, and a skilled workforce to construct. Due to the
economics of logistics and transportation costs, the wind
industry has quickly realized that making these parts in the
United States actually leads to lower cost and more efficiency.
So the growing demand for the construction of wind projects,
brought on by the investor response to the PTC, has led to a
rapid growth of U.S. wind manufacturing. Indeed, in 2005 only
25 percent of the products and components were produced in the
United States. Today, nearly--over 60 percent of the components
are now made on domestic soil. This trend must continue. Over
75,000 jobs exist in the industry and depend on it, not to
mention tens of thousands of potential jobs if we can contain
this growth.
In addition to this growing domestic supply chain,
technology innovations have also continued to push wind energy
further down the cost curve. The cost of wind energy has come
down 90 percent since 1980 and capital costs have dropped 33
percent since 2008. Companies like my own contributed to these
technological innovations and increased efficiencies and driven
down cost. Innovations in gearbox technologies that Winergy has
led are a key part to the cost reductions we have seen in the
overall last four years. Wind energy technology continues to
improve as the industry scales up.
The PTC has not just the--has not just benefited the
manufacturers and developers but the American electricity
consumers and the U.S. economy as a whole. Wind energy provides
nearly three percent of America's electricity today, with that
number surpassing 20 percent in the States of Iowa and South
Dakota. Overall, wind energy has accounted for 35 percent of
all new electric generating capacity that has been put online
in the last five years. Increasing the diversity and energy
security of our country, the wind industry has generated
investment upward of $20 billion annually, which is greater
than the economic impact on U.S. GDP from Colombia, Panama, and
South Korea free trade agreements combined.
It is imperative that the PTC in place for the near future,
so that private investment continue to grow this market and so
that U.S. manufacturing jobs continue to be created. The PTC is
not a handout. It is a business tax credit with funding based
solely on project performance, not evaluation by any
governmental official. Without a mechanism with which to fund
wind projects past 2012, manufacturers like Winergy are already
losing business.
Chairman Broun. Mr. Royer, if you could go ahead and wrap
up your testimony. You passed the five minutes already.
Mr. Royer. I expect Winergy orders for 2013 to fall by at
least 60 percent, which will lead to substantial job losses.
Industrywide, 37,000 jobs will be lost if the PTC is not
extended.
Again, thank you for hearing my testimony.
[The prepared statement of Mr. Royer follows:]

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Chairman Broun. Mr. Erby, you are recognized for five
minutes.

STATEMENT OF MR. STEVEN ERBY,

VICE PRESIDENT,

MONOLITH SOLAR ASSOCIATES, LLC

Mr. Erby. Thank you, sir.
My name is Steve Erby, Vice President, Monolith Solar
Associates, and I would like to thank Chairman Broun and Mr.
Harris and Congressman Tonko for having us here today.
We are a veteran-owned company based out of Rensselaer, New
York. We install and lease small commercial solar systems
ranging in size from 25,000 watts to 150,000 watts. We install
in schools, churches, community centers, fire stations, and
small businesses. My business partner, Mark Fobare, and I
started this adventure in my den in 2009. We quickly grew to
the kitchen; we gained a secretary and were promptly thrown out
of the house by my wife. We expanded into the garage. Today, we
just recently moved into a completely refurbished 9,000-square-
foot warehouse with over 21 employees. We have installed 37
systems since August of 2010 and have contracted pipeline of
127 systems, roughly nine megawatts of product. We are proof
that the 1603 Program works.
Without the 1603 Program, none of this would have happened
and would have not been able to continue. Monolith applies for
the 1603 grant for each system. As a startup business, we do
not qualify for the ITC. We do not have the passive income to
offset the investment of the tax credit. Most of our potential
prospective customers do not qualify either. Some of the
benefits derived from the program: our small business has grown
from two employees to 21 employees in a very short time, 18
months, and we stand to double that size with the current
number of contracts that are signed. We established our
business in a designated economic development zone in the city
of Rensselaer. We have created additional jobs employing
contractors, subcontractors, electricians, engineers,
accountants, and professionals. And most importantly, I think
we are driving down the cost of doing business for the small
business.
One of our recent installations was a sale to a small TV
appliance store, Towne TV in Schenectady. Despite being a 56-
year-old business, due to the current economy, they were unable
to take advantage of the ITC. The 1603 Program allowed them to
install solar, lowering their operating cost, generating cash
flow for other uses, and generally spinning up the economic
machine for them and the solar industry.
We have generated quite a buzz attending many community
functions, educating students, businesses, customers about
solar and the energy economy. Municipal leaders have embraced
solar as a way of reducing taxpayer burden and providing
leadership to their communities. Mechanicville, East Greenbush,
Sand Lake, Niskayuna, Schenectady, and Rensselaer are just a
few of the communities that have put solar on top of every one
of their municipal structures.
The industry needs the 1603 Program, and preferably the
reintroduction of the 1603 rebate, to create jobs, foster a
strong value chain, and grow our business. There are too many
small businesses and organizations who are unavailable to take
advantage of the ITC as a credit.
We are not an isolated success. As Mr. Rush has explained,
there are hundreds of companies across the United States that
are benefitting from the 1603 Program. The engine of growth in
this economy is small business supporting a strong middle
class.
As we work to create these opportunities in our local
community, we met John, the father of eight children. He was
obligated to leave his job to temporarily care for a premature
baby. His wife kept the better-paying job. The baby improved,
but the family income suffered. John looked for work for a year
but could not find gainful employment in the difficult economy
until he joined Monolith. He is now one of our best employees,
and we are very fortunate to have him.
We believe that solar can be the engine for the middle
class and small community growth and economic security. Growth
must be nurtured by incentives such as the 1603 Program that
allows the industry and the market to mature.
On behalf of all the employees at Monolith Solar, I want to
thank you for having us here. Thank you.
[The prepared statement of Mr. Erby follows:]

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Chairman Broun. Thank you, Mr. Erby.
Dr. Zycher, you are recognized for five minutes.

STATEMENT OF DR. BENJAMIN ZYCHER,

VISITING SCHOLAR,

AMERICAN ENTERPRISE INSTITUTE

Dr. Zycher. Thank you very much, Mr. Chairman. I am very
pleased to have this opportunity to offer my views today on why
renewable energy subsidies should be abandoned. At the end, I
will be more than happy to address any questions that may
arise.
Despite very substantial policy support in the form of
direct and indirect subsidies at the federal and state levels,
renewable electricity has only a small share of the market with
poor prospects for growth. This is due to three inherent
problems that public policies can overcome only at very
substantial cost: first, the unconcentrated energy content of
wind flows and sunlight; second, siting constraints and the
higher transmission costs that result; and third, the
intermittency unreliability problem which yields very large
additional cost for backup generation.
Each of these problems is discussed in detail in the
testimony that I have submitted for the record, but the central
effect could be stated quite simply. We have achieved the
perfect green trifecta--higher costs, less reliability, and
more pollution. The five central rationales that usually are
offered in defense of policy support for renewable are deeply
problematic.
First, the ``infant industry'' rationale is inconsistent
with the existence of the international capital market and with
the cost evidence published by the Energy Information
Administration.
Second, the ``level playing field'' rationale simply is
incorrect. The subsidies enjoyed by renewable power are far
greater than those received by conventional electricity both on
average and on the margin.
Third, the pollution or ``externality'' rationale ignores
the large effects of our environmental policies and ignores
also the cost of backup generation imposed by renewable power
upon the electricity market, an adverse effect far greater than
even the highest estimates of the environmental costs of
conventional generation reported in the peer-reviewed
literature.
Fourth, the resource depletion or ``sustainability''
rationale is incorrect simply as a matter of basic economics
and is inconsistent with the historical evidence in any event.
And then, finally, the ``green jobs'' rationale borders on
the preposterous. It confuses benefits for particular interest
groups with costs imposed upon the economy as a whole. It
ignores the adverse employment effects in the industries that
lose when government attempts to pick winners. It ignores the
adverse employment effects of increases in electricity costs
and the adverse employment effects of the taxes needed to
finance current and future subsidies. And it ignores the
starkly adverse experience in Europe, which also is mesmerized
by the ``green jobs'' mirage.
Under the green jobs analytic framework, we could create a
lot of employment if we outlaw the use of heavy equipment for
digging ditches and mandated instead the use of shovels. That
sounds pretty ridiculous, doesn't it? Well, there is no
analytic difference between inefficient ditch-digging and
inefficient power generation as tools with which to pursue
increased employment--none.
Ongoing perspective developments in the market for natural
gas will worsen the already poor competitive position of
renewable electricity because of the dramatic increase in
natural gas supply is attendant upon the application of
hydraulic fracturing technology. The EIA projection of gas
prices over the next 20 years has declined about 20 percent and
the EIA projection of non-hydroelectric renewable generating
capacity also has declined by about 20 percent specifically
because of reduced competitiveness.
There was a headline in the Wall Street Journal dated
August 22, 1978, that read ``Solar Power Seen Meeting 20
Percent of Needs by 2000; Carter May Seek Outlay Boost.'' That
forecast has a lot of company. In 1971, the National Academy of
Sciences argued that it will take only another 50 years to use
up the great bulk of the world's supply of recoverable
petroleum liquids and natural gas. In 1977, the Executive
Office of the President argued that supplies of oil are
diminishing, and world oil will become very scarce and very
expensive in the 1980s. In 1978, the Executive Director of the
International Energy Agency argued that all available evidence
points to a serious energy crisis in the middle or late 1980s.
In 1979, the Central Intelligence Agency argued that the world
can no longer count on increases in oil production to meet its
energy needs. In 1980, the Secretary of Energy argued that oil
supplies will be running out in a couple of decades. In 1979,
the Chairman of Exxon argued that we are going to be facing
shortages and higher prices for years.
There is a dual theme common to all such predictions.
First, the substitution--the musings of experts, policymakers,
and commentators in place of market forces; and second, a
batting average of zero. As we look back--I am not going to go
through the list today; there is no time--there is a long list
of legislation similar to the ones that we are talking about
today in pursuit of energy independence and all the rest. None
of them have worked. The eternal truth is that government
subsidies for renewable energy are swimming against the strong
tide of market forces and are doomed to the same failures that
we have experienced time and again. Moreover, such policies
have the more subtle effect of inducing evermore interest
groups to seek favors from government, not a salutary outcome.
Thank you again and I will be pleased to answer any
questions.
[The prepared statement of Dr. Zycher follows:]

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Chairman Broun. Thanks, Doctor. Thank you.
Dr. Thorning, you are recognized for five minutes.

STATEMENT OF DR. MARGO THORNING,

SENIOR VICE PRESIDENT AND CHIEF ECONOMIST,

AMERICAN COUNCIL FOR CAPITAL FORMATION

Dr. Thorning. Thank you, Chairman Broun, Chairman Harris,
Ranking Member Tonko. I appreciate the chance to appear before
you. The American Council for Capital Formation represents a
cross-section of U.S. industry, and we are happy to say that
our Board of Advisors contains prior Democrat and Republican
administration officials. I would like to just make a few
points to summarize my testimony.
First, renewable energy industry simply don't meet the test
for subsidy, as Dr. Zycher mentioned. Just to add a little
flavor to that, we have had windmills for--since about 7 A.D.
The Persians used them to grind grain. We have had solar power
since the Romans used it 2,000 years ago to heat rooms. So the
renewable sector just doesn't meet the criteria of an infant
industry. And there is--according to the Commerce Department,
it is not expected to be a major factor in job creation in the
future and there is virtually no impact on the growth of global
greenhouse gas emissions from a slight increase in the use of
renewable energy or even a large increase in renewable energy
here in the United States.
Second, renewable energy costs are quite high. Each one
percent of GDP in the United States is accompanied by a .2
percent increase in energy use. So to the extent we substitute
more expensive renewable energy for a less expensive
conventional energy, we will retard economic growth.
Second, data from EIA show that the cost of renewable
energy generation equipment is substantially more expensive
than that of conventional energy and the Treasury Department
data on the American Recovery and Reinvestment Act show that
the cost of new generation created by the 1603 Program is 14
times higher than an advanced natural gas generation per
megawatt hour.
Additionally, if you look at States that have renewable
portfolio standards, the average--on average, households by 28
percent--excuse me, allergy--on average, households pay 28
percent more for electricity and industry pays 23 percent more
than States that don't have RPS.
Third, green jobs are few and costly, as has been discussed
already. Anecdotal estimates suggest that the creation of--the
government's projections are likely to be significantly
overstated, and furthermore, the cost per job is quite high.
The NERL report shows that the jobs--the temporary jobs cost
between 63,000 to 91,000 and the 5,000 permanent jobs expected
to be created cost $81,000 to $88,000 as opposed to the average
wage in the United States, which last year was $43,000.
Another point is that the federal tax code should be
neutral. Accelerated depreciation, Section 199, Farm Tax
Credit, and LIFO are provisions in the code available to every
industry. Taking a look at the incentives, loans and tax
credits available to the renewable sector, CRS reports shows--
sorry, Metcalf report shows that the tax rate is a negative 244
percent for solar thermal, for example.
Fifth, fossil fuel expansion is likely to be a much greater
source of job growth and economic and energy security according
to a host of recent reports. Furthermore, they don't have to be
provided--they don't have to be generated with taxpayer
dollars.
Finally, just to quickly--to wrap it up, yesterday, the
Ford Chief Executive noted that the cost of each battery for
the Ford Focus is $12,000 to $15,000. Now, of course, the cars
sell for $35,000 to $40,000, so the fact that we have had years
and years of work and a lot of government money going into
increase the likelihood that electric vehicles would be
commercially viable, you know, we have had plug-in electric
vehicles since 1832. That is 180 years. How much longer is it
going to take before batteries have the range and the quick-
charging facilities to make them commercially viable? So that
is just an example of where government has tried, through the
American Recovery and Reinvestment Act, to deploy new
technologies which simply are not ready for primetime.
So, in conclusion, high levels of support for renewable
energy are probably not a good use of taxpayer dollars.
Instead, those taxpayer dollars might be directed toward R&D
for new technologies and for energy efficiency. Thank you.
[The prepared statement of Dr. Thorning follows:]

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Chairman Broun. Thank you, Dr. Thorning.
Now, Ms. Linowes, you are recognized for five minutes.

STATEMENT OF MS. LISA LINOWES,

EXECUTIVE DIRECTOR,

INDUSTRIAL WIND ACTION GROUP

Ms. Linowes. Thank you, Mr. Chairman, and Chairman Broun,
Chairman Harris, Members of the Committee, I appreciate the
opportunity to be here and to speak with you. And Congressman
McNerney, I am sorry that you think this is a sounding board
for the leadership. I hope that you will listen to the comments
that are made today.
I would like to start with a quick comment that places wind
energy in its proper context. In 2008 the DOE published ``20
Percent Wind Energy by 2030,'' a report which examined the
feasibility of using wind to produce 20 percent of the Nation's
electricity. A 20 percent scenario means transforming the
midsection of the country, as well as our coastal waters into a
massive wind generating facility connected together by
thousands of miles of new 765 kV lines. Those green lines you
see on the map, those are all new transmission lines that stand
200 feet tall.
But what do we get in return? According to the DOE, we get
generation that cannot replace our capacity resources, those
generators we rely on day to day and hour by hour to meet our
energy needs. Most people do not understand this point, and
when I have spoken to people in the past, including energy
executives in a room, they are not aware that this statement;
these comments are in the 20 percent by 2030 report.
For the authors of this study, which included AWEA, the
American Wind Energy Association, and NREL, satisfying the 20
percent wind goal is entirely independent of our need for
reliable power. Claims by industry proponents that wind can
power over 12 million American homes or is the reason for coal
plants retiring grossly overstates wind energy's purpose and
its limited contribution to our energy portfolio.
So why build wind at all? Two words: low emissions. This
fact is validated by the ISO New England's Wind Integration
Study, which concluded that New England could achieve 20
percent wind, but doing so requires existing fleet of power
plants to remain online and any new capacity resources proposed
to be built also brought online. Bottom line: wind can displace
fossil fuel; it cannot replace it.
Switching to my next slide, this shows wind growth from
1992 through until, I believe, 2009. The wind industry has
complained over 10 years that each time the Production Tax
Credit was allowed to expire, new wind installations stalled.
And here we are again. But attributing wind activity to the--
wind market activity to the PTC is overly simplistic and fails
to consider other more significant factors that impact growth
like energy prices and the availability of State mandates. In
fact, these factors are likely the primary impetus for wind
growth or decline.
The PTC is an overly generous, highly inefficient policy,
and at 2.2 cents a kilowatt hour, this open-ended subsidy has a
pretax value of about 3.7 cents a kilowatt hour, more than the
price of wholesale electricity in most parts of the country
today.
Quick point about 6 and 1603: there is a claim that 1603
and PTC are somehow monetarily equivalent, that the cash paid
up front is equivalent to the PTC Tax Credit spanned over 10
years. In fact, that is not the case. Aside from the intrinsic
value of cash in hand being more valuable than a tax credit
spanned over a period of time, I looked at 12 projects, 10 wind
projects in particular, that received 1603 or will receive 1603
in lieu of PTC, and what I found was that the Section 1603 more
than not, in all of my cases, exceeded the amount of money the
project would receive under PTC.
The last point I want to make is about the hidden subsidies
that wind energy receives. I want to mention one case where the
Federal Government is paying money to the Production Tax Credit
1603 and is also paying money to fund the development of our--
the highest quality RADAR systems in our country. The bottom
line is wind energy and wind turbines interfere with our
national radar systems, and the Federal Government is paying
millions of dollars today to try to mitigate for that problem
and it hasn't been mitigated. I cite two examples in my
testimony. I hope you will look at that. There is a problem
with radar and turbines, and we are paying the cost of it.
Thank you.
[The prepared statement of Ms. Linowes follows:]

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Chairman Broun. Thank you, Ms. Linowes. I appreciate it
very much. I appreciate your testimony.
I want to remind Members that Committee rules limit
questioning to five minutes per Member. And the Chair at this
point will open the first round of questions. And I will
recognize myself for five minutes.
Dr. Thorning, how have U.S. household electricity bills
changed in the recent years?
Dr. Thorning. They have gone up substantially. In fact, the
average household bill has gone up by almost $1,420 a year in
2010 compared to earlier years. The last eight or so years they
have gone up--the last five years they have gone up about 30
percent. And last year, they increased even more in spite of
the fact that there is increased natural gas electric
generation going on. So household electricity prices have risen
sharply, especially in States that have implemented a renewable
portfolio mandate.
Chairman Broun. Thank you, ma'am.
To me, this is not fair. It is not fair to the poorest
people in this country and senior citizens on limited incomes
that we are forcing their electric bills to go up because of us
forcing the renewable energy when we have lots of natural gas.
Also to Dr. Thorning, how does the cost of electricity
generated by wind and solar in 1603 grants compare to
conventional electricity costs?
Dr. Thorning. According to the Treasury's data, it is 14
times more expensive than the generation cost for, say,
advanced coal--advanced natural gas powered plants. In fact,
the EIA data show that advanced natural gas plant is $62 per
megawatt hour for the generating capacity; it is $880 for the
wind and solar generating capacity financed through the 1603(b)
programs.
Chairman Broun. Dr. Zycher, the nonpartisan Congressional
Budget Office recently issued a report which stated tax
incentives are ``generally an effective way to reduce
environmental and other external costs of energy.'' And ``they
often reward businesses for investments and actions they
intended to take anyway.'' How can the government guarantee
that taxpayer money is actually incentivizing the private
sector rather than just lining the coffers of preferred
companies?
Dr. Zycher. Well, you can always structure an incentive to
induce a firm to do something you want it to do. Just to pick
one obvious example that we have already discussed here, the
PTC provides an incentive to produce electricity. The Section
1603 grant provides an incentive to build facilities,
independent of whether any electricity is produced at all.
On the environmental front, I really would make a different
point, if I may. The argument that wind and solar power reduce
pollution is simply wrong because they are so unreliable that
they require the installation of backup capacity power, either
by coal or natural gas, and so there was a BENTEK engineering
study of Colorado and Texas which found that pollution
problems--or effluence actually went up because of the
inefficient operation of the backup capacity, which had to be
fired up and down depending whether the wind was blowing that
day or not. And so I think that the argument that there is some
sort of environmental advantage to renewable sources of
electricity is sort of based on people ignoring the
environmental problems caused by renewable electricity.
Chairman Broun. Very good. Mr. Resch, last month, the U.S.
Department of Commerce made a preliminary determination in
response to a case brought by SolarWorld Industries America
Inc. that China's subsidization of solar exports in the U.S.
market is illegal and warrants trade remedies. How might the
imposition of tariffs aid domestic manufacturers?
Mr. Resch. Thank you, Chairman. What we see in the solar
industry today is a global industry and that we are exporting
products from the United States to China, we are importing
products from China to the United States, Europe, around the
world, and so ultimately the tariff will not have an impact.
There is a global oversupply of PV products on the market
today, about twice as much PV is manufactured as consumed that
has led to the lower costs. But the tariffs will not have a
substantial impact on the price of solar, but it will encourage
companies to invest in new manufacturing in the United States.
Chairman Broun. Mr. Erby, how would impositions of tariffs
impact your cost in your business outlook?
Mr. Erby. Not terribly, sir. Most of the companies since
the ARRA program are built here in the United States, a lot of
the panels are. They may be an Italian manufacturer, but they
are built here in New Jersey so----
Chairman Broun. Okay. My time is expired.
I now recognize Mr. Tonko for five minutes.
Mr. Tonko. Thank you, Mr. Chair. While you chided me for
not asking any questions of the first panel, I promise you I
will ask questions of this panel. And I promise also to even
let the witnesses answer the question.
So, Mr. Erby----
Mr. Erby. Yes?
Mr. Tonko. You have succeeded in growing a business with
the support of Section 1603 funds. Something we hear a lot is
that the government doesn't need to support solar companies
because venture capital firms will step in to do that. You are
in the market. What is your reaction to that?
Mr. Erby. Unfortunately, the size systems that we build,
Congressman, are 50 to 150,000 watts. It is not desirable for a
venture capitalist to come in on a project this small.
Everything we have done has been self-financed through credit
cards, bank home equity loans, things of that nature. Even
today, with the sales volume that we have, getting a venture
capitalist to step in without wanting to take over a 50 percent
share is almost impossible. Even being a veteran with the
Patriot loans, banks are not extending credit for these
products. So without the 1603, we would not exist.
Mr. Tonko. Thank you. And Mr. Resch, we are told that
government subsidies to renewables are a waste of money, that
we should let the market pick winners and losers. But as I said
earlier, every source of energy receives subsidies. Some
sources have received them for almost a century. Is it fair to
expect renewable sources of energy to succeed in the market
without the kind of support existing sources received and still
receive?
Mr. Resch. You know, we built this industry in solar really
since 2006, and so just in a six-year time frame, we have seen
the industry go from about 50 megawatts this last year, nearly
2,000 megawatts installed. It proves that this type of program
works.
Now, when you look across the board at all of the various
energy technologies, we as a country have made strategic
investments in these industries in order to grow our economy--
oil since 1916, coal since the '30s, nukes since the '50s. They
have received permanent tax credits in all of those cases. Now,
when we got our tax credit, we got a tax credit in the 2005
energy bill for two years and it was capped at $2,000. You
can't build an industry like that. So without some kind of
long-term policy that gives us enough of a vision to be able to
attract investment and lower our costs, it is going to be
difficult. It is absolutely critical we keep these programs in
place.
Mr. Tonko. And to you also, Mr. Resch, what are the
international consequences of not supporting our wind and solar
industries? If we don't have a domestic market for these
products, are we likely to hold on to a manufacturing base for
them?
Mr. Resch. No, absolutely not. The manufacturing jobs will
go overseas in a heartbeat. I mean these are industries that
were invented in the United States but are rapidly being
commercialized by the Germans, the Japanese, and the Chinese.
And you tend to build your factories where your markets are.
That is exactly what we have seen in the United States. That is
why we have 600 manufacturing facilities that support the solar
industry, because we have a rapidly growing solar market. You
kill the market for solar or wind in this country, those
factories will go out of business and they will go to China,
they will go to other countries. And they will own not only the
manufacturing jobs but also the intellectual property and all
the growth of these industries in the future.
Mr. Tonko. Um-hum. And Mr. Erby, you are out in schools and
businesses and municipal offices all the time. You indicated
the growing number of customers that your company has secured.
Describe the receptivity, if you will, of the community to
solar energy.
Mr. Erby. They have been overwhelmingly positive. In fact,
this month, we have a sales quota internally of 300,000 watts
per month. We achieved that on the third day of the month--we
hit our sales quota for the month. So the communities are
embracing it. We had a system we turned down at a school the
other day, and the Superintendent, Bob Peron, was supposed to
throw the switches and turn it on. He actually, just before we
were going to do it, he goes hold it, hold it. Wait. And he ran
in the school and he come back out a few minutes later with a
young girl he wanted to turn the system on because she wants to
study the renewable energy and she is applying to colleges.
That excitement was--just made me smile ear to ear. I mean he
went running into that school and pulled her right out of class
and that is what we see. We just cannot answer the phone quick
enough. The community wants this and that is prevalent, or
relevant, in the number of sales that we have achieved.
Mr. Tonko. And thank you.
And Mr. Royer, in terms of the support for our wind and
solar industries, and the whole question about the
manufacturing of those systems here, if we don't have a
domestic market, your response to that?
Mr. Royer. Yeah, exactly as what we have already heard. In
fact, you know, we have scaled this industry up to 400
companies like my company, nearly 500 companies now in the last
four years. I went from 11 employees to 380 employees. So
without continuation of this industry, these jobs are going to
be lost. The numbers I said are very reflective of my company
starting in the fall of this year without the PTC.
Mr. Tonko. Thank you so much, sir.
Thank you, gentlemen.
Chairman Broun. Thank you, Mr. Tonko.
And I recognize Dr. Harris for five minutes.
Mr. Harris. Thank you very much, Mr. Chairman. And I want
to thank you again for holding the hearing.
And I am going to apologize to Mr. Royer and Mr. Erby right
up front for the false promise that the American government has
made to your companies. It basically has created a program that
means that you got to come and beg to the government for the
continuation of your livelihoods. And so I am going to
apologize up front for that. That is terrible public policy,
but that is what we live with.
Now, Mr. Resch--and I am going to apologize to Dr. Thorning
because my numbers I am going to use are a little lower,
because I am going to use the EIA numbers. Do you argue against
the--this is the levelized cost of electricity generating
technologies--in 2016--that is their estimate--that solar PV
will be over 20 cents a kilowatt hour. Is that the levelized
cost?
Mr. Resch. No, it is not.
Mr. Harris. And so have you written----
Mr. Resch. It is not that high.
Mr. Harris [continuing]. To the EIA and complained about
this?
Mr. Resch. We do on a regular basis----
Mr. Harris. Okay.
Mr. Resch [continuing]. With EIA and try to get----
Mr. Harris. What do you think it is, the levelized cost
without subsidies, levelized cost, what are you thinking?
Mr. Resch. The levelized cost today is below 15 cents.
Mr. Harris. Okay. And what do you think it is for natural
gas at $1.95 a million BTU in an advanced combined cycle
natural gas facility?
Mr. Resch. Chairman Harris----
Mr. Harris. What do you think it is?
Mr. Resch [continuing]. I have worked in this----
Mr. Harris. Mr. Resch, what do you think it is?
Mr. Resch. I worked in the natural gas industry before I
came to----
Mr. Harris. What do you think it is?
Mr. Resch [continuing]. Solar and I can tell you one thing
about natural gas----
Mr. Harris. Mr. Resch, do you know what it is? It was 6
cents when natural gas was over $5 a million BTU. What do you
think it is at $1.95 a million BTU? Don't beat around the bush.
You worked in the industry. It is under 5 cents.
Mr. Resch. What it should be is about----
Mr. Harris. It is 1/3 the cost.
Mr. Resch [continuing]. Four cents per kilowatt hour.
Mr. Harris. Four cents?
Mr. Resch. That is right.
Mr. Harris. One-fourth. Now, Mr. Resch, who is going to pay
that difference? My ratepayer and my taxpayer in my district?
Who is going to pay that difference for an inefficient delivery
of an electric--of electric generation to my seniors and my
veterans and my schools because my school system has got to pay
three times as much for their power they don't have as much for
books and they don't have as much for teachers? Who is going to
pay it? We have a $1.3 trillion deficit. We have to borrow that
1603 money from China. Mr. Resch, you are smiling there----
Mr. Resch. Because your numbers are wrong.
Mr. Harris. Why are you smiling?
Mr. Resch. Mr. Chairman, with all due respect----
Mr. Harris. Mr. Resch, we have a $1.3----
Mr. Resch [continuing]. You are speaking about natural
gas----
Mr. Harris. Mr. Resch, excuse me.
Mr. Resch [continuing]. Which is wholesale generation----
Mr. Harris. It is my time----
Mr. Resch [continuing]. And solar electricity----
Mr. Harris. Mr. Chairman----
Mr. Resch [continuing]. Is generated----
Mr. Harris [continuing]. Would you remind the witness----
Mr. Resch [continuing]. Distributed generation.
Mr. Harris [continuing]. It is my time, not his. Mr. Resch,
you had your five minutes; now I get mine. Now, you are sitting
there smiling because we have a $1.3 trillion deficit. You are
coming to ask us to borrow money from China to pay for----
Mr. Resch. Not at all. That is not what we are asking at
all.
Mr. Harris. Where do you think we are going to get this
money? Do we just print it over at the Treasury? Oh, actually,
we might. Mr. Resch, and you are sitting and grinning again,
but people in my district don't grin about a $1.3 trillion
deficit. They don't grin about paying three times as much for
energy that you want to force them to pay in higher taxes and
higher rates. Now, you might think that is funny----
Mr. Resch. It is not.
Mr. Harris [continuing). But the taxpayers and ratepayers
in my district don't.
Mr. Resch. It is not accurate.
Mr. Harris. What is disturbing is you sit there----
Mr. Resch. What you are saying is not accurate, Chairman.
It is not accurate.
Chairman Broun. Mr. Resch, Mr. Resch----
Mr. Harris. You can reply in writing.
Chairman Broun. Mr. Resch, would you just----
Mr. Harris. Dr. Thorning----
Chairman Broun. Dr. Harris, suspend just for a moment. I
know you feel a little attacked, but please allow the gentleman
to ask questions and please answer the questions.
Mr. Resch. If I am asked a question, I am happy to answer
it.
Chairman Broun. Well----
Mr. Tonko. Mr. Chairman, if I might, I think there should
be a decorum here that at least shows respect to our witnesses.
They have come--traveled the long miles to be here and there
should be a sign of respect for the witnesses that are here.
Chairman Broun. Well, thank you, Mr. Tonko.
Mr. Tonko. We are here to glean information, and I would
think if they are asked a question, they should respond.
Chairman Broun. Well, I think Dr. Harris is trying to get
some information and the witness----
Mr. Tonko. Harassing the witness is not asking a question.
Chairman Broun. Okay. Thank you, Mr. Tonko.
Dr. Harris, you may continue.
Mr. Harris. Thank you very, very much.
Dr. Zycher, are my figures wrong? Is in fact this an
incredible economic inefficiency to force Americans to pay--and
I will tell you, Mr. Resch, I am going to go with the EIA
numbers more than four times as much for their energy to
subsidize an inefficient industry. Am I wrong somewhere here?
Can we compete in a world economy paying four times as much for
energy?
Dr. Zycher. I--well, no. I would say--you are absolutely
right, but I would say it a bit differently. The rationales
have been offered in support of subsidies for very expensive
power are uniformly wrong. The green jobs argument, the
sustainability are all the ones I talked about in my oral
testimony here today in the testimony for the record. There is
simply no--and all the hand waving in the world cannot erase
the fact renewable power is very, very expensive. It is not
cleaner. That is simply a myth. And somebody has to pay for it,
ultimately, either taxpayers or ratepayers.
Mr. Harris. Sure. Doctor, do you think that the student who
is just running up to pull that switch was told that that power
was at least four or five, six, seven times more expensive than
the power and was taking money from taxpayer and ratepayer
dollars that could be used for something else in the economy?
Do you think Americans understand that without a subsidy and
even with a subsidy how expensive this power is?
Dr. Zycher. Well, I don't know. The surveys of taxpayer
attitudes on this are varied. It is certainly--I would be
rather surprised if that student were informed of the realities
of the relative cost. At a more general level, it is certainly
true that there has been a decades-long effort to propagandize
students on green politics, which I think has been quite
destructive.
Mr. Harris. I couldn't agree with you more and I see it in
my children's textbooks that they bring home.
Thank you, Mr. Chairman.
Chairman Broun. Thank you, Dr. Harris.
I recognize Mr. McNerney for five minutes.
Mr. McNerney. Thank you, Mr. Chairman.
Mr. Resch, I apologize for the attempt at intimidation that
we just witnessed.
Mr. Royer, you seemed to address the domestic production
issues, but wouldn't it be true to say that developing superior
technology here in the United States will open up significant
opportunities for U.S. export and manufacturing?
Mr. Royer. Yes, and actually it already has. In fact, I am
entertaining an order of my business right now that will result
in a project that is going to Uruguay, for example. Many of my
customers are not only looking at sales of equipment in the
United States but the rest of the Americas as we speak. Exactly
the project I just mentioned, for example.
Mr. McNerney. Thank you.
Mr. Erby.
Mr. Erby. Yes, sir.
Mr. McNerney. In your testimony, you concluded--I concluded
from your testimony that the 1603 Program has been very helpful
in helping startups getting established.
Mr. Erby. Correct.
Mr. McNerney. Could you comment on that?
Mr. Erby. Correct. It has made a level playing field, if
you will. We cannot compete with the national companies. With a
startup industry, we need this leg up, if you will, to get
started in this industry. And the overall response that we are
finding is the American people want this, and that is proven in
our sales.
Mr. McNerney. And both--as a comment, both Democratic and
Republican politicians point to small businesses as the job
creators of this country, so thank you for what you are doing,
and I hope that we can continue that sort of program.
Ms. Linowes, I hope I am not mispronouncing your name.
Ms. Linowes. It is Linowes.
Mr. McNerney. Linowes, thank you for your thoughtful
testimony and also for recognizing my concern about the
political nature of this hearing. I do have a question, though,
that concerns me about your organization--the Industrial Wind
Action Group. Does that group, IWAG, receive any money from oil
companies or gas companies or coal companies?
Ms. Linowes. We do not. I am probably the only person in
the room not being paid to be here. I don't represent anyone.
The organization does not pay to present anyone else's views.
My views and--represent tens of thousands of people who have
been negatively impacted by Section 1603 because----
Mr. McNerney. In your opinion, that is. You said tens of
thousands of people that are negatively impacted. That is, in
your opinion, they are being natively impacted.
Ms. Linowes. It is not my opinion. I have worked directly
with these people. We have----
Mr. McNerney. Tens of thousands of people?
Ms. Linowes. Yes, I have a network of organization by--that
is networked across the country. Each State has key people that
have their own people that have contacts with people that live
within the vicinity of wind energy facilities, and we have
easily collected names from tens of thousands of people. I am
not making that number up.
Mr. McNerney. Well, I would like to see a little more
transparency in your organization's funding if you are going to
be making those kinds of claims.
Ms. Linowes. We are not funded----
Mr. McNerney. You also claim----
Ms. Linowes. I have no money.
Mr. McNerney. You also claim that the Production Tax Credit
will--that allowing the Production Tax Credit to expire will
lead to significant--will not lead to significant economic
damages, but I strongly disagree. I think it is, during a time
of economic difficulty, to pull the rug out from any number of
people in the clean energy sector is a travesty. And I think
that is going to be the impact of this expiration.
Ms. Linowes. May I clarify my point on that?
Mr. McNerney. Sure.
Ms. Linowes. It is not the Production Tax Credit that is
driving wind energy development. What is driving wind energy
development are natural gas prices and the mandates, the State
mandates, the RPS policies. And the--each case--in each
situation where the Production Tax Credit was allowed to
expire, at those same instances we also had extremely low gas
prices, and we also had--we didn't have that many RPS policies
in place. So the demand for wind wasn't there and the gas
prices were too low to justify anyone going out and building
wind. The only time that we saw wind energy actually going up
when there was a threat of PTC was back in 2008, when we had
gas prices, again, up--and these are transportation gas
prices--up around $4 a gallon. And at that time, there is a
connection between gas and natural gas and when the
transportation prices were up, so was gas prices. But----
Mr. McNerney. All right. I just want to move on to Mr.
Zycher.
And you argued that renewable energy is flawed because it
is intermittent and a few other reasons. But I would say with
complete confidence that any energy source has its problems and
difficulties. Some of us are concerned about global warming,
about groundwater pollution. It is very appropriate that we
look at these energy sources on a level playing field and
decide on economic and environmental basis what is the best
long-term vision for our country.
You had a fairly impressive list of economic erroneous
projections, and I applaud you for that----
Chairman Broun. The gentleman's time is expired. I am
sorry.
Mr. McNerney. All right.
Chairman Broun. If you have----
Dr. Zycher. I would be happy----
Chairman Broun. Dr. Zycher, you could very quickly answer
the question, please do.
Dr. Zycher. Which erroneous projections are you talking
about, if I may ask?
Mr. McNerney. Oh, you had a whole list of erroneous
projections----
Dr. Zycher. Well, could you name one for me?
Mr. McNerney. That you--well, the projections of running
out of oil and so on that you had a whole list of projections
that showed that----
Dr. Zycher. No, I said that the argument that the world is
going to run out of oil and that justifies----
Mr. McNerney. Right.
Dr. Zycher [continuing]. Is itself incorrect.
Mr. McNerney. But my comment is that it is a lot easier to
project the present than the future. Everyone makes mistakes
when they project the future, and we should be very much on
guard about these kinds of projections.
Chairman Broun. The gentleman's time is expired.
Mrs. Adams, you are recognized for five minutes.
Mrs. Adams. Thank you, Mr. Chairman. And I have just been
sitting here listening.
And Mr. Resch, it is interesting; facts are stubborn
things, you know. You have heard that old saying, but can you
tell me 4 cents versus approximately 96 cents a kilowatt? What
is the better value for the American people?
Mr. Resch. Well, if those were the facts, then I would say
4 cents is but that is not the fact. Remember, solar is
distributed generation. It generates at the point----
Mrs. Adams. Mr. Resch----
Mr. Resch [continuing]. Of consumption so you are
continually retailing----
Mrs. Adams [continuing]. This is the time I have, okay?
Mr. Resch. Okay. I am answering----
Mrs. Adams. And I am not going----
Mr. Resch [continuing]. Your question.
Mrs. Adams [continuing] To be filibustered. I just asked
you one simple question and then you said those are not the
facts. But I was sitting here when you said you thought it was
about 4 cents. Are you changing that cost analysis now?
Mr. Resch. Four cents is for wholesale----
Mrs. Adams. Thank you----
Mr. Resch [continuing]. Generation----
Mrs. Adams. Thank you----
Mr. Resch [continuing]. Solar is retail generation. You
cannot compare the two.
Mrs. Adams. So what would wholesale----
Mr. Resch. You don't pay 4 cents at your house. You pay 16
cents at your house because it is generated at power plant, it
goes through----
Mrs. Adams. So 16 cents versus----
Mr. Resch [continuing]. Transmission lines through
utilities and taxes----
Mrs. Adams [continuing]. Ninety six cents, tell me that?
Mr. Resch. Solar today is less than that. Solar today, as I
pointed out before, is about 20 cents or less per kilowatt hour
distributed generation. It is not 96.
Mrs. Adams. Well, the--Dr. Harris has the research and the
information, and apparently you disagree with the companies so
we will move on. But I, you know, this----
Mr. Resch. I represent the industry. These are the facts--
--
Mrs. Adams. Mr. Resch----
Mr. Resch [continuing]. Of the industry.
Mrs. Adams. --I currently hold the time.
Mr. Resch. Fine.
Mrs. Adams. And I have five minutes and I plan on getting
my questions answered.
Dr. Thorning or Dr. Zycher, Dr. Sherlock's testimony
earlier said, ``for renewable energy projects with longer
planning horizons tax uncertainty might prevent marginal
projects from moving forward''--marginal projects. Can you
speak to how the possibility of increased capital gains and
dividend tax rates and marginal income tax rates impact the
perception of the tax certainty for energy firms?
Dr. Thorning. Yeah, I will take a shot at that. Increasing
the capital gains tax rate from the current 15 percent to 20
percent and dividends up to 39.8, which is what is going to
happen at the beginning of 2013 will certainly raise the cost
of capital and the hurdle rate for new energy investments but
for all investments and is likely to have a negative impact on
overall investment.
Mrs. Adams. And would likely cause utility bills to do
what?
Dr. Thorning. Well, it will certainly mean that any new
utility project is going to have to earn a larger rate of
return, so that will have to be passed on to utility customers,
households, and industries.
Mrs. Adams. Well, I can tell you, in our district I think
my constituents believe that utility bills are high enough but
not too high. So Dr. Thorning, how would you reduce--how would
reducing the overall corporate tax rate influence the global
competitiveness of American energy firms?
Dr. Thorning. I think it would be helpful. Lowering the
corporate tax rate would certainly tend to reduce the cost of
capital. Each new investment would have a lower hurdle rate so
more investments would occur. However, if at the same time you
reduce the corporate tax rate and eliminate accelerated
depreciation deferral, LIFO, other provisions that are
currently in the code, those have an offsetting impact. As you
know, the Bowles-Simpson plan proposed to eliminate most
deductions that companies use. So those--it is going to be a
tradeoff and, you know, one would have to look carefully at
what the cost of--what you have to give up to lower the
corporate tax rate.
Mrs. Adams. So Dr. Sherlock's testimony states, ``ideally,
the energy tax policy should be designed to allow markets to
choose which technologies best meet energy policy objectives.''
If America's energy policy objective were to provide the
cheapest form of energy, what would such an energy tax policy
look like?
Dr. Thorning. Well, there should be neutrality in the tax
code, provisions that are available like accelerated
depreciation, LIFO, Section 199 should be available to all
types of energy investments. We need a level playing field.
Mrs. Adams. And Dr. Zycher, presumably the reason for tax
subsidies for projects to reduce carbon dioxide emissions is to
reduce possible impacts from global warming. Has anyone
calculated what lower baseline carbon emissions specifically
from these projects would mean to global warming?
Dr. Zycher. Yeah, there are a number of projections. Pat
Michaels at Cato has done that, Chip Knappenberger at--I forget
the name of his institution--has done that. There have been
various--essentially, the policies being proposed by the IPCC
audience for want of a better term if implemented by the entire
industrialized world, including China and India, would have the
effect of reducing global temperatures if you believe the IPCC
models--which I don't, by the way, but if you do believe them--
by an amount that is imperceptible over the next century. It is
all cost and no benefit even under the terms of the IPCC
models.
Mrs. Adams. All cost, no benefit.
Dr. Zycher. Right.
Mrs. Adams. My time is expired. I yield back.
Chairman Broun. Thank you, Mrs. Adams.
I want to thank the witnesses for your valuable testimony
and the Members for their questions. The Members of either
Subcommittee may have additional questions for you all, for the
witnesses and we will ask you to respond to those in writing.
The record will remain open for two weeks for additional
comments from Members.
The witnesses are excused and the hearing is now adjourned.
And I thank you.
[Whereupon, at 12:33 p.m., the Subcommittees were
adjourned.]

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