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

ENERGY TAX POLICY AND TAX REFORM

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

JOINT HEARING

before the

SUBCOMMITTEE ON SELECT REVENUE MEASURES

and

SUBCOMMITTEE ON OVERSIGHT

of the

COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

SEPTEMBER 22, 2011

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Serial No. 112-SRM04

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Printed for the use of the Committee on Ways and Means

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COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON SELECT REVENUE MEASURES

PATRICK J. TIBERI, Ohio, Chairman

PETER J. ROSKAM, Illinois RICHARD E. NEAL, Massachusetts
ERIK PAULSEN, Minnesota MIKE THOMPSON, California
RICK BERG, North Dakota JOHN B. LARSON, Connecticut
CHARLES W. BOUSTANY, JR., Louisiana SHELLEY BERKLEY, Nevada
KENNY MARCHANT, Texas
JIM GERLACH, Pennsylvania

______

COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON OVERSIGHT

CHARLES W. BOUSTANY, JR., Louisiana, Chairman

DIANE BLACK, Tennessee JOHN LEWIS, Georgia
AARON SCHOCK, Illinois XAVIER BECERRA, California
LYNN JENKINS, Kansas RON KIND, Wisconsin
KENNY MARCHANT, Texas JIM MCDERMOTT, Washington
TOM REED, New York
ERIK PAULSEN, Minnesota

Jon Traub, Staff Director

Janice Mays, Minority Staff Director

C O N T E N T S

__________
Page

Advisory of September 22, 2011 announcing the hearing............ 2

WITNESSES

PANEL 1:

The Honorable J. Russell George, Inspector General, Treasury
Inspector General for Tax Administration, Washington, DC....... 7
Testimony.................................................... 9
Mr. Richard E. Byrd, Jr., Commissioner, Wage and Investment
Division, Internal Revenue Service, Washington, DC............. 17
Testimony.................................................... 19

PANEL 2:

Dr. Donald B. Marron, Director, Tax Policy Center, The Urban
Institute, Washington, DC...................................... 36
Testimony.................................................... 39
Truth in Testimony......................................... 51
Mr. Kevin Book, Managing Director, Research, Clearview Energy
Partners, LLC, Washington, DC.................................. 52
Testimony.................................................... 54
Truth in Testimony......................................... 64
Mr. Neil Z. Auerbach, Founder and Managing Partner, Hudson Clean
Energy Partners, L.P., Teaneck, NJ............................. 65
Testimony.................................................... 67
Truth in Testimony......................................... 97
Mr. Will Coleman, Partner, Mohr Davidow Ventures, Menlo Park, CA. 98
Testimony.................................................... 100
Truth in Testimony......................................... 111
Mr. Tim Greeff, Political Director, Clean Economy Network,
Washington, DC................................................. 111
Testimony.................................................... 114
Truth in Testimony......................................... 118

PANEL 3:

Mr. Andrew J. Littlefair, President and Chief Executive Officer,
Clean Energy Fuels, Seal Beach, CA............................. 156
Testimony.................................................... 158
Truth in Testimony......................................... 163
Dr. Lawrence B. Lindsey, President and Chief Executive Officer,
The Lindsey Group, Fairfax, VA................................. 119
Testimony.................................................... 121
Truth in Testimony......................................... 129
The Honorable Calvin Dooley, President and Chief Executive
Officer, American Chemistry Council, Washington, DC............ 164
Testimony.................................................... 166
Truth in Testimony......................................... 171
Dr. David W. Kreutzer, Research Fellow in Energy Economics and
Climate Change, The Heritage Foundation, Washington, DC........ 172
Testimony.................................................... 174
Truth in Testimony......................................... 184
Mr. Hank Ziomek, Director of Sales, Titeflex Corporation,
Springfield, MA................................................ 185
Testimony.................................................... 187
Truth in Testimony......................................... 191

MEMBER QUESTION FOR THE RECORD

The Honorable Peter Roskam....................................... 206

PUBLIC SUBMISSIONS FOR THE RECORD

A Royal Flush Inc................................................ 207
ACAA AHRI HARDI.................................................. 209
American Gas Association......................................... 216
AGC Flat Glass................................................... 219
Algal Biomass.................................................... 223
American 99ers................................................... 231
American Biogas Council.......................................... 234
American Public Power Association................................ 238
Bridgeport Biodiesel............................................. 240
Biomass Thermal Energy Council................................... 242
CALSTART......................................................... 246
Center for Fiscal Equality....................................... 252
Council of the North American Insulation Manufacturers
Association.................................................... 258
Cummins Westport Inc............................................. 260
Delta Bulk Transport............................................. 261
Edison Electric Institute........................................ 263
Element Partners................................................. 272
Enviro Express................................................... 279
Environmental Working Group...................................... 281
Fox NAT GAS...................................................... 286
Geothermal Energy Association.................................... 288
Hoopes Turf Farming.............................................. 292
Infinia Corp..................................................... 294
JP Noonan Transportation......................................... 297
National Association of Home Builders............................ 299
National Association of the Remolding Industry................... 309
National Rural Electric Cooperative Association.................. 311
National Biodiesel Board......................................... 318
National Propane Gas Association................................. 322
Natural Gas Vehicles for America................................. 325
National Hydropower Association.................................. 336
Propel Fuels..................................................... 341
Public Power Council............................................. 344
Rep. Sullivan.................................................... 347
Earth Power Solutions............................................ 350
Solar Energy Industries Association.............................. 351
Solid Waste Authority of Central Ohio............................ 358
South Jersey Industries.......................................... 363
The American Institute of Architects............................. 364
VAT Info.org..................................................... 369
Window and Door Manufacturers Association........................ 372
Industrial Energy Consumers of America........................... 377

ENERGY TAX POLICY AND TAX REFORM

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THURSDAY, SEPTEMBER 22, 2011

U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Select Revenue Measures,
Subcommittee on Oversight
Washington, DC.
The subcommittees met, pursuant to notice, at 9:34 a.m., in
Room 1100, Longworth House Office Building, the Honorable
Patrick Tiberi [chairman of the Subcommittee on Select Revenue
Measures] presiding.
[The advisory of the hearing follows:]

HEARING ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

Chairman Tiberi and Chairman Boustany

Announce Joint Hearing on Energy Tax Policy and Tax Reform

September 22, 2011

Congressman Pat Tiberi (R-OH), Chairman of the Subcommittee on
Select Revenue Measures, and Congressman Charles Boustany (R-LA),
Chairman of the Subcommittee on Oversight, both of the Committee on
Ways and Means, today announced that the two Subcommittees will hold a
joint hearing on the intersection of energy policy and tax policy, with
a focus on the dual priorities of comprehensive tax reform and a
sustainable energy policy that addresses our economic, security, and
environmental needs. The hearing will take place on Thursday, September
22, 2011, in Room 1100 of the Longworth House Office Building at 9:30
A.M.

The hearing was originally scheduled for 10:00 A.M. on Wednesday,
August 3, 2011, in Room 1100 of the Longworth House Office Building,
but was postponed.

In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing. A list of invited
witnesses will follow.

BACKGROUND:

As part of the Ways and Means Committee's tax reform agenda, the
Committee and its Subcommittees intend to hold hearings on how
comprehensive tax reform would affect particular sectors of the
economy. Given the critical economic, security, and environmental
considerations surrounding the energy sector, Chairman Camp requested
that Chairmen Tiberi and Boustany begin with an inquiry into energy tax
policy. The current Tax Code includes numerous provisions intended to
advance various energy policy goals, including provisions dealing with
production, efficiency, and conservation, and ranging from
transportation fuels to electricity generation.

There are three general views regarding energy tax policy. Some
believe that many of these energy tax provisions are an effective and
efficient way to advance important public policy goals. Others suggest
that the current structure of energy tax incentives picks winners and
losers, rather than applying technology-neutral tests that would
encourage investment in the most promising technologies. Still others
believe that the Tax Code should not subsidize energy at all, because
doing so interferes with the free market and violates tax reform
principles such as simplicity, fairness, and economic growth.

The American Recovery and Reinvestment Act of 2009 (P.L. 111-5)
included several provisions intended to promote so-called ``green''
energy. Among these were the Nonbusiness Energy Property Credit, the
Residential Energy Efficient Property Credit, and various Plug-in
Electric and Alternative Motor Vehicle Credits. The Treasury Inspector
General for Tax Administration (TIGTA) subsequently reviewed IRS's
effectiveness in identifying and preventing erroneous claims for these
credits during the 2010 tax return filing season. TIGTA issued two
reports on its findings, which included millions of dollars in
erroneously claimed credits and a lax review process that resulted in
credits successfully claimed by children, prisoners, and others who did
not qualify.

On April 6, 2011, Rep. John Sullivan (R-OK) introduced H.R. 1380,
the New Alternative Transportation to Give Americans Solutions (NAT
GAS) Act of 2011. The bill currently has 184 bipartisan cosponsors,
although a number of Members of Congress have removed their names as
cosponsors. Referred primarily to the Ways and Means Committee, H.R.
1380 includes tax credits related to compressed and liquefied natural
gas (CNG and LNG), including credits for the fuels themselves, credits
for the purchase and production of vehicles powered by CNG and LNG, and
credits for refueling property related to CNG and LNG. Whether such
credits represent good energy policy or an intrusion into the free
market has been the subject of vigorous debate.

In announcing the hearing, Chairman Tiberi said, ``Energy security
and comprehensive tax reform are two of the most important priorities
we can pursue to create jobs and ensure the long-term strength of the
U.S. economy. As the committee with jurisdiction over energy tax
policy, the Ways and Means Committee should examine whether there
sometimes can be tension between these priorities, and how this
Committee can design tax policies that achieve our energy security
goals while also staying true to the principles of simplicity,
fairness, and growth that drive the Committee's tax reform agenda.''

Chairman Boustany said, ``With so much of our energy policy driven
by the Tax Code, comprehensive tax reform needs to consider whether
these tax incentives promote a sound energy strategy. This hearing will
examine how IRS implements and enforces rules on energy credits, and it
will explore the role of the Tax Code in energy policy.''

FOCUS OF THE HEARING:

The hearing will focus on the questions of whether energy policy
should be conducted through the Tax Code, and if so, how best to design
provisions that advance the principles of both sustainable energy
policy and tax reform. In asking these questions, the hearing will
conduct oversight of the administration of certain existing energy tax
provisions to determine whether they have been implemented efficiently
and effectively. It also will consider how the specific case of H.R.
1380, the NAT GAS Act, stacks up against the principles of tax reform
and sustainable energy policy.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Please Note: Any person(s) and/or organization(s) wishing to submit
written comments for the hearing record must follow the appropriate
link on the hearing page of the Committee website and complete the
informational forms. From the Committee homepage, http://
waysandmeans.house.gov, select ``Hearings.'' Select the hearing for
which you would like to submit, and click on the link entitled, ``Click
here to provide a submission for the record.'' Once you have followed
the online instructions, submit all requested information. ATTACH your
submission as a Word document, in compliance with the formatting
requirements listed below, by the close of business on Thursday,
October 6, 2011. Finally, please note that due to the change in House
mail policy, the U.S. Capitol Police will refuse sealed-package
deliveries to all House Office Buildings. For questions, or if you
encounter technical problems, please call (202) 225-3625 or (202) 225-
2610.

FORMATTING REQUIREMENTS:

The Committee relies on electronic submissions for printing the
official hearing record. As always, submissions will be included in the
record according to the discretion of the Committee. The Committee will
not alter the content of your submission, but we reserve the right to
format it according to our guidelines. Any submission provided to the
Committee by a witness, any supplementary materials submitted for the
printed record, and any written comments in response to a request for
written comments must conform to the guidelines listed below. Any
submission or supplementary item not in compliance with these
guidelines will not be printed, but will be maintained in the Committee
files for review and use by the Committee.

1. All submissions and supplementary materials must be provided in
Word format and MUST NOT exceed a total of 10 pages, including
attachments. Witnesses and submitters are advised that the Committee
relies on electronic submissions for printing the official hearing
record.

2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.

3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental
sheet must accompany each submission listing the name, company,
address, telephone, and fax numbers of each witness.

The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.

Note: All Committee advisories and news releases are available on
the World Wide Web at http://www.waysandmeans.house.gov/.

Chairman TIBERI. The hearing will come to order, a series
of hearings on comprehensive tax reform. Today we will begin an
examination of the energy tax policy and tax reform. I am glad
this hearing will be a joint effort between the Select Revenue
Measures Subcommittee and the Oversight Subcommittee. Both
subcommittees play an important role in reviewing energy tax
issues, the Oversight Subcommittee by examining the IRS's
administration of existing energy tax provisions, and the
Select Revenue Measures Subcommittee by examining energy tax
policies.
Today's hearing will feature three panels of witnesses. The
first panel will examine the IRS's administration of so-called
energy green tax credits included in the American Recovery and
Reinvestment Act of 2009. The second panel will examine
different viewpoints on the proper role of the Tax Code in
promoting energy policies. And finally, the third panel will
examine H.R. 1380, the New Alternative Transportation to Give
Americans Solution Act of 2011, introduced by Representative
John Sullivan of Oklahoma, and fellow member of the Select
Revenue Subcommittee, Representative John Larson of
Connecticut.
I look forward to hearing from all three panels, so I will
be brief and now yield to the ranking member of Select Revenue,
Mr. Neal.
Mr. NEAL. Thank you, Mr. Chairman, and thank you for
conducting this hearing.
Some may be surprised by how much the United States
Government spends on energy policy through our Tax Code.
According to the Energy Information Administration, for 2010
the value of direct federal financial interventions and
subsidies in energy markets was estimated at about $37 billion.
Of this total, about $16 billion, or approximately 44 percent,
can be attributed to tax incentives.
In calling this hearing today, the chairman is raising an
important point that warrants consideration: Should we be
pursuing energy policy through the Tax Code? And if so, how do
we do so in the most effective manner?
Over the years, Congress has enacted a number of energy tax
incentives that have been quite successful. For example, the
Recovery Act included the 48 clean
energy manufacturing tax credit, providing a 30 percent credit
for investments in facilities that manufacture clean energy
products. According to the Department of Energy, the $2.3
billion allocation of tax credits will result in more than
17,000 jobs. This investment will be matched by as much as $5.4
billion in private sector funding, likely supporting up to
41,000 additional jobs.
On the other hand, when I read in late July that the
largest oil companies reported another quarter of
profitability, with one company reporting a 97 percent increase
in profits, I had to once again question whether some
profitable companies really need taxpayer subsidies. We spent
about $2 billion each year on subsidies for the largest oil
companies. In this time of record deficits, do we really see
this as a smart investment by the government?
In focusing on oil production today, an interesting point
to note is the emerging oil boom right here in the Americas.
From Brazil to Argentina to Canada, even North Dakota, the
Western Hemisphere is seeing an increase in oil discovery and
production. This is a significant development that may ease our
country's dependence on Middle Eastern oil.
So, I am glad we are having this conversation--and I
emphasize the word ``conversation,'' Congress once worked upon
the basis of a conversation--examining our energy tax
provisions. And I look forward to the testimony of all our
witnesses today.
But I am also particularly pleased that we will be joined
by one of my constituents, Hank Ziomek, who is the director of
sales at Titeflex company in Springfield, a terrific success
story. And Hank will be discussing how this formerly old-line
manufacturer has benefitted from and become more dependent on
growth of the natural gas vehicle market.
Thanks, Mr. Chairman.
Chairman TIBERI. Thank you, Mr. Neal. I am going to yield
now to my good friend, the chairman of the Oversight Committee,
Dr. Charles Boustany, for an opening statement.
Chairman BOUSTANY. Thank you, Chairman Tiberi, for holding
this hearing. I would also like to welcome everybody to this
morning's hearing on energy tax policy and administration.
Let there be no doubt. This country lacks a comprehensive
energy strategy to achieve energy security and create good-
paying American jobs.
Louisianans know natural gas will be an important part of
our transition to new fuel sources for the 21st century. In
addition to natural gas, we must ensure that traditional energy
sources are affordable, and innovative technologies are allowed
to flourish. Yet the Administration continues to advocate for
job-killing tax hikes on American energy producers. And these
tax hikes will hit small, independent oil and gas companies,
hurting job growth in this country, and really hurting our
energy security.
At today's hearing, we will consider the role of the Tax
Code in our country's energy policy, as well as IRS's
effectiveness in implementing existing tax incentives. In
recent years, Congress has sought to promote the development
and use of renewable energy by offering tax credits to
businesses and individuals. Whether tax credits are an
effective way of pursuing this policy, and whether the Tax Code
is the appropriate way to do so are questions up for debate.
And that's why we're having this conversation.
Critics have argued that incentives included in the
Recovery Act, such as the non-business energy property credit,
the residential energy efficient property credit, and numerous
plug-in, electric, and alternative motor vehicle credits have
not only failed to stimulate the use of alternative energy, but
have also become a target of fraudulent claims, leading to
billions of dollars a year in improperly claimed credits.
There is the case of the residential energy efficient
property credit meant to promote energy-saving home
improvements. And the Treasury inspector general for tax
administration found that hundreds of thousands of dollars of
the credit went to prisoners and children, and nearly a third
went to individuals with no proof of home ownership. The IRS
was unable to verify whether tax payers that claimed these
credits were indeed eligible to receive the credits, costing
taxpayers hundreds of millions of dollars in 2009 alone.
Plug-in, electric, and alternative motor vehicle credits
have similarly suffered from poor administration and fraud.
According to a recent report, although these credits were
intended to promote the purchase of hybrid and electric
vehicles, a lax eligibility review resulted in millions of
improper payments.
For instance, even though the credit only applied to new
vehicles, IRS allowed credits when returns listed years such as
1991, 1979, and, strangely enough, the year 1300. And they even
allowed plug-in and hybrid credits for vehicles such as
Cadillac Escalade, Hummer H-3, and the Harley Classic. One
taxpayer successfully claimed a bicycle.
Given these problems, this morning's hearing will examine
whether these credits have served their intended energy policy
goals, or whether these goals have been overshadowed by waste,
fraud, and abuse of these credits. Further, it is our duty to
ask the IRS what is it doing to detect these fraudulent claims,
to ensure that taxpayer dollars spent on economic recovery are
safeguarded from abuse. I look forward to hearing testimony
today to help us craft responsible energy policy to unleash
America's energy potential.
Thank you, Mr. Chairman, I yield back.
Chairman TIBERI. Thank you. I now yield to the ranking
member of the Oversight Committee, my friend from Georgia, Mr.
Lewis.
Mr. LEWIS. Well, thank you very much. I want to thank you,
Chairman Tiberi and Chairman Boustany, for holding this
hearing. Energy tax policy is an important topic as we work
toward a greener America and the creation of jobs in the United
States.
I am pleased that we will start this hearing by reviewing
the administration of energy tax credits. In this context, it
is important that we discuss the proper funding of the Internal
Revenue Service. We need to examine whether the agency has the
resources it needs to ensure compliance with these provisions.
Simply put, agency funding impacts tax administration.
The testimony clearly states that the agency has limited
resources to examine claims after the credits have been paid. I
have serious concern that the Republican plan to cut $600
million from the agency's budget will further damage its
ability to administer energy and other tax credits.
The Republican budget will result in the furlough of over
4,000 employees. This furlough will harm administration and
hurt the agency's ability to detect and fight fraud. This cut
will also increase the deficit and widen the tax gap. The
agency collects between $4 and $7 for every $1 of funding. The
Republicans' attempt to save $600 million actually will cost
taxpayers more than $4 billion each year.
Any serious discussion of energy policy and tax reform must
begin with fully funding the agency.
Investment in agency funding and tax incentives are
critical to energy policy. They result in more choices for
consumers and increased competition. Most importantly, they
create jobs in the United States.
I want to thank the witnesses for being here today. I would
like to extend a special welcome to the gentleman from the
great city of Atlanta, Commissioner Byrd. Welcome. Thank you.
Chairman TIBERI. Thank you, Mr. Chairman. Before I
introduce the witnesses for the first panel, I ask unanimous
consent that all Members' written statements be included in the
record.
[No response.]
Chairman TIBERI. Without objection, so ordered. We will now
turn to our first panel of witnesses, and I welcome the
Honorable Russell George, Treasury inspector general for tax
administration. And I also welcome Mr. Richard Byrd, Jr.,
commissioner, wage and investment division, Internal Revenue
Service. Thank you both for joining us today. You will have--
you each have five minutes to present your testimony. And,
obviously, your full written testimony will be submitted for
the record.
General George, you can begin.

STATEMENT OF J. RUSSELL GEORGE, INSPECTOR GENERAL, TREASURY
INSPECTOR GENERAL FOR TAX ADMINISTRATION, WASHINGTON, D.C.

Mr. GEORGE. Thank you, Chairman Tiberi. Good morning,
Chairman Boustany, Ranking Member Lewis, Ranking Member Neal,
Members of the Subcommittee. Thank you for the opportunity to
testify on the Internal Revenue Service's administration of
energy-related tax credits.
The Recovery Act of 2009 contained 20 provisions,
applicable to individual taxpayers, including a number of tax
credits and deductions. The energy and motor vehicle provisions
of the Recovery Act were non-refundable credits and deductions.
The Plug-in Electric and Alternative Motor Vehicle Credits
provide taxpayers with a credit for the purchase or conversion
to motor vehicles that operate on clean, renewable energy
sources. During the period of January 1st through July 24,
2010, approximately 69,000 individuals--who electronically
filed tax returns--claimed $164 million worth of those credits.
The Act provided two types of Residential Energy Credits to
individuals to install energy efficient products in their
principal residence, or install alternative energy equipment in
their principal or secondary residences. Approximately 6.8
million individuals claimed $5.8 billion in Residential Energy
Credits on their tax year 2009 returns.
The Qualified Motor Vehicle Deduction provided individuals
with an additional deduction for State sales taxes and excise
taxes on the purchase of certain motor vehicles for tax year
2009. Approximately 4.3 million individuals claimed $7.2
billion in Qualified Motor Vehicle Deductions.
Our reviews of the effectiveness of IRS processes to
identify and prevent wrongful claims for these energy-related
credits and deductions identified erroneous claims for millions
of dollars in these credits and deductions. It must be stressed
that these claims could have been minimized if the IRS had
taken the actions I am about to describe. Importantly, these
changes would also help minimize erroneous claims for other tax
credits as well.
First, the IRS must establish effective processes to verify
eligibility for these credits at the time tax returns are
processed. Second, it needs to design the tax forms used to
claim the credits and deductions in such a way as to request
key information that can be used to verify eligibility. And,
third, the Service must use the data it already possesses to
identify non-qualifying claims.
In January, we reported that for paper-filed returns with
plug-in and alternative vehicle claims, the IRS did not
establish processes to record data from tax forms for the
credits. This prevented the IRS from accounting for these
claims, and also identifying potentially false ones.
Furthermore, we identified 12,920 individuals who
electronically filed their tax returns and erroneously claimed
$33 million in Plug-in Electric and Alternative Motor Vehicle
Credits.
The processes used by the IRS did not ensure the plug-in
electric and alternative vehicles claimed met the requirements
to receive the credit. There was information on these tax forms
that the IRS could have used to identify and stop these credits
at the time tax returns were processed. We recommended that the
IRS develop procedures to disallow credits for vehicles with
non-qualifying years; initiate actions to recover faulty
credits; and either develop a coding system to identify
vehicles, or require the Vehicle Identification Number on the
forms used to claim these credits.
Concerning the Residential Energy Credits, we reported that
the IRS could not verify whether individuals claiming these
credits are entitled to the credit at the time their tax
returns are processed. The form used to claim these credits
does not request specific information that could be used to
verify the requirements of the law.
Furthermore, using data the IRS already has, we identified
362 ineligible individuals who were allowed to wrongly claim
over $400,000 in Residential Energy Credits on their tax
returns. These individuals were either prisoners, or were under
the age needed to enter into a contract to purchase a
residence. The IRS does not have a process in place to use its
data to identify these cases. We recommended that the IRS
revise the form used to claim Residential Energy Credits to
request specific information supporting eligibility
requirements; examine the returns of the 362 individuals who
appear to be ineligible to claim it; and implement processes to
identify and review returns filed by prisoners or underage
individuals, to verify whether they qualify for the credit.
We also identified similar issues with the Qualified Motor
Vehicle Deduction. This deduction expired on December 31, 2009,
and has not been extended by law.
I am pleased to report that the IRS agreed to all of our
recommendations.
Mr. Chairman, we at TIGTA appreciate the opportunity to
assist you in your oversight of the IRS.
[The prepared statement of Mr. George follows:]

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Chairman TIBERI. Thank you so much, General George.
Mr. Byrd, you may proceed with your testimony.

STATEMENT OF RICHARD E. BYRD, JR., COMMISSIONER, WAGE AND
INVESTMENT DIVISION, INTERNAL REVENUE SERVICE, WASHINGTON, D.C.

Mr. BYRD. Thank you, and good morning. Chairman Tiberi,
Ranking Member Neal, Chairman Boustany, and Ranking Member
Lewis, my name is Richard Byrd, and I am Commissioner of the
Wage and Investment Division at the Internal Revenue Service.
I appreciate the opportunity to testify before the
subcommittees on the residential energy property tax credits
and plug-in electric and alternative motor vehicle tax credits,
and the ongoing efforts by the IRS to ensure proper
administration of the laws relating to them.
The number of tax credits affecting individuals and
businesses has grown in recent years. For example, the Recovery
Act contained more than 50 tax provisions, including tax
credits, which cover a broad spectrum of tax relief. However,
it is important to note that the tax credits being discussed
today are not refundable tax credits.
The residential energy property tax credits and the plug-in
electric and alternative motor vehicle tax credits reduce,
dollar for dollar, a person's tax liability. While such credits
could not reduce a person's tax bill to less than zero, they
can increase a taxpayer's refund if he or she paid too much in
estimated tax, or had too much tax withheld over the year, as
many people do.
In administering tax credits, the IRS must deliver the
benefits that the legislation provides in the intended time
frame, while ensuring that appropriate and prudent controls and
filters are in place to minimize errors and fraud. This is not
an either/or proposition. We must do both well.
During 2010, the residential energy property credit and the
resident energy efficient property credit provided nearly $6
billion to 6.7 million homeowners who weatherized their homes
and made them more energy efficient. Both credits include
multiple types of eligible expenditures with differing
restrictions and unique criteria.
Over the same time period, 34,724 individual taxpayers took
advantage of the plug-in vehicle tax credits for personal and
business use, for a total of $150 million, with each credit
subject to different and complex eligibility requirements.
As with any new tax provision, we continually adapt our
programs to improve the screening process as we gain experience
with them. Over the course of administering these energy
credits, a number of compliance concerns were identified. The
IRS took quick action to correct these issues, and continues to
make additional improvements for the future. We have put in
place procedures to prevent taxpayers from receiving credits in
excess of the limitations, and are revising forms to request
more specific information. We have also worked with the
software providers to better improve information related to
these credits.
As part of our ongoing examination program, we are
reviewing the energy credit claims, including returns of
prisoners and under-age taxpayers to ensure that their credit
claims are proper. The IRS also continues to audit claims as we
need to. The IRS continually assesses and evaluates present and
emerging compliance risk across all taxpayer segments.
And as part of the IRS's ongoing research and its 2011
examination plan, we will review a sample of residential energy
credit cases in a post-refund environment. Those that warrant
examination will be selected for audit, and the results will be
factored in to future examination plans.
In conclusion, tax credits such as the residential energy
and plug-in vehicle tax credits play an important role in
fulfilling congressional energy policies and intent, but are
inherently subject to a number of administrative challenges. As
with all aspects of tax administration, the IRS must determine
the proper balance of taxpayer service and enforcement to
ensure that the benefit is afforded only to those taxpayers who
are eligible. We are committed to that goal.
That concludes my testimony. I would be happy to take your
questions.
[The prepared statement of Mr. Byrd follows:]

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Chairman TIBERI. Eight seconds to spare. Thank you,
Commissioner, for your testimony today.
I am going to now yield to Dr. Boustany and Mr. Lewis for
questions.
Dr. Boustany.
Chairman BOUSTANY. Thank you, Chairman Tiberi. Gentlemen,
thank you for being here today, and for your testimony. And,
Mr. Byrd, it is encouraging that steps are now being taken to
remedy some of these problems. And I am certainly cognizant of
the fact that a lot of complexity was added to the Tax Code in
a very quick way, which makes your job very difficult. And as
we work on policy, we clearly have to understand that this
growing complexity in the Tax Code is a problem we have to
address, because it certainly creates problems from the
administrative standpoint, as well.
But, you know, as we have tried to conduct aggressive
oversight over the course of this year, there has been a common
theme running through many of our hearings. And whether the
subject has been Medicare fraud, or earned income tax credit
problems, energy tax credit fraud, we often have, as a
government, have approached this sort of a pay-and-chase
strategy for improper payments. And what concerns me is if that
is where we are, what are we doing on the chase side? Are we
actually recouping some of this money that was improperly paid
out?
Mr. BYRD. Yes, sir. We have what we call a pre-refund
strategy, where our goal is to block the bad refund before it
goes out, and we've been very successful there.
And then, of course, we have a variety of tools if we
subsequently determine that we sent the wrong amount our--we
have what we call a post-refund strategy, and there are a
number of things that we can do. The most successful tool we
have, of course, is examination. We communicate and/or meet
with the taxpayer, and allow them to share with us their
documentation to support their claim.
Chairman BOUSTANY. General George, are you satisfied that
the IRS has followed the recommendations that you all have
made?
Mr. GEORGE. I am satisfied that they are committed to doing
so. But have they done so completely? Not yet. I don't disagree
at all with what Mr. Byrd stated, but what he neglected to
point out is that once the money is out the door, it is
extraordinarily expensive and difficult to recoup it.
And so, if they could do so at the outset more effectively,
they would be much more successful, in terms of recouping or
stopping the improper payments of----
Chairman BOUSTANY. Thank you. If I'm an individual intent
on defrauding the tax system with these credits, what
disincentive do I have from claiming, for example, a vehicle
credit on a bicycle, or something of that nature? What are the
disincentives?
I would like both of you to comment on it, if you don't
mind.
Mr. BYRD. TIGTA recommended to us that we put some controls
and request additional information from the taxpayer, which we
have done for this past filing season. And we found that quite
helpful in enabling us to ID and block those claims that are
improper.
The suggestions that they made were good suggestions, and
we have implemented them. If a person claims a plug-in car that
is not in a qualifying year, then we can take that credit out
of the return before we send them the rest of their refund.
Chairman BOUSTANY. Can you give us an indication of the
kinds of resources that are required in chasing money after the
fact, as opposed to working on the front end to have the proper
filters and controls in place?
Mr. BYRD. When a tax return comes in, if it comes in
electronically, then it will be matched up against the filters.
That is the way that we prefer the tax returns come in. If it
comes in on paper, then it has to be touched by a person, which
makes it more expensive and more time-consuming.
So if we send out an erroneous refund, then normally what
happens is we have to examine that tax return, which requires
some correspondence, and in this case it would probably be an
examination through correspondence. So it is an examiner who is
communicating with the taxpayer, and then the taxpayer would
send in their documents, and we would review them and make a
decision.
Chairman BOUSTANY. In other words, it is more labor-
intensive, and ultimately more costly to the agency to have to
go in after the fact.
Mr. BYRD. Yes, sir. The least expensive way is for the
taxpayer to file electronically. Then the next way would be if
they file on paper. And then the most expensive, of course, is
if we have to do an examination.
Chairman BOUSTANY. Thank you, sir. I yield back.
Chairman TIBERI. Thank you, Doctor. Mr. Lewis is recognized
for five minutes.
Mr. LEWIS. Thank you very much, Chairman Tiberi. Now,
Commissioner Byrd, in the report on the administration of
vehicle credits, TIGTA made eight recommendations to improve
compliance and the IRS accepted all of them. Now, how long does
it generally take to implement recommendations received from
TIGTA?
Mr. BYRD. Well, if it is a recommendation that we change
the way we electronically review or filter the tax returns, it
could take us months and months, just because of the workload
and the complexity of our computer systems. There are often
things that TIGTA recommend that we implement in a short time
period.
Mr. LEWIS. Now, one recommendation was to establish a
system to track credits claimed on paper-filed tax returns. Why
do you need to establish a separate system for paper returns?
Is there a reason that the IRS does not convert all paper
returns to the electronic version during processing?
Mr. BYRD. Well, we would like to be able to convert all the
paper returns to electronic returns, but that would cost a lot
to make that conversion. When you have to track claims, or
track information from the tax return, you have to transcribe
the information. You have a person who has to transcribe the
information from the tax return.
So, again, it adds cost. It adds time to the processing of
that tax return.
Mr. LEWIS. Do you have some idea how much the cost would
be?
Mr. BYRD. Right now, it costs about $.17 to process an
electronic return. And it costs about $3.66 to process a paper
return. And since we received about 124 million electronic
returns, you can see the savings that we have if we can get the
taxpayers to come in electronically.
Mr. LEWIS. Commissioner Byrd, in your written testimony you
stated that hard-to-detect fraud presents a challenge to your
compliance efforts for energy tax credits.
Now, the Republican budget proposal for the IRS, as passed
by the House Appropriation Committee would cut $600 million
from the agency. The Appropriation Committee report notes that
the cut will have a significant impact on the ability of the
IRS to find tax cheats. The report states that the agency will
be forced to furlough between 4,100 and 5,000 employees. Is
this estimate correct?
Mr. BYRD. Sir, we, of course, don't have our funding yet
for this coming year. But we can imagine, with that type of
dollar cut, we are going to have to dramatically reduce our
staffing in a number of places. So that would be information
technology, that would be how we serve the taxpayers, how we
answer the phones, how we look for fraud, how we examine the
tax returns.
We cannot absorb that type of cut without it having an
impact on the service we provide taxpayers, and the enforcement
of the IRS code.
Mr. LEWIS. So you are suggesting that these employees
mainly would be enforcement agents? Are you stating this?
Mr. BYRD. Well, sir, what we need to have is exactly what
it is that our funding will be for this year. But that is why
we are saying that we imagine that it would be across the board
that we would have to take some action.
Enforcement people would be included in those cuts that we
would have to take. And enforcement people are the people who
examine the tax returns.
Mr. LEWIS. The enforcement agents are the people that help
the IRS detect fraud, right?
Mr. BYRD. Yes, sir.
Mr. LEWIS. Okay. So the Republican budget would hurt
enforcement compliance efforts and the administration of energy
and other tax credits
So, Mr. Chairman, without objection, I would like to enter
to the record an excerpt from the House committee report on IRS
funding.
Chairman TIBERI. Without objection, so moved.
**INFORMATION NOT PROVIDED**
Mr. LEWIS. Mr. Inspector General, we appreciate your
recommendation to improve the administration of the energy-
related tax credit. In your written testimony, you stated that
the IRS has little resources to examine claims after the
credits have been paid. If the IRS had more resources, would it
be better able to perform its duties?
Mr. GEORGE. There is no question that----
Chairman TIBERI. The gentleman's time has expired, but you
may answer----
Mr. GEORGE. Thank you, Mr. Chairman.
Chairman TIBERI [continuing]. The question. Thank you.
Mr. GEORGE. Yes. I believe that it is the case. If they had
additional resources, they would be able to do more. It is a
zero sum game, as Mr. Byrd noted. If they have to take money
away from compliance to support customer service or vice versa,
it ultimately impacts the taxpayer, in terms of whether or not
they are having a more friendly interaction with the IRS--that
is, the ability to walk into a taxpayer assistance center, or
to call the 800 number and get a quick response, as opposed to
having letters sent to them or, even a worse case, people visit
them in their homes or businesses.
Mr. LEWIS. Thank you, sir. Thank you, Mr. Chairman.
Chairman TIBERI. Thank you. I will now recognize the
ranking member from Massachusetts, Mr. Neal.
Mr. NEAL. Thank you, Mr. Chairman. To our witnesses,
actually a threefold question.
First, I am pleased with the efforts that the IRS has made,
based upon bank secrecy. And I think the effort that's been
made in Switzerland is a good example of what can be done when
enforcement techniques that utilize the computer are applied.
That is a good story. I can't imagine that there is anybody in
America who would object to the efforts that the IRS has made
in trying to sift through these offshore accounts.
But the second part of the question--and it is a follow-up,
actually, to what Mr. Lewis said--some of the errors that you
have identified today, some are, I assume, mistakes that have
been made by the filer. And, as Mr. Lewis pointed out, I think
correctly, the proposed cuts in the agency are going to make it
more difficult for you to assist an honest mistake that has
been made by the filer.
And with respect to the audits that you have cited, there
are taxpayers who erroneously claim tax credits, but they did
it by mistake. And if there is no fraudulent intent, if some of
these errors indeed were mistakes, do you have suggestions on
how we might help the taxpayer, the citizen, better comply with
these rules?
And in addition, if you could, speak to another issue that
tends to draw attention here, and that is some of the prisoners
across the country who erroneously received credits, and what
the IRS can do in these arenas to make sure that this doesn't
happen again.
Mr. BYRD. Yes. Thank you, sir, for that question. Our
experience has been that taxpayers, normally make mistakes, as
opposed to fraud. That is primarily around the point of the
complexity of the law.
And for a--for those of us who like the Tax Code, and read
it, and enjoy it--the majority of Americans don't----
Mr. NEAL. Who are they?
[Laughter.]
Mr. BYRD. Me. So just those of us at the IRS. But I think
your average taxpayer finds, often times, the law is very
complex. And I think the software folks have done a great job
to help.
In answer to your question, I think simplification of the
Tax Code would be key to help taxpayers not make the mistakes
that they make to date. The majority of taxpayers make
mistakes, and then I think there is a small part that is
involved with fraud.
As it concerns the prisoners, we have stepped it up. We
have blocked an increase of 250 percent of the fraudulent
returns filed by prisoners. We actually have a strategy where
we have dramatically improved the data that we receive from the
prisons. A key piece when a tax return comes in is we match it
up against this information we get from the prisons, so that we
could see who is in jail. We have refined that criteria so it
is much more improved.
We have started to work with each prison to allow us to
share information with them. When a prisoner files a fraudulent
return, we can now share information with the prison, so that
they can take action against that prisoner. We have also worked
with all of them so that if a check does go to a prison, that
we have streamlined and improved the processes for the prison
officials to return those checks to us.
And, of course, we would like to encourage you all to
strengthen the legislation that is out there in regards to how
we can share, and what we can share with the prison officials
about these fraudulent tax returns.
Mr. NEAL. That is consistent with Mr. Lewis's testimony.
Mr. George?
Mr. GEORGE. Yes, Mr. Neal. I have testified on this issue a
number of times before this committee, as long ago as five
years. And while Mr. Byrd is accurate that they have these
procedures and policies in place, we have found that they have
not effectively implemented them.
There is no question that you have a defined population of
people incarcerated. And after my initial testimony, Congress
enacted legislation that helped facilitate this exchange of
information. But we recently reported that they did not do so
effectively, and they were still in the process of doing so
many, many years later. So, we are troubled by the delay that
the IRS took in terms of implementing this, and they still have
a ways to go in that regard.
There is no question that if people are given the
opportunity to readily file their taxes in an understandable
way--going back to what Mr. Byrd said--that is something quite
appropriate. But we have found that, in many instances, the IRS
has made it cumbersome, both in terms of the language within
the tax form and the accompanying materials, among other
factors.
Mr. NEAL. Thank the witnesses.
Chairman TIBERI. Thank you, Mr. Neal. Ms. Jenkins is
recognized for five minutes.
Ms. JENKINS. Thank you, Mr. Chair, thank you for holding
this hearing. Thank you, Gentlemen, for joining us.
In recent decades, Congress has increasingly tasked the IRS
with administering programs that aren't focused on revenue
collection. For example, through the earned income tax credit,
the IRS administers one of the nation's largest welfare
programs. The Taxpayer Advocate has warned that the IRS's
increasingly dual mission of revenue collector and program
administer diverts IRS resources away from the agency's core
revenue collection function, and can diminish taxpayer service.
So, for the both of you, as Congress through the years has
sought to implement more and more public policy through the Tax
Code, could you both just describe to us what effects this has
had on tax administration?
Mr. GEORGE. Congresswoman, you have hit an important point
here. The Earned Income Tax Credit still, as estimated by the
IRS, has improper payments in the $10 billion to $12 billion a
year range. The Additional Child Tax Credit, it is in the
billions, in terms of improper payments. The First-Time
Homebuyers Credit we found millions, hundreds of millions of
dollars which were improperly paid.
We just recently completed a review on the implementation
of the Affordable Care Act. And while we will conclude that the
IRS is being effective in planning on how to implement portions
of that legislation, it is taking away from their traditional
role of collecting revenue and assisting taxpayers in paying
their taxes.
So, unless the IRS is able to more effectively allocate its
resources, it is going to make its primary mission--that is,
again, collecting revenue--much more difficult.
Ms. JENKINS. Thank you. Commissioner.
Mr. BYRD. Yes. I have been here a long time, and I don't
know that I would ever say we have had sufficient resources to
do our job, because I understand that there are competing
priorities that our country has. But I wanted to assure you
that when Congress decides to write a law, and they send it to
us to implement, that we are trying to do it in the most cost-
efficient way possible through innovation, through the use of
technology, through the use of all the enforcement tools that
we have.
We believe that the majority of our taxpayers want to and
do file an accurate tax return. When the IG discusses these or
shares these numbers, one could get the impression that our
taxpayers are not honest, and I don't believe that's true. I
believe that you have an area of fraud that we have to always
deal with, and we had it before we had the credits, and we have
it today. But what I want to assure you is that we, in the IRS,
are going to use the resources that you all provide as
efficiently as possible to deal with the priorities that you
all send our way.
Ms. JENKINS. Okay, thank you. I would yield back.
Chairman TIBERI. Thank you. Mr. Paulsen is recognized for
five minutes.
Mr. PAULSEN. Thank you, Mr. Chairman. Also, thanks for
joining us here as a part of this testimony today.
Let me ask this question, because we have talked a little
bit about some erroneous payments and duplicative credits that
get paid out as a part of these credits.
I am just curious, because it seems like every time
Congress creates one of these new energy credits or this green
energy or other areas, we end up creating new tax shelters and
issues like that that have applied to synthetic fuels and
biodiesel and alternative fuels, et cetera. And, you know, the
abuses end up costing taxpayers millions of dollars, billions
of dollars, and the fraud and the abuse is a part of it.
What is it about these credits, in general, that make them
so susceptible to this kind of fraud, overall? Mr. Byrd.
Mr. BYRD. Well, I am not sure, sir, that we are here today
to talk about credits. You know, our examination program is
designed to look at a wide range of issues and concerns that we
see as taxpayers file their returns. So our experience has been
that in all parts of the code, that taxpayers sometimes take
liberties with the rules.
So, sir, I am not sure that I would say that because it is
a credit it is susceptible to more fraud.
Mr. PAULSEN. Mr. George.
Mr. GEORGE. Yes. I would just say, sir, that they do not
utilize the information effectively that they have.
I am not going to necessarily argue with Mr. Byrd about
whether or not there are more instances of fraud or whatever
the case may be there. But there is no question that if the IRS
were to use the information that the taxpayer provides and,
more importantly, gain access to third-party information,
which--again, at various settings I cite this information, sir,
and I beg your indulgence here.
The IRS itself estimates that individuals whose wages are
subject to withholding report 99 percent of their wages for tax
purposes. Self-employed individuals who operate non-farm
businesses are estimated to report only 68 percent of their
income for tax purposes. And the shocking number is self-
employed individuals operating businesses on a cash basis
report only 19 percent of their income.
So, the bottom line is if the IRS were to require
additional information from third parties, by their own
estimates, they would gain much more revenue. If they used the
information that was supplied by the taxpayers on their tax
forms, either electronically or in paper form, they would also
have more information that they could use.
So, again, it's a question of how the IRS allocates its
resources to determine whether or not a taxpayer is complying
with their tax obligation.
Mr. PAULSEN. Well, and Mr. Chairman, this is an interesting
point, because we have had hearings, actually, in the human
resources subcommittee and talked about other government
programs that are used to provide benefits to certain folks
that--of modest means--that use government programs, and there
is not an access, or there is more of an increased need to use
an access to third-party information to weed out some of the
fraud and abuse that is out there. That is a good point.
Now, someone, I think, had mentioned earlier--and I cannot
remember who testified--in terms of the cost filing
electronically versus mail-in. And it's like 124 million that
use electronic. What can be done to encourage more use of
electronic filing? Because ultimately, electronic information
and using third-party matches, et cetera, is going to help weed
out some of these issues, and save taxpayers money. What can be
done to promote that?
Mr. BYRD. First, I did want to assure you that we are
expanding our systems to use more third-party information,
merchant cards, those types of things. I think part of the
challenge around third-party information is that sometimes it
is not completely accurate. And so, you don't want to deny a
taxpayer a refund based on information that might not be
complete.
In specific response to your question, sir, we have seen a
dramatic increase in the number of returns that have been filed
electronically. We have got the eFile mandate, where preparers
that prepare more than 10 returns have to send them in
electronically. That is being phased in through last year and
this year. We are seeing a dramatic increase in the number of
taxpayers who are going to file electronically.
The other thing that has happened is the software
providers, for the most part, no longer charge taxpayers to
electronically file their return. Those things together have
allowed us to see a large increase.
Mr. PAULSEN. Thank you, Mr. Chairman. I yield back.
Chairman TIBERI. Thank you. Mr. Marchant is recognized for
five minutes.
Mr. MARCHANT. Thank you, Mr. Chairman. I would like to
focus for just a moment on the--it looks like it is 100,000
individuals who claimed energy credits that did not own a home.
Was the law, as it was passed, did it require that an
individual own a home to seek the credit?
Mr. GEORGE. Well, they needed to own it at the time of--
yes. The short answer is yes.
Mr. BYRD. It is their primary. Yes, sir.
Mr. GEORGE. Yes.
Mr. MARCHANT. So it couldn't be their second home, it
couldn't be their vacation home. It had to be their primary
home.
Mr. GEORGE. Yes.
Mr. MARCHANT. So, a very common-sense thing. But 100,000
people felt like they could take the credit without very
clearly meeting the criteria of the law.
What percentage of those that claimed that credit does the
100,000 represent?
Mr. BYRD. I actually don't know, sir. I would have to get
back to you on that.
Mr. MARCHANT. Do you think the 100,000 would represent 10
percent of those that claimed that credit?
Mr. BYRD. You know, I did not bring the numbers of
taxpayers that claimed that particular credit.
Mr. MARCHANT. I would appreciate it if we could find out
what percentage of those that claimed clearly made a fraudulent
claim, right up front.
Mr. BYRD. It is important to note, sir, that I think when
TIGTA made that recommendation it was based on information from
a third party. And so, part of the struggle for us is around
trying to have information that we can rely on to make sure
that it is accurate.
As I said before, we don't want to deny somebody a credit.
We don't want to deny them a credit without us being sure.
Mr. MARCHANT. But if----
Mr. BYRD. We have learned in other places--the adoption
credit, the first-time home-buyer's credit--that what you see
on the face of the return appears that it is fraudulent. But
when you communicate, and ask that taxpayer for documentation
or information, they are able to provide it.
Mr. GEORGE. But that, Mr. Marchant, is part of the problem.
The IRS, as Mr. Byrd noted, does not have the ability to give
the type of information that you just sought. And it is not
necessarily their fault.
They are in the process now, with a National Performance
Review--I believe you call it the NPR--and they are in the
process now of helping to determine what the ultimate tax gap
is in various areas. And once that is completed, that will
provide them additional information so that they are in a
position to respond precisely to your question.
Mr. MARCHANT. Okay. Thank you, Mr. Chairman. I yield back.
Chairman TIBERI. Thank you. The gentleman from Washington
State, Mr. McDermott, is recognized for five minutes.
Mr. MCDERMOTT. Thank you, Mr. Chairman. Commissioner Byrd,
I understand that the taxpayer service is part of the IRS
strategy for tax compliance. The Republican budget would cut
over $105 million from taxpayer service. Now, we understand
this cut would result in fewer calls being answered and fewer
taxpayers receiving in-person service. I mean that seems like
that would be the result, if you have less people.
A statement of Administration policy was issued in response
to the budget. The policy states that this level of funding
provided would seriously degrade the quality of services to
taxpayers, to the extent that only one out of every two
taxpayers would be able to reach the IRS customer service
representative.
Do IRS customer service representatives answer questions
about energy tax credits?
Mr. BYRD. Yes, sir. And so this year we are on track to
take 32 million calls from taxpayers. And we are going to see
about six million taxpayers come into our taxpayer assistance
centers. And so there we provide a wide array of services and
information, including answering questions about tax concerns.
But then we also enable the taxpayers to pay us, to set up
installment agreements, and, in essence, to deal with
compliance things on the phone or in person.
Mr. MCDERMOTT. So, if I could restate what you said, the
Republican budget would hurt taxpayer service and
administration of energy and other tax credits. That is
correct?
Mr. BYRD. If our funding is not the same, then we would not
be able to serve the numbers of taxpayers that I just
described, sir.
Mr. MCDERMOTT. So, without objection, I would like to
submit into the record the statement of the administration of
policy--of H.R. 2434. And I ask the chairman to put it into the
record.
Chairman TIBERI. Without objection.
**INFORMATION NOT PROVIDED**
Mr. MCDERMOTT. I understand, Mr. Byrd, that the IRS does
not have a dedicated funding source to invest in its program
integrated effort--integrity efforts. I understand that funding
for enforcement and compliance must come out of the current IRS
budget. Is that correct?
Mr. BYRD. Yes, sir.
Mr. MCDERMOTT. So, the Republican budget would cut $600
million of the IRS. This would hurt the program's integrity
efforts. Right?
Mr. BYRD. Yes, because, you know, if we have less people
and less funds to examine, filter, follow up with the returns,
that means we can get--we will be able to accomplish less work,
because we have less employees--fewer employees.
Mr. MCDERMOTT. As you know, the President set forth a plan
that would provide dedicated funding for the IRS for program
integrity efforts. The plan states that ``tax enforcement and
compliance activities are critical to the fairness and
integrity of the U.S. tax system, and also generate a return on
investment for taxpayers of roughly $7 for every $1 invested.''
You are aware of that, is that correct?
Mr. BYRD. Yes, sir.
Mr. MCDERMOTT. I would like to enter that into the record
for the future record of the committee, and I yield back the
balance of my time.
Chairman TIBERI. Thank you. Mr. Berg is recognized for five
minutes.
Mr. BERG. Thank you, Mr. Chairman. I guess my first
question goes back to the residential energy tax credit. What
is the total number of people that received or made a claim?
Mr. BYRD. I am sorry, sir, I did not bring those stats, but
I will be glad to get those back to you.
Mr. BERG. Okay. Mr. George.
Mr. GEORGE. Yes. Well, for tax year 2009, there were 6.8
million claims equaling $5.8 billion.
Mr. BERG. Okay. And in the earlier testimony it was
mentioned there is about 100,000 of those that you identified
or thought didn't own a home. That correct?
Mr. GEORGE. Correct.
Mr. BERG. Mr. Byrd, in the testimony you kind of say the
IRS has adopted programs to kind of improve this process and
really keep up with compliance issues. But as has been
reported, obviously it is kind of ineffective at that.
And my question is--in part, because of maybe a lax
process--I guess my question is, what is being done, really, to
improve the administration of these tax credits right now,
specifically?
Mr. BYRD. So, as you probably saw in the TIGTA report, they
made a number of recommendations to us. For example, on the
plug-in car, they suggested that we ask the taxpayer to put the
VIN on the form. We have put things in place so that we will
manually check to make sure that the qualifying year of the car
is correct.
So, what I am sharing with you, sir, is that those things
that TIGTA suggested that we put in place, we have. And we feel
confident that those things will help us to reduce the number
of fraudulent claims.
Mr. BERG. Mr. Chairman, I wonder if it is possible if we--
if I could ask that again we get those recommendations.
I understand you said that you have agreed with all of
those recommendations, but if you could, again, just have a
short summary of, ``Here is the recommendations,'' and then you
say, ``We agree with these recommendations,'' and when the
timetable is to fully implement those recommendations, would
that be possible for you to share that with the committee?
Mr. BYRD. Yes, sir, because what we do, in terms of how we
track the recommendations and our implementation, we have a
process in place. So that will be easy for me to provide you.
Mr. BERG. Okay, thank you. I yield back.
Chairman TIBERI. Thank you. Apparently that is all the
questions that we have of this panel. We do appreciate both of
you coming forward, giving your input, General George, on how
we can improve efficiency and, Mr. Byrd, Commissioner Byrd,
thank you for your thoughts about how we can simplify the Tax
Code and make your life easier. We do appreciate both of your
testimony today. Thank you for taking the time out. That
concludes our first panel.
We are going to now move to the second panel of testimony,
and we are going to have a bit of a change to the second panel.
Without objection, I would like to move that we add Mr.
Lindsey from the Lindsey Group to the second panel. There was
some miscommunication, and Mr. Lindsey has a conflict, and will
not be able to stay for the third panel. So, without objection,
Mr. Lindsey will be added to the second panel.
Mr. Lindsey, you will be added at the end of the second
panel--so on the far left, or my far right--and you will be the
last person to testify on the second panel.
So, as the second panel gets seated, I would just like to
welcome all of them. And I am going to ask Ranking Member Neal
in a moment--no, you have got the third panel, right?
Mr. NEAL. Yes.
Chairman TIBERI. Okay. I will go ahead and introduce our--
generally introduce our panelists, and welcome them to the
second panel.
Dr. Donald Marron, director of Tax Policy Center, The Urban
Institute; Mr. Kevin Book, managing director of research,
Clearview Energy Partners, LLC; Mr. Neil Auerbach, founder and
managing partner of Hudson Clean Energy Partners, L.P.; Mr.
Will Coleman, partner, Mohr Davidow Ventures; Mr. Greeff,
political director, the Clean Economy Network; and, as I said,
from the third panel who will now be part of the second panel,
Mr. Lawrence B. Lindsey--Dr. Lawrence B. Lindsey, president,
chief executive officer of The Lindsey Group.
And with that, thank you all for coming, taking time out of
your busy schedules to be here with us today. Dr. Marron, you
are recognized for five minutes.

STATEMENT OF DONALD B. MARRON, DIRECTOR, TAX POLICY CENTER, THE
URBAN INSTITUTE, WASHINGTON, D.C.

Mr. MARRON. Great, thank you very much. Chairman Tiberi,
Chairman Boustany, Ranking Member Neal, Ranking Member Lewis,
Members of the Subcommittees, thank you for inviting me to
appear today to discuss energy policy and tax reform.
As you know, our tax system is desperately in need of
reform. It is needlessly complex, economically harmful, and
often unfair. Because of a plethora of temporary tax cuts, it
is also increasingly unpredictable. We can and should do
better.
The most promising path to reform is to re-examine the many
tax preferences in our code. For decades, lawmakers have used
the tax system not only to raise revenues to pay for government
activities, but also to pursue a broad range of social and
economic policies. Those policies touch many aspects of life,
including health insurance, home ownership, retirement saving,
and the topic of today's hearing, energy production and use.
Those preferences often support important policy goals, but
they have a down side. They narrow the tax base, reduce
revenues, distort economic activity, complicate the tax system,
force tax rates to be higher than they otherwise would be, and
are often unfair. Those concerns have prompted policy-makers
and analysts across the political spectrum--including, most
notably, the Bowles-Simpson Commission--to recommend that tax
preferences be cut back. The resulting revenue could then be
used to lower tax rates, reduce future deficits, or some
combination of the two.
In considering such proposals, law-makers should consider
how tax reform, fiscal concerns, and energy policy interact.
Six factors are particularly important.
First, as I just mentioned, our tax system needs a
fundamental overhaul. Every tax provision, including those
related to energy, deserves close scrutiny to determine whether
its benefits exceed its cost. Such a review will reveal that
some tax preferences do make sense, but many others should be
reduced, redesigned, or eliminated.
Second, the code includes numerous energy tax preferences.
The Treasury Department, for example, recently identified 25
broad categories of energy preferences worth about $16 billion
in 2011. These include incentives for renewable energy sources,
traditional fossil fuel sources, and energy efficiency. In
addition, energy companies are also eligible for several tax
preferences that are available more broadly, such as the
domestic production credit.
Third, tax subsidies are an imperfect way of addressing
concerns about energy production and use. Such subsidies do
encourage greater use of targeted energy resources, but, as I
discuss in greater detail in my written testimony, they do so
in an economically inefficient manner.
Subsidies require, for example, that the government play a
substantial role in picking winners and losers among energy
technologies. The associated revenue losses also require higher
taxes or larger deficits. That doesn't necessarily mean that
they are bad policy, but it does raise the hurdle for them to
satisfy in order to be counted as good policy.
Fourth, a key political challenge for reform is that energy
tax subsidies are often viewed as tax cuts. It makes more
sense, however, to view them as spending that is run through
the Tax Code. Reducing such subsidies would make the government
smaller, even though tax revenues, as conventionally measured,
would increase. Similarly, introducing new tax preferences
would expand the scope of government, even though technically,
in budget accounting, they would be scored as reducing future
revenue.
Fifth, tax subsidies are not created equal. Some are more
efficient than others. In particular, production incentives
tend to be a more efficient way of accomplishing energy policy
goals than are investment incentives.
Finally, well-designed taxes can typically address the
negative effects of energy use more effectively and at lower
cost than can tax subsidies. I understand that higher gasoline
taxes or a new carbon tax are not popular ideas in many
circles, but please bear with me. As I explain in greater
length in my written testimony, well-designed energy taxes are
a much more pro-market way of addressing concerns about the
production and use of energy. Taxes can take full advantage of
all market forces on the demand side and the supply side, and
in so doing can accomplish many policy goals at least cost and
with minimal government intervention in the economy.
Subsidies, in contrast, make much less use of market
forces, and inevitably require the government to pick winners
and losers. Energy taxes also generate revenue that law-makers
can use to cut other taxes or to reduce deficits.
Thank you. I look forward to your questions.
[The prepared statement of Mr. Marron follows:]

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Chairman TIBERI. Thank you.
Mr. Book is recognized for five minutes.

STATEMENT OF KEVIN BOOK, MANAGING DIRECTOR, RESEARCH, CLEARVIEW
ENERGY PARTNERS, LLC, WASHINGTON, D.C.

Mr. BOOK. Good morning, Chairman Tiberi, Chairman Boustany,
Ranking Member Neal, Ranking Member Lewis, and distinguished
committee members. My name is Kevin Book, and I head the
research team at Clearview Energy Partners. Thank you for
inviting me to contribute to your discussion today regarding
energy tax policy.
Economic weakness has compressed energy demand. Since the
employment trough of the Great Recession, the nation has
consumed only about one-third as much energy per job recovered
as it did during the 2001/2002 recovery. That would be good
news if efficiency explained the change. But data show, for
example, that we are driving older cars and driving them less,
rather than purchasing new, higher-efficiency vehicles.
Because demand can move faster than supply, stable energy
production incentives are important. Stable policies may not
encourage new supply side investments when market conditions do
not warrant it, but inconstant policies may discourage supply
side investment when it is needed.
So, what works best? And how do you know? Investors judge
investments against benchmarks. Similar analysis could guide
energy policy, too. Evaluating incentive costs per million
British thermal units measures how many bucks the U.S.
Government directs, simply put, at the energy bang the nation
receives. The note published by the committee staff in
preparation of this hearing addresses this calculation.
Between 2006 and 2010, my analysis suggests that incentive
costs for renewable sources were considerably higher than
conventional sources. For green power, incentive costs averaged
about $6 per million Btu. Biofuels, about $5.50. Conventional
power, about $.19. Coal production, excluding programmatic
spending, about $.07. And a broadly inclusive rack-up of oil,
natural gas, and refined products incentives, including some
line items that are generally regarded as ordinary tax
treatment, averaged about $.26 per million Btu.
Implied abatement costs quantify the emissions reduction
benefits of federal spending on lower-emitting fuels, even if
spending wasn't aimed at reducing greenhouse gases. Two sources
came in at or below the current price of emissions allowances
trading in Europe: wind, at about $4 to $20 per metric ton,
depending on your assumptions; ethanol, at about $16, if you
count only the VEETC; solar, at about $62 to $200 per metric
ton, was above the current trading market in Europe; cash for
clunkers was about $263 per metric ton. And if the Nat Gas Act
were to cost $5 billion over 5 years for 140,000 heavy haulers,
the resulting gas emissions reductions, greenhouse gas
emissions reductions, would be about $120 per metric ton.
Displacement costs quantify the extent to which federal
energy incentives reduce our reliance on imported petroleum. As
a benchmark, the strategic petroleum reserve through the end of
last year had a displacement cost of about $67 per barrel, or
$11.50 per million Btu. The real dollar value of ethanol
capacity historically subsidized by the VEETC through its
scheduled expiration at the end of this year implies about $148
per barrel or $42 per million Btu. But evaluated over a 15-year
finance life, that's about $10 per barrel, and $3 per million
Btu. Again, assumptions are important.
The displacement cost from nat gas, based on those prior
assumptions, the Nat Gas Act, would be $118 per barrel, or
about $20 per million Btu if you looked at it as a one-time
deal. But amortized over 5 years, it would be about $23.50 per
barrel, or about $4 per million Btu.
A couple of caveats before I finish up. First, comparing
alternative fuels to the strategic reserve is not an apples-to-
apples comparison. The strategic reserve is surge capacity.
Alternative transportation fuels replace petroleum imports, and
they are already in use.
Second, none of these metrics captures the total cost of
delivered energy, just the part the U.S. Government covers.
Consumers and producers pay the rest. Trying to change their
decisions in defiance of economic reality may prove both
difficult and expensive.
There are also metrics you can apply to look at the
efficiency of financial incentives. My testimony provides an
example of something I call return on tax to describe
simplified wind farm financing. That example shows that
production tax credits are the least efficient, in terms of
delivering both internal rate of return and a return on each
taxpayer dollar, in terms of lower generation cost. Incentives
like investment tax credits and grants become more efficient in
both regards, but the best balance turns out to actually be
loan guarantees. Now, loan guarantees, obviously, will not be
more efficient without adequate due diligence.
In conclusion, in thinking of all of these incentives, they
should be thought of, probably, as a portfolio. It allows one
to balance innovation with environmental and security benefits.
Balancing moonshot technologies with lower risk reward profiles
may preserve financial stability. And it may be worth
revisiting whether the current Title XVII appropriations-backed
solicitation-driven debt financing program has the autonomy to
structure an appropriately balanced portfolio.
One final point. Tax policy is not always the fastest
energy policy tool. But the high cost and long life of energy
investments means that fast can sometimes translate to
expensive. Prescriptive environmental and fuel standards do
deliver rapid results. But non-economic shut-downs can lead to
wealth destruction and job losses.
This concludes my testimony; I will look forward to any
questions.
[The prepared statement of Mr. Book follows:]

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Chairman TIBERI. Thank you, Mr. Book.
Mr. Auerbach, you are recognized for five minutes.

STATEMENT OF NEIL Z. AUERBACH, FOUNDER AND MANAGING PARTNER,
HUDSON CLEAN ENERGY PARTNERS, L.P., TEANECK, NJ

Mr. AUERBACH. Chairmen Tiberi and Boustany, Ranking Members
Neal and Lewis, and the rest of the subcommittee, thank you for
the opportunity to testify today. My name is Neil Auerbach, and
I am the founder and co-managing partner of Hudson Clean Energy
Partners, a leading private equity firm exclusively dedicated
to investing in the clean energy sector, globally.
Although the firm is only four years old, I have been an
active investor in this sector since 2002, and have been
fortunate to have generated substantial investment gains in
this sector, investing in this sector over the course of my
career as an investor. And, therefore, I am offering you an
investment perspective on how government energy policy
influences investment activity.
I also happen to be a conservative, and I believe in
limited government, because experience tells me that the
private sector does most things better than government. When
government does act, it needs to search for least cost, highest
impact ways to achieve its goals.
This committee has been charged with the task of examining
energy tax incentives, and I applaud that effort. My written
testimony contains a lengthy review and analysis of energy tax
incentives, and includes a strong endorsement of the use of
reverse auctions to support renewable energy deployment such as
that found in H.R. 909.
To explain why I draw that conclusion, I want to articulate
several core principles underlying my thinking. First of all, I
think that three policy drivers are behind smart energy policy:
supporting economic growth, fostering energy security, and also
fostering environmental security. I support portfolio
diversity. The approach is very instructive to getting us
there. When markets function properly, we can allocate capital
rationally in the private markets.
Another aspect of my view of energy policy reflects that
energy is a commodity, not a product. It is the backbone of our
economy, and it needs to be there when we need it, and it needs
to be as cheap as possible.
Scale is everything in driving down cost. Consumers
generally don't drive innovation in the energy sector. During
the 20th century we scaled successfully fossil fuels first.
They were expensive at first, and only with scale do they get
cheaper. Renewable energy scaled later in time, and government
support has been essential in helping renewables overcome a
late start.
Tax credits have been very helpful incentivizing investment
and production of energy from renewables, and they played a
vital role in moving capital into the sector. And, therefore,
have contributed to dramatic reductions in the cost of these
power sources. In the two slides that I show on the screen, I
show just how impactful this scale-up of renewable energy has
been in driving down the cost, and in this slide show our
forecast, proprietary forecast, of continuing dramatic
reductions in the cost of renewables.
But I am here today to suggest that it is time to re-
examine the way the Federal Government supports clean energy
investment. Specifically, I support adoption of a very
different approach to federal support of our sector, and it is
the use of reverse auction mechanisms, such as that advocated
by Congressman Nunes and over 70 congressmen in H.R. 909. The
reverse auction principle is simply a market-making technique
where buyers invite sellers to transact at the lowest possible
price. It encourages competition among sellers.
Now, H.R. 909 has 3 important aspects that merit attention.
First of all, the market sets the price for government support
payments, not a government-mandated view of what that price
should be. The mechanism ultimately weans the industry off
support payments all together over the course of time.
Number two, it draws revenue from expanded access to
domestic energy such as oil and gas leases to support the
scale-up of new energy resources.
And then, third, it uses cash as a currency for providing
support to industry, rather than a tax credit which, from
experience, is way too complex for most renewable energy
developers to access without incurring enormous friction costs.
My testimony explains that this friction cost can be as high as
$.30 to $.40 for every tax credit dollar expended.
And for that reason, I am also an advocate on fiscal
efficiency grounds of extending the 1603 cash grant until the
more modern reverse auction system can be implemented. Because
what we want to do is have $1 of taxpayer money buying $1 of
renewable energy development, rather than only $.60 to $.70
with the friction-laden tax credit system.
In conclusion, I believe that it is time to phase out the
Tax Code and phase in more efficient support mechanisms for
renewable energy, and I encourage this committee to signal that
the--to the industry that it is serious about energy tax
reform, and finds merit in H.R. 909 as a better way to support
renewable energy in the future. Thank you.
[The prepared statement of Mr. Auerbach follows:]

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Chairman TIBERI. Thank you, sir.
Mr. Coleman, you are recognized for five minutes.

STATEMENT OF WILL COLEMAN, PARTNER, MOHR DAVIDOW VENTURES,
MENLO PARK, CALIFORNIA

Mr. COLEMAN. Thank you, Mr. Chairman and distinguished
Members of the Committee. I appreciate the opportunity to
testify here today. My name is Will Coleman, I am a partner at
the venture capital firm Mohr Davidow Ventures. Since 1983 we
have been investing in early stage technology, and we were one
of the first mainline funds to move into the energy space. We
have seen firsthand the challenges of building new companies in
energy, and are quite aware of how public policy impacts these
markets and investing decisions.
As venture investors, we invest in innovation. Energy
represents one of the largest opportunities of our time, but
the market conditions here in the U.S. are difficult to
penetrate, and our policies still perpetuate the status quo. I
am here to suggest that there is an opportunity to reform our
energy tax policies, and to focus on innovation in a way that
activates the private market and fosters real growth.
Globally we are undergoing a transition to the next
generation of energy technologies. Our ability to lead in that
transition is essential to our ongoing economic
competitiveness. In prior energy transitions, the government
has always played an active role. In fact, the Federal
Government spent 5 times as much per year supporting the early
growth of oil, and 10 times as much supporting nuclear as we
have renewables. Even today, layers of tax credits are woven
into the investment and operating decisions of the energy
industry, and the vast majority are focused on sustaining
incumbent technologies.
My point is not to question the appropriateness of these
credits. But I am questioning whether the current approach is
conducive to growth. According to the Department of Commerce,
we owe three-quarters of our growth since World War II to
technology innovation. But in energy, the top five oil
companies spend almost nothing on R&D. The challenge we see to
investing in new energy technologies has not been a lack of
technology solutions or the underlying economics. It has been
overcoming the market resistance to adoption of new technology
and investment in innovation.
The current tax approach compounds the problem in two ways.
First, it biases investment decisions towards tax advantage
primary extraction, rather than the kind of innovation that can
create a step change in cost and performance over time. And
second, it makes it more difficult for new entrants to compete.
Our premise in our requirement as investors has always been
that we invest in technologies and companies that, regardless
of political regulation or subsidy, will be able to stand on
their own two feet and compete on a level playing field within
the life span of our investment. The problem in energy is that
we don't have a level playing field, and we don't have a tax
policy that encourages continuous innovation.
Today's technology-specific approach forces government to
pick winners and losers. The semi-annual debate over whether
certain credits are still needed causes uncertainty in the
market, and it misses the fact that each sector includes a
range of companies at very different stages of development,
scale, and cost reduction.
We need a new approach. It needs to be simple, transparent,
technology-neutral, accessible to large and small companies,
enduring, and fundamentally focused on stimulating innovation
and growth. I would like to suggest that this committee
considers an approach that would create a simple, volume-based
production tax incentive designed to support technologies as
they scale, and roll off as they hit maturity.
In the same way that an infant needs more support than a
teenager, innovative technologies require more support than
mature technologies. At some point, established technologies
must be able to compete on their merits. A credit would be
specific to individual companies, but available across a broad
array of technologies.
For example, I know of American solar companies that have
very reasonable paths to produce modules for under $.50 a watt.
This would be well below the projected cost of Chinese silicon
manufacturers who are at $1 a watt today. However, these
companies are still in early stages of production, and their
costs are over $1.30 a watt per day, which is not competitive.
They will need to ramp to 250 megawatts before they drop below
a dollar, and 750 megawatts in order to hit $.50. These
technologies could be highly profitable, but they need to get
to scale. Once it is scaled, their incentives could roll off.
This is a common story. While different technology
categories each have different measures for maturity, a volume-
based approach would be based on generalizable metrics such as
megawatts generated, gallons produced, or units sold.
Eligibility criteria could be defined by whether a solution
servers agreed-upon policy objectives. This approach would
provide transparency and certainty to investors, and draw
investment to those technologies that can ultimately compete
without government support.
A shift in tax policy to such a structure would, one, end
the current practice of picking long-term technology winners;
two, refocus federal support on early technology deployment,
where it is needed most; three, eliminating the sun-setting
challenges associated with current policy; and four, encourage
private investment and innovation, which is critical to new
economic growth.
In closing, I recognize that tax breaks are ensconced--once
tax breaks are ensconced in the code they are incredibly hard
to change. But I believe we have a rare opportunity to reassess
whether the existing credits accomplish the goals that they
were created to serve, or the priorities we now need to meet.
In today's fiscal environment we need to make every dollar work
towards stimulating growth. I am not saying that we should cut
all energy credits, but I am saying that we need to simplify
and refocus them when encouraging the next generation of energy
solutions.
Thank you for the opportunity to testify. I look forward to
your questions.
[The prepared statement of Mr. Coleman follows:]

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Chairman TIBERI. Thank you, Mr. Coleman.
Mr. Greeff.

STATEMENT OF TIM GREEFF, POLITICAL DIRECTOR, CLEAN ECONOMY
NETWORK, WASHINGTON, D.C.

Mr. GREEFF. Thank you, Chairmen Tiberi and Boustany,
Ranking Members Neal and Lewis, and subcommittee members. Thank
you all for affording me the opportunity to testify today. My
name is Tim Greeff, and I am the political and policy director
for the Clean Economy Network. CEN is the largest national
networking advocacy and educational organization representing
clean economy companies. We have over 12,000 members
nationwide, as well as 17 affiliate chapters across the
country. Our members include venture capitalists and project
financiers, as well as businesses that manufacture, assemble,
and install energy and efficiency capacity at home and abroad.
I am appearing today before the subcommittees in my personal
capacity, and my remarks represent my personal opinions.
Tax policy has long been an essential component of the
effort to shape and influence our energy policy. The two are so
closely linked, in fact, that it is difficult to imagine a
material separation. Further, we must recognize that the U.S.
economy does not exist in a vacuum. Our competitors, such as
China and Malaysia, use tax policy to invite investment and
build domestic champions in this sector, with a strategic eye
towards capturing manufacturing capacity.
Thus, rather than focusing on whether energy policy should
be conducted through the Tax Code, it is important to focus on
when and how the Tax Code should and should not be used in
relation to energy policy.
It is necessary to mention that market signals, economic
growth, and the competitiveness of the U.S. economy can not be
fixed solely through the Tax Code. Ultimately, the long-term
market signals that will drive the advanced energy economy
require a more robust and comprehensive energy policy vision.
Tax policy that is not a coordinated part of this larger vision
runs the risk of leading us down the same path that we are
currently on.
Historically, tax policy has taken a piecemeal, technology-
specific approach. Decades of tailoring the Tax Code to fit
needs of discreet technologies at specific points in time has
created a patchwork of inconsistent policy that too often
necessitates equally piecemeal fixes. In order to change
course, we must begin to rethink the use of energy-related tax
policy to fit the realities of today's energy economy.
Moving forward, there are several criteria that should be
considered to increase the efficacy of energy tax policies.
Very simply put, tax policy, to the extent possible, should be
technology agnostic, predictable, and finite. I would like to
go into each of these in a little more detail.
First, tax policy should aim to be technology agnostic, and
avoid picking winners. Tax policies are sometimes written with
one technology or domain in mind. This approach mutes market
signals and puts the government into the driver's seat of
determining where investment dollars should go. Further, such
an approach can unknowingly freeze out next-generation
technologies. The innovation cycle is dynamic, and the best
available technologies today will almost assuredly not be the
best several years down the line.
Second, tax policies should be predictable, and provide
certainty. Most clean energy credits and programs are very
short-term, whereas energy investments are typically long-term.
Investors in businesses need certainty in order to make the
investments and set their plans necessary to grow. If the
credit is too short in duration, it can harm the innovation
cycle, and drive money only towards technologies that are
current in market scale.
Finally, tax policy should not attempt to set or replace
the market. If left in the code too long, the incentives can
distort the marketplace and chase off private capital in the
long term from new and emerging technologies. Tax incentives
should strike the balance of being long enough to send a market
signal, but sunset predictably and appropriately to avoid
market distortion.
Using performance metrics to determine the duration of a
particular tax policy is one alternative that can more
accurately reflect and absorb market variables, while also
including a predictable cut-off.
Tax policy does hold a couple of advantages over other
mechanisms to incentivize advanced energy. First, tax credits
are fairly transparent. They are relatively easy to understand
and apply for, thus requiring businesses to spend little on
overhead. Second, tax policy is also relatively size and
technology agnostic. In other words, almost any company can
access a given credit by meeting the baseline criteria, and the
value of the tax credit can be distributed efficiently,
relative to the size, need, and performance of the individual
company.
When it comes to energy, tax policy should serve two
fundamental purposes. One, tax provisions play an important and
constructive role in the innovation cycle to drive new
technologies to market. Innovation in the energy sector is very
capital-intensive, and current economic realities make private
investment dollars hard to come by. Furthermore, there are
various points in the life cycle of a business that the private
sector is sometimes unwilling to fund. Tax policy can provide
small businesses with one more option to make it through this
period.
Two, tax policy can help nascent technologies and
industries achieve competitive scale so they can stand on their
own two feet. Cost competitiveness if fundamentally achieved
through market scale. With increased production insulation
comes lower cost and higher quality products. Normally, market
demand will drive scale up, but in a globally competitive
marketplace, sometimes scale must occur before demand alone can
drive it in order to be competitive, especially in capturing
manufacturing capacity.
As discussions about comprehensive tax reform begin,
Congress has the unique opportunity to create more consistent
and streamlined tax policies for the energy sector that provide
the accessibility, transparency, and certainty that investors
need to invest, that entrepreneurs need to innovate, and that
businesses need to grow and compete.
I look forward to working with the committee in the future
to achieve this goal. Thank you for your time.
[The prepared statement of Mr. Greeff follows:]

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Chairman TIBERI. Thank you, sir.
Mr. Lindsey, you are recognized for five minutes.

STATEMENT OF LAWRENCE B. LINDSEY, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, THE LINDSEY GROUP, FAIRFAX, VIRGINIA

Mr. LINDSEY. Thank you very much, Mr. Chairman, Members of
the Committee. Thank you very much for inviting me, and for
your forbearance, having me on this panel.
I am not normally a supporter of legislation to steer
private decision-making through government incentives,
including the Tax Code. My testimony today is going to focus on
an example that is in the Natural Gas Act, but it is more
generic, in that it reflects the kind of standards that I think
the committee should apply in cost benefit analysis.
First, I think that any such legislation has to be held to
a very high cost benefit standard. And I have three basic tests
that: first, any government incentives that affect private
decision-making should be tied to a clearly-defined reason why
the market would not correct on its own; second, that there be
an externality at the national level which would justify that
such change in private sector behavior is in the national
interest; and third, that the subsidy be done in a rigorous
cost benefit analysis way, and that that cost benefit analysis
be clearly in the direction that the benefits exceed the costs.
I think an example in the Natural Gas Act shows how one
might do this. Let me begin with why the market might not
correct on its own.
Right now we have a very unusual disparity in the pricing
of natural gas versus oil. The--on a normal Btu basis, one
would expect that a barrel of oil would sell for about 8 times
that of 1,000 cubic feet of natural gas. But currently, oil is
around 80, natural gas is around 4, so you have a ratio of 20
to 1. So the question comes up: Why isn't the market
correcting? In particular, why aren't we converting motor fuels
in that direction?
I think that the answer is a pretty standard one in
economic thought, and that is that what you have is a
technology in place. And once you have a technology in place,
it is very hard to make the transition. The example that I
think of every time--and I am sure it applies to all of us--is
the keyboard on a typewriter. We call it the QWERTY system, Q-
U-E-R-T-Y [sic].
Now, that was put in place when we did some tests about 100
years ago on how people typed, and they figured that worked.
Well, we have now done a lot more tests. And, believe it or
not, there would be another keyboard design that would actually
about double all of our typing speeds. Here is the problem. We
would all have to relearn all the new typing speed. And
frankly, sir, at my age I am too old to learn stuff like that.
So that is why we are stuck with QWERTY.
Well, the same thing is true in the case of oil and natural
gas. In the case of 18-wheel truckers, for example, we have a
diesel-based system. It was put in place a long time ago. It
made sense back then. Although now, with the ratios I was
talking about in cost, it would make a lot of sense to actually
do the conversion.
Well, the problem, and the reason we have a QWERTY problem,
is that you cannot just develop a natural gas truck unless you
have a way of refueling it. So, even though the cost incentives
of running a natural gas truck make it highly, highly
competitive--the cost is about one-sixth that of diesel--you
don't have a place to refuel it. It doesn't do you any good.
On the other hand, if you run refueling stations, it
doesn't make a lot of sense to add natural gas to your product
line unless you have a lot of trucks who are going to use it.
And so, what we have to do--and here is why I think that there
is a reasonable case for incentives on natural gas trucking. We
have to break that QWERTY problem.
When I look at the analysis, the second question is: Would
it be in the national interest? And here, the intent is largely
one of energy independence. And if you compare it to other tax
provisions to encourage us to use less oil--in fact, as my
testimony shows, it would be quite advantageous relative to
things like the renewable fuels credits, and it would be many
times more advantageous relative to the electric vehicle plug-
in credit: $7,500 per car. So, I do think that, on a cost
benefit test, it meets that standard as well.
Again, I thought the--some of the suggestions on the panel
were quite good on how we might redesign. But I would go back
to saying, you know, do you have a--something like a QWERTY
problem that needs fixing, and that should be test one.
Secondly is the change in the national interest. And third, are
we doing it in a cost-effective way? And I would urge the
committee to take that approach in everything they do.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Lindsey follows:]

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Chairman TIBERI. Well, thank you all. And I will remind you
that your entire testimony will be submitted for the record.
First question to the panelists. You all know that I have
been publicly supportive of being a proponent of comprehensive
tax reform, primarily to simplify our Tax Code, make it more of
a pro-growth Tax Code, grow our economy, create jobs. Spoke to
some tax professionals yesterday and had a pretty good
discussion with them about the competition that they face with
respect to competitors who are headquartered in other
countries, and the Tax Codes around the world. And I asked this
question to them, and I am going to ask it of all of you, as it
applies to energy.
What can we do, as the United States Congress, to make our
Tax Code not only more competitive for our employers, but more
competitive to attract additional out-of-country employers to
create jobs and investment in America?
In the news lately we have all read about the unraveling of
Solyndra--that case is yet to close--the increase in solar
panel production in China.
And so I ask each one of you, starting with Mr. Lindsey, as
we move to reforming our Tax Code through the efforts of
Chairman Camp, as we apply it to energy, what can we do to make
the Tax Code a Tax Code that makes energy--investment in energy
production, energy security, energy production--more market-
driven with respect to our United States Economy? And I start
with you, Mr. Lindsey.
Mr. LINDSEY. Well, narrowly, with respect to energy, I
think the first thing one has to do is identify what the
objective is. You mentioned energy independence. And then, once
you do that, you really want to equalize the incentive across
different ways of doing it.
Right now, for example, the electric car technology has a
subsidy that is many, many times what it is for other ways of
substituting one fuel for the other. That really doesn't make a
lot of sense. You are not designing it efficiently. And I think
that the--what was said earlier on the panel would conform to
that.
Second question you have to decide, you mentioned domestic
production versus imports. That is a threshold question. If you
really want to develop domestic fuels, then I think what you
want to do is you have to lower the cost--the tax-based cost
structure of production in America.
Right now we have, in general, a Tax Code that
discriminates against any kind of production in America for
almost all industries. And I think--and I have testified before
other committees on this subject--I think, fundamentally, that
is the kind of reform we have to move to. It is one that has to
be border-adjustable.
And I think, in the end, some kind of substitution of a
cashflow-based tax for a--income-based tax is going to be
necessary, and I think that applies to the energy side, as well
as to the general production side.
Chairman TIBERI. Thank you. Mr. Greeff.
Mr. GREEFF. I think I would go back to my several criteria.
The first one is certainty. The investment cycle in energy is
usually longer, and a number of the credits for renewable
energy, most notably the PTC for wind energy, is very
intermittent. And you have these boom bust cycles. And if
investors are really going to make long-term investments in
energy and build a manufacturing capacity and a resource base
in the United States, they need the certainty that the length
of the investment--so instead of attaching the credits to sort
of arbitrary timelines of two years, you can attach it to
production tax credits that are focused on when a particular
technology would achieve scale.
And I think the second key criteria is that we need to come
up with a sense of common goals. So if you look at, for
example, how we incented corn ethanol, you know, it was agreed
that ethanol needed to be--or alternative fuels needed to be
incented, but the government went as far as to say, ``We're
going to mandate this many gallons of corn,'' whereas we would
say, ``If the overall goal is to reduce petroleum use, or
create petroleum displacement, then let's set the goal as
generally as possible, set the rules of the game, make them
long term, and then let the market determine which technologies
and fuels within that category are actually going to meet that
standard and achieve that credit.
Chairman TIBERI. Mr. Coleman.
Mr. COLEMAN. Yes, so I agree with the points around
leveling the playing field, in particular, and creating
certainty. I think that what we have seen is a dislocation, in
terms of the types of credits that go in, and also a level of
rifle-shooting around particular technologies.
And I think that the challenge that we face is how to
create a levelized code that actually induced innovation across
a whole bunch of different technology categories, and does so
in a way that actually allows investors to invest ahead of
those upticks in the market, the uptake of those technologies.
As was mentioned, the stop-start approach around a lot of
the renewables credits has been a challenge, and that is
largely because what we, as investors, have to look at, then,
is how predictable the political process is, in terms of
renewing these credits, as opposed to part of what we were
proposing--what I was proposing in my testimony is if you
understood that those credits would be in place for a given
company by the time they got to that stage, then you could
actually invest in that. You could rely on that. And so, you
can actually, then, account for those credits in the finances
of the company.
Today you can't do that. And so I think what we really need
is that level of certainty over time.
Chairman TIBERI. Mr. Auerbach.
Mr. AUERBACH. Thank you. I won't repeat what the other
witnesses have said, but I will just note that my testimony
recommends moving away from the Tax Code as the primary vehicle
through which the Federal Government expresses energy policy.
I recognize that there are limitations on tax incentives,
and that they work best for individuals in businesses that
actually pay tax. If you are not a taxpayer, it is very
inefficient to access those benefits that Congress is trying to
bestow.
One recommendation I would make, just to directly answer
the point, though, is that if you are going to use the Tax
Code, let's recognize that taxes are a drag on economic
activity. And so, by lowering tax rates overall, you
incentivize more economic activity. And if you want to
encourage increased domestic production of energy, lower the
tax rate on those producers all the way to zero, and that is
going to get you a lot of activity to produce more domestic
energy. The lower you go, the more activity you get.
Chairman TIBERI. Thank you. Mr. Book.
Mr. BOOK. Yes, I think the message of stability and
metrics-based decisions has been loud and clear. And I can only
add more volume and more clarity.
I do think, though, there is a difference between picking a
winner and knowing whether you are a buyer or a seller. A
couple years ago I had a discussion with an advisor to DoE, and
I said, you know, ``Why are we trying to become an exporter of
clean energies, when we have been a consumer for so long?'' And
she said, ``Because we should try to compete.'' And I
understand that.
But if the original premise was to install, to encourage
the installation of clean, renewable power, which it has done
admirably, then shouldn't we be buying the cheapest, most
efficient clean, renewable power, and look for ways perhaps to
support and supplement the technologies where we are not likely
to be dominant? We are the third largest oil-producing nation
in the world, and we have become more prolific. It is possible
that you may not want to pick winners or losers, but you may
still want to be a seller when you can be a winning seller.
Chairman TIBERI. Thank you. And finally, Dr. Marron.
Mr. MARRON. Well, I think all the good answers have been
taken, so I just want to go back and echo something that Larry
said in particular, which is, you know, I would start answering
this question by thinking about investment incentives for the
United States generally, not just in the energy sector. And I
think there are a lot of problems in our current corporate Tax
Code. And I think moving towards something that looks like a
cash flow tax that gives favorable treatment to new investment
is the right place to go fishing.
And then second, let me just echo the level playing field
argument, that if we want to encourage investment in energy,
there is no particular reason to play favorites among which
type of clean energy is going to be used. Design incentives
that provide a comparable incentive to each type, including
ones that haven't been invented yet, and then let them fight it
out in the marketplace.
Chairman TIBERI. Thank you. Mr. Neal is recognized.
Mr. NEAL. Thank you, Mr. Chairman. I want to thank the
panelists, particularly Mr. Greeff for his comments on ethanol.
Singularly one of the best and most strident arguments I have
ever heard in this room many years ago was between oil and
ethanol. And that strident argument was amongst the
Republicans. They were at battle over that issue.
Now, Mr. Coleman, I thought you and Mr. Greeff both did a
good job explaining why the nature of short-term tax credits in
the code with expiration dates that are fairly sharp discourage
small business and investment. Would you reiterate that,
please, again, the two of you?
Mr. COLEMAN. Sure. The--in terms of early-stage technology
companies, the kinds of companies that we invest in, we often
invest years ahead of when they actually hit the market. And so
the challenge is what level of predictability is there that the
policies that are currently in place are still going to be in
place by the time they actually hit the market.
And so, a more reliable approach would be an approach that
would allow us to invest in a company, knowing that, as it
scaled its production, it would actually be able to leverage
certain credits in the marketplace. That means that you either
have to reduce the expiration dates around a lot of the credits
that already exist, or you have to create a policy that doesn't
have expiration dates in the same way.
Mr. GREEFF. I think, just to add to that, if you want to
meet a person who can really stretch the value of a dollar, go
find an entrepreneur. And it is--the marginal value of money to
a small business is so much higher than to a larger company.
And I think one point that I would add to Will's comments
is we also need the tax policy to be helpful and send a signal.
But we don't want it to set the market. I think too often times
we have Tax Codes that have existed for too long for very, very
mature industries. And so, when you try to crack into a
marketplace as heavily regulated as the electricity and energy
sector, it is really hard for new technologies and small
businesses to compete in the first place.
So, there is an added level of pressure and a bigger hurdle
for them to get over. And it makes the money that can come from
tax policy that much more important for smaller businesses,
because they face such an uphill climb just to reach the
marketplace with innovation.
Mr. NEAL. The current discussion here is focused on moving
the corporate rate to 25 percent. And that seems to be a very
desirable goal, if it could be accomplished. But to get there,
everybody acknowledges that there are going to have to be some
long sacred credits that will be sacrificed along the way.
And as we move in the direction of this discussion, and
centered on the idea of eliminating some of these provisions,
what would the impact be in the energy area, in particular,
some of the tougher energy areas, which all of you seem to
agree upon? What would you give up?
Mr. GREEFF. It is an excellent question. I mean I think
that it comes down to when we have to determine tax policy and
determine where to sunset and where to cut, there is a time
frame that we should work on. So the idea that we would just
turn the switch off tomorrow is going to send a shock wave, not
just through the renewable and clean energy sector, but energy
sector in general.
And so, we do need to make a commitment to sun-setting a
lot of these long-standing tax policies, and put a finite time
period on them, as we reform the Tax Code.
However, I will say ultimately it comes down to a value
judgement of how important the energy sector overall is to the
economy. And we would argue that it is very important, and
that, regardless and irrespective of what happens with the
overall statutory tax rate versus the effective tax rate with
credits, the energy tax policies are some of the most important
to continue in the short term.
And again, let's set predictable time lines for when these
turn off. So when you look at the PTC for wind, for example, we
need to set a long-term extension on the PTC of, you know, four
to five years to allow that industry to go before we start
talking about where we are going to turn all this off, because
we have to allow the markets to adjust to tax reform in the
long term.
Mr. NEAL. Thank you. Mr. Lindsey, I always appreciate your
candor here, you know. You know what I am speaking of. And I
also appreciated your comments this week on income disparity. I
thought that you and, I think it was, Glen Hubbard had some
comments in the Wall Street Journal. I thought that was a
worthwhile discussion that we might have down the road, as
well.
But the American Chemical Council has argued that many of
the subsidies in the Natural Gas Act distorts the market. And
you spoke to that issue. And I thought the objective that you
laid out of energy independence is one we all ought to be able
to rally around. And how might you respond to their suggestion
that we are really stifling investment and job creation by the
use of the current incentives?
Mr. LINDSEY. Well, where I would agree is, generically, if
we leveled the playing field in the ways that everyone on this
panel is talking about----
Mr. NEAL. Yes.
Mr. LINDSEY [continuing]. That would be a win-win. Again,
it makes no sense to subsidize technology X this amount and
technology Y a different amount.
As I understand the concern of the chemical industry, they
are a consumer of natural gas, and therefore compete as a
consumer with other consumers. In this case, I think that they
would be concerned about a diversion of natural gas into motor
fuels, because it would raise the cost of their feed stock. I
think that is their primary concern.
I am less sympathetic to that concern, because I think the
issue is--here is a specific technological change which, to me,
makes a lot of sense. I do think we have to move more toward a
natural gas-based motor fuels system. I think the market is
screaming for that. And I think that the existing technology
barrier, the QWERTY problem, is the identified problem.
I don't see a similar problem for the chemical industry,
and that is why I am not convinced by their argument.
Mr. NEAL. Thank you.
Chairman BOUSTANY. [Presiding.] I thank the gentleman. I
want to make a few points and then pose a question. I think it
is pretty clear right now across the country that we don't have
a real coherent energy strategy. And one of you mentioned that
in your testimony.
And in trying to look at this as a policy-maker, and
understanding, okay, how do we do this, how do we really move
forward and jump-start a real process that gets us to an energy
strategy, I think you have to, number one, understand where you
are today, and what fuels we are dependent upon, and some sort
of a reasonable time line of about how long we will be
dependent on these.
Secondly, don't push policies that will punish your current
energy production. I think that is a no-brainer. And some of
the things we have seen coming from the administration would,
in fact, do that.
Thirdly, you have to have a transition strategy, and you
have to look realistically across the board, current state of
R&D, innovation, and so forth to understand what is that
transition strategy. And there are very few things, given the
current state of R&D, that get us quickly to that point that we
are trying to get to, which is ultimately energy security for
the United States.
And one transition strategy, in my mind, after having spent
a lot of time looking at this, is clearly natural gas. Because
we know we don't have biofuels that meet our needs yet on a big
scale. Solar and wind are not going to do it. And natural gas
is really the only alternative at this stage.
And I agree with Chairman Tiberi that we want to do
comprehensive tax reform. We want to clear it up, clean up the
code, simplify, lower rates. And so for someone like myself,
the question is: At what point do we use tax policy to drive
some of these decisions, rather than having tax policy driving
all of our energy decisions in a very incoherent way?
And I think, Mr. Lindsey, you offered a lot of clarity in
your testimony about how we should approach this when you have
an issue of national interest. And I found myself very much in
sympathy with what you said in your testimony.
I thought all of you did a tremendous job in helping us
work through some of these very complex issues of, you know,
tax credits, deductions, loan guarantees, and so forth. It is a
pretty complex issue, as you look at it. But what ultimately
gets us to the right policy?
And so, I am curious. As we look at all of this, I am still
trying to parse down where that role for tax policy is as we
look at energy security and driving this.
And I mean I agree, Mr. Lindsey. I was reluctant. I looked
at this bill, the Nat Gas Act, I said, ``Well, it is going
counter to what we want to do with tax reform.'' But does it
hit that threshold, where we have a national interest and we
need to do something on a temporary basis to jump start a
change, a shift in technology that allows us to transition to
whatever R&D takes us to next?
And I would love for you to just comment a little bit more
on that. Let's just explore that topic.
Mr. LINDSEY. Mr. Chairman, if you told me that we were
going to get comprehensive tax reform, and there was no room
for something like this, I would say go for the comprehensive
tax reform.
With all respect to the committee and the process of the
Congress, I am not holding my breath. And so, given that we
have a--why don't we say an existing flawed system, to me,
having another flaw, but a cost-effective one, really doesn't
shock my conscience, and that is why I would be there on that
one issue.
But absolutely, comprehensive tax reform would so benefit
every industry involved that if that were the choice, I would
go with that route.
Chairman BOUSTANY. Thank you. Others, please. Mr. Greeff, I
think you looked like you wanted to comment.
Mr. GREEFF. Yes. Well, I mean I think, as part of a
comprehensive plan, I think you have really hit the nail on the
head. And we would say that tax policy certainly serves a role.
But ultimately, we need to have a vision. And I think, again,
it comes back to what are our agreed-upon goals?
If we think that national security is a big part of what
our energy policy should be--which I would agree with, because
there is a lot more at stake here than just the failure of a
company or a sector--we are really talking about much bigger
issues. We need to step back and look at, okay, well, what is
really the problem? If we can agree upon, for example, that we
need to decrease our imports of foreign oil, then the codes and
also standards need to be targeted at what would help us do
that, without dictating the pathway.
So, again, you know, we need alternative fuels. Does it
have to be corn ethanol? Not necessarily. Does it even have to
be ethanol? Not necessarily. And so, we need to make sure that
the rules of the game are written at the highest level possible
of an agreed-upon vision, and then let the market adjust to
figure out which technologies are going to be the best ones to
get us there.
Chairman BOUSTANY. And I think each of you have given us a
reasonable framework in which to think about this.
My time has expired, but I just wanted to make one last
comment.
Mr. Coleman, you mentioned the issue about R&D investment
in oil and gas. And I think you have to look behind those
numbers, because there is a certain level of maturation,
obviously, in that technology. But at the same time, it is the
R&D that has allowed us to do horizontal drilling, deep water
exploration, and those kinds of things. And so those things
have had value, significant value, in helping us meet our
energy security needs. Because without it, yes, we probably
would have hit some peak oil issue much earlier.
And so, as technology advances, and as this type of
research and development and going after new types of reserves,
we have to look at that as part of that equation.
My time has expired, and we will go next to Ranking Member
Lewis.
Mr. LEWIS. Thank you very much, Mr. Chairman. I would like
to thank each of you for being here today. Thank you for your
testimony.
Mr. Greeff, I would like to start by asking you a very
basic question. Backed by the recent flurry of budget cuts,
there has been more and more talk about significantly reducing
the size and role of government. It is sometimes seen as unreal
and unbelievable, but there are forces loose abroad in the
land.
Can you tell me, do you believe the Federal Government has
a role in accelerating the adoption of renewable energy
technologies? If so, can you tell me why?
Mr. GREEFF. Yes. I mean unequivocally yes, we do----
Mr. LEWIS. And share with me and the Members of the
Committee your vision, your vision of the role of the Federal
Government.
Mr. GREEFF. We believe fundamentally two things. Number
one, that the Tax Code and the role of government can really be
used to help set a vision, and help emerging nascent
technologies achieve market scale. We fundamentally believe
that it really is demand and market scale that is going to
achieve the most efficient companies and technologies, and also
the best cost savings for consumers when you implement these
technologies and they reach maturity.
But because we have a very heavily-regulated energy sector,
because we have a very unlevel playing field, it is very
difficult for these early-stage companies and new technologies
to crack in. And often times, unintentionally, we do pick
winners, and have picked winners in the past, that freeze out
new technologies. So we need to make sure that when the
government is involved, that we are really focusing on getting
towards a vision, driving innovation, driving new technologies,
and helping these technologies stand up and compete, so that
eventually they are attracting private capital into the system,
and that it is the private capital in the marketplace that is
driving these companies once they hit a certain spot.
But Mr. Coleman had some really good comments on this, and
probably has something to add about exactly how we get there.
Mr. LEWIS. I would love to hear from you, Mr. Coleman.
Mr. COLEMAN. Well, I mean, I think that it is--to Tim's
point, I think that it is very much around how we get from here
to there. And I think getting from here to there can take a
short time for some technologies, and a very long time for
other technologies.
And the question is: What role should the government play
in doing that? I think it is really where there is market
failures. And, you know, we, as investors, would like to see
the government play as little a role is possible where we think
that the market is functional, and where we think that we can
invest and grow on our own accord. And to the degree that we
see areas that are broken. We either stay away from those areas
as investors, or we look to the government to actually make
them more functional so that we, as investors, can get off the
sidelines and be productive.
And I think in energy, in particular, the challenge is
really around the innovation question. It is really around how
we move very large infrastructure, how we transition from
decades and decades of spending to--from one paradigm to
another paradigm. And that doesn't--you know, as much as I like
to think that we as investors in early-stage companies change
the world--I think we do, in a lot of cases--but it is not the
early-stage companies alone that need to solve this problem.
And so, part of the challenge, I think, is figuring out how
to structure these incentives so that they drive both an
opening of the market, so that you can have early-stage
companies participate, and they drive investment from some of
the existing corporations into the next generation of
technologies.
Mr. LEWIS. Would anyone else would like to respond?
Mr. AUERBACH. Yes, if I might. I just note that when we are
in the commodity business--as the energy is a commodity
business--that incumbent technologies that have already scaled
crowd out innovation naturally, because there is no place to
express consumer preference for something that is innovative,
and that there are certain values that the nation should
express, like energy independence, and also environmental
benefits that are social benefits that cannot be expressed
today as a price signal to encourage alternative forms of
energy production.
And so, what we are trying to do is, in effect, add
externalities into the equation. But in my testimony I pointed
out that even without those externalities, by virtue of the
scale, the increasing scale of the wind and solar industries,
that costs are already coming down dramatically, and that if we
have increased expansion of those industries, that we are going
to see further benefits in lowering costs, and therefore,
increasing competition.
Mr. LEWIS. Now, each of you realize, as Members of Congress
our most important role right now is to create jobs to get
people back to work. If we do away with these incentives, what
impact would that have on the economy?
Mr. GREEFF. It would have a pretty profound impact. If we
cut these incentives tomorrow, as I mentioned earlier, there
would be a shock wave that goes through the energy sector.
Again, going back to the wind example, we don't even have to
guess. We know that when the PTC credits have expired in the
past, you see anywhere from a 70 to a 90 percent decrease in
orders and installation of turbines. So--and the corresponding
jobs that go with it.
I think to the manufacturing piece, I would say that we
have a crisis in manufacturing in this country that has existed
for several decades. And a lot of the manufacturing jobs that
we have lost are very hard to get back.
I think one of the things that the government can play a
role in is really capturing and going after the industries
where the manufacturing jobs are still largely up for grabs.
And in the emerging energy economy, that is true. And if we
look forward and help drive these companies before the market
may dictate that the supply would be there, we can keep some
more of these companies here, and the manufacturing jobs that
come along with them.
Mr. LEWIS. I think my time is up. But Mr. Chairman, Mr.----
Mr. BOOK. Could I just add to that?
Mr. LEWIS. Yes.
Mr. BOOK. I mean I think the cartoon-like image that one
gets is that you are sort of a cat running away from a pack of
dogs, you run up the tree, out to the end of the branch, and
then you start sawing off the branch while the dogs are down
below.
These two things that are being discussed here, sort of the
existing energy infrastructure we have, and the innovation we
must have, are not incompatible. And the question is always one
of balance. But it is important to remember that when you are
talking about these mature industries, you are talking about
mature commodity players, where gasoline stations, for example,
make money at a fraction of a cent per gallon. If you start to
take away anything, the market will equilibrate. The big well
finance companies will always be better off, and the less well-
financed, smaller, and in some cases more innovative but
conventional companies, will be worse off.
But while that is equilibrating, the jobs are going to be
falling away. And so I don't think that it is particularly
useful, from a job creation perspective, to make the economics
of a global consumer of a global commodity worse at any given
time, and certainly not going to help our producers here. And
you very well might not want to make it harder to compete
within the country, because as people compete they will cut
jobs with the margins.
Mr. LEWIS. Thank you. Thank you.
Chairman BOUSTANY. The gentleman's time has expired.
Mr. LEWIS. Thank you, Mr. Chairman.
Chairman BOUSTANY. Ms. Jenkins.
Ms. JENKINS. Thank you, Mr. Chair, thank you all. Mr.
Coleman, your written testimony stresses the need for long-term
stability in federal policy, and also calls for targeting
federal incentives by connecting the technologies directly to
firmly bipartisan policy objectives.
But it appears that there is widespread disagreement about
what relative weight, if any, should be given to various energy
policy goals, such as those identified in your testimony. And
even if there are firmly bipartisan policy objectives at any
given point, they seem to be shifting.
So, it seems federal subsidies create inherent uncertainty
in the marketplace, and I would just appreciate your thoughts
on the whole issue of uncertainty.
Mr. COLEMAN. Well, I think there is all sorts of different
kinds of uncertainty. And it is part of what we invest in every
day, is trying to understand what the market is going to look
like. And part of that, in the energy sector, is trying to
understand what the politics are going to look like.
And so, I think we already deal with that uncertainty
today. I think, in terms of an approach to overcoming some of
that, within the existing code there are a number of different
structures that were mentioned in a bunch of different
testimonies here today that have expiration dates. And there is
an element of, if we are not going to change the code, then we
probably need to figure out how to extend those expiration
dates and make more certainty there so investors can invest
ahead.
In terms of the approach that I was recommending, it is
really focused on the innovation side of the equation, the
earliest stages of these companies' development, and also the
early stages of the technology development. And the idea being
that we can find some generalized numbers, some milestones
around scale of production, and things like that. So megawatts
produced, units sold, et cetera. And we have seen these rebates
and tax programs work in other places that use these kinds of
metrics.
But we can use those generalized metrics to create
certainty for individual companies. And in terms of which
companies would qualify, which is, I think, to your point, I do
think that debate needs to happen. And I don't know that we are
going to solve that on this panel here today. But I do think
that a lot of people agree around one particular one, and that
is energy security.
And I think that here in the U.S. the idea of growing our
domestic supplies is a really important one. And we have
focused on that politically for the last century. So, hopefully
we can continue to do that, and I hope we can continue to do it
on the innovation side of the equation.
Ms. JENKINS. Okay, thank you. I yield back.
Chairman TIBERI. [Presiding.] Thank you. Mr. Marchant is
recognized for five minutes.
Mr. MARCHANT. Thank you, Mr. Chairman. I can tell you from
my constituents back home what they favor is not giving loans
like have just been given to Solyndra and seeing a half-billion
dollars wasted, which has hurt the entire energy credit
reputation. And what they are telling me when I go back home
and have town hall meetings and meet with my small business
people is, ``Do away with all of these credits, lower our tax
rate, and let the best product win, the best service win, and
get out of the whole business of subsidy.''
Realizing that that is going to be a struggle, and
realizing that is a goal and this committee is really working
on it, I have been very interested today in a couple of the
concepts that have been discussed.
Mr. Auerbach, could you walk through the reverse auction
strategy for me, and how would it maximize any taxpayer dollar
that was invested?
Mr. AUERBACH. Yes, thank you very much. The reverse auction
mechanism, it relies more on the market than on government
mandates to set a price. And it is self-limiting, because what
we start off with is, say, ``Let's encourage more domestic
production of energy.'' And we talk about wind, solar, biomass,
and also oil and gas. All of those are--what we are talking
about in reverse auctions--are made-in-America energy.
And so, the reverse auction mechanism would divert revenues
from expanded oil and gas drilling. Part of it will pay down
the deficit, which is, of course, a national priority. And then
some of it will be allocated to a trust fund and allow
renewable energy developers to compete for that access to that
capital.
In the slides that I pointed out, I pointed out that
renewable energy costs are coming down already. And I believe
if you opened it up to competitive auctions, that fewer and
fewer dollars would need to be allocated for every megawatt
hour of renewable electricity produced, and you let the market
do it.
In the proposal that we are advocating, every year the
ceiling price from the reverse auction would go down five
percent automatically. And so, we are phasing out--again, with
a market-based mechanism, the support for renewable energy
technologies, and we are letting that go.
One comment I would make to your constituents, though--and
I understand the concern, I understand very well; as an
investor, I don't like losing money, and Solyndra is a black
eye--but if you analogize where we are today as driving on the
highway at 70 miles an hour--65, let's say, because that's the
speed limit, so I'm not saying we should be going faster than
the speed limit--a light hand on the steering wheel is
understandable, and that is the way I believe government should
operate. Taking your hands off the steering wheel at 65 miles
an hour is perilous.
And so, just abandoning all responsible oversight and
government activity to support the growth of the industry would
be taking your hand off the steering wheel at a time it is
hurtling down the highway at 65 miles an hour. And I believe
that the overreaction to some very bad news and distressing
news about the Solyndra situation would also create problems
and unintended consequences.
Mr. MARCHANT. And as a follow-up question to Mr. Coleman, I
don't think I misheard you, but maybe I did. You said that the
top five oil companies in America spend almost nothing for R&D.
Would you clarify that a little?
Mr. COLEMAN. Yes, they spend less than two percent of their
profits on R&D. It is one of the lowest numbers of any
industry. And while I think that is an eye-opening number, at
the same time I agree with the chairman's statement, which is
we have had a tremendous number of innovations over the last 50
to 100 years, particularly in oil and gas, and that is a large
reason why we continue to have increased access to supply here
in the U.S.
Our point is more that, as an industry that is not
investing as much as other industries in R&D, there is an
enormous amount of opportunity for new innovation in next
generation technologies. And we believe that it is not just
going to come from start-up companies and emerging
technologies. It is going to come from the oil and gas
industry, and it is going to come from some of the biggest
players who already exist in the energy industry. And we see
those folks as partners.
And so, the hope is that you can create a policy that
brings those companies to the table and encourages them to
realign their investment choices around not just the things
that will increase supply today, which I think is critical, but
around those things which will increase supply and decrease
cost over the long term.
Mr. MARCHANT. But even at two percent, that gross dollar
amount that they are spending, if you compare it against the
gross dollar amount that is being spent by all of the other
combined industries, aren't they comparable numbers?
Mr. COLEMAN. I don't have the absolute numbers sitting in
front of me. I don't believe that they are, although I do--I
would say that the oil and gas industry is one of the most
profitable industries in the world. So----
Mr. MARCHANT. Thank you.
Mr. COLEMAN [continuing]. It is a good number to have.
Chairman TIBERI. Thank you. Mr. McDermott is recognized for
five minutes.
Mr. MCDERMOTT. Thank you, Mr. President--or Mr. Chairman,
for having this hearing.
As I look out on this committee, or this panel, I am really
pleased to see people who believe in the market. And they think
the market is the thing that we must worship at. And as I
look--I watched what happened yesterday on the floor, when the
floor was controlled by people who really believe that
government should have no role in doing anything.
I have a question for all of you, because we had a bill. We
had a 48 extension here in the
committee. Members of this panel all signed on, said we ought
to extend the manufacturing credit for solar things and other
things, and it died. Okay?
Now, 1603, direct payment for wind and solar credits, is
going to expire at the end of this year. Ethanol expires at the
end of 2011. Renewable diesel and biodiesel expires at the end
of this year. And alternative fuel credit, natural gas, expires
at the end of this year. If this Congress acts like they acted
yesterday, and said, ``We don't want the government involved in
this stuff,'' what is going to happen in the market?
How will the market react if the Congress pulls out of all
of those programs which are set within four months to be gone?
I would like to hear you all respond to that. Sir?
Mr. BOOK. I would be happy to answer that, since I talked
to some of those investors every day. And it scares them very
badly. And their job is to make money. They are very
conservative, and they dump investments that they think are
overweighted with risk.
The gentlemen to my left are all very good at making money,
so the analogy that I was suggesting was a portfolio. And they
don't put all their eggs in one basket, but they also don't get
out of the market entirely, or there wouldn't be anything in
it.
I don't think anyone here is advocating dumping all of
subsidies----
Mr. MCDERMOTT. You think the Congress is going to extend
all these?
Mr. BOOK. I certainly don't, and that is the point of a
metrics-based analysis. Figure out what you want to do that is
working well, allocate a certain amount to that. Look at the
things that are sort of higher risk, given an amount to that,
based on efficacy and numbers you can quantify, and then save a
little bit for the moonshot, and make sure that you have a
balanced returning portfolio, in terms of energy security,
environmental benefit, and innovation and the benefit that
brings it home.
Mr. MCDERMOTT. Maybe I should have asked the question a
little differently. Which ones of these should we save to save
the market?
Mr. AUERBACH. Well, can I start off?
Mr. MCDERMOTT. Sure.
Mr. AUERBACH. First of all, I am a believer in the market,
I don't worship the market nor government.
But I do believe that the Federal Government, by abdicating
any responsibility for the market that exists would create
chaos. And as a capital committer that has committed hundreds
of millions of dollars of investment capital in the United
States, the expiration of some of these incentives is going to
create chaos and is going to create job losses.
What I advocated in my testimony, both oral and written, is
really--one point about Section 1603. Some people don't like it
because it is associated with stimulus. But it represents
efficient use of government dollars, as I think every----
Mr. MCDERMOTT. You mean it was a good idea?
Mr. AUERBACH. I think it was a----
Mr. MCDERMOTT. From the Obama Administration?
Mr. AUERBACH. It was a great idea. I was one of the ones
who actually was involved in working with the Administration
and both Houses of Congress in talking them through how it
would benefit the industry.
Ultimately, since I believe that cash is a better way--when
cash transfers hands it is a much easier currency than the
foreign currency called a tax credit, that the vast majority of
our industry cannot efficiently utilize.
Interestingly, 48, well, if you look
at 48, we were a beneficiary of
48, and we could not access a dollar of
it, because we were not a taxpayer. One of our companies was
afforded a $51 million tax credit that we couldn't use. If we
got the cash payment, we would have been creating more jobs.
And 60 percent, in my estimate, of the recipients of
48 will not be able to access that tax
credit.
So, the more we understand about how tax credits are used
by taxpayers, I think the more effective your policy can be.
Mr. GREEFF. Just one comment to that to sort of clarify the
point, I think that the discussion we are having here now makes
the point of where we think the role of government should be.
If you have tax credits that are based on things like arbitrary
deadlines, then every couple years we are back here making a
decision.
What we would argue is we shouldn't be making this
decision. The government can set metrics-based performance
standards or, you know, whatever the metrics are, make them
long term and predictable enough that the market knows where it
is going to head. And I will use an anecdote.
One of the things that I would say in the clean energy
sector of the emerging companies that we would say makes a
difference between a young and a more mature company is the
more mature companies actually have a line item on their
spreadsheet that has public affairs, government affairs, as a
cost of doing business. And I think that when we have a system
that forces companies to have to interact with the government
all the time to make sure that every other year, that there is
more consistent policy, that is not a helpful system.
We want to have it so that they are spending their money
building factories, and they are spending their monies hiring
people. They are not spending their money having to interact
with the government all the time to make sure that these
credits become more consistent, or that a better energy vision
is laid out.
Chairman TIBERI. The gentleman's time has expired, but
anybody else want to reply? Mr. Lindsey.
Mr. LINDSEY. Senator, I think if you actually look at the
cost per gallon on a lot of those, I think you would--I would
be one who would certainly want to phase some of them out. I
think you mentioned ethanol. I think that is one of the most
highly subsidized, and it definitely doesn't meet any kind of
standard of cost benefit analysis. You may not want to yank it
right away, but it makes sense. I think the same thing is
probably true with biodiesel. I think solar credits generally
do not pass the cost benefit test. So I would be sympathetic to
at least phasing many of them out.
If I might indulge--if you would give--please, related to
that--and I have heard the word ``jobs'' a lot--and, Mr. Lewis,
I agree with you 100 percent on the importance of that. To show
you how old I am, 29 years ago I was working with a guy named
Larry Sommers in the Council of Economic Advisors, and he wrote
a memo on Thanksgiving 1982 to the President. There was a
proposal then that we create jobs with infrastructure, road
building. And Larry Sommers wrote the memo and said, ``You
know, Mr. President, if you do this, you have to think,
'Compared to what?' ''
Turns out that infrastructure is a less labor-intensive
part of the economy than the general economy. So if you take
money from the general economy and put it into infrastructure
or, frankly, if you put it into energy creation, you are not
creating jobs net/net, you are actually destroying jobs. Now,
so a lot of what you are talking about will cost jobs in the
industries here. But on an economy-wide basis, if your sole
objective is to create jobs, I would axe most of those
subsidies.
Chairman TIBERI. As I said, the gentleman's time has
expired. Anybody else want to--very good questioning, Mr.
McDermott. Thank you for always providing some interesting--
anybody else?
Mr. BOOK. Could I just add a----
Chairman TIBERI. Sure.
Mr. BOOK. I think that what we are talking about here--in
many cases, we are all saying the same thing in different ways.
But what Mr. Auerbach said, I thought, was really important. He
was asking how much of that money that you are putting into any
of these sources flows through to the actual purchase of the
thing you are buying? That is the thing I call the return on
tax.
And I know it sounds like a crazy thing for people who
believe in free markets to say, but if you want to give away
money, give it directly away--is a very sensible proposition.
What Mr. Lindsey said very eloquently is that, guess what,
capitalism works. And the reason why you have lower labor
intensity in the things that work at big scale is because that
is why they are successful in a capitalist economy.
That does not mean, however, that you won't lose jobs. If
you take things that currently benefit those industries away,
it does mean--I think you would have to agree--that
allocating--if jobs is your only criterion, there is some very
labor-intensive things you could do, and renewable energy, in
some forms--agriculture-based renewable energy can be very
labor-intensive.
We don't necessarily want to live in an agrarian economy,
though. I mean I think this is a balanced question. We are an
industrial economy, and we want to create high-value jobs.
Chairman TIBERI. Thank you, thank you. I now recognize the
gentleman from the booming energy state of North Dakota, Mr.
Berg.
Mr. BERG. Thank you, Mr. Chairman. I have been anxiously
awaiting to ask questions here. You know, obviously, in North
Dakota we have taken a strong approach the last 10 years to not
just look at oil, but look at all energy sources, and try and
remove barriers and encourage their production.
So, Mr. Greeff, I would like to kind of start just in kind
of the big picture. I mean what can Congress do to provide
certainty in the energy industry overall, encourage economic,
you know, growth, and also, from a big picture, I think our
goal should be energy independence.
So, if you were going to say, ``Here is three things that
Congress can do now,'' what would they be that would move us
towards that end?
Mr. GREEFF. I think, based on energy independence being the
goal, I think, number one, we have to set--all policies need to
have that fundamental goal as the bottom line. And that would
include, you know, reducing our dependence on foreign oil--and
I would say oil, overall--diversifying our energy portfolio,
like anyone would diversify their investments. We depend far
too much on far too few sources of energy. And we would want to
make sure that we capture and produce as much of that energy at
home as possible, so that the dollars that we do spend on
energy are being spent domestically, and driving the economy.
I think a second point is that we can't ignore--because
there is often times a focus on the role of the Federal
Government, but again, when you get down to the local level,
most energy markets are protected monopolies, and they are
limited. And getting into--cracking into some of these
industries is difficult.
When you look at, for example, that in the rate base of
some utilities there is an economic and financial disincentive
to be more efficient, that is a failure of the policy system.
And we have got to start to fix that, so that actually you are
not expecting utilities to lose money if they help end use
users become more efficient. Because that is in the public
good, that is in the public interest. And so, we can't
necessarily just separate the federal policy for more local
policies. And we know that that is tricky, but that is
something that we need to walk into with our eyes open.
And I think the last point is that we do need to have a
more comprehensive view that doesn't just depend on tax policy,
doesn't just depend on performance standards. We can't evaluate
everything in a vacuum; we have to look at it and make sure it
functions together. And if we can look at where we want to get
to, if we can set the rules of the game, put them long-term, so
that the touches of government intervention and the number of
times that we have to have these conversations become fewer and
further between, that is going to allow the market to adjust in
the long term.
Mr. BERG. Well, thank you. I have been in the commercial
real estate investment world for 30 years, so I understand
how--I mean we would think that your whole decision is based on
tax policy, but the reality is that is just one component of
making your investment decisions.
Mr. Lindsey, you had mentioned that the Tax Code
discriminates against production. Could you just expand on
that, briefly?
Mr. LINDSEY. More precisely, it discriminates against
domestic production. So, if you produce something in North
Dakota, the workers have to pay both employer and employee side
of FICA, they have to pay income tax, they have to pay
corporate income tax. If you import the same good from
Manitoba, none of that tax is borne.
Now, Canada has got a similar tax structure, so it is
there. But if you think about it as China, none of that is
taxed. We have a tax--we disadvantage our own manufacturers.
What you need is a border-adjustable tax system, and it should
be based on cash flow, and not on income, because income is not
the thing you really want to tax. You want to tax something
more generic than income.
Mr. BERG. Thank you. Mr. Coleman, you had mentioned--I may
not have it quite right, but one solution would be a volume-
based energy incentive system. I know you talked about it a
little bit earlier. Could you just briefly recap that and give
me an example of how that would work in real life, if we are
transitioning from where we are now to maybe no incentives?
Mr. COLEMAN. Yes. So a volume-based system would be one
that shifts from the current approach. So if you think about
the way we currently approach tax policy around energy,
typically it is--we have technology buckets. So we incent solar
a certain way, wind another way, oil and gas a different way,
natural gas a different way. And the challenge there is that
the government necessarily has to figure out not only what the
appropriate allocation is to those individual buckets, but has
to listen to us sit here on these panels say whether, you know,
one technology is better than the other on a pretty repeatable
basis.
And so, the issue there is that when you are trying to
figure out how to most effectively then incent those
technologies, you also have to figure out when they are ready
to move off of subsidies. And we have this semi-annual debate
associated with whether or not a technology category is ready.
The challenge is that when you look at the technologies
inside even a single bucket--let's just take solar, for
example--you have some technologies that have moved all the way
down their cost curve to the point--the chart that was brought
up here earlier--those cost curves come down very steeply,
based on innovation, and then on scale. They may have gotten to
the point where they are at the bottom of the cost curve, and
there is others that are just beginning to come down it. But
they are also solar companies.
And so, the question is, if you roll that tax credit off at
that point, the most mature companies may well be able to
compete. But the ones that are most innovative--and they may
have a cost curve that goes well below where the most mature
companies are--the ones that are most innovative won't get any
portion of that credit.
And so, when we are investing in some of those early
innovative technologies, we look at those policies and we say,
``Well, will they be there by the time that these companies
actually hit the marketplace?''
And so, the approach that I am proposing is one that looks
at the scale of the technology and says there will be a credit
for companies that innovate in a given set of categories, and
it will last until they get to a certain volume, and then it
will start to roll off for that given company. And we have seen
it happen in programs all over the place.
One of the ones that is closest to home--and I am going to
dare drop a California example here--is the hybrid rebate that
was put into place, where, basically, for the initial volume of
hybrids, there was a rebate put into place and then it rolled
off once an individual company got to a certain volume. So,
other companies could enter the market with a new hybrid, and
it would roll off for them over time.
But effectively, what that does is it gives us a level of
certainty, as investors, to look at how that policy structure--
and say that will be there by the time the market hits that
scale, and so we can factor it in, and we can invest ahead of
it. And it should be applicable, not just to start-ups. It
should be applicable to any company that is undertaking
technology innovation.
Mr. BERG. So the point is you get to a point where the goal
is to make money for the company, and they are making more
money by increasing their volume, increasing their sales, and
as that happens their incentive reduces.
Mr. COLEMAN. Yes----
Chairman TIBERI. The gentleman's time has expired----
Mr. BERG. I will yield back.
Chairman TIBERI [continuing]. Go ahead and answer the
question.
Mr. COLEMAN. Yes, the point is to help these companies get
to a scale where their cost is fully reduced. And by the time
they are mature, and their cost is fully reduced, they should
be able to compete in the marketplace alone, rather than be
reliant on subsidies, going forward. We want to invest in the
companies that ultimately compete without subsidies.
Chairman TIBERI. Thank you. Mr. Reed is recognized for five
minutes.
Mr. REED. Thank you, Mr. Chairman. This has been very
informative. I really do appreciate the panel's input.
Obviously, as we deal with energy policy going forward, tax
policy in the energy field is going to be a critical piece to
that comprehensive plan.
I am a guy who believes in all of the above: domestic,
renewables, alternatives, fossil fuels, et cetera. And one
consistent theme that I am hearing here, and I have heard it
before, is the certainty in the tax policy is critical to
getting this correct. And, as a new Member--new member of this
committee, new Member of Congress--there is a reason why the
Tax Code is in the condition that it is, with the short-term
extenders and things of that nature.
Mr. Lindsey, you have been around quite some time. I
appreciate your candor with us. Could you offer some advice or
insight to a new Member as to what is the primary reason why we
have the code in the condition that it is? How can we--what are
the barriers to that certainty of getting the long-term tax
policy initiated?
I have some personal opinions, from the short term I have
been here, that there are some institutional issues, the
scoring issues and things like that, but could you offer any
insights that maybe I am--that would be helpful to me as we
develop this policy?
Mr. LINDSEY. Yes, I have been through this quite a few
times.
The first thing is--and this is something you can't do
anything about, it is the nature of our democracy--obviously,
the nature of the committee changes, the Congress changes, and
different Members have different objectives. You know, it might
be jobs now, it might be inflation another time, and it might
be energy production. You can't do anything about that.
I think, though, that the thing you can do something about
is the focus on income-based taxation. There is a saying on
Wall Street that cash is a fact, income is an opinion. And when
you are dealing with an opinion, it is very, very easy to
change your opinion. And that is why, ``Well, let's see, is
this really income now? Maybe we should have a deduction
here,'' I mean all the complexity really comes down to defining
income.
On the other hand, if you have a cash flow tax you are
really looking at something called receipts. And it is very,
very hard to argue about the definition of a receipt, much,
much harder than it is income. And I think if you--as a new
Member, I think what you would want to do if you actually want
to have certainty in the code and everything else, you want to
move away from income-based taxation and toward receipts-based
taxation, or cash flow-based taxation.
Mr. REED. Any other insights from anyone who has been here
a while?
Mr. AUERBACH. Well----
Mr. REED. Mr. Auerbach.
Mr. AUERBACH. Yes. I started my career, actually, as a tax
lawyer, and made a living off of the uncertainty, advising
taxpayers or clients that were very nervous. And I also worked
in Washington for a couple years in the government, being on
the other side of that.
Part of the problem--and I don't want to say this in an
impolite way--is, you know, I would actually like to get energy
policy outside of this room. And H.R. 909 and the reverse
auction mechanism that I am advocating here--and I hope is
going to enjoy bipartisan support, but right now is supported
mostly by Republicans--is trying to set up a mechanism that is
long-lasting, self-implementing, and does not require the
constant review before Congress every other year that has been
built into a code incentivizing renewable energy since 1993.
There have been 5 times over the last 18 years where the
credits just died in their tracks, thousands of people were
laid off, capital flows stopped, and then they started again.
And so, if we can set up a system that has already been
architected--and we have been commenting on it, about how to
make this long-lasting and self-implenting--and get revenue
sources that are monitored by Congress but actually outside of
Ways and Means, I actually think it is going to provide a lot
more certainty for capital committers. It is a much more
natural way for the system to work.
So, that was--that would be my advice to you.
Mr. REED. I appreciate that. Yes, Mr. Marron.
Mr. MARRON. I guess just--the one other thing I would add
is the way the budget process and budget discussions happen in
Congress----
Mr. REED. Amen.
Mr. MARRON [continuing]. Which is, as you have experienced,
10-year budget estimates are the coin of the realm.
Mr. REED. Yes.
Mr. MARRON. And that just creates a natural incentive for
people who want to extend something to extend it in little
bite-sized chunks at a time. And so folks can get enough
political will to extend it for a year, and then revisit the
next year. And that is not something that necessarily leads to
a good long-run policy.
I don't know how you would solve it as a process thing. But
if you and all your colleagues could say, ``Look, if we are
going to consider a tax incentive to encourage some activity,
we will commit to either do it for five years, or let it die,''
that would be kind of the place you would want to end up.
Mr. REED. I appreciate----
Mr. MARRON. At the moment, the budget dynamic is year-by-
year.
Mr. REED. Yes, that is exactly what I was looking for on
the record.
One last question, just a quick yes or no. Because I am an
all-of-the-above person, can we achieve energy independence
solely on alternative renewables? Does domestic fossil fuel
production and development have to be part of that equation?
Chairman TIBERI. The gentleman's time has expired.
Everybody will answer yes or no.
Mr. REED. Thank you.
Mr. LINDSEY. No to the first, yes to the second.
Mr. GREEFF. No to the first, yes to the second.
Mr. COLEMAN. Yes to the first and yes to the second.
Mr. AUERBACH. I would say no to the first, and yes to the
second, as well.
Mr. BOOK. No the first, yes to the second.
Mr. MARRON. We will never achieve energy independence
within the lives of the grandchildren of the folks here in this
room.
Mr. REED. Thank you for that.
[Laughter.]
Chairman TIBERI. We have two more Members who are going to
ask questions, and I--yes, cancel the next panel, right. No, I
am just kidding.
Mr. Lindsey, I know you had to go, and if you do need to
go, you are excused from this panel. Thank you for your
generous time commitment. I know you had----
Mr. LINDSEY. Thank you for your forbearance. I appreciate
it.
Chairman TIBERI. Thank you. I recognize Mr. Kind for five
minutes.
Mr. KIND. Thank you, Mr. Chairman. On that happy note,
first of all, I want to thank the witnesses for your testimony,
and thank the committee for holding this important hearing. I
think it is very, very helpful that we have periodic hearings
like this to see whether or not we are getting a good bang for
the buck that we are trying to incent or invest as a nation.
And these periodic reviews might be a little easier if we went
to a biannual budgeting process, as opposed to trying to move
everything every year, which provides very little time for
oversight with a lot of these programs, and the discussion that
we are having today.
One of the concerns I have--and I think it was addressed
earlier in the hearing with a question--is if we have got a
national strategic energy policy, I don't know what it is. I
don't know where we are going, as a country, with all of this.
It is just a hodge-podge of a lot of things, and we see it
riddled in the Tax Code, too, seeing what might work or what
might stick and what doesn't.
And I appreciate the testimony we heard in regards to some
predictability and longevity with some of these decisions, so
that businesses know what to wrap their arms around, and what
is going to be certain in out-years, as opposed to being taken
away from them after they are willing to invest capital and
time and energy to start moving in that direction.
But what makes this conversation a little bit difficult to
have is a lot of the hidden costs with our energy policy today.
And let me just cite one example of that. I think it was back
in 2002 or 2003 I cited a Department of Interior's website
where they had listed the cost of maintaining safe shipping
lines to the Middle East to our shores of roughly $80 billion a
year. And I started publicizing that on my own website and
started talking a lot about it. And then suddenly the
Department of Interior dropped it from their website. And that
is one of those hidden costs in our own energy needs as a
nation that never really gets explored or factored in to
everything else that we are doing. And that makes these type of
conversations a little bit problematic to have.
But I also know that, as an example, the
25 tax credit for residential efficiency
has had an economic impact for manufacturers in my district,
from Trane to A.O. Smith that have benefitted, the Andersen
Windows that have benefitted through the increase in sales,
which has meant hiring, but also the impact that it has had for
a lot of families.
I recently visited an older couple's house earlier in the
year that made an investment with new insulation and high-
efficiency furnace and that, because of the tax incentives.
That spurred them to do it. And they went from $410 a month in
heating costs to roughly $90 a month in heating costs. Huge
difference in that family's life, but it was because of the tax
incentive that spurred them to take that type of action.
So, I guess I would be interested to hear your feedback on
how valuable it is to have some of those incentives out there,
just to overcome the battle of inertia that we often face in
the nation, getting people to do something which makes complete
economic sense for them to do, but without that incentive they
probably wouldn't, because of the power of inertia.
Does anyone want to take a stab at that? Mr. Book.
Mr. BOOK. Well, Congressman, I have enjoyed conversations
about renewable energy with you in the past, and efficiency.
And I would have to say that I haven't done the quantifying of
that particular example. But what you have just described is
something that seems like it had tremendous MMBtu for the buck.
And you know, if you are going to judge the efficacy of these
policies on a metric--and that was one of the ones that I think
a lot of us recommended--it sounds like it is a highly
effective policy. And that might be a reason why you would
explore continuing the things that are working, saving some for
the things that are possible, and allocating a small amount,
because we need innovation, irrespective of performance to
generate ideas.
Mr. KIND. Yes. And I think it is kind of two different
questions here, too. One is: What do we need to do to build in
business predictability on what we are doing? But also, what do
we need to do to get people to take action?
And part of a way of achieving that is by letting these
things expire, and people knowing that they are going to
expire, so they got to move now in order to take advantage of
it, which, I think, is a lot behind the American Jobs Act,
trying to get something done now, rather than knowing it is
going to be there for another five years and we have got time
to wait.
Mr. BOOK. That just shifts demand forward, it doesn't
actually create anything. It creates a lot of lobbying dollars
locally spent here in the District of Columbia--thank you for
my home value appreciation--but the real effect of creating an
innovation center that generates ongoing value is much bigger.
And the problem with shifting demand forward is that it is not
new demand. And so, I mean you do get a short-term pop. It is
like cash for clunkers. But then there is a lag if nothing
fundamentally recovered to replace what you shifted forward.
Mr. KIND. I understand and appreciate with the economic
models the need to develop something more long term, but we are
stuck right now as an economy, because of the lack of aggregate
demand. People are scared, and they are hunkered down, they are
paying down bills, they are not making purchases, and jobs are
not being created. So shouldn't we be trying to juice short-
term demand, just to get things going again?
Mr. BOOK. It is messy. It works sometimes very well, but it
usually has problems and conflicts. And some of what the first
panel was describing sounded like some of the conflicts that
come up with it. The rich man's rebate for hybrids for people
like me who drive 3,000 miles a year is being spent on vehicles
that low-income families can't source. Insulation in walls is
what a lot of these families need, but people in my
neighborhood can buy solar panel systems for $80,000.
You do have to look at how these demand-side incentives
work. And they are very hard to get right.
Mr. KIND. Great. Thank you. Thank you all again. Thank you,
Mr. Chairman.
Chairman TIBERI. Thank you. Ms. Black is recognized for
five minutes.
Ms. BLACK. Thank you, Mr. Chairman, and I think I am
bringing up the tail end here. Thank you, panel, for being here
today. Very informative.
I want to go to the issue of winners and losers when tax
credits are created. And in specific, I have a manufacturer of
water heaters in my district. And because of the way the tax
credit was written, it benefits foreign manufacturers over our
U.S. manufacturers. And that means U.S. jobs.
And so, what I would like to hear from you all is how can
we be sure that we are not picking winners and losers, and that
we are having a level playing ground and, in particular, that
we are looking at making sure that playing ground is level, so
that our jobs are kept here, in the United States? Anyone want
to jump on that one? Yes, Mr. Marron.
Mr. MARRON. Okay, I will be brave and go first. I think the
unfortunate reality is that if you try to use the tax system to
provide subsidies for these kinds of activities, it is
virtually impossible to literally accomplish a level playing
field. You will see in the testimony of some of my colleagues
up here on the panel the complicated calculations they go
through in order to figure out what the implied value per MMBtu
or value per CO2 saved, or value per gallon is. It requires an
enormous amount of math.
Now, try and imagine to do that here in the committee to
design subsidies to target each possible way one might save
energy. And the reality is just you are never going to get
there. So a fully level playing field is incredibly hard to
accomplish on the subsidy side.
I know it is an unpopular message, but actually you can
accomplish a level playing field if you are willing to do
things on the tax side. If you say, for example, that oil is a
bad thing to use because of national security concerns and you
have an oil tax, if you believe carbon emissions are bad you
tax carbon emissions, that can then filter through the economy
and establish a level playing field.
Now, I am not offering that as a raise-tax thing. You can
then couple that with cutting other taxes, so that it is net-
revenue-neutral. But I recommend that if you really take
seriously the level playing field, that that is a place to
look.
Ms. BLACK. Others have a comment on that? Mr. Coleman.
Mr. COLEMAN. Well, I would just say, at the risk of
sounding like a broken record, I think the issue is you really
need to simplify the code, number one, and I think that means
trying to figure out how to carve out the hidden components of
the code, and trying to put them all sort of above the table.
And the other is really making sure it is a metric-based
system. So, you know, to the points that were made earlier by a
number of different panelists, making sure that we align it
with the metrics that define the priorities we have. So if it
is energy security, then there are certain metrics associated
with that, making sure that those that are eligible and those
that take those credits fit the bill, and that they get the
credits based on the amount that they actually produce, and the
amount that they actually meet that objective, I think, is the
simplest way to do it, and make sure that you have a level
playing field.
Mr. AUERBACH. I would just add that, again, there have been
a number of ideas, I think, proposed by the panelists in their
testimony, including myself, that go to encouraging increased
domestic production of energy of all sorts. We have to be
careful, as we design policy, that we do not violate
international trade agreements to block out foreign
competition, because they are going to retaliate and do that to
us, as well. But there is nothing wrong with encouraging
domestic production.
But again, the more that we can create market-based
mechanisms for all of this, I think the better off we are all
going to be.
Mr. GREEFF. I would go back to my comments earlier about
the need for a comprehensive vision, that, you know, tax policy
is a role, but let's look at international security. And if we
look at, for example, our dependence on foreign oil, there is
demand side and supply side, and you probably need to have a
separate set of policies for that and focus on the demand side,
the biggest use in the transportation sector.
Instead of going back to the earlier example about corn
ethanol and saying, ``That's the one that we are going to
pick,'' you have things that work in concert, such as the cafe
standards that say, ``We want to set a fleet average of miles
per gallon.'' It doesn't dictate to the auto makers what type
of car technology they have to use. It sets an aspirational
target for what the fleet average needs to be. So they still
get to make SUVs, but it also pushes them to make more advanced
technologies with better combustion engines, hybrids, electric
vehicles, et cetera.
And then, at the same time, you can also use tax policy to
bolster the next generation technologies. And, to Will's point,
not just for start-ups, but also for the large companies, so
that they are actually looking and innovating to what is that
oh-wow, next big thing that they wouldn't necessarily invest in
otherwise. If we have more of a vision and we use all of the
different tools in our toolbox, we will have a much more
comprehensive policy that picks less winners, and lets the
market adjust to what the aspirational goals are.
Ms. BLACK. Thank you all very much.
Chairman TIBERI. The gentlelady's time has expired. Thank
you very much.
Last, but not least, the gentleman from Connecticut is
recognized for five minutes.
Mr. LARSON. Thank you, Mr. Chairman, and thank you so much
for holding these important hearings. And thank all of our
panelists, some of which I know had to leave already.
But just a general question. I think all of you are in
agreement, in terms of the need for comprehensive tax reform
and how that would benefit, overall, all of our industries. And
I think there is probably broad agreement on this committee
with respect to that, as well.
I am concerned, however, that if the United States doesn't
supply various types of technology in commercial adaptation,
that we run the risk of having other nations--I come from a
state that is a fuel cell sector state, and we see with the
great interest that Korea has in making sure that that industry
has a place to grow and thrive over there, through government
investment.
It is always a concern about picking winners and losers,
but in new and breakthrough technologies, what is the feeling
of the committee with respect to that? And if we could, just
briefly go through whether or not government should be
involved. Or is this something that you purely leave up to the
marketplace, especially when other countries, especially in the
energy-related areas, are looking to eat our lunch?
Mr. AUERBACH. Well, I will just start by pointing out one
thing that we haven't talked about. There has been some mention
about some due diligence failures associated with one loan
guarantee for an innovative company, which is unfortunate. But
put in context, where some of our competitors are--that I view
also as trading partners--China, the Chinese Development Bank,
CDB, which is somewhat equivalent to our Ex-Im Bank, has
provided over $30 billion in loans to support their native
industries, scaling up their renewable energy. And many of
those are innovative companies that are increasing their scale
and lowering their cost.
And so, if we abandon, if we don't provide systems of
support to encourage domestic innovation through whatever means
we think is most economically efficient, we are going to end up
increasing our trade deficit because, ultimately, we will find
those products attractive. And instead of having our share of
American products, it is going to all be coming from overseas.
Mr. COLEMAN. Yes, I would just add that I do think we need
to support emerging technologies, and that was the brunt of my
testimony. I think the way that we need to do it, though, is in
a technology-neutral way. So I think the closer we can get to a
metric-based system, the better off we will be.
Mr. LARSON. There is a great deal of conversation currently
in the Congress and several bills that abound with respect to
an infrastructure bank that is both partially funded by
government providing the base for seed capital, but then with a
board, and with investment coming from the private sector.
Could the same kind of innovation bank work for the country?
Mr. BOOK. Congressman, I have testified on this before the
Senate in the past, and I was sad to see that the--some folks
tend to talk about a green bank as a Fannie and Freddie for
clean energy, and they don't mean it nicely.
There is actually a problem with the current loan guarantee
program that has nothing to do with due diligence. It has to do
with the way financing has to work for real industry at a real-
time basis. The portfolio that you are able to catch is
probably not going to out-perform the portfolio Mr. Auerbach
has. He can turn around a term sheet quickly. He has the
autonomy to choose financing mode, he can decide whether he is
going to take warrant coverage or equity, he can decide if he's
going to debt finance something with venture convertible
security interest.
If you give that kind of autonomy to a government agency it
has to be limited, because you don't want to crowd the folks
who do it for a living out of business, because they do tend to
yield an awful lot of it. But having it done right probably
would involve giving it autonomy and the ability to work in
real time, as the Ex-Im Bank does.
Mr. LARSON. Would that enhance or detract from your
efforts, Mr. Auerbach.
Mr. AUERBACH. I think it would enhance. First of all, thank
you for the question; it is a very important one. Let me just
point out that there are various versions of a bill for
supporting a clean energy deployment administration. Some of
them call for agency-driven locale for it, others independent.
So it is somewhat different, but similar to the infrastructure
bank illustration that you have shown.
Let me give you one personal example. We went through the
loan guarantee program and successfully procured a loan
guarantee. We started our application in December 2008. We were
finally awarded the loan guarantee about two months ago. Nearly
three years in due diligence and then in documentation in order
to get a loan is not exactly fleet-footed, and is not going to
support American competitiveness.
We understand the grave concerns about the due diligence
process and the capacity of the government to do this
efficiently. Ultimately, I believe that it needs to be
outsourced to independent folks who have the autonomy to act as
quickly as we act in the private equity business.
Chairman TIBERI. The gentleman's time has expired. Anybody
else want to answer that question?
Mr. GREEFF. The last thing that I would just add is we
think that any time that you can create a public-private
partnership as opposed to a wholly public operation, we think
that that generally works better. And we would also argue that
moving the money closer to the source of the innovation
increases the chances that it is going to be spent wisely. So
the solutions in Louisiana are going to be different than in
Ohio or Massachusetts or Georgia.
And we would say that the public-private partnership done
at a more regional, local level actually helps to increase the
efficacy with which that money is distributed, and makes sure
that that innovation is happening at the ground level, in
conjunction with the national labs, in conjunction with the
universities, and all the talent that we have in the United
States.
Mr. LARSON. Thank you.
Chairman TIBERI. Thank you. Thank you all. One last
question on behalf of the panel. If you guys were up here, just
a yes or no answer--starting with Dr. Marron--with what you
know, would you vote yes or would you support or oppose the Nat
Gas Act, which is our next panel? Because I am going to go to
our next----
Mr. MARRON. Pass.
[Laughter.]
Chairman TIBERI. Pass? Pass it, or pass?
Mr. MARRON. Oh, sorry. Pass on the question.
Chairman TIBERI. Okay.
Mr. BOOK. I don't know enough until you can give me a
comprehensive accounting.
Chairman TIBERI. Stick around.
Mr. BOOK. But leaning oppose.
Chairman TIBERI. Okay.
Mr. AUERBACH. I would have to pass, I haven't studied it
closely enough. I apologize.
Chairman TIBERI. All right.
Mr. COLEMAN. I hate to say it, but I haven't studied it
closely enough, either.
Chairman TIBERI. All right.
Mr. GREEFF. Pleading the Fifth.
Chairman TIBERI. Pleading the Fifth?
Mr. GREEFF. I am just kidding. It is the same thing; I
haven't read the bill.
Chairman TIBERI. You guys should stick around the for the
next panel, then.
Mr. GREEFF. Might just do that.
Chairman TIBERI. Really appreciate your testimony today.
You guys did great. Gave us a lot of great information. And
thank you so much for coming.
We will now seat the third panel. Our third panel today,
while they get seated, I will introduce them to save a little
time as the second panel departs. Very informative second
panel. Again, thank you so much for coming.
We have our third and final panel with us today: Mr. Andrew
Littlefair, president, chief executive officer of Clean Energy
Fuels; Dr.--oh, not--Dr. Lawrence Lindsey is now gone, he had
to leave so he was part of the second panel; our former
colleague, the Honorable Congressman Calvin Dooley, president
and chief executive officer of the American Chemistry Council,
welcome; Dr. David Kreutzer, research fellow in energy
economics and climate change of The Heritage Foundation; and
finally, our last witness, I will yield to my good friend from
Massachusetts, Ranking Member Neal, to allow him to introduce
our final witness.
Mr. NEAL. Thank you, Mr. Chairman. I am pleased to
introduce one of my constituents, Hank Ziomek, who is the
director of sales for the Titeflex commercial division, with
global responsibility for the automotive and industrial
markets. Titeflex is headquartered in Springfield, and I must
tell you it is a very neat story. We are all very proud of what
has happened at Titeflex.
Before joining Titeflex, Hank spent nearly 20 years with
the Dana Corporation, including as a business unit manager for
the Boston weatherhead division. So it is extremely helpful to
get the input of individuals like Hank, and I am appreciative
of the fact that he has taken the time to come to Washington
today to give us his perspective.
Chairman TIBERI. Thank you, Mr. Neal. Thank you all for
joining us. You will each have five minutes to present your
testimony, and your full written testimony will be submitted
for the record.
So, with that, Mr. Littlefair, we will begin with you. You
are recognized.

STATEMENT OF ANDREW J. LITTLEFAIR, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, CLEAN ENERGY FUELS, SEAL BEACH, CALIFORNIA

Mr. LITTLEFAIR. Thank you, Mr. Chairman. Chairman Tiberi,
Chairman Boustany, and Members of the Committee, my name is
Andrew Littlefair, and I am president and chief executive
officer of Clean Energy Fuels. I am also the immediate past
chairman of NGV America, a national trade association, over 120
companies involved in natural gas vehicles and related
production distribution and transmission.
I am here to speak in favor of H.R. 1380, the Nat Gas Act,
introduced by--on April 6th--by Representative John Sullivan
and Congressman Larson, cosponsored by both subcommittee
chairmen, along with 181 other bipartisan Members of the House.
I would like to focus on the advantages to our economy of jump-
starting a natural gas vehicle industry in the United States.
The changeover from diesel to natural gas is going to make
huge strides over the next 10 to 15 years. With this short-term
boost, we can accelerate that just about five years.
The benefits to natural gas as a vehicle fuel are numerous,
wide-ranging, and vital to America's national interest. It is
abundant, domestic fuel, it is a proven technology, it is
cleaner than petroleum, and it will generate 400,000 new jobs
over the next 5 years, and it will reduce our dependence on
OPEC oil. Natural gas is one of the most abundant natural
resources in America. From just a few years ago, when natural
gas was considered an extremely limited resource, it is now
widely believed we have enough natural gas reserves to last
between 100 and 150 years.
Given the amount of natural gas, we must consider how best
to deploy such a widely distributed domestic natural resource.
Natural gas is a proven vehicle fuel. There are some 13.2
million natural gas vehicles operating in the world today.
Globally, over 4,000 natural gas vehicles are being put on the
road each and every day, and 8 new natural gas fueling stations
are being opened every day.
However, of the 250 million cars and trucks and light-duty
trucks on America's highways, only about 110,000 are natural
gas vehicles. The argument against moving from gasoline or
diesel to natural gas as a principal transportation fuel for
passenger vehicles has been a matter of infrastructure. And
that is why H.R. 1380 focuses on the 8 million medium and
heavy-duty trucks which burn more than 35 billion gallons of
fuel each year.
Over-the-road trucks tend to run the same routes on a
regular schedule, and we have determined that the beginnings of
a nationwide network is possible with as few as only 150
natural gas stations at existing truck stops along interstate
highways which can provide fuel from coast to coast and border
to border.
The private sector is doing its part. Recently my company
announced an investment by Chesapeake Energy to help build 150
strategically located L&G truck stops. This process, too, can
be greatly speeded up through common sense incentives in the
bill. H.R. 1380 takes direct aim at the incremental cost of a
basic class A truck, which includes regional tractors, trucks,
refuse and recycling trucks. Built to run on diesel, the base
cost is approximately $125,000. A similar truck manufactured to
run on natural gas today costs between $35,000 and $40,000
more.
To show how quickly the market is changing, just three
years ago the incremental cost of a natural gas truck over a
diesel was between $60,000 and $100,000. So we are moving in
the right direction. H.R. 1380 is not a hand-out to major
corporations, grocery chains, and retailers. There are over
360,000 trucking companies in the U.S.; 82 percent of these
operate 6 trucks or less, and 1 in 10 over-the-road truck
drivers is independent, and most own their own rigs. These
small businesses will retain a larger share of their earnings
in the form of a tax credit to purchase natural gas trucks. And
that, plus the savings of $1.50 per gallon running on natural
gas instead of diesel, provides a significant life cycle
reduction in cost, and will go a long way in helping to create
additional demand for trucks and engines built in America.
Studies have shown that moving America's heavy-duty truck
fleet from diesel to natural gas will have the effect of
providing over 400,000 direct and indirect new jobs over the
next 5 years throughout the NGV supply chain. Every person we
hire, every position we create, has to make sense for us so it
can help us make money. Yet we believe that 400,000 of new
permanent, good-paying jobs to be conservative. These jobs will
be created through an anticipated private sector investment of
up to $50 billion over that same 5-year period that we are
talking about with the bill.
Using domestic natural gas instead of foreign oil is also a
security issue. In June 2011 we imported--this is really
staggering--343 million barrels of oil at a cost of $39 billion
in one month alone. That is $1 million per minute every minute
of every day. The cost of importing oil for the first 6 months
or so this year is $227 billion, over a quarter of a trillion
dollars.
A look at the list of countries in which we are sending all
those dollars is chilling. After Canada and Mexico, the next
largest suppliers of oil to the United States are Saudi Arabia,
Venezuela, Nigeria, Iraq, Colombia, Russia, and Angola. This is
not a list of countries we should be counting on for stable,
fairly-priced supplies of oil.
In converting America's heavy-duty truck fleet of about
eight million vehicles to liquified natural gas would save 2.5
million barrels of oil per day, meaning we could reduce our
reliance on OPEC oil in half. At $100 per barrel, that means
$250 million per day will stay in the U.S. to circulate through
our economy, rather than being shipped off to the governments
of Venezuela, Saudi Arabia, and Nigeria.
Natural gas is abundant, it is available, and it is safe.
Natural gas is cleaner than gasoline or diesel, produces in
between 20 and 30 percent fewer greenhouse gases, and natural
gas is cheaper. A typical over-the-road truck running on
natural gas will save $40,000 per year.
Chairman TIBERI. If you could kind of wrap it up----
Mr. LITTLEFAIR. Thank you for your time, and attention. I
am happy to answer any questions that you may have.
[The prepared statement of Mr. Littlefair follows:]

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Chairman TIBERI. Thank you.
Mr. LITTLEFAIR. Thank you.
Chairman TIBERI. Congressman Dooley, you are recognized for
five minutes.

STATEMENT OF CALVIN M. DOOLEY, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMERICAN CHEMISTRY COUNCIL, WASHINGTON, D.C.

Mr. DOOLEY. Well, thank you, and good morning, Mr. Chairman
and Members of the Committee. I appreciate the opportunity to
testify on behalf of the American Chemistry Council and our
members.
Your hearing today acknowledged that the United States Tax
Code is often used to drive energy policy and influence
markets, sometimes with unintended and detrimental results. The
Nat Gas Act is an example of one such proposal offered at a
time when our nation can least afford it.
Most people don't realize that natural gas is vital to the
productivity of U.S. manufacturers. This is particularly true
of the chemical industry, which uses natural gas both as a
power source and a raw material to develop and produce
everything from the packaging that keeps our food fresher
longer, and to the building products that make our homes more
efficient and affordable, to the parts and materials, including
high-tech composites that make our cars and planes lighter,
stronger, and more fuel-efficient.
Our products and materials are then used by other industry
to create new goods on which American families, farmers, and
business rely. In fact, more than 96 percent of all
domestically-manufactured goods are embraced and enabled by
chemistry.
That is one reason why new supplies of natural gas from
previously untapped shale deposits are such a game-changer for
our industry, and for American competitiveness. In recent
months, numerous chemical manufacturers have announced new
investments, thanks to the outlook for a predictable domestic
natural gas market. And a recent ACC study found that
reasonable increases in natural gas, on the order of about 25
percent, would result in nearly 400,000 new jobs in the
chemical sector and supplier industries, generating more than
$132 billion in U.S. economic output, and nearly $4.4 billion
in local, state, and federal taxes, annually.
As we move to take advantage of this vast resource, we must
not introduce expensive distortions into the natural gas
market. The Nat Gas Act would do just that. The act aims to
boost the production and use of natural gas vehicles through up
to 5 billion in taxpayer-funded subsidies. But, frankly, the
bang for the buck just isn't there. A revenue analysis by Ernst
& Young conducted on our behalf estimated that the Nat Gas Act
would result in about 22,000 new natural gas vehicles on the
road. That is a cost to taxpayers of roughly 135,000 per
vehicle, regardless of whether Congress has identified a way to
pay for the bill or not.
Perhaps most troubling, though, is the bill's potential to
create an unbalanced, volatile natural gas market plagued by
price spikes. A return to volatile natural gas markets similar
to those of the previous decade would undermine a growing
resurgence in domestic chemical industry. Data from the last 50
years show that natural gas prices go up, exports from our
industry fall precipitously, and manufacturing jobs go right
down with them. For example, in the last decade, in large part
due to the volatility in natural gas prices, our industry lost
over 120,000 jobs.
I think, though, you know, we heard testimony from Mr.
Lindsey, for whom I have a great deal of respect, and I think
in his testimony that I had the chance to read, I think it even
embodies some of the most compelling arguments on why this
legislation is not appropriate. In his testimony, he identified
that the differential between a truck running on natural gas
versus diesel, that it was--it would generate--in 100,000 miles
it would generate a fuel savings of $57,000 for a year. That
would have a payback on that conversion of only 15 months, a
return on capital investment of 80 percent.
What this legislation would do, if you back up and think
about it, if you look at what companies have the largest fleets
in the United States, you have FedEx, you have UPS, you have
Waste Management, you have the Cokes, you have the Pepsis, you
have the Wal-Marts. All of those have central fueling stations
today. So we would be putting the taxpayers on the line. A good
share of that $5 billion that we are going to be asking them to
pay would go to companies that have the ability to have
centralized fueling stations, that would go to their
conversions of their heavy vehicles up to $64,000, when today
the market forces would allow them to recoup a return on that
investment in 15 months without a tax subsidy.
You know, as we are striving to try to get our country's
fiscal house in order, it is important for us, more than ever,
to try to define the appropriate role of government. We need to
allow the marketplace to work, and the marketplace is working.
And Mr. Littlefair's company is a good example. With
Chesapeake, they already have announced that they are going to
establish 150 natural gas fueling stations throughout the
country.
Give this industry time to work. Allow the marketplace to
work. Do not pick winners and choosers [sic], and do not put
the taxpayers on the hook for subsidies that will create a
distortion that aren't needed at this time.
[The prepared statement of Mr. Dooley follows:]

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Chairman TIBERI. Thank you.
Mr. Kreutzer, you are recognized for five minutes.

STATEMENT OF DAVID W. KREUTZER, RESEARCH FELLOW IN ENERGY
ECONOMICS AND CLIMATE CHANGE, THE HERITAGE FOUNDATION,
WASHINGTON, D.C.

Mr. KREUTZER. Thank you very much. Chairmen Tiberi and
Boustany, Ranking Members Neal and Lewis, and other Members of
the Committees, thank you for this opportunity to address you
concerning the economic consequences of subsidizing natural gas
technologies. My name is David Kreutzer. I am research fellow
in energy economics and climate change at The Heritage
Foundation. The views I express in this testimony are my own,
and should not be construed as representing any official
position of The Heritage Foundation.
I would like to make several points regarding the Nat Gas
Act. Among them, the act would pick winners by providing
subsidies in the form of preferential financial benefits for
select natural gas technologies, the act would lead to
inefficient allocation of resources and lower national income,
the act would not necessarily reduce variability in
transportation energy prices, the act's national security
impact is muddled, and an equivalent impact on petroleum
imports could be more quickly achieved by allowing access to
our domestic energy supplies.
The act subsidizes preferred natural gas technologies, and
should not be considered a tax cut in any meaningful sense. An
example illustrates how the act picks winners and losers.
Suppose a trucking company considers two options for improving
its fleet. The first option is to trade in trucks for new
diesel-powered trucks at a net cost of $80,000 per truck.
The second option is to retrofit its current trucks to run
on natural gas, also at a cost of $80,000 per truck. If the
firm has a marginal tax rate of 35 percent, choosing the
natural gas retrofit leaves the firm with 41,600 additional
bottom line dollars for each truck, when compared to trading in
for new diesel trucks. Natural gas is the chosen winner, diesel
and gasoline power are the chosen losers.
If the preferred natural gas technologies were, in fact,
more cost effective overall, there would be no need to
subsidize them. This firm will choose natural gas without a
subsidy. However, with a subsidy in place, the firm will choose
the natural gas option even if it were $41,599 worse than the
diesel option. The firm may make $41,599 less with the natural
gas option, but the $41,600 subsidy leaves them with a net $1
gain. But that net $1 gain is for the firm. Unfortunately, the
taxpayers must cough up the other $41,600 to cover the
difference.
And this sort of incentive could lead to inefficient
resource use and lower national income.
Switching to natural gas does not guarantee price
stability. As chart one in my written testimony shows, natural
gas prices are volatile over both the short run and the long
run. For one day in February of 2003, natural gas prices
tripled. Investigations determined that a cold front sweeping
across the northeast after a relatively cold winter was the
culprit.
I am a strong supporter of expanded use of hydraulic
fracturing, which I believe to be quite safe. And natural gas
prices may well stay low for a long time. But betting on
continued low prices is a bet that the government shouldn't
subsidize.
If we face a security threat from funding oil exporters,
the Nat Gas Act better not be anti-terrorism plan A. Chart two
in my written testimony shows the impact of cutting our
petroleum imports in half. The calculations used in these
projections are for the year 2035. However, the results would
not be dramatically different for earlier years. A 50 percent
import cut is several times larger than the impact proponents
of the Nat Gas offer as a goal. However, even this larger cut,
with its 10 percent reduction in exporter revenues, is not
likely to scare terrorists or unfriendly regimes any time soon.
In addition, this cut on our part will lower incomes for
friendly exporters, and lower the import bills for all
importers. For example, in the case just described, China would
see its oil import bill cut by $50 billion because of the cost
that we incur.
Expanded production from domestic resources, offshore and
onshore, could produce more petroleum than the Nat Gas Act
proposes to save, and do so while adding revenues to the
Federal Government instead of cutting them.
In summary, the Nat Gas Act would pick winners and losers
by subsidizing specific natural gas technology, add
inefficiency to the economy and reduce national income, not
guarantee low-cost transportation fuel, and not defund terror
organizations.
I thank you for this opportunity to address the committees
and look forward to your questions.
[The prepared statement of Mr. Kreutzer follows:]

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Chairman TIBERI. Thank you.
Mr. Ziomek, you are recognized for five minutes.

STATEMENT OF HANK ZIOMEK, DIRECTOR OF SALES, TITEFLEX
CORPORATION, SPRINGFIELD, MASSACHUSETTS

Mr. ZIOMEK. Thank you very much, Chairman Tiberi, Ranking
Member Neal, Chairman Boustany, Ranking Member Lewis, and the
other Members of the Committee. Thank you for affording me the
opportunity to come before you on behalf of the people of
Titeflex in support of the Nat Gas Act.
Headquartered in Springfield, Massachusetts, Titeflex is in
its 95th year of operation with locations in Springfield,
Massachusetts; Vista, California; Laconia, New Hampshire.
Titeflex is a subsidiary of Smiths Groups, PLC, and under the
FlexTech division, Smiths Group is a world leader in the
practical application of advanced technologies, and delivers
products and services for threat and contraband detection,
medical devices, energy, communications, and engineer devices
markets worldwide.
We have a long history of supplying high-quality fluid-
handling components for fuel, hydraulic, pneumatic systems,
ranging from implant robotics, automobile brakes, to the space
shuttle landing gear. Titeflex Commercial Group manufactures
PTFE Teflon hose and fittings for the automotive, industrial,
aerospace industries, and the leading supplier of C&G flex
hoses for the natural gas vehicle market.
I come before you today to support--in strong support--of
H.R. 1380, the Nat Gas Act. You have already heard today the
facts about natural gas are clear. Natural gas is the cleanest
commercially available fuel for transportation today. Domestic
reserves of natural gas are estimated to be twice that of
petroleum. Natural gas has been between 25 and 42 percent
cheaper than diesel over the last 14 years. Ninety-eight
percent of all natural gas consumed in America is produced in
North America, while sixty-four percent of crude oil is
imported.
Natural gas vehicles in use are approximately 12 million
worldwide. There are only 110,000 NGVs in the United States.
With appropriate government policies, use of domestic natural
gas to power the nation's trucks and buses could reach as high
as 10 billion gallons per year by 2020 and displace up to 20
percent if diesel fuel. Should the Natural Gas Act pass, heavy
duty haulers and fleet vehicles can immediately displace some
of the foreign oil we rely on today.
For Titeflex, total sales have increased by over 50 percent
over the last 2 years. That is 400 percent in the natural gas
segment for us. There has also been a 12 percent increase in
overall employment for Titeflex. However, in the processes
related to natural gas vehicles, it has increased 41 percent.
And since the tax credits were in place in 2006, our sales have
increased 600 percent for natural gas vehicles.
Smiths recently also invested $4 million in the Titeflex
plant, and a lot of it had to do with this market and other
markets which are fast-growing. Also employed locally over 100
people in construction and trades. And as far as new
technology, we also put some very efficient new technology that
were more efficient and also more environmentally friendly.
The short-term benefits for our economy from NGV market
growth are evident. The Nat Gas Act would provide the
additional impetus needed to achieve the step change that will
achieve--will advance technology, lower overall cost to users,
further enhance employment, and bring the United States closer
to energy independence.
To close, the Natural Gas Act provides a limited five-year
program that accelerates wider adoption of this American
vehicle fuel. This legislation is a real solution to our
nation's challenges. On behalf of the people of Titeflex, thank
you again for affording me the opportunity to come before your
committee.
[The prepared statement of Mr. Ziomek follows:]

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Chairman TIBERI. Well, thank you all for your very good
testimony.
Mr. Littlefair, you just heard Mr. Dooley talk about the
fact that the marketplace is working, and that you and others
are making significant investments. So why is the legislation
needed? Can you tell us?
Mr. LITTLEFAIR. Well, yes, Mr. Chairman. You know, first
off, put it in context. We have seen some growth. You today
have 1,500 heavy-duty trucks on natural gas, and you have 8
million that are on diesel. So we think this is exactly the
right place to use tax policy to spur the growth.
Now, what Mr. Dooley talked about, I think, is--I
understand that he wants cheap natural gas. And if I was
running the chemical industry, I would want that too. The
beauty about this today is we have enough natural gas for both,
relatively reasonably-priced natural gas for chemicals, and
also moving our gas into transportation.
You know, there are winners and losers, I think, as we look
at this. And the winner is domestic natural gas resource that
happens to be clean, that creates jobs. And the loser is
foreign, imported oil.
But I think if we will just give a little bit of a boost
here, it will drive the manufacturers in to bring down the
cost, and I think that we can--what do you call it--sunset this
bill over the next few years, and I feel confident that we
don't require an ongoing long incentive.
You know, the Congress passed a version of the Nat Gas Act
years ago. And I think it is very instructive. It took a
while--I think it was passed in 2006, and it took a while for
it to actually get implemented through the IRS. It really hit
its stride in about 2008, and at that time we really only had
trash trucks. We didn't have the engines for these big, heavy-
duty trucks that could really impact foreign oil. But we had
trash trucks.
The first year that the tax incentive was in place, the
penetration was three percent of the new trash trucks purchased
in the United States. This year, this coming year, 2012, it
will be 35 percent. And that tax credit is now gone, as you
know. I think that is the same exact thing that you will see if
we can have a few years of tax--this doesn't go to us, this
goes, the incentive, to the trucks--you put that in place
today, you will kick-start a huge business, moving us off of
imported, dirty diesel fuel and using our own domestic fuel.
Chairman TIBERI. Thank you. Mr. Kreutzer, you--in your
testimony you talk about the fact that national security is
muddled. One of the arguments the proponents have had with
respect to this bill is weaning ourselves off of foreign oil.
And I am a supporter of what you talked about, expanding
offshore and inland drilling for oil and natural gas.
But in addition to that, can you tell us why you believe
that expanding domestic production, or domestic tax credits
to--as Mr. Lindsey said earlier--to get the private sector over
the hump of an established private sector already in the
petroleum and diesel market on a temporary basis kind of
muddles that national security issue?
Mr. KREUTZER. Yes, yes. First, as the chart shows, even
cutting our imports by half, 4 million barrels a day--if we cut
from 8 to 4, in 2035 the EIA projects we will import 8 million
barrels--cuts OPEC revenues from 2.3 trillion per year to 2.1.
Now those are huge numbers. But I don't know that anybody said
that the terrorists get their funding from the last 10 percent.
So, I--what I think it muddles is it takes our focus away
from actual security policies that we need to implement, not
pretending that cutting our oil imports a decade or two from
now is going to make us safer any time soon.
Second, when you implement policies that make the economy
less efficient, that reduces the robustness of the U.S. and its
economy and its ability to support a military. So that is my
only thing.
There are lots of questions about who should support the
transportation lines for oil. Why is it the U.S. instead of the
Persian Gulf nations, and so on? And I don't have the expertise
to talk about that. And those may be great questions. But would
cutting our imports by 2.5 million barrels a day eliminate the
need for the Navy? We had a tremendous amount of money that we
spent countering the Soviet Union's military might, and we got
nothing from them. We imported zero.
Chairman TIBERI. Okay.
Mr. KREUTZER. Yes, okay.
Chairman TIBERI. Last question. If all of you could, answer
this question.
We have heard from the other panel, we have heard about not
all tax credits are created equally. Using different kinds of
metrics with respect to tax credits and overall tax reform, I
think everybody has agreed to reduce the number of credits,
reduce the number of tax breaks across the board.
Starting on this side if you care to answer it, and then
moving down the line, what makes the Nat Gas Act different, in
terms of those metrics, in terms of job creation, in terms of
energy security, in terms of cheaper natural gas for vehicles
versus what we have on the books today?
Mr. ZIOMEK. Well, from the basic sense of looking at this
tax credit, looking at natural gas as a fuel, in general, you
have a situation where the rest of the world has supported this
technology, and the United States has not. Why is that?
Every nation, almost bar none, supported it with a tax
policy, including Venezuela, that had abundant oil and decided,
well, it is cheaper, it is much more profitable for us to
export the oil, and we are going to have our citizens use
natural gas. So they incentivized them to use natural gas. And
this has happened in a lot of other areas, as well.
But the bottom line is we have pretty much not supported
the natural gas part of our economy, and we have plenty of it.
It is something that we produce here, and it is something that
will allow us to grow faster. And what you need, why the tax
policy is important, is we need to have this change.
We need to take the curve from where we are today to--like
a hockey stick. We need to move the technology faster, we need
to get that money to people in manufacturing, particularly, who
can invent new things, who can lower the cost of all the
equipment that is put into this economy of the natural gas
vehicles. And it is happening, but we need to have it happen
faster so that we can compete. Bangladesh thinks we are an
opportunity for growth for them to sell their products here. We
are that far behind when it comes to technology in that area.
Chairman TIBERI. Mr. Kreutzer, you might have a different
view?
Mr. KREUTZER. Yes, I do. If it comes to choosing--guiding
our policies according to what Hugo Chavez in Venezuela does or
what American markets choose, I am going with American markets,
no questions asked.
But getting back to your question of how does this differ,
I don't think it does. I think this is a tax credit subsidy
scheme, like many others we have, that needs to be simplified.
We need to weed those out, get down to a simpler tax structure.
And this is going in the wrong direction.
I would like to say I am not against natural gas. I am not
against shifting the trucks over. But I think--I don't know,
and I don't think anybody here actually knows--all of the costs
that all of the trucking companies have to go through and the
trade-offs they have to make. And it is for them to decide. I
fully believe if the numbers are as they said with Congressman
Dooley, Coca Cola, FedEx, all those companies will switch over.
There is not a chicken and egg problem here. Thank you.
Chairman TIBERI. Congressman Dooley.
Mr. DOOLEY. Yes, I would respond in this manner, is that,
you know, I think, you know, it really is your charge to really
define what the appropriate role of government is. And how can
you allocate the resources, which are taxpayer resources, in a
way that achieves societal or economic objectives?
Mr. Littlefair talked about in 2006 that there was a tax
credit to try to encourage natural gas vehicles. You know what
the price of natural gas was in 2006, 2007? It spiked up to $12
and sometimes $14 an MMBtu. It is $4 today. Now, from a policy-
maker's standpoint, you can make--you have to question. Are the
circumstances the same that you need a tax credit today when
the fundamental driver is much different, in terms of the price
of natural gas? And I would suggest no.
And that is where I go back. Do you want to tell your
constituency out there that Congress is enacting a taxpayer
subsidy that, by our calculations that were done by Ernst &
Young--and we would be more than pleased to share with you--
amounts to about 137,000 per vehicle that is converted. Do you
want to tell your constituents that you are supporting a tax
subsidy for the conversion of a vehicle that if the private
sector, where the market forces are in place today, if they
made that investment on their own they would get an 80 percent
return on that investment for that conversion without any tax
subsidy? And I suggest they would say no, that is not the
appropriate role of government.
And so, I contend we are all for natural gas. We want them
to be successful. We want a domestic energy policy that
enhances our domestic security. But this isn't the policy that
is going to achieve that, and it is going to be one that
creates distortions in the marketplace.
Chairman TIBERI. Thank you. Mr. Littlefair.
Mr. LITTLEFAIR. Well, what we hear from a couple of my
fellow panelists, ``We want the status quo.'' And I think when
you go home and you talk to your constituents, I think the real
question is, ``Do you want to continue to import oil from
people that don't like us,'' or should you do something, use
your tax policy to create jobs?
And I think that this is a unique position in history. Yes,
it is because it is cheap, because we have so much of it. That
is why all your factories are using all the natural gas right
now. But we are in a unique position to be able to move our
country away and create jobs. And only natural gas can really
do that. That is the truth here, is that we only really have
one resource that can make this kind of bold shift. And in
order to move it, I think we are talking about a very modest
tax policy. And so I think it is a unique opportunity that you
don't have in hardly anyplace else.
Chairman TIBERI. Thank you. Thank you. Thank you all. Mr.
Neal is recognized.
Mr. NEAL. Thank you, Mr. Chairman. Hank, certainly the
priority here, as you have expressed it and the other panelists
have expressed it in different ways, is to create more jobs.
And could you spend a couple of minutes talking about what has
happened at Titeflex, given the use of the Natural Gas Act?
And because the issue has been raised by other panelists,
why you think that keeping the credit for only a handful of
more years, five more years, is necessary. So we are talking, I
believe, from your perspective, sunsetting the credit down the
road. Could you respond?
Mr. ZIOMEK. Well, I think that right away the evidence for
us is very clear. We have been engaged in this market for quite
some time. Since the credits were established, that market has
accelerated tremendously for us. We have made decisions,
including $4 million in a plant renovation, some advanced
technology that is--environmental technology for one of our
processes. We have also now done some innovation in the process
of making the hose that goes into this market based on the
future growth we anticipate. And we believe this kind of credit
is going to allow that growth to happen.
In fact, we are counting on this type of policy in the
government to allow that--as I said before--this leap forward,
so that we can continue to advance technology in our own
business. Like I said, we have increased our employment in
Springfield. I mean Massachusetts, manufacturing has been beat,
beat to heck in Massachusetts. And we have had some winners
there, but we have had more people leaving Massachusetts.
So, to be able to do this, there had to be some
technological improvements. There had to be something that we
do that no one else can do in the world. And this kind of
policy is allowing us to grow in that area, where we do have
advanced technology in our product. And that is for the support
of natural gas vehicles.
And the five-year--the reason you only need five years is
if you could get that infusion, you get that hockey stick, you
have advanced far enough that you have a competitive market. We
are not asking you to support this for the rest of our business
lives. We are asking for a fairly short period of time here.
And bottom line is I think it will be even more--it will be
faster than that, and you will find that the jobs are going to
multiply, based on this policy.
Mr. NEAL. For you and for Mr. Littlefair, the Natural Gas
Vehicle America has suggested that there are 12 million natural
gas vehicles on the road, worldwide, and only 110,000 of them
can be found in the United States. We are ranked 16th in the
world, as far as natural gas vehicle deployment, behind
countries such as India, China, and Bangladesh. Why?
Mr. LITTLEFAIR. Well, part of the reason is some of those
countries have put in place incentives to encourage it because
they are importing oil, much like we do, and so they have
natural gas and they want to move to natural gas vehicles. And
we have certainly seen that in China, and we are seeing it--and
China has just adopted a policy to build 4,000 natural gas
vehicles and put in an L&G truck corridor. And we are selling
equipment in China right now, natural gas fueling stations, and
they are going at it, big time. So--and that is what is
happening in South America. I mean Peru is doing the same
thing.
I mean we look like the odd man out. And it didn't happen
here for a long time, because we had cheap oil. Well, we don't
have cheap oil any more. And so they have put in place tax
policy to move the industry along.
Mr. NEAL. Hank, do you want to comment to that?
Mr. ZIOMEK. Well, I agree. Again, what I said earlier about
what happened in Venezuela, I know Hugo Chavez is a different
person in the way we look at that, but if you look at all the
countries in South America, every one of them put tax policy in
place to drive their people to want to use natural gas. It is
more environmentally responsible, and it also is cheaper for
them, because it is more accessible. And now we are finding
out, here in the United States, natural gas is probably way
more accessible to us than oil.
So, to me, it is kind of like--I have had a couple of
people in your bodies, both Senate and House over the last
couple of years--it is a no-brainer. That is the way I look at
it. And it is going to advance employment.
The other thing is we have to understand. By us being able
to advance the technologies into this market, just like we have
done in so many--aerospace, I mean the space shuttle, yes,
okay, you can call that a big WPA project like somebody told me
once, but that was--we needed that kind of a catalyst to get
the kind of technologies to go to space.
The same thing is true in an economy like this. We are
developing new things. And we are just a hose manufacturer.
Just imagine what is happening with tanks and valves, and
everything else.
So, bottom line is we just need that five years to get this
thing going.
Mr. NEAL. Thank you.
Chairman TIBERI. Dr. Boustany is recognized for five
minutes.
Chairman BOUSTANY. Thank you, Mr. Chairman. I come from
Louisiana, and my congressional district is on the Gulf Coast.
And we are a leader in oil and gas production, we have got lots
of pipelines, the Henry Hub, where gas prices are set for the
market, I've got one of the largest strategic petroleum
reserves in my district. So it goes on and on.
In fact, in 2005, the newest L&G facility in the country
was built in my district. And now they are retrofitting,
planning a retrofit to export natural gas, which we would have
never thought this, five years ago.
And it is interesting, with the shale plays that have come
online, now five shale plays, which not only hold the potential
for gas, natural gas, but also for oil, we are seeing sort of a
shifting environment with regard to our energy security in this
country. And it is exceedingly frustrating to me to see that we
don't have a strategy, going forward, for our country on energy
security and to move us forward.
And I think all of you were here--I am not sure with the
previous panel--but when I made my comments I said, you know, I
want tax reform, I want to clean up this Tax Code and simplify
it. But at some point you have to make a decision, how do you
move the ball forward and jumpstart the movement in the right
direction for an energy strategy for this country, which means
we have to have a transition.
First, don't punish your current energy production. And,
Mr. Kreutzer, I share your sentiments about expanding the
access to our reserves, not increasing taxes, getting rid of
this de facto moratorium on drilling, and in fact, a moratorium
on areas that are currently off limits. We could do a lot for
our country if we were to do all these things.
So, I have a question. Mr. Kreutzer, I saw that chart
looking at the volatility of prices. And at the very tail end
it seems to be smoothing out a bit. We don't know what is going
to happen. But with all the shale plays coming on, and
everything else, I suspect--and given what these L&G guys are
going to do in planning exports--that we should see some price
stability. But we don't know that.
And so, are you aware of any studies, analyses projecting
what is going to happen with natural gas prices in this
country? And I would ask the same question to my friend,
Congressman Dooley, as well.
Mr. KREUTZER. Well, the Energy Information Administration
certainly makes their projections regularly, and they have been
dramatically revising them because of the hydro-fracturing
giving access to the shale gas. But they are also maybe revise
them back a little bit because the USGS came out with their
estimates of the likely natural gas reserves that are
available.
And I am not the geologist or the engineer. I am fully
willing to believe we are going to have low natural gas prices
that some of these experts tell us. That argues against needing
subsidies to get people to shift over.
I would also just briefly--because we are talking about
energy independence and security--a previous panel member said
he absolutely didn't think under anybody's lifetime, his
grandchildren, we would have energy independence. And that is a
bet that I might have gone with him a couple of years ago. But
they have just found 20 billion barrels of petroleum and
natural gas in Ohio. We are going to get three million barrels
a day from resources in Texas that we didn't think we were
going to get anything from.
So, it is not inconceivable that just without any
strategy--this is the markets working, looking to find this
stuff, getting access right now on private lands--if we could
get it on public, make it even better--that we are getting
lower prices, access to more energy of conventional types.
Chairman BOUSTANY. Thank you. Congressman Dooley, I have a
lot of refineries in my district, as you are probably well
aware. And I certainly do have that concern about what is going
to happen with prices, and what is the impact on our energy,
whether you are talking about upstream, downstream, and so
forth.
So, are you aware of any analyses projecting the concern
you expressed with regard to natural gas prices? And could you
provide those analyses to the committee?
Mr. DOOLEY. Let me respond this way, is that we are not, as
an industry--I mean we are not--it is not that we are for cheap
natural gas. We are for competitively priced natural gas, and
however you define that. And we are in a situation now where we
are coming off a decade where we had great volatility in
natural gas. And that is what, in large part, drove a lot of
the chemical industry outside the United States.
We have moved in the last--if you look at the five years,
if you looked at a cost curve, five years ago the U.S. chemical
industry was a high-cost producer. We were more expensive than
even Western Europe. We compete with the rest of the chemical
industry globally. They are primarily NAFTA-based, which is oil
based. The break-even point for us was about one to six, with
gas to oil. So when you had a $24 barrel of oil, we would have
$4 gas. We would be in relative equilibrium. We didn't have
that, and that is why we were at the high cost.
Now we have a distinct advantage, and that is why you have
our companies lined up to invest billions and billions of
dollars in new capacity. But what we are concerned about is not
solely about the market distorting and picking winners in the
Nat Gas Act. If you look since 2000, power generation shifting
from coal to natural gas has increased by 42 percent. Last year
it was by seven percent.
Now, we have a lot of promise. I was in Ohio yesterday at
Governor Kasich's energy summit, touting the potential of the
Utica and the Marcellus shale. There is--a lot of this natural
gas isn't out of the ground yet, and we are making some of
these projections. There is a lot of public opposition to how
you can bring that out.
So, we are kind of looking at what are all the
uncertainties that are out there. There is the regulatory
uncertainty in order to capitalize on all this natural gas.
There is also market uncertainty, because of regulatory
policies that might have even a more rapid shift from coal-
based generation to natural gas, and then we overlay another
tax policy that drives demand for natural gas through tax
subsidies, and that is what is our concern here.
Chairman BOUSTANY. No, I appreciate that, because I am
certainly concerned about our competitiveness, especially with
the chemical industry in my state, and it is our second largest
export, and we are fourth in exports among the 50 states right
now.
So--but if you have data, or an analysis, I would love for
you to share----
Mr. DOOLEY. Yes. No, we will--and you have been--we
appreciate the openness of your office, and we will provide
that information.
Chairman BOUSTANY. Thank you, sir.
Chairman TIBERI. The gentleman's time has expired. But Mr.
Littlefair, you had a comment, I could----
Mr. LITTLEFAIR. Well, I was just going to say--and I don't
have it right here in front of me--but, Congressman, if you
look at the 10-year strip price--and the former congressman
knows this--I mean you have pretty low natural gas prices. I
don't know if it ticks up--I don't believe it hits $6. I think
you go out 10 years and it is $5. And so you are going to have,
I believe, long, stable, relatively cheap natural gas prices.
Chairman TIBERI. Mr. Lewis is recognized for five minutes.
Mr. LEWIS. Thank you very much, Mr. Chairman. Thank you for
being here. Good to see you, Congressman Dooley, again.
Welcome.
I have a question for each member of the panel. As a member
of the Oversight Subcommittee, I am always concerned with how
we administer tax policy. Our subcommittee works hard to make
sure that government has the necessary tools to detect fraud
and abuse of taxpayers' dollars. Could you tell me what kind of
documentation you think the IRS service should use to verify
peoples' claims for deduction under the Nat Gas Act?
Mr. LITTLEFAIR. I am not an expert, Congressman, on this,
though----
Mr. LEWIS. Just try.
Mr. LITTLEFAIR. A lot of our customers have, until they
expired. So when a trucking company in the port of Los Angeles
buys a truck, they basically provide the bill of sale, and that
is what they use to verify that they have paid an incremental
cost, and they submit that to the IRS. Same with fuel. So it is
very similar to the fuel credits, very similar to what goes on
today. You make that available to the IRS, and they can audit
it if they don't believe you.
So I don't think we have a very complicated way to monitor
the effectiveness and the distribution of the tax incentive. In
what I have seen it is through the sale of the vehicle, and it
is through the sale of the fuel.
Mr. LEWIS. Any of you want to respond?
Mr. DOOLEY. Yes, I would just----
Mr. LEWIS. Is there another recommendation you would have?
Mr. DOOLEY. I would just suggest you could eliminate that
as a concern by not passing the Nat Gas Act.
[Laughter.]
Mr. LEWIS. Oh. Wouldn't you consider that the easy way out?
[Laughter.]
Mr. KREUTZER. I guess not quite as jovial, I was going to
suggest--yes, when you make the tax system more complicated, it
makes compliance, honest compliance, more difficult and evasive
activities easier. So the simpler the tax structure is, the
better compliance we will have. The Nat Gas Act adds a lot of
complexity for just a few pages. It is amazing. And in my
testimony, my written testimony, I copied just one section,
which is gibberish to most anybody.
Mr. ZIOMEK. From my perspective, since we are really what
we call tier two, we are way down the chain, as far as the
customer. But as Mr. Littlefair said, it is with the purchase
of the vehicle, they provide a receipt, and that is the way
this is being paid for. I think it is pretty straightforward. I
don't--I cannot profess to give you any more information on
that, because I am not that close to that end of the curve
here.
So, my position is that it is very straightforward. You buy
a vehicle, you submit the receipt, and that is how you get the
credit. Thank you.
Mr. LEWIS. I asked the panel just before you a basic
question, and I would like to hear your thoughts on this same
question. In these tough economic times, more and more people
are saying we want to reduce the deficit. Many of them would
prefer we do it by making deep and severe budget cuts. With
this in mind, please answer the question for us.
Do you believe the Federal Government has a role--and I
mean not just a role, but a meaningful role--in accelerating
the adoption of these renewable energy technologies? Why or why
not?
Mr. LITTLEFAIR. Congressman, I do. I look at the role of
Congress--and I think one of the most important roles you have
is to provide for the national security for the country. And I
don't think anybody here today would say that energy--the
reason we are talking about it is because energy is key to that
security.
And so, I think you do have a role to do it, and I think
the tax policy is a perfectly legitimate way to go about it.
Mr. DOOLEY. My response would be--is that our industry is
one of the most innovative in the country. A lot of people
don't realize, but the chemical industry has issued more
patents than any other sector in our economy, about 1 out of 10
patents. We benefit by broad-based tax policies that encourage,
you know, investment in R&D. So the R&D tax credit, which is--
doesn't pick winners and losers, is across the board, is
something that we think is very important.
Mr. LEWIS. I don't want to cut you off, but my time is
running out. But with the Nat Gas Act, do you believe that we
would be picking winners and losers?
Mr. DOOLEY. Absolutely. And----
Mr. LEWIS. Do you believe we would be picking winners and
losers?
Mr. DOOLEY. Absolutely, in terms of consumers. And, you
know, prior to joining the American Chemistry Council I was
part of, you know, the Grocery Manufacturers. And we were
concerned there, with our ethanol policy picking winners and
losers----
Mr. LEWIS. Let me just----
Mr. DOOLEY [continuing]. Among consumers there.
Mr. LEWIS. You know I come from a city like Atlanta. And
when I am driving my own car, moving around the city, I see so
many trucks: Coca Cola, UPS, Federal Express, and many others.
I even see buses, part of our transit, saying, ``This vehicle
is operated by natural gas.'' So seem like there is a movement.
Mr. DOOLEY. Absolutely.
Mr. LEWIS. There is a movement. So how do we catch up with
this movement?
Mr. DOOLEY. The movement is even----
Mr. LEWIS. It is natural--it is cleaner, isn't it?
Mr. LITTLEFAIR. Absolutely.
Mr. DOOLEY. Yes. And, Congressman Lewis, what I would say
is the movement is going to accelerate. It is going to
accelerate----
Mr. LEWIS. Should we be part of the acceleration? Should we
be left behind?
Mr. DOOLEY. We--you know, it is--our position is that when
you have the market forces at work now, when we both would
acknowledge that you are going to have relatively sustained,
competitively priced natural gas, maybe in that $6 range, you
are going to continue to see market forces encourage the
conversion of fleets to natural gas. You don't need a tax
subsidy to accelerate that at this time. It is not needed.
And it does pick winners and losers. When I am competing--
my member companies are competing for a product, and they--you
are enhancing, through tax policy, increased demand that
increases--it is going to have an impact, to some degree, on
increasing the price of that product, that works to the
detriment of those folks that aren't benefitting from that tax
subsidy. And that is what we conclude is picking winners and
losers.
Mr. LEWIS. Thank you, Mr. Chairman.
Chairman TIBERI. The gentleman's time has expired. The
gentlelady from Kansas is recognized.
Ms. JENKINS. Thank you, Mr. Chairman. Thank you all for
being here.
As today's testimony points out, the cost of operating on
natural gas is significantly cheaper, when compared to diesel
fuel, about 40 percent cheaper on a per-gallon equivalent. With
the price of diesel at $4 per gallon, this translates into an
annual savings of $60,000, or roughly the same amount as the
tax credits proposed by this legislation. And I believe, as
Congressman Dooley has already pointed out, the savings can be
covered in less than 15 months.
So, it seems to me that the certainty the market needs is
that of supply. While we have an abundant domestic resource in
natural gas, it is under constant threat of halting or
significantly curbing its production. So, Congressman Dooley, I
have just a few questions for you in that regard.
Would that certainty, together with the tremendous fuel
savings, provide the market incentive to shift investments
toward natural gas? And does this legislation do anything to
ensure that we would have access to our natural gas? And
finally, can you elaborate on what tax credits and other
incentives currently exist for installing natural gas fuel
infrastructure?
Mr. DOOLEY. There was a lot of questions in there, but let
me respond that, no, I don't think there is anything in this
legislation that has any impact on encouraging the development
of natural gas supplies and the production of it. And I think
that is what we think, in terms of--you know, I personally
think we are poised in an era that we are going to see a
renaissance in manufacturing. But that renaissance is going to
have to be built upon a foundation of a sound, comprehensive
energy policy.
Whether it was Congressman Kind or--I think it was a
congressman as well that said, ``All of the above.'' It needs
to be--I mean we have, basically, from our industry's
perspective, you know, we are an energy-rich nation. We have
chosen to make ourselves, you know, in some ways, dependent on
imported oil because of our regulatory policies put in place,
and those energy resources that we have put off limits. And
that is why we are so excited about the shale gas and the
natural gas supplies, and are committed to developing those
regulatory policies that fully allow us to access those
supplies.
And this is where we have the benefit of not having to have
a policy now to encourage the use of natural gas, because the
marketplace is dictating that that is a good choice.
Ms. JENKINS. Okay, that is fair enough. Thank you.
Switching gears a bit, Congressman Dooley, I am sure everybody
is aware the cost of fertilizer depends primarily on the price
of natural gas, and natural gas costs represent between 70 to
90 percent of the cost of producing ammonia, the building block
of nitrogen fertilizers. And being from a farm state, Kansas, I
am concerned about family farmers getting hit on both sides,
one with decreasing support for agriculture programs, and also
seeing a dramatic rise on their input costs.
While seemingly a small issue, an affordable supply of
natural gas is very important to the fertilizer industry, and
on which 60 percent of the world's food supply also relies.
Forecasts for 2011 show that fertilizer costs for wheat were up
30 percent from the 2010 levels. The last time we saw a spike
in natural gas prices, over two dozen ammonia plants in the
U.S. were forced to close their doors.
So, as someone familiar with the industry, Congressman
Dooley, again, would you mind talking just a bit about your
concerns regarding demand for natural gas on the ag industry?
Mr. DOOLEY. Well, prior to coming to Congress, I would even
have had greater concerns, because I was a farmer in the
Central Valley of California. And so now it is my family that
is still operating the farm that is concerned about the ability
to access, again, affordable fertilizers, particularly NH-3
ammonia, which is obviously an integral component to the
production of many crops.
And so, you know, this again is--you know, we are looking
at not only an enhanced global competitive situation for the
chemical industry, but also for our United States farmers,
because of the ability to access natural gas at a price that
looks, for the foreseeable future, to be very affordable and
competitively priced. And that is why we have become very
concerned--the fertilizer manufacturers and farmers, as well as
chemical manufacturers--when we see Congress considering
policies that are going to increase demand through tax policies
or regulatory policies that will then drive up prices.
And so, you know, we would--the fertilizer and a lot of the
farm industry would share some of our concerns, again, about
this interference in the marketplace that create market
distortions that result in some constituencies benefitting over
the expense of others.
Ms. JENKINS. Okay, thank you. I yield back.
Chairman TIBERI. Thank you. The gentleman from Connecticut
is recognized for five minutes.
Mr. LARSON. Thank you, Mr. Chairman, and thank you again
for holding this hearing. And I want to thank our panelists,
and I especially want to welcome my old friend and dear
colleague, Cal Dooley. While I might not agree with everything
that he said, I am glad that he is here, participating. In
fact, all the panelists have done an extraordinary job, and I
commend the chair and the ranking members for creating this
kind of opportunity.
I am--would have to say that I am more of a student of
Thomas Friedman than I am of Milton Friedman as we get--evolve
into these discussions. But I do think, at the heart of this,
is something that is vitally important to the Congress.
The winner here actually, if you talk about picking
winners, was Mother Nature. She happened to create, in this
instance, an opportunity for us to capitalize on. And to
capitalize in on a time, frankly, when it has been very
difficult for Congress to act at all. Again, I am very proud of
the fact that there are 180 cosponsors of this bill, and
growing. And why? Because Congress does need to act. Yes, we
would all love to have a comprehensive energy policy. Yes, we
would all love to have comprehensive tax policy. The fact of
the matter is we don't.
But where are we in agreement on? We are in agreement on
the critical issues before us, as it relates to foreign policy
that happens to be coupled by an environmental benefit, an
economic benefit, in terms of jobs that we have heard about,
and also in terms of an energy benefit. Finally we have a
source that is abundant, accessible, and it is ours.
And so, we have this enormous advantage. I agree with Cal
Dooley. We are going to see the opportunity for an industrial
renaissance. So, as other countries gather strategically and
are looking to eat our lunch, shouldn't we be doing everything
within our power to gain the advantage, recapture that
industrial base, augment what we have already, and provide the
opportunity to move forward?
Friedman points out--Thomas, not Milton--that what we are
doing here is exporting our dollars abroad, sending our money
to fund the very countries and nations that are attacking our
troops. It becomes a subsidy that is unthinkable, and
consequences that we will live with for a number of years.
And so, that becomes the rallying point, and also a point
that Mr. Pickens has made testifying before this committee. The
United States currently in negotiations globally, as it impacts
everything, is on the outside looking in. It is time to put the
United States back at the center of these discussions and
negotiations that transpire globally. And that is why I think
that it is so important.
But I do think two things have to be underscored. And Mr.
Littlefair, I would ask you to again review. In terms of
national security and reducing our dependance on foreign oil,
how much foreign oil would be displaced if the Natural Gas Act
passed?
Mr. LITTLEFAIR. Well, Congressman, over time we believe--as
you know, over 5 years, we think you will be on your way to
100,000 vehicles--actually, about 150,000 vehicles in the fifth
year. But that is going to set you up to a point where you
would be able to reduce Middle Eastern OPEC oil by 50 percent,
which is about 2.5 million barrels a day. So it is significant.
It doesn't make--the real answer to--the question on the
earlier panel was can we be energy independent. I don't think
you can be energy independent. Nobody else on that panel. But
you can sure go a long way to make sure you are back at the
table, and reduce your dependence. And so, reducing OPEC by 50
percent is a hell of a first step.
Mr. LARSON. And the other aspect of this, with 14 million
Americans unemployed, the jobs here that you discussed. What is
the jobs--what are the jobs that you see immediately available?
And then long term--all the panelists----
Mr. LITTLEFAIR. Sure. The ones that I have here--and I have
them right in front of me, Congressman--direct jobs. And I know
our company is building things right now, we are spending
millions and millions of dollars, and we are hiring people. In
the 5 years you get 100,000 direct jobs. That will happen in
the first 2 years, 27,000 jobs in vehicle fuel system, hardware
installation, production of fuel stations, production of
plants. And then you get, you know, about 330,000 indirect
jobs.
I am not even counting what happens in the oil patch and in
the gas patch. I am talking about, really, fueling stations and
vehicles and the money that is spent. It is really
breathtaking. I don't think there are that many kinds of deals
out there before Congress right now that can generate that kind
of jobs.
Mr. LARSON. And is there any other source of energy that
can get us there?
Mr. LITTLEFAIR. No. And that is the other thing. You know,
I sit here and get a little frustrated because I--look, I want
there to be cheap gas for chemicals, and I want cheap gas for a
fertilizer plant. But, you know, that assumes that we are just
going to continue to import foreign oil. And we kind of act
like that is fine, you know, let the market worry about that.
Sixty-three percent of our foreign oil every day is being
imported--or oil is being imported every day, and seventy
percent of that goes to transportation.
We now are the world's--you know, we have three times the
amount of--if you take our natural gas today and convert it in
oil, we have three times the amount of oil as Saudi Arabia
does. And here, we are not doing anything about it. We are
going to talk about exporting our natural gas. Now, wouldn't
that be something? Export our natural gas and import more oil?
Chairman TIBERI. The gentleman's time has expired. If
anyone in the room doesn't know what your position is, Mr.
Larson, I think they probably know objectively where you are on
this piece of legislation.
[Laughter.]
Chairman TIBERI. The gentleman from New York is recognized
for five minutes.
Mr. REED. Thank you very much, Mr. Chairman, and I am glad
to hear my colleague on the other side of the aisle join me in
support of natural gas development in a clean and responsible
way. And that is my question to this panel.
You know, I come at this from a cosponsor to this act. I
come at this from the founder of the Marcellus Shale Caucus in
Congress. And I do believe that this shale development is a
game changer when it comes to our energy policy. And so I was
intrigued, and I am very excited to hear the immediate response
to Mr. Lewis's question about this is a clean energy. I heard
yes, yes, yes, yes, immediately.
Yet there are some people that are out there that have
indicated that, with hydrofracking and other issues and
concerns, that it is not a clean energy, and that there are
significant risks with it. Would anybody care to respond to the
criticisms of exploring natural gas because of the
environmental concerns about it?
I guess, Mr. Kreutzer, you have----
Mr. KREUTZER. No, I have said I would fully support
hydrofracking. I think it is safe. I hope they go forward with
it. But that is different than saying I think we should
subsidize users of natural gas.
Mr. REED. Understood.
Mr. KREUTZER. We wouldn't have the hydrofracking if we
depended entirely on government policies to run our energy
policy--run our energy markets.
Hydro fracturing technology was developed by George
Mitchell at Mitchell Energy using his own money, no government
subsidies. And so we didn't need an energy policy to get this
huge increase in domestic energy. And that is why I support
markets.
Mr. REED. Yes. And I understand that point, and that is why
I am kind of deviating, because all the good questions--when
you go last, all the good questions are taken before you get an
opportunity to ask the questions.
[Laughter.]
Mr. REED. So I am kind of deviating from the jurisdiction
of this committee, because I do see a concern, or a potential
barrier to the positive development of this resource that is
floating out there.
I hear the director of the EPA, Ms. Jackson, talk about
hydrofracking and how she is going to try to get at it and
regulate it at the federal level. Are there any concerns coming
from any of the panelists as to any other threats to the
potential development of natural gas, outside of the tax
disagreement?
Mr. DOOLEY. No, and that is where I made a statement
earlier, is that we are making a lot of projections on a energy
resource that is still in the ground, by and large. And we do
have some concerns about the regulatory impediments that could
develop and emerge that could preclude our ability to really
develop this resource. You know, EPA is involved in a study,
you know, and we hope that that will come out and will
demonstrate, as the industry has great confidence, that we can
extract this resource in a very environmentally-responsible
manner.
But we are also concerned, as an industry, when we are
seeing local municipalities that are implementing more of land
use restrictions that have the potential to impede the
development of this resource. And there is obviously some
questions on the constitutionality of some of those.
But you know, the regulatory arena here is not entirely
clear yet, which gives some uncertainty in terms of the ability
to have the great confidence in the long-term supplies that we
can actually transform into the chemicals that are critical to
the entire manufacturing sector.
Mr. REED. Excellent. With that, Chairman, I will yield
back.
Chairman TIBERI. Thank you. This has been a fabulous panel.
We thank the four of you for your time today, and for waiting
until now to give your testimony.
This concludes today's hearing. Please be advised that
Members may submit written questions to the witnesses. Those
questions and the witnesses' answers will be made part of the
official record. I would like to thank the participants of all
three panels today for appearing. It has been a great
discussion on energy ta
Thank you so much. This hearing is concluded.
[Whereupon, at 1:28 p.m. the subcommittees were adjourned.]

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