[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
FEDERAL FINANCIAL SUPPORT
FOR ENERGY TECHNOLOGIES:
ASSESSING COSTS AND BENEFITS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ENERGY
COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
WEDNESDAY, MARCH 13, 2013
__________
Serial No. 113-12
__________
Printed for the use of the Committee on Science, Space, and Technology
Available via the World Wide Web: http://science.house.gov
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COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
HON. LAMAR S. SMITH, Texas, Chair
DANA ROHRABACHER, California EDDIE BERNICE JOHNSON, Texas
RALPH M. HALL, Texas ZOE LOFGREN, California
F. JAMES SENSENBRENNER, JR., DANIEL LIPINSKI, Illinois
Wisconsin DONNA F. EDWARDS, Maryland
FRANK D. LUCAS, Oklahoma FREDERICA S. WILSON, Florida
RANDY NEUGEBAUER, Texas SUZANNE BONAMICI, Oregon
MICHAEL T. McCAUL, Texas ERIC SWALWELL, California
PAUL C. BROUN, Georgia DAN MAFFEI, New York
STEVEN M. PALAZZO, Mississippi ALAN GRAYSON, Florida
MO BROOKS, Alabama JOSEPH KENNEDY III, Massachusetts
RANDY HULTGREN, Illinois SCOTT PETERS, California
LARRY BUCSHON, Indiana DEREK KILMER, Washington
STEVE STOCKMAN, Texas AMI BERA, California
BILL POSEY, Florida ELIZABETH ESTY, Connecticut
CYNTHIA LUMMIS, Wyoming MARC VEASEY, Texas
DAVID SCHWEIKERT, Arizona JULIA BROWNLEY, California
THOMAS MASSIE, Kentucky MARK TAKANO, California
KEVIN CRAMER, North Dakota VACANCY
JIM BRIDENSTINE, Oklahoma
RANDY WEBER, Texas
CHRIS STEWART, Utah
VACANCY
------
Subcommittee on Energy
HON. CYNTHIA LUMMIS, Wyoming, Chair
RALPH M. HALL, Texas ERIC SWALWELL, California
FRANK D. LUCAS, Oklahoma ALAN GRAYSON, Florida
RANDY NEUGEBAUER, Texas JOSEPH KENNEDY III, Massachusetts
MICHAEL T. McCAUL, Texas MARC VEASEY, Texas
RANDY HULTGREN, Illinois MARK TAKANO, California
THOMAS MASSIE, Kentucky ZOE LOFGREN, California
KEVIN CRAMER, North Dakota DANIEL LIPINSKI, Illinois
RANDY WEBER, Texas EDDIE BERNICE JOHNSON, Texas
LAMAR S. SMITH, Texas
C O N T E N T S
Wednesday, March 13, 2013
Page
Witness List..................................................... 2
Hearing Charter.................................................. 3
Opening Statements
Statement by Representative Cynthia Lummis, Chairwoman,
Subcommittee on Energy, Committee on Science, Space, and
Technology, U.S. House of Representatives...................... 13
Written Statement............................................ 14
Statement by Representative Eric Swalwell, Ranking Minority
Member, Subcommittee on Energy, Committee on Science, Space,
and Technology, U.S. House of Representatives.................. 14
Written Statement............................................ 16
Witnesses:
Dr. Terry Dinan, Senior Analyst, Congressional Budget Office
Oral Statement............................................... 17
Written Statement............................................ 20
Ms. Mary Hutzler, Distinguished Senior Fellow, Institute for
Energy Research
Oral Statement............................................... 38
Written Statement............................................ 40
Mr. Malcolm Woolf, Senior Vice President, Policy and Government
Affairs, Advanced Energy Economy
Oral Statement............................................... 59
Written Statement............................................ 61
Discussion....................................................... 69
Appendix I: Answers to Post-Hearing Questions
Dr. Terry Dinan, Senior Analyst, Congressional Budget Office..... 84
Ms. Mary Hutzler, Distinguished Senior Fellow, Institute for
Energy Research................................................ 90
Mr. Malcolm Woolf, Senior Vice President, Policy and Government
Affairs, Advanced Energy Economy............................... 111
Appendix II: Additional Material for the Record
``Chinese Solar Approach Faces Test'' from The Wall Street
Journal Online Edition, March 6, 2013.......................... 120
``Bjorn Lomborg: Green Cars Have a Dirty Little Secret'' from The
Wall Street Journal Online Edition, March 11, 2013............. 123
``Inflated Numbers; Erroneous Conclusions: The Navigant Wind Jobs
Report'' by Charles J. Cicchetti, Ph.D., March 2013............ 125
FEDERAL FINANCIAL SUPPORT
FOR ENERGY TECHNOLOGIES:
ASSESSING COSTS AND BENEFITS
----------
WEDNESDAY, MARCH 13, 2013
House of Representatives,
Subcommittee on Energy
Committee on Science, Space, and Technology,
Washington, DC.
The Subcommittee met, pursuant to call, at 3:50 p.m., in
Room 2318 of the Rayburn House Office Building, Hon. Cynthia
Lummis [Chairwoman of the Subcommittee] presiding.
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Chairwoman Lummis. My name is Cynthia Lummis, and I am the
Chairman of the Committee. And I would like to welcome our
Ranking Member and fellow Members of this Committee. This is
the Energy Subcommittee hearing on ``Federal Financial Support
for Energy Technologies.'' And the meeting will come to order.
In front of you are packets containing the written
testimony, biographies, and truth-in-testimony disclosures for
today's panel. And now, I recognize myself for a five-minute
opening statement.
We are delighted to have you here, and thank you very much
to our witnesses for joining us.
Building on our broad examination of America's energy
outlook a few weeks ago, this is the second of our hearings
today. We are focusing on the amount and effectiveness of
various forms of financial support for energy technologies. I
hope these overview hearings will prove informative and
valuable, because we will be pivoting next to specific
legislation activities. So it will happen within our research
and development jurisdiction, including some oversight
activities as well.
The topic of today's hearing is timely, as federal spending
and budget prioritization are receiving a lot of attention
today over in the Budget Committee--they are marking up the
budget--and because of the implementation of the recent
sequester.
A central component of the House Republican budget is to
open more federal lands to energy development. Now, I advocate
for this, because it will accelerate our path to energy
independence. It will create jobs. It will contribute greatly
to deficit reduction and open spaces for future generations.
Now, we are going to hear today from the Congressional
Budget Office. Federal energy tax subsidies will total more
than 16 billion in 2013, up from just five billion in 2005.
This increase reflects President Obama's interest in rapid
deployment of green energy technologies.
January's fiscal cliff deal is a prime example. The White
House was purportedly absolutely insistent that the package
extend and expand the Production Tax Credit for renewable
energy. This extension will cost taxpayers at least $12 billion
this year. And then in the meantime, we hear some of our
constituents, and certainly the Administration, are very
concerned about cuts to areas such as national parks, science,
oil and gas permitting, and even White House tours. I believe
that it is worth looking at the Production Tax Credit as an
example of where we might find some efficiencies.
Another example is the Alternative Vehicle Tax Credit,
which provides $7,500 towards the purchase of alternative
vehicles such as the $40,000 Chevy Volt and the $100,000 Fisker
Karma. GM reports the average Volt owner earns $170,000 a year.
And the Karma is even more exclusive. Really, only the rich and
famous can afford a Karma. And as was recently pointed out,
electrical vehicles do not reduce carbon emissions
significantly, so it really does call into question the entire
justification for spending this money in the first place.
Whereas, right now, all over the country where there are
natural gas vehicles, they are running on $.99 per gallon of
oil equivalent fuel. Now, can you imagine what that would do
for the cost of living for single moms and hard-working
taxpayers? So I really think that we need to look at some of
the other technologies going on out there.
Government should be working to ensure that Americans have
access to abundant, affordable, reliable energy and target
taxpayer resources to fundamental research that could one day
enable these technologies to compete without expensive
subsidies or mandates. Doing so would not only help bring
energy independence and grow our economy, but it would bring
revenue to the Treasury.
Again, I want to thank our witnesses for joining us today.
And I now recognize Ranking Member Swalwell for an opening
statement.
[The prepared statement of Mrs. Lummis follows:]
Prepared Statement of Subcommittee Chairman Cynthia M. Lummis
Good afternoon and welcome to today's Energy Subcommittee hearing
on ``Federal Financial Support for Energy Technologies: Assessing the
Costs and Benefits.''
Building on our broad examination of ``America's Energy Outlook'' a
few weeks ago, this is the second stage-setting hearing. We will focus
today on the amount and effectiveness of various forms of financial
support for energy technologies. I hope these overview hearing will
prove informative and valuable as we pivot to specific legislative
activities within our research- and-development-focused jurisdiction.
The topic of today's hearing is particularly timely, as federal
spending and budget prioritization receive extra attention following
the recent implementation of the budget sequester and release of House
Republicans' FY 14 budget.
A central component of the House Republican budget is to open more
federal lands to energy development. I advocate for this priority
because it will accelerate our path to energy independence, create
jobs, contribute greatly to deficit reduction, and can be done while
conserving our public lands and open space for future generations.
As we will hear today from the Congressional Budget Office, federal
energy tax subsidies will total more than $16 billion in 2013, up from
just $5 billion in 2005. This increase reflects President Obama's
interest in rapid deployment of green energy technologies.
January's ``fiscal cliff'' deal is a prime example. The White House
was reportedly ``absolutely insistent'' that the package extend and
expand the Production Tax Credit (PTC) for renewable energy. This one-
year extension will cost taxpayers at least $12 billion.
Meanwhile, the Administration is complaining loudly about cuts to
areas such as national parks, science, oil and gas permitting, and even
White House tours.
Another example is the alternative vehicle tax credit, which
provides $7,500 toward the purchase of alternative vehicles such as the
$40,000 Chevy Volt and $100,000 Fisker Karma. GM reports the average
Volt owner earns $170,000 per year. The Karma is even more exclusive;
only the rich or famous can afford them. As was pointed out by the
Journal of Industrial Ecology, electric vehicles do not reduce carbon
emissions significantly, calling into question the entire justification
for spending this money in the first place.
Right now, natural gas vehicles can run on a $.99 per gallon of
oil-equivalent fuel. Now that price will transform the cost of living
for single moms and hard-working taxpayers.
Government should work to ensure that Americans have access to
abundant, affordable, reliable energy, and target taxpayer resources to
fundamental research that could one day enable these technologies to
compete without expensive subsidies or mandates. Doing so would not
only help bring energy independence and grow our economy, but it would
bring revenue to the Treasury.
I thank our witnesses for joining us today and look forward to a
productive discussion.
I now recognize Ranking Member Swalwell for an opening statement.
Mr. Swalwell. Thank you, Chairman Lummis, for holding this
hearing today. I appreciate the opportunity to discuss the
range of instruments that government can utilize to affect
change or maintain the status quo in the energy marketplace.
My interest in the subject lies firmly in the category of
effecting change, of working with my colleagues in Congress to
lead the innovation agenda, and to promote clean energy
policies that can create made-in-America jobs. For reasons that
range from establishing U.S. leadership in the booming global
clean energy market to protecting consumers and domestic
industries from energy price shocks to protecting our children
from the shock of a rapidly changing climate, the status quo in
energy is simply unsustainable.
I understand that energy legislation is in the works here,
as the Chairman referenced. I hope that we on the Science
Committee can work together throughout Congress to craft
policies that are both forward-leaning and pragmatic and that
we can take lessons learned from past experiences to right-size
the role of government in spurring innovation in our energy
systems.
To do that, we must first acknowledge that the energy
marketplace is not a free market. For one, as many of my
Republican colleagues, I am sure, would likely agree, it is
heavily regulated at both the state and national level. It is
also heavily biased towards favoring incumbent technologies
over investments in new or advanced systems that can deliver
cleaner, smarter, more sustainable energy to consumers.
Furthermore, the pathway from idea to scale-up is fraught with
technical and financial risks that can derail even the most
resourceful developers.
The taxpayers want lower-cost, reliable energy with as few
of the harmful environmental effects and impacts as possible.
And they increasingly demand more control and more choices in
the fuels and technologies they use. Until our policies start
to address the numerous market failures that new concepts face
and reevaluate them on a regular basis, we will not lay the
groundwork for a fully competitive energy marketplace in the
United States.
These difficulties are only exacerbated when we in
Washington politicize energy in a manner that does not reflect
either market realities or society's good. As we see the tired
arguments over industrial policy reemerge, we would benefit
from looking at the lengths our global competitors are willing
to go to capture market share, as well as the past efforts we
have made in picking the energy winners we have today. But
bickering over who gets to pick winners and losers simply
misses the point. And to quote the Ranking Member of this
Committee, Ranking Member Johnson, from a recent op-ed, ``It is
a waste of time to argue over the rules of the game that our
competitors are not even playing.''
Meanwhile, draconian cuts to the Nation's innovation
enterprise stand to cripple us even further. Aside from the
obvious impact that sequestration will have on personnel and
activities at agencies such as the Department of Energy,
subjecting stakeholders to such dramatic fluctuations,
depriving the market of certainty is just a bad way to do
business. We have a long history in this country of leveraging
the power of public-private partnerships to achieve ends that
neither governments nor industry can do on its own. When you
take one side of that away, you pull the rug out from other big
initiatives that would benefit us all.
The people that drive innovation in our economy from the
national laboratories--and we have two of them in my
Congressional District--to university students and professors
and researchers who push the frontiers of knowledge to the
venture capitalists who put their money on new concepts to the
industrial firms that scale-up manufacturing and infrastructure
all know that government has always played a critical role in
making the U.S. the most dominant economy in the world. In
fact, our oil, gas, coal, and nuclear sectors are direct
results of that.
It is time that we get serious about picking more winners
and doing whatever it takes from basic and applied research all
the way to innovative financing and tax instruments to ensure
that the United States has cleaner, more sustainable, and more
energy that is affordable for future generations to come.
With that, I yield back the balance of my time.
[The prepared statement of Mr. Swalwell follows:]
Prepared Statement of Ranking Member Eric Swalwell
Thank you, Chairman Lummis, for holding this hearing today. I
appreciate the opportunity to discuss the range of instruments that
government can utilize to affect change or maintain the status quo in
the energy marketplace.
My interest in the subject lies firmly in the category of effecting
change. For reasons that range from establishing U.S. leadership in the
booming global clean energy market to protecting consumers and domestic
industries from energy price shocks to protecting our children from the
shock of a rapidly changing climate, the status quo in energy is simply
unsustainable.
I understand that energy legislation is in the works here. I hope
that we on the Science Committee can work together throughout this
Congress to craft policies that are both forward-leaning and pragmatic,
and that we can take lessons learned from past experience to right-size
the role of government in spurring innovation in our energy systems.
To do that, we must first acknowledge that the energy marketplace
is not a ``free'' market. For one, as my Republican friends will likely
agree, it is heavily regulated at both the state and national levels.
It is also heavily biased towards favoring incumbent technologies over
investments in new, more advanced systems that can deliver cleaner,
smarter, more sustainable energy to consumers. Furthermore, the pathway
from idea to scale-up is fraught with technical and financial risks
that can derail even the most resourceful developers.
The taxpayers want lower-cost, reliable energy with few, if any,
harmful environmental impacts, and they increasingly demand more
control and more choices in the fuels and technologies they use. Until
our policies start to address the numerous market failures that new
concepts face, and reevaluate them on a regular basis, we will not lay
the groundwork for a truly competitive energy marketplace in the U.S.
These difficulties are only exacerbated when we in Washington
politicize energy in a manner that does not reflect either market
realities or societal good. As we see the tired arguments over
industrial policy reemerge, we would benefit from looking at the
lengths our global competitors are willing to go to to capture market
share, as well as the past efforts we have made in picking the energy
``winners'' we have today. But bickering over who gets to pick winners
and losers simply misses the point. To quote Ranking Member Johnson
from a recent op-ed, ``It is a waste of time to argue over the rules of
a game that our competitors aren't even playing.''
Meanwhile, draconian cuts to the Nation's innovation enterprise
stand to cripple us even more. Aside from the obvious impact that
sequestration will have on personnel and activities at agencies such as
the Department of Energy, subjecting stakeholders to such dramatic
fluctuations is just a bad way to do business. We have a long history
in this country of leveraging the power of public-private partnerships
to achieve ends that neither government nor industry can do on its own.
When you take one side of that away, you pull the rug out from under
big initiatives that benefit all of us.
The people that drive innovation in our economy--from the National
Lab and university scientists who push the frontiers of knowledge to
the venture capitalists who put their money on new concepts to the
industrial firms that scale up manufacturing and infrastructure--all
know that government has always played a critical role in making the
U.S. the most dominant economy in the world. In fact, our oil, gas,
coal and nuclear sectors are a direct result of that. It is time that
we get serious about picking more winners and doing whatever it takes,
from basic and applied research all the way to innovative financing and
tax instruments, to ensure that the U.S. has cleaner, more sustainable,
and more affordable energy for generations to come.
With that, I yield back the balance of my time.
Chairwoman Lummis. Thank you, Mr. Swalwell. Now, if there
are any Members who wish to submit additional opening
statements, your statements will be added to the record at this
point. Anyone? Okay. Thank you very much.
I would like to recognize the presence of the Full
Committee Chairman, Lamar Smith, at our hearing. And at this
time, I would like to introduce our witnesses.
Our first witness is Dr. Terry Dinan, Senior Analyst at
CBO. She has a Ph.D. in economics from Ohio State University.
Welcome.
Our second witness today is Ms. Mary Hutzler, Distinguished
Senior Fellow at the Institute for Energy Research. She
received her M.A. in applied mathematics from the University of
Maryland. Welcome, Ms. Hutzler.
And our final witness today is Mr. Malcolm Woolf, Senior
Vice President and Government Affairs at the Advanced Energy
Economy. And Mr. Woolf has a law degree and an MPA from
University of Virginia. Welcome all.
The witnesses' spoken testimony is limited to five minutes
each, after which Members of the Committee will have five
minutes each to ask questions.
I now recognize Dr. Dinan for five minutes to present her
testimony.
STATEMENT OF DR. TERRY DINAN,
SENIOR ANALYST,
CONGRESSIONAL BUDGET OFFICE
Dr. Dinan. Chairman Lummis, Congressman Swalwell, and
Members of the Subcommittee, thank you for the invitation to
testify on the financial support that the Federal Government
provides for the development----
Chairwoman Lummis. Dr. Dinan, could you pull the mike just
a little closer to your face----
Dr. Dinan. Oh, sure.
Chairwoman Lummis [continuing]. And make sure that red
light is on as well.
Dr. Dinan. The light is on.
Chairwoman Lummis. Okay.
Dr. Dinan. Does that work now?
Chairwoman Lummis. Thank you.
Dr. Dinan. Okay. Thank you for the invitation to testify on
the financial support that the Federal Government provides for
the development and production of fuels and energy
technologies. That support totals almost 20 billion in the
current fiscal year. Tax preferences account for about 5/6 of
that amount. Spending programs administered by the Department
of Energy account for the remaining share.
I would like to begin by discussing tax preferences, which
primarily consist of special tax credits or rules that reduce
the amount of taxes that people or businesses pay. As shown in
Figure 1, which is now on display, for most years until 2005,
the largest share of that support went to domestic producers of
oil and gas. Beginning in 2006, the cost of energy-related tax
preferences grew substantially. Moreover, an increasing share
of the cost was aimed at encouraging energy efficiency and the
use of energy produced from renewable sources, which generally
cause less environmental damage than producing energy from
fossil fuels.
In 2013, as shown in Figure 2, provisions aimed at energy
efficiency and renewable energy account for about 3/4 of the
estimated budgetary cost of the Federal energy-related tax
preferences. That mix reflects changes to the tax system made
by the American Taxpayer Relief Act of 2012 which extended
until the end of this calendar year for major preferences aimed
at increasing energy efficiency and promoting the use of
renewable sources of energy.
Under current law, the mix of energy tax preferences will
look quite different in the future. That is because most of the
support for energy efficiency and renewable energy comes from
provisions that have already expired or are scheduled to expire
at the end of this year. In contrast, most of the support for
fossil fuels and nuclear power comes from provisions that are
permanent.
Next, I would like to turn to the Department of Energy. DOE
supports energy technologies by making investments in them and
by subsidizing or guaranteeing loans. As depicted in Figure 3,
the amount of support has varied over time but has generally
declined in recent years. Measured in 2013 dollars, DOE's
support for energy technologies totaled $10.5 billion in 1980
and is $3.4 billion in 2013. The notable exception to the trend
in DOE's support is the spike in 2009, which reflects the
increase in funding provided by the economic stimulus
legislation.
In 2013, which is depicted in Figure 4, more than half of
DOE's support for energy technologies is directed towards
energy efficiency and renewable energy. Twenty-two percent is
for nuclear energy, and 15 percent is for fossil fuels. Most of
the spending in each of those categories goes towards applied
research and development. The Congress has not appropriated
funds for subsidy costs of DOE's loan programs since 2011.
Since appropriations were provided in 2009, DOE's net
obligations for subsidy costs have totaled about $4 billion.
That amount supported direct loans of about $9 billion for
advanced automotive technology projects and loan guarantees of
about $16 billion for renewable energy projects.
There are two main economic rationales for the government's
involvement in energy markets. First, without government
intervention, households and businesses do not have a financial
incentive to take into account the environmental damage or
other costs to the Nation associated with their choices about
energy production and consumption. The most direct and cost-
effective method for addressing that problem would be to levy a
tax on energy sources that reflects the environmental costs
caused by their production and use. Subsidies such as tax
preferences for favored technologies can accomplish some of the
same goals but in a less cost-effective way.
Second, unless the government intervenes, the amount of
certain types of research and development is likely to be
inefficiently low from society's perspective. Such
underinvestment is particularly likely in the early stages of
developing a technology. Research at that stage can create
fundamental knowledge that can lead to significant benefits for
society as a whole, but not necessarily for the firms that
funded the research. Thus, government funding can be
beneficial.
By contrast, DOE's funding of energy technology
demonstration projects at later stages in the development
process has been far less cost effective, and DOE has been
criticized for its management of such projects.
Thank you for the opportunity to testify. I am happy to
answer any of your questions.
[The prepared statement of Dr. Dinan follows:]
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Chairwoman Lummis. Thank you, Dr. Dinan.
I would now like to recognize Ms. Hutzler to present her
testimony.
STATEMENT OF MS. MARY HUTZLER,
DISTINGUISHED SENIOR FELLOW,
INSTITUTE FOR ENERGY RESEARCH
Ms. Hutzler. Chairman Lummis, Ranking Member Swalwell, and
Members of the Subcommittee, thank you for the invitation to
testify.
The Institute for Energy Research is a nonprofit free-
market think tank that researches global energy trends. Today's
hearing touches upon one of the Nation's more important policy
questions: What is the Federal Government's authority to ensure
a stable, affordable, and reliable energy future; power our
economy; create jobs; and strengthen our global position?
Tied to this question are concerns about our Nation's
fiscal strain, the need for new revenues, and Congress'
responsibility to eliminate wasteful spending and bringing
federal budget outlays under control. Similarly, Congress and
federal regulators must be careful to encourage, rather than
discourage, the responsible development of America's vast
energy resources, the majority of which are currently being
produced on nonfederal lands.
Recent years have seen a dramatic increase in federal
energy subsidies, with the largest increases going to renewable
and end-use subsidies. Between 2007 and 2010, federal energy
subsidies increased from almost $18 billion to over $37
billion. Renewable energy subsidies increased by 186 percent,
with wind receiving a tenfold increase and solar increasing by
a factor of 6. Biofuel subsidies increased by 66 percent and
conservation subsidies increased from $369 million in 2007 to
more than $6.5 billion in 2010. Fossil fuels also received
increased federal support with coal subsidies increasing to
$1.3 billion and oil and natural gas subsidies increasing to
$2.8 billion. Nuclear subsidies increased 46 percent from $1.7
billion to $2.5 billion. Clearly, Washington has been on a
spending spree.
The largest single contributor to this spending was the
American Recovery and Reinvestment Act of 2009, also known as
the stimulus bill. By itself, this legislation accounted for 40
percent of the total subsidy value in 2010 and 77 percent of
the increase in subsidies from fiscal 2007.
To put these increases in the proper perspective, it is
critical to consider the return on investment that the American
people have received. In other words, how have the subsidies
for different fuels and technologies compared with production
levels? Fossil fuels received 19 percent of the subsidies in
2010 that provided 77 percent of the production. Conversely,
renewable fuels received 69 percent of the subsidies but
produced only 11 percent of the country's energy.
These numbers prove more disconcerting when we look at
federal spending on subsidies for electricity generation. In
this sector, renewable energy received 55 percent of the
subsidies that generated about 10 percent of the electricity,
mostly from hydroelectric power. Wind was the largest subsidies
recipient, with 42 percent, yet wind provided only 2.3 percent
of our electricity needs in 2010.
Clearly, the fuels and technologies that receive the
overwhelming share of federal subsidies are not producing the
largest portion of our energy needs. It is unlikely that this
trend will change in the foreseeable future, yet the political
support for renewables continue. IER calculated the federal
subsidies and support per unit of electricity production from
government data. According to our calculations, solar received
over 1,100 times the subsidies coal, oil, and natural gas
received, while wind was subsidized over 80 times more than
these conventional fuels. Proponents of increased federal
subsidies continue to claim that solar and wind are infant
technologies, yet these technologies are not new. Wind, for
example, has been used to generate electricity for more than
125 years.
Proponents have also used job numbers to demand a
continuation of subsidies for renewables with the wind industry
winning another year and more than $12 billion through
expansion of the Production Tax Credit. Simply put, the lion's
share of taxpayer dollars is spent on less-reliable energy
sources that provide negligible benefit to consumers, present
increased challenges for our electricity grid, and do little to
diminish our reliance on base-load fuels and fail to support
the American jobs they purport to create.
To date, over 50 firms receiving taxpayer dollars are
either bankrupt or failing financially. Many of these companies
had or currently have political connections in Washington. Even
more appalling is the fact that subsidies used to support green
energy ventures serve only to make high-income consumers pay
marginally less for expensive luxury items, such as electric
vehicles, and do nothing to help millions of Americans
struggling to pay higher energy costs on lower take-home pay.
The history of subsidies is clear. Washington has a
terrible track record of picking winners and losers. Subsidies
take money from taxpayers, do not create the jobs that are
claimed, and force our energy dependence on government by
removing the market incentive for companies to make their
technologies cost-competitive. Subsidies offset private-sector
financing, waste taxpayer money on projects that would never
make it off the ground if not for the political connections and
the funding that these green energy projects receive. If a
technology is truly competitive, it would make it in the
marketplace on its own without massive government support.
Thank you for the opportunity to testify.
[The prepared statement of Ms. Hutzler follows:]
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Chairwoman Lummis. Thank you, Ms. Hutzler.
I now recognize Mr. Woolf to present his testimony.
Welcome.
STATEMENT OF MR. MALCOLM WOOLF,
SENIOR VICE PRESIDENT,
POLICY & GOVERNMENT AFFAIRS,
ADVANCED ENERGY ECONOMY
Mr. Woolf. Thank you, Chairman Lummis, Ranking Member
Swalwell, and Subcommittee Members. I appreciate the
opportunity to testify today.
My name is Malcolm Woolf. I am the Senior Vice President of
the Advanced Energy Economy. AEE is a national network of
business leaders whose companies are making the global energy
system more secure, clean, and affordable. My testimony today
will focus on two things: first, that new energy technologies
face a series of structural market barriers to entry that have
often required federal support to overcome; and secondly, that
Congress should consider a core set of principles reorienting
federal financial support to more effectively encourage private
sector innovation.
Let me begin by explaining what I mean by advanced energy.
AEE defines advanced energy broadly to include the best
available commercial technologies, such as energy efficiency,
appliances, advanced gas turbines, nuclear power renewable
technology, alternative vehicles. The business opportunity for
advanced energy, broadly defined, is huge and growing. A recent
report commissioned by our sister organization, the Advanced
Energy Economy Institute, documented that the global advanced
energy industry was a $1.1 trillion dollar industry today. In
the United States alone, the advanced energy market was $132
billion dollars in 2011. So this is a big industry today. It is
larger than the trucking history.
Since this hearing is focused on federal financial support
for energy technologies, it is appropriate to ask the question,
why is federal support even needed? My answer is simple. Energy
technologies face a series of structural barriers to entry that
hinder innovation in the energy markets. Let me highlight three
examples of these structural barriers.
First, the market fails to appropriately reward innovations
that don't directly affect price. Externalities like grid
reliability, resiliency, energy security, public health--all of
those externalities are hard to put into the price of
electricity, so the market systematically undervalues them.
Secondly, the legal framework for electric and natural gas
utilities, as well as their long-lived assets, discourages
innovation in their sector. Why should a utility take a risk on
investing in unproven innovative technology that regulators may
not deem worthy of reimbursement when they get the exact same
rate of return if they invest in well-established existing
technologies?
Finally, the Federal Government needs to compensate for the
chronically low level of private sector energy R&D. The energy
sector historically invests less than one percent of revenues
in R&D. In contrast, innovative-intensive industries like
telecommunications routinely invest over 10 or 20 percent. The
Federal Government needs to continue to support the development
of energy technology, but the Advanced Energy Economy
recognizes the Nation's fiscal realities. To more effectively
use taxpayer dollars, AEE suggests a fresh approach whereby we
refocus federal financial outlays on a core public purpose:
promoting innovation to give the United States energy that is
secure, clean, and affordable.
Let me offer for your consideration the following four
principles:
First, be targeted. Rather than providing permanent support
to mature technologies that already have significant market
penetration, the Federal Government should focus its resources
on driving innovation to develop, demonstrate, and deploy the
next generation of technologies.
Secondly, we should sunset or automatically revise
provisions when the market-based objectives have been reached.
No company or technology should be entitled to a permanent
subsidy. Incentives should remain in place only long enough to
achieve a measurable market-based goal.
Third, provide stability and certainty for investors and
businesses. Clear roles tying federal support to market-based
metrics rather than a calendar of political deadlines would
allow the market to drive success.
Fourth and finally, we need to be technology neutral to
support all forms of advanced energy. Many of today's energy
policies were written by Congress with one sector or technology
in mind. Federal support needs to be applied broadly as
reasonable to stimulate innovation across all sectors.
In closing, the four principles I articulated represent a
common sense approach that would reorient federal financial
support to more effectively spur innovation. At the same time,
they represent a significant break from the status quo. I look
forward to working with the Committee to reform federal energy
tax policy around these core principles to drive a more secure,
clean, and affordable energy future.
Thank you.
[The prepared statement of Mr. Woolf follows:]
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Chairwoman Lummis. I would like to thank all of our
witnesses for being available today and again for your patience
with the delayed start of this hearing. The Committee rules
limit questioning to five-minute rounds.
And we have two Members of this Committee who have
conflicting committee assignments, so we will be going first to
Mr. Hultgren of Illinois, and he will be followed by Mr.
Kennedy of Massachusetts. So the Chairman of our Full Committee
and the Ranking Member of this Committee have graciously
offered to defer their questions until later.
So at this time, I will recognize the gentleman from
Illinois, Mr. Hultgren, for five minutes.
Mr. Hultgren. Thank you, Chairwoman Lummis.
Thank you so much for being here today. This is obviously a
very important subject during these difficult budget times.
I want to talk today about priorities. When resources are
limited, priorities are more important than ever. We have heard
over and over again from this Administration that there isn't
enough money to invest in basic research as they cut high-
energy physics, they cut nuclear physics, they cut manned space
exploration. President Obama shut down the Tevatron in
Illinois, he canceled the Constellation Program that would
restore American preeminence in space, and he shifted the focus
of agency missions away from the pure scientific route to
instead follow the path of what is politically expedient for
him and his base. These are truly painful cuts to long-term
American competitiveness and innovation.
I have here in my hand a letter to our Governor in Illinois
from the Deputy Secretary of Energy warning about pending cuts
and furloughs as a result of the sequester. In the letter,
President Obama's Administration threatens about 1,750
furloughs at Fermilab in my district over the sequester, which
is ironic considering that the sequester would actually be a
higher level of funding than President Obama's own budget
proposal for Fermilab. The President wants to see a cut to the
lab of almost double what the sequester is going to cut.
Meanwhile, the President has shown no hesitation to squander
tens of billions of dollars on tax incentives, loan guarantees,
and directing spending on development and commercialization
activities. This, to me, is a staggering level of hypocrisy.
Ms. Hutzler, I wonder; you are a trained scientist, you
have got an advanced degree in applied mathematics. Would you
characterize President Obama's shifting of funding from basic
research to subsidies for the alternative energy industry as
pro-science?
Ms. Hutzler. No, I wouldn't because there--I mean picking
winners and losers by dealing with these subsidies has not been
a good thing of the government in the past. We have--throughout
history, we have seen that the government isn't good at picking
winners and losers. So there are better ways of spending the
money. And their--you could always put up Washington monuments
if you want, but you can also figure out other ways to cut your
budget.
Mr. Hultgren. Ms. Hutzler, your testimony highlights the
enormous growth in spending on energy technologies from 2007
until 2012. Please describe the corresponding growth in energy
production during this time. Just as a follow-up, DOE figures
show that solar and wind generation contributed a minimal share
of current electricity generation. Do you consider the
significant increase in subsidies to have been effective in
their oft-stated goal of transforming the Nation's electricity
portfolio?
Ms. Hutzler. No, I don't. Renewables did increase their
share, but as I mentioned in my testimony, that hydropower
actually contributes the most in terms of the renewable share.
So while renewables did increase their share, most of the
change that has occurred has been between coal and natural gas,
where they have sort of flip-flopped in terms of their share in
the generating sector.
I did look at how much increase we got from renewables in
that five-year period in terms of BTUs. We increased non-hydro-
renewables by about two quadrillion BTUs, but in fact, we
increased oil and gas by 5.3 quadrillion BTUs. So that is more
than double when they have gotten a much smaller share of the
subsidies.
Mr. Hultgren. Yes, and the DOE figures I saw were that wind
is about three percent, solar is less than one percent of
current electricity generation. Well, this is an important
topic. I know we are running late so I am going to yield back
the rest of my time and thank the Chairwoman and also think the
Chairman and the Ranking Member for allowing me to go ahead of
schedule. So thank you so much.
I yield back.
Chairwoman Lummis. I thank the gentleman from Illinois and
would recognize the gentleman from Massachusetts, Mr. Kennedy,
for five minutes.
Mr. Kennedy. Thank you, Madam Chair. Thank you to the
Ranking Member, to the Chairman as well, and to the witnesses
here for coming to testify today. Thank you for your time and
your knowledge.
I have got a question, just to begin, to Mr. Woolf. You
cite in the written testimony that you had provided that wind
energy, for the first time, became the number one source of new
U.S. electric generating capacity providing 42 percent of all
new generating capacity. I come from a State and represent a
district that has a long history of investments in innovation
and has made a decision to try to be on the forefront of
emerging clean energy technology, most notably wind energy in
particular.
One of the questions that comes up with that is whether--is
the development of offshore wind farms, both near-shore and for
some further distances offshore. And I was wondering if, in
your opinion, if our country actually has the expertise, the
resources, and the workforce, the infrastructure to compete in
that industry? And the reason why I ask is there is a local
project in Massachusetts, a wind project, Cape Wind, which I am
sure you are familiar with and a project that I actually
support. The developer just this week indicated that he was
going to be shifting some of those manufacturing jobs to an
overseas manufacturer because we didn't have the capacity here
in the United States to actually build the steel foundations
necessary for the construction of those turbines. And I just
wanted to get your opinion as to the state of the industry
surrounding some of these production issues and what it would
take in order to get competitive if we aren't already.
Mr. Woolf. Thank you for your question. And I think it gets
to the heart of what this Committee is looking at is what kind
of energy future do we want? Where do we want to be in 30, 40
years? Because the investment decisions we are making today are
going to be the plants that are operating in 30, 40 years.
As I listened to Ms. Hutzler's data, it strikes me as not
at all surprising that we be investing in innovation in
technologies where we don't yet have significant production,
rather than the mature technologies that are already producing.
I would not expect a correlation between where our investment
dollars for innovation go and where the existing production
goes. I think had--if this Nation begins to invest in offshore
wind technologies, we would be building the supply chain for
offshore wind so that we can manufacture it in the United
States. I know that for land-based wind technology, 10, 20
years ago, much of it was based offshore. Now, more than 75
percent of it has become onshore, U.S. manufacturing, just like
car manufacturing.
As we have built the capacity here, for the first wind
project offshore, I am not at all surprised, since we are so
far behind the rest of the globe, that U.S. companies are not
competitive. As Cape Wind goes forward, as Governor O'Malley
goes forward in Maryland, I think we will be building that U.S.
capacity.
Ms. Hutzler. I would just like to comment on the offshore
wind subject. It turns out if you take a look at EIA's numbers
that on a kilowatt-hour basis that offshore wind is more than
20 times the cost of onshore wind. The--in the State of
Massachusetts for Cape Wind, they said that they would have to
start at $.18 per kilowatt hour for Cape Wind and then increase
that cost three percent a year. The average cost of electricity
in this Nation is only $.10 per kilowatt hour.
You take a lot of the European countries that have offshore
projects; a number of them are in fuel poverty. I think about
18 percent of the United Kingdom is in fuel poverty. And that
definition is that more than 10 percent of their income is
being spent on residential energy. So I think we need to take--
we need to look carefully at these projects.
Mr. Kennedy. And ma'am, your characterization of the cost
of Cape Wind is obviously well known and well debated in
Massachusetts. One of the issues with wind farms, as I have
come to understand, anyway, is part of the upkeep and
maintenance of particularly the Cape Wind project that is
actually built in shallow waters is that over time, that cost
comes down because you are just paying the upkeep. And in fact,
the wind is free.
So I appreciate it and I yield back the balance of my time.
Ms. Hutzler. But I think there is an issue here, too, that
we are not that familiar with the maintenance cost to really
know that. I mean those are pretty much guesses, and once we--
once the technology has been around even in European countries,
we will find out more about it.
Mr. Kennedy. And Mr. Woolf, would you like to comment on
that?
Mr. Woolf. Sure. Offshore wind has been used in Europe for
many decades now, so I think we have got a pretty good sense of
what it takes.
Mr. Kennedy. Yeah, my five seconds. Thank you, Madam Chair.
Chairwoman Lummis. Thank you, Mr. Kennedy.
And now the Chairman will yield five minutes to herself.
My first question is for Dr. Dinan, and it is about
eligibility to qualify for the Wind Production Tax Credit. Now,
in the fiscal cliff deal, there was an extension and
modification of the Production Tax Credit for one year, even
though it was supposed to expire at the end of 2012. So it
provides that any project is eligible that begins construction.
That is the operative language I am curious about. The
modification makes eligible any project that begins
construction by December 31, 2013. The IRS has not yet issued
guidance as to the definition of ``begin construction.'' But
based on precedent, projects have expended only five percent of
the project costs and yet may qualify. So my question is this:
how does the broad definition of ``beginning construction''
impact the estimated costs of the Production Tax Credit?
Dr. Dinan. Your description of the extension of the
Production Tax Credit is correct. They now qualify based on
beginning construction. However, CBO does not estimate the cost
of that extension, and that would be the Joint Committee on
Taxation. So it is nothing I can comment on.
Chairwoman Lummis. If the IRS determines how it is going to
define ``begins construction,'' will CBO then be able to update
the estimates?
Dr. Dinan. No, because CBO estimates the budgetary cost of
legislation that involves spending, but revenue--the effects of
changes in revenue are made by--those cost estimates are made
by the Joint Committee on Taxation, not by the Congressional
Budget Office.
Chairwoman Lummis. And will the Joint Committee on Taxation
update it?
Dr. Dinan. Yes, they each year estimate the cost of each
individual provision. And so----
Chairwoman Lummis. Thank you. Second question, and I also
want to ask this of Dr. Dinan and Ms. Hutzler. It is regarding
Section 1603 grants and their ongoing funding. Now, those
grants, in lieu of credits, allowed wind developers to take a
cash grant instead of a tax credit. And that program expired in
December 2011. But projects that had begun construction
qualified, again, only five percent of capital expenditures
qualified as having begun construction. And then those payments
extend even after expiration. So according to CBO, even under
sequestration, we plan to spend $2.6 billion on 1603 grants in
FY 2013.
So, question: I was surprised to learn, Dr. Dinan, from
your testimony that the Federal Government plans to give $2.6
billion of cash to wind developers this year alone through the
expired Section 1603 grants. Can you explain to me why we are
giving $2.6 billion for a program that expired in 2011?
Dr. Dinan. The reason for that is that the--to qualify for
the 1603 grants, it is based on beginning construction prior to
the expiration date. So renewable generators that were under
construction prior to the December 31, 2011, qualified, but
they received the actual grant at the time they begin
production.
Chairwoman Lummis. So do you have an estimate of how much
more cash we will hand out under the expired 1603 program over
the next few years?
Dr. Dinan. I do not.
Chairwoman Lummis. Well, let me ask then, Ms. Hutzler,
this: Do you think the 1603 program was good policy? How would
you rank it among other maybe best-to-worst policies when it
comes to subsidies or tax benefits?
Ms. Hutzler. Well, as I indicated in my oral testimony, we
believe at IER in free-market principles. So I am not sure that
I would prefer any of these different types of subsidies that
we are talking about. But anything where you have a policy
where you can start construction but not complete it causes
problems and distortions in the marketplace. So the change in
the PTC is a problem because you don't know how many more years
in the future you are going to have to be paying for it.
And furthermore, it is going to be hard for even the JTC to
figure it out because they usually use EIA estimates on
penetration. But you don't know when--somebody can start
construction, but you don't know when they are going to
actually start operating. They may wait until the economy is
much better. So it could go many years into the future.
Chairwoman Lummis. I thank the witnesses and yield to the
Ranking Member, Mr. Swalwell of California.
Mr. Swalwell. Thank you, Chairman Lummis. And I am actually
going to yield and ask to come back after Mr. Veasey and your
next Member goes.
Chairwoman Lummis. I yield than five minutes to Mr. Veasey.
Mr. Veasey. Madam Chair, thank you very much. And I wanted
to ask Ms. Hutzler and Mr. Woolf just some questions about
intangible drilling costs and depletion write-offs and things
like that versus the subsidies because, you know, you hear a
lot about we are picking winners and losers, but where do those
things in the traditional fossil fuels sector--how do they pair
up with what is going on as far as wind is concerned?
Ms. Hutzler. The--well, the issues that you are talking
about here are the percentage allowance depletion and the
intangible drilling costs. Both of these are tax deductions.
And they mostly affect the small, independent producers. These
are producers that are producing from marginal wells. And these
deductions are helping them in terms of depreciation, in terms
of depletion allowance, and in terms of essentially R&D to be
able to get to the oil or gas out in the marginal wells.
A good portion of our oil and gas production comes from the
independents, so we are trying to support this particular
entity in terms of tax deductions. But these are similar
deductions that other businesses and manufacturing companies
are getting in terms of depreciation and in terms of research
and development. They are not individual things such as the
Production Tax Credit that one gets.
Mr. Woolf. Excuse me. From the Advanced Energy Economy's
perspective, we wouldn't look at it as a credit for one subsidy
or one technology versus another technology. What we are urging
Congress to consider is a principled approach whereby we look
at--the first question is, is innovation needed, or is this a
mature technology that no longer needs innovation? But if it is
a technology where we want the country to go, where innovation
is needed, then the second question is, what is the market-
based goal? Once you establish that market-based goal, you know
what you are shooting for. You have a vision for the future and
then it can automatically sunset when you reach that goal.
I would apply that standard to all technologies, whether it
is the existing permit and credits that the oil and gas
industry enjoyed or the one-year extensions that the wind guys
have to fight for every year. I think we should have a neutral
approach for all technologies, think about what is our goal,
and is this an innovation area that we should be investing in?
Mr. Veasey. Right. Exactly. And, you know, I guess my
thought--and I would certainly like to hear from you on this--
is that, you know, we talk a lot about being independent from,
you know, and being able to produce our own energy and trying
to lessen our dependency on foreign oil. It would just seem
like, you know, that an investment in wind and in other things,
I guess the technology that is driving a lot of the
development, particularly in Texas where I am from, I know that
many of the independents--when the big companies left those
fields and the independents came back again, it was because of
the technology that they used to bring us to the level where we
are at now to where, you know, now, we are much higher up on
the scale as far as, you know, producing oil. So does that make
sense--I guess, really to you, Ms. Hutzler, to invest in both
of those so we can be more independent as a country?
Ms. Hutzler. I think it deals with how competitive these
technologies are. If you take onshore wind, it is 30 percent
more expensive than the next--than the cheapest-generating
technology, which is natural gas. And that is probably going to
continue in the future, because our natural gas prices are
forecasted to stay fairly low in the future. So it really
depends on the competitiveness of the technology.
Mr. Woolf. If I can respond, I would agree that in most
markets, onshore wind is not cost competitive with natural gas.
The conclusion, then, I draw from that is it is a sector that
is ripe for innovation. Already, over the last 20 years,
onshore wind turbines' cost has come down 74 percent, according
to Bloomberg New Energy Finance. It is an area where
technological advances are going very, very quickly, and that
is the only way you are going to get progress. I am looking up
at the quote over the Science Committee's dais here, ``Where
there is no vision, the people perish.'' If we only invest in
the technologies that are currently competitive, we have no
vision. We won't make progress.
Mr. Veasey. Thank you.
Chairwoman Lummis. I thank the gentleman and now recognize
our Vice Chairman, the gentleman from Texas, Mr. Weber.
Mr. Weber. Thank you, Madam Chairman.
I want to take issue with something you all said earlier
about investing versus subsidies. My good colleague down on the
right, Mark Veasey, knows well--did I say that you are on the
right, Mark? I am sorry. Down at that end of the dais. We will
do that. I don't need to out you here. He knows well that Texas
is the leading wind producer in the country, and we are also
poised to be the leading natural gas producer if not in the
country, probably the world, hopefully.
But there is a difference, is there not--and I will address
this question to Ms. Hutzler and then Mr. Woolf--in invest--
when a company goes out there--and you mentioned the percentage
depletion allowance specifically--and is it not true, Ms.
Hutzler, that that is--and I will let you answer the question
in just a minute--but that is for small companies. And was it
'75 we did away with that depletion allowance for the major oil
companies? These are the independent producers you mentioned.
In essence, they put their money in up front. They invest
capital and they take the risk. They get manpower and they get
assets on the ground, and not every hole they drill is going to
be productive. So they are investing their time and their
energy and their resources. It makes perfect sense for me to
give them a tax credit. On the other hand, to come in and give
a subsidy to assist them so that they might be able to produce
a product doesn't seem to make sense.
I would like to go back to something you said, Ms. Hutzler.
You quoted some figures on coal subsidies, oil subsidies, and
natural gas subsidies, and billions of dollars, but what I
didn't hear you quote was the amount of electricity each one
contributed to the Nation's grid as a result of the tax dollars
spent. Do you have those figures?
Ms. Hutzler. I think I mentioned those in my oral, and
that----
Mr. Weber. I missed those.
Ms. Hutzler continuing]. On a per-unit-of-production basis
that the subsidy for solar I mentioned was over 1,100 times
more than that for oil, gas, and coal. And also for wind it was
over 80 times that.
Mr. Weber. And then it was astounding, if I recall
correctly, you said the vast majority of the increase came from
hydroelectric power.
Ms. Hutzler. Of renewables, yes.
Mr. Weber. Of renewables, right.
Ms. Hutzler. Yes. Renewables today supply about 12 percent
of our electricity, but seven percent of that is hydro.
Mr. Weber. Right. And, to your knowledge, were we able to
increase the amount of water coming downstream?
Ms. Hutzler. The snowfall, the water changes----
Mr. Weber. So----
Ms. Hutzler [continuing]. 2011 was a very good year.
Mr. Weber [continuing]. God was good to us. The best
increase we got was just from the rainfall and the snow. But
doesn't it seem fair to you for us to give tax subsidies to a
hopefully growing technology that has been around a long time
that does use windmills many, many years ago as opposed to tax
credits were American entrepreneurs invest their money? Does
that seem equitable to you?
Ms. Hutzler. Well, hydro gets very little in terms of
subsidies.
Mr. Weber. Right, no, I get that.
Ms. Hutzler. You know, right.
Mr. Weber. The wind and solar----
Ms. Hutzler. Right.
Mr. Weber. Right. If we had taken the--was it $500 million
that we gave to Solyndra and paid $1,000 per person on their
own utility bill for a year, we could have powered the homes of
half a million Americans. But anyway, does that seem fair to
you, Ms. Hutzler?
Ms. Hutzler. No, it doesn't seem fair to me.
Mr. Weber. How about you, Mr. Woolf?
Mr. Woolf. If I could respond to your question.
Mr. Weber. Sure.
Mr. Woolf. AEE supports both renewables and natural gas
and, you know, all forms of advanced technologies. I think
natural gas is an amazing, wonderful American success story.
Because the Department of Energy invested in assessing the
technology in the '70s and coming up with directional drilling
techniques, you know, fracking is now bringing huge sea change
to the American economy. That is a wonderful thing. That was
not the case with shale gas in the 1970s. That is why we needed
the federal role in investing in the innovative technologies.
Now that we are there, now that we have got those technologies,
it no longer needs the support.
For renewable technologies, there is a different market
barrier. Their market barrier is one of economies of scale.
When--and so you need--the Production Tax Credit is essential
for getting them the economies of scale so they can drive down
their costs and be cost effective. If you are only putting on
solar or an individual windmill and you are not doing thousands
and thousands of them, you don't drive down the cost; you will
never be competitive.
Mr. Weber. I want to go back to something my colleague, Mr.
Kennedy, said, and that was something about the wind farm in
Massachusetts, I think. And really, what we need is
infrastructure, is it not? We know the technology. We need a
grid. We need to be able to get--for example, in Texas, we are
coming up with the wind energy to get to--our grid is the
challenge. That is the bigger challenge, is it not, more so
than the technology?
Mr. Woolf. I think it is all of the above. In certain
areas, certainly West Texas, the transmission congestion is a
huge challenge. In other parts of the country, the Northeast,
they don't have land, they don't have the resources Texas has;
offshore wind is their resource.
Mr. Weber. And I yield back. Thank you.
Chairwoman Lummis. I thank the gentleman and now recognize
the Ranking Member of our Subcommittee, Mr. Swalwell of
California.
Mr. Swalwell. Thank you, Chair.
And Ms. Hutzler, I have to say I was disappointed in your
remarks. I thought they were very politically charged. And to
say that only politically connected folks are the ones that are
receiving preference in our subsidies, it ignores the facts.
And it also ignores the role that the States play. And
individual States in our country themselves give a number of
tax credits to different industries. For example, there is an
oil company in Pennsylvania that, in 2012, received $1.65
billion dollars in tax credits. So it seems that because we
don't have an energy policy in our country--or at least a
national energy policy--that the States and the Federal
Government seem to every Congress or every State Legislature
will pick which industries will support their regional
economies or national agenda at the time. But there is nothing
that seems to be uniform.
And also to say that the President is not pro-science
because he supported subsidies, also, I think, doesn't help the
debate. It just divides us further.
And, you know, I think, Mr. Woolf, I want you to expand on
talking about all of the above, because it sounds like we can
find as many winners as possible when we have an all-of-the-
above approach. And we can also root out the industries that
aren't going to work, and doesn't that seem like a better way
to allow us to explore what is going to drive and power our
energy economy?
Mr. Woolf. I think that is exactly right. The Nation has a
tremendous amount of strengths in all our different regions, in
all our different States. They can all contribute something
different to our overall energy mix. And that is part of what
the Advanced Energy Economy brings to the table is we have got
in our group all different technologies. And what binds them
together is they all recognize that the energy system of the
last 100 years is fading away. The model of centralized
generation distributed on a one-way wire is pre-Internet. You
know, in this connected world, we have got smart grids,
distributed generation, demand-side technologies. We no longer
have the old energy grid. And in order to be competitive in the
21st century, we need a 21st-century energy system. That is
going to be driven by innovation and that is what we are
suggesting that Congress consider with our principles today.
Mr. Swalwell. And do you see a role for tax credits not
just for renewables but also for other sources of energy?
Mr. Woolf. Absolutely. I think we should be applying the
same standard to all technology where every innovation is
needed, and then it should sunset and expire once that
technology is mature and it is no longer needed.
Ms. Hutzler. I would like to address some of the things
that you mentioned that I said. First of all, in the terms of
political cronyism, I didn't come up with the number, but a
study came up with the number that it was 60 percent. Now, I
didn't mean that it is 100 percent and my written testimony
indicates that.
Furthermore, I wanted to mention about the States. There is
an example that I have my testimony about a wind farm,
Shepherds Flat, in Oregon. That wind farm was a $1.9 billion
project. The amount of subsidies that are allocated to it are
$1.2 billion. That is 65 percent. The sponsors only put 11
percent of equity in and their return is 30 percent. Pretty
amazing. But a good portion of those subsidies are state-
related. And in fact, the authors of the memo, which include
Summers, Kaine, and Browner, all members of the Administration
at that time in 2010, indicated that this project would have
gone on anyway just because of the state subsidies and that the
federal subsidies weren't needed, that private funding would
have been provided for the project.
Mr. Swalwell. But Ms. Hutzler, wouldn't you agree that
subsidies are being provided industrywide? It is not only
limited to renewables, that oil and gas also receive subsidies
and tax credits, and oftentimes, those subsidies and tax
credits don't have a great return on investment either?
Ms. Hutzler. As I mentioned before, most of the--what oil
and gas are getting are tax deductions that are going mainly to
the independent producers. Other than that, they are also
manufacturing credits that are got. And the oil and gas
industry pays less than other manufacturers do in terms of--I
mean there--the deductions they get is less than what other
manufacturing companies get. So these aren't apples--these are
apples and oranges, essentially. We are not comparing the same
types of subsidies.
Mr. Swalwell. If it was up to you, would the government
have any role in subsidies, tax credits, or incentives to solve
our energy solutions?
Ms. Hutzler. Well, certainly, right now, we--I think we
have a bigger problems than trying to figure out how to
subsidize things that just aren't competitive in the
marketplace.
Mr. Swalwell. All right, thank you.
Thank you, Madam Chair.
Chairwoman Lummis. I thank the gentleman and now recognize
for five minutes the Committee Chairman, the gentleman from
Texas, Mr. Smith.
Chairman Smith. Thank you, Madam Chair.
Dr. Dinan, let me ask you a question, and it goes beyond
your testimony, so if you could just give us an estimate. And
my question is this: on the Production Tax Credit for wind
energy that began 21 years ago, 1992, what is the total cost to
the taxpayer so far of all that Production Tax Credit in those
21 years, if you know it? If you can only go back five years,
that would be helpful, too, but I just want to get an estimate
as to how much it has cost.
Dr. Dinan. I am sorry, but I only have the estimate for the
Production Tax Credit for 2013 so----
Chairman Smith. Okay. As I understand it, just looking at
it, and what was the estimate for 2013?
Dr. Dinan. That was $1.7 billion.
Chairman Smith. Okay. It looks like it has probably been
more in the last four years. And I wouldn't want to give too
much of an estimate, but it might well be $10 billion in the
last several years. Is that possible?
Dr. Dinan. I just don't have those numbers available.
Chairman Smith. We will get them, or if you can help us get
them, that would be great.
Ms. Hutzler, let me ask a question to you. And this is in
reference to a chart you mentioned a few minutes ago that I
just saw about the time you mentioned. The chart is estimated
leveled cost of new electric-generating technologies in 2017.
And we put it up on the screen there.
[Chart]
Chairman Smith. Looking at this chart, if you look at the
column four from the right, we see that the cost of--and by the
way, there are 16 different sources of electricity, 16
different bars there. Wind offshore is by far the most
expensive, and in fact, it looks to me like it is three times
as expensive as wind onshore, which is right to the left of
that longest bar. That is amazing to me. That is the first time
I have seen a cost comparison where it is three times as
expensive offshore as onshore. For the sake of the consumers,
it seems to me that if we are going to advocate for wind
turbines, we ought to put them on land onshore rather than
offshore. Is there something I am missing there, or would you
agree?
Ms. Hutzler. I definitely agree with you, but I just also
want to mention that these numbers are out of date. EIA came up
with a new set of numbers and solar thermal is actually the
most expensive now than offshore wind, and it is not a factor
of three anymore. It is 2.6 times.
Chairman Smith. Oh, well, I was about to ask you if it was
in the same order of magnitude, and it sounds like it is. So it
is 2.6----
Ms. Hutzler. Yes.
Chairman Smith [continuing]. Times more expensive offshore
than onshore?
Ms. Hutzler. Correct.
Chairman Smith. Okay. So it makes the same point. I thank
you for that.
Mr. Woolf. Mr. Chairman, could I offer a slightly different
perspective on this chart?
Chairman Smith. Because of my limited time, if you want to
be very brief, you can, but I have a question for you and--up
next as well.
Mr. Woolf. My only comment is that I would urge the
Congress to be investigating innovation in the technologies
where they need it.
Chairman Smith. That is my next question. Wait a minute.
Stop right there.
Mr. Woolf. Beautiful.
Chairman Smith. Let me address the next question to Ms.
Hutzler and to you, and it is this: if we want to help these
two technologies become more competitive, shouldn't we be, in
fact, I will use the word diverting, perhaps, the money from
the subsidies into technology into coming up with these
innovations that will, in fact, make these new technologies
more cost effective?
Mr. Woolf. Thank you, Chairman. That is--I think that is
the right--I think Congress should be looking at a principled
approach to be looking for all of this. What is our goal? What
do we want to achieve? And how do we get there?
Chairman Smith. Right.
Mr. Woolf. And we should be looking at all the
technologies, using the same standard. So I think it is
perfectly appropriate to be looking at the mature technologies,
getting rid of their subsidies, and therefore, spending scarce
dollars on the technologies that could really benefit from
innovation.
Chairman Smith. That is where we invest not only in the
future but sometimes in the distant future, but it pays off
both for the consumer and for the advancement of----
Mr. Woolf. And that is what fracking has showed us.
Chairman Smith. Right. Ms. Hutzler.
Ms. Hutzler. Personally, I don't think we can afford the
money to do that either. And if you take a look at natural gas
prices, as I said, EIA only expects them to go up four percent
in real terms in like the next six years, by 2020.
Chairman Smith. Okay.
Ms. Hutzler. These technologies still aren't going to be
competitive.
Chairman Smith. By the way, I don't disagree with that
either. Natural gas is abundant, relatively inexpensive, and
pretty clean, so we ought to be using more natural gas than we
are right now as well.
Thank you all for your testimonies. Thank you, Madam Chair.
Chairwoman Lummis. I thank the gentleman and now recognize
the Chairman Emeritus of this Committee, the gentleman from
Texas, Mr. Hall.
Mr. Hall. I might yield Mr. Woolf a little more time to
answer the Chairman here if you need it.
Mr. Woolf. Thank you. I got a chance to make my comment.
Mr. Hall. I probably ought to ask Dr. Dinan, but the
hearing seemed like it is focused primarily on financial
support for various sources of energy and a lot of other types
of support that exist. Let me go to Ms. Hutzler. Biofuels, I am
reading here that biofuels enjoyed various tax credits and
financial support in 2011. Tax incentives for biofuels cost
$7.6 billion. Now, how has this support impacted the
competitiveness and the viability of the biofuels industry if
it has?
Ms. Hutzler. Well, it certainly has influenced it, but the
major subsidy or financial intervention is the renewable fuels
standard that is mandating a certain amount of production. So,
for instance, that biofuel subsidy expired at the end of 2011,
but these mandates are still increasing the amount of biofuels
that are being produced. And now, we actually even have a
problem because the amount of gasoline consumption isn't in
concert with these increases. So in fact, rather than having 10
percent ethanol added to gasoline, we are actually talking
about 15 percent now. Of course, ethanol has a lower
efficiency, and so you get less mileages--mileage in your
vehicle than you used to.
Another big issue in terms of the renewable fuel standard
deal is with the fact that we are making most of it from corn--
actually, all of it right now from corn. That has increased our
fuel prices. Corn used to sell for $2.50 a bushel. Now, it is
selling for over $7 a bushel. So all of these mandates,
subsidies, are causing the American consumer to have higher
fuel costs.
Mr. Hall. Well, I would go further, Mrs. Hutzler. You are
on the role of Renewable Portfolio Standards. I think it was
announced that wind was the largest source of newly installed
electricity capacity during 2012, and the wind industry
regularly touts this growth is a sign of technology's growing
competitiveness. I don't know about that, but in the recent
fiscal cliff deal, the Production Tax Credit was extended for
another year at the cost of $12 billion. Now, my question is,
is wind cost competitive with the PTC? If not, when if ever is
it expected to be?
Ms. Hutzler. I am sorry. I have a hard time seeing it being
cost competitive in the near future, as I have mentioned before
in my remarks. The Renewable Portfolio Standard is really
driving most of the renewables that we are seeing today,
particularly wind. If you take a look at a graph that I had in
my written testimony from the Energy Information
Administration, you will see that the Production Tax Credit
started in 1992, but we didn't see a lot of wind additions
until 1999, when taxes put forth their Renewable Portfolio
Standard. And then, as the other States that have Renewable
Portfolio Standards added theirs in 2004 to 2007, you start
seeing the increase in wind.
Mr. Hall. As you talk about, if individual States are
mandating the purchase of renewable-generated electricity, then
I guess my question is, why does the Federal Government still
have to subsidize it?
Ms. Hutzler. Frankly, I don't think it does. I think that
is where we get into these duplicative subsidies that I
mentioned before with the Shepherds Flat example, where we are
seeing 65 percent of the project being subsidized.
Mr. Hall. I may have further questions. If I do and the
Chair allows them to answer them later, we will send them to
you. I think we have a vote or something. I yield back my time
if I have any time left.
Chairwoman Lummis. Well, I thank the gentleman.
And I want to compliment the witness for keeping her
concentration during that series of bells and whistles. That
can be tremendously distracting.
Because we have votes that have just been called and we
have about 12 minutes left to go vote, I do want to wrap up the
hearing and have just a couple bits of housekeeping to do prior
to doing so. First of all, I ask unanimous consent to enter
into the record the following three items: an op-ed that
appeared in the Wall Street Journal earlier this week written
by Bjorn Lomborg and entitled ``Green Cars Have a Dirty Little
Secret,'' an article that appeared in the Wall Street Journal
last week entitled ``Chinese Solar Approach Faces Test,'' and a
report by the American Energy Alliance and the National Center
for Public Policy Research entitled ``Erroneous Numbers,
Erroneous Conclusions: The Navigant Wind Jobs Report.''
Without objection, so ordered.
[The information may be found in Appendix 2.]
Chairwoman Lummis. I am glad that that was called
``Erroneous Numbers, Erroneous Conclusions: The Navigant Wind
Jobs Report.'' I was afraid it was going to say ``Erroneous
Numbers, Erroneous Conclusions: Republican Pollsters Blow
November Election.''
Well, I would like to thank the witnesses for their
valuable testimony and the Members for their questions. The
Members of the Committee may have additional questions for you,
and we will ask you to respond to those in writing. The record
will remain open for two weeks for additional comments and
written questions from Members.
Again, thank you, witnesses for your patience, and Members
of the Committee. The witnesses are excused, and this hearing
is adjourned.
[Whereupon, at 4:57 p.m., the Subcommittee was adjourned.]
Appendix 1
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Answers to Post-Hearing Questions
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Appendix 2
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Additional Material for the Record
``Chinese Solar Approach Faces Test'' from The Wall Street Journal
Online Edition, March 6, 2013
``Bjorn Lomborg: Green Cars Have a Dirty Little Secret'' from The Wall
Street Journal Online Edition, March 11, 2013
``Inflated Numbers; Erroneous Conclusions: The Navigant Wind Jobs
Report'' by Charles J. Cicchetti, Ph.D., March 2013