[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
DEPARTMENT OF ENERGY OVERSIGHT:
OFFICE OF FOSSIL ENERGY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ENERGY
COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
May 11, 2016
__________
Serial No. 114-76
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Printed for the use of the Committee on Science, Space, and Technology
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COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
HON. LAMAR S. SMITH, Texas, Chair
FRANK D. LUCAS, Oklahoma EDDIE BERNICE JOHNSON, Texas
F. JAMES SENSENBRENNER, JR., ZOE LOFGREN, California
Wisconsin DANIEL LIPINSKI, Illinois
DANA ROHRABACHER, California DONNA F. EDWARDS, Maryland
RANDY NEUGEBAUER, Texas SUZANNE BONAMICI, Oregon
MICHAEL T. McCAUL, Texas ERIC SWALWELL, California
MO BROOKS, Alabama ALAN GRAYSON, Florida
RANDY HULTGREN, Illinois AMI BERA, California
BILL POSEY, Florida ELIZABETH H. ESTY, Connecticut
THOMAS MASSIE, Kentucky MARC A. VEASEY, Texas
JIM BRIDENSTINE, Oklahoma KATHERINE M. CLARK, Massachusetts
RANDY K. WEBER, Texas DON S. BEYER, JR., Virginia
JOHN R. MOOLENAAR, Michigan ED PERLMUTTER, Colorado
STEVE KNIGHT, California PAUL TONKO, New York
BRIAN BABIN, Texas MARK TAKANO, California
BRUCE WESTERMAN, Arkansas BILL FOSTER, Illinois
BARBARA COMSTOCK, Virginia
GARY PALMER, Alabama
BARRY LOUDERMILK, Georgia
RALPH LEE ABRAHAM, Louisiana
DARIN LaHOOD, Illinois
------
Subcommittee on Energy
HON. RANDY K. WEBER, Texas, Chair
DANA ROHRABACHER, California ALAN GRAYSON, Florida
RANDY NEUGEBAUER, Texas ERIC SWALWELL, California
MO BROOKS, Alabama MARC A. VEASEY, Texas
RANDY HULTGREN, Illinois DANIEL LIPINSKI, Illinois
THOMAS MASSIE, Kentucky KATHERINE M. CLARK, Massachusetts
STEPHAN KNIGHT, California ED PERLMUTTER, Colorado
BARBARA COMSTOCK, Virginia EDDIE BERNICE JOHNSON, Texas
BARRY LOUDERMILK, Georgia
LAMAR S. SMITH, Texas
C O N T E N T S
May 11, 2016
Page
Witness List..................................................... 2
Hearing Charter.................................................. 3
Opening Statements
Statement by Representative Randy K. Weber, Chairman,
Subcommittee on Energy, Committee on Science, Space, and
Technology, U.S. House of Representatives...................... 4
Written Statement............................................ 6
Statement by Representative Alan Grayson, Ranking Member,
Subcommittee on Energy, Committee on Science, Space, and
Technology, U.S. House of Representatives...................... 8
Written Statement............................................ 10
Statement by Representative Lamar S. Smith, Chairman, Committee
on Science, Space, and Technology, U.S. House of
Representatives................................................ 12
Written Statement............................................ 14
Statement by Representative Eddie Bernice Johnson, Ranking
Minority Member, Committee on Science, Space, and Technology,
U.S. House of Representatives.................................. 16
Written Statement............................................ 18
Witnesses:
The Honorable Chris Smith, Assistant Secretary, Office of Fossil
Energy, U.S. Departmentof Energy
Oral Statement............................................... 20
Written Statement............................................ 22
Discussion....................................................... 32
Appendix I: Answers to Post-Hearing Questions
The Honorable Chris Smith, Assistant Secretary, Office of Fossil
Energy, U.S. Departmentof Energy............................... 52
DEPARTMENT OF ENERGY OVERSIGHT:
OFFICE OF FOSSIL ENERGY
WEDNESDAY, MAY 11, 2016
House of Representatives,
Subcommittee on Energy,
Committee on Science, Space, and Technology,
Washington, D.C.
The Subcommittee met, pursuant to call, at 10:07 a.m., in
Room 2318 of the Rayburn House Office Building, Hon. Randy
Weber [Chairman of the Subcommittee] presiding.
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Chairman Weber. The Subcommittee on Energy will come to
order.
Without objection, the Chair is authorized to declare
recesses of this Subcommittee at any time.
I want to welcome you to today's hearing titled
``Department of Energy Oversight: the Office of Fossil
Energy.''
I recognize myself for five minutes for an opening
statement.
Again, welcome to today's Energy Subcommittee hearing
examining the Department of Energy's Office of Fossil Energy.
Today, we will hear from the Department on the research,
development, demonstration and commercialization activities in
the Office of Fossil Energy, and the impact DOE's fossil energy
programs have on the energy market and the U.S. economy.
Fossil fuels are America's dominant energy source, and
provide over 80 percent of energy around the world. The
International Energy Agency estimates that even if the
aggressive regulations required to meet the Paris Climate
Agreement are implemented, fossil fuels will still account for
over 40 percent of global energy use in the year 2050.
With those statistics in mind, DOE should prioritize the
type of early stage research in fossil energy that will lead to
next generation technology to access our natural resources,
move fossil fuels safely to consumers, and then use those fuels
more efficiently in our cars and in our power plants. Through
the national labs, the Department should take the lead on
fossil energy technology innovation, conducting the
foundational research that allows the private sector to
commercialize groundbreaking technology.
Unfortunately, that is not the type of budget proposal
we're discussing today. In the DOE fiscal year 2017 budget
request, it is clear that fossil energy innovation is not the
priority for the Obama Administration. While the DOE budget
proposal regularly offers aspirational goals backed by
significant spending in renewable energy research and
development, the budget for fossil energy is cut year after
year.
This year is no exception, with a $32 million cut to fossil
energy R&D. When compared to the proposed $2.1 billion--with-a-
B increase to renewable energy, there's no question about where
this Administration wants to innovate. And what's worse,
instead of research designed to increase fossil energy
production through innovation or cut the cost of electricity
from fossil fuels with new technology, the budget proposal for
fossil energy is singularly focused on emissions management, or
``impact mitigation'' as the budget describes it.
Simply put, the vast majority of DOE fossil energy research
and development programs have been reduced to managing
emissions to comply with EPA regulations. But over-regulation
is not the right way to innovate. And the Department of Energy
shouldn't be dedicating limited taxpayer resources to proving
commercial-scale technology to back up EPA rules.
DOE's research infrastructure should be used to develop
groundbreaking technology, not move that technology to the
commercial market.
By focusing on justifying regulations and rushing to scale
up today's technology, the Department has repeatedly put
taxpayer dollars at risk on large-scale projects that were not
ready for prime time. Even the few successful projects that
make it into operation, one in my district, the Air Product and
Chemicals carbon capture sequestration storage demonstration
project, are often completed at a great cost to the American
taxpayer. DOE does not have adequate expertise or capacity to
successfully manage commercial-scale projects. So instead, the
Department should focus limited federal dollars on the
fundamental research to lay the foundation for the next
technological breakthrough.
The Department of Energy has made significant contributions
to fossil energy production by funding early-stage research,
and allowing the private sector to then make that technology
work in the energy market.
DOE research conducted by the national labs helped develop
the technology of hydraulic fracturing that led to the shale
revolution. If the Department refocuses on technology research
and development, I believe that American industry can then
capitalize on that research, and they can revolutionize the
energy industry once again. But that won't happen if DOE's
limited resources remain stove-piped--pun intended. Did you
like that pun? All right--and focused on regulatory compliance.
I want to thank Assistant Secretary Chris Smith for
testifying here today, and I look forward to a review of the
budget proposal and a discussion about DOE priorities and
research goals for fossil energy.
By funding early-stage research and development, the
Department of Energy could build a foundation for the private
sector to bring innovative new fossil energy technologies to
market, and help grow the American economy, and I would even
add help with those emissions.
[The prepared statement of Chairman Weber follows:]
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Chairman Weber. With that, I want to yield to the Ranking
Member for his opening statement.
Mr. Grayson. Thank you, Chairman Weber, and thank you, Mr.
Smith, for testifying today.
Let's be clear about what we are talking about. We are
talking about air pollution in the form of carbon dioxide
emissions. No company that produces energy in the United States
has any incentive to limit its own air pollution unless we
create that incentive for it. Now, there are different means to
do that. For instance, we could simply order it. That's
regulation. My Republican colleagues might decry that as some
kind of war on coal, but the fact is, that's one way to
actually cut emissions that wouldn't happen otherwise.
The second possibility is for the government to actually do
it itself. The government could actually produce large-scale
products that would capture carbon as it is being emitted or
before it's being edmitted into the atmosphere. That would be
another solution to the problem.
But there is no solution that does not involve some kind of
government action because the private market will not limit
pollution when the cost of pollution is zero. So either we have
to create a cost of pollution through a market mechanism or we
have to order its limitation one way or another as we did with
the cap-and-trade bill from several years ago.
So one way or another we need government involvement. I
don't particularly see any benefit in saying that it has to be
a particular kind of government involvement. I don't think
there's any benefit in saying it has to be small scale or
limited to research or anything like that. The ultimate test
is, is it effective or not.
Now, with our government being formally committed under the
Paris Climate Agreement to limitations on emissions, I think we
have to be practical about how we get to those limits, how we
achieve those goals. But it's dreaming to think that it's going
to happen through the ``free market'' when the free market has
every incentive to continue to pollute as much as it wants.
Now, with regard to coal versus other sources of energy, we
all know that coal has been on the decline in the United
States. I think that one of the reasons, to be fair about this,
is the rise of natural gas. Another reason is the rise of solar
and other renewable forms of energy. That's actually what's
happening with or without carbon sequestration. According to
the U.S. Energy Information Administration, natural gas is
projected to surpass coal as the leading source of energy for
U.S. power generation this year. And there's a shift to natural
gas in the United States that has resulted in reduced
greenhouse gas emissions, reduced pollution by carbon dioxide,
if you will.
And I should remind everybody that although natural gas is
a cleaner source of fossil energy, it still emits a very large
and substantial amount of carbon dioxide into our atmosphere,
unlike renewables.
It should be noted that coal and natural gas account for
about 65 percent of U.S. electricity generation together, and
it's possible that they may continue to be a major part of U.S.
energy, particularly depending upon how fast renewables surge
into that gap.
Nearly every activity within the Office of Fossil Energy is
focused on climate disruption in one form or another and how
that has brought about by fossil energy. I commend you for
focusing on that, for focusing on matters of environmental
mitigation because that's a legitimate government role, and it
is true that the Administration is proposing to cut that
overall budget.
In order to deliver on the emission targets agreed to in
the Paris Climate Agreement and in the future, carbon capture
technology likely will be needed in the United States as well
as around the world, particularly in developing countries that
rely continually, heavily on coal. According to the
International Energy Agency, the world's coal consumption is
going up, not down, and since the start of the 21st century,
coal production has been actually the fastest-growing global
energy source, particular in third-world countries. India is
entering a period of sustained rapid growth, and its demand for
cheap coal power generation is surging. China and Southeast
Asia are major consumers of coal and continue to bring on new
coal-fired power plants each year. And African countries still
count on fossil fuels for 77 percent of their electricity
production.
Thus, the development of carbon capture technologies is
crucial to the worldwide effort to reduce greenhouse gas
emissions and keep our planet safe. The United States can lead
this effort to solve this challenging technological problem
through your research. We can, and should, capitalize on this
unique environmental and economic opportunity.
The Administration's announcement of fossil energy
technology innovation gave us all high hopes for transforming
our energy economy, including the advancement of innovative
carbon capture technologies like the ones they're working on
right now. But looking closer at the details, I realize that we
may fall short of making any significant progress in reducing
the environmental impact of fossil fuels through carbon
pollution.
I am hoping that this hearing provides a clearer
explanation of the significant cuts within the Office of Fossil
Energy's Advanced Energy Systems program budget that have been
proposed, among other areas. Also, I'd like to hear how DOE
plans to better steward large demonstration and pilot projects
going forward since I believe that they may well be necessary
to meet our goals of reducing carbon pollution. I hope our
conversation today can help to highlight some of these needed
improvements, and I thank the chairman and the witness and
yield back.
[The prepared statement of Mr. Grayson follows:]
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Chairman Weber. I thank the gentleman.
The Chair now recognizes the Chairman of the full
Committee, Chairman Smith.
Chairman Smith. Thank you, Mr. Chairman.
Today we will examine the Department of Energy Office of
Fossil Energy's research and development budget for coal, oil,
and natural gas.
The fossil energy research and development programs should
advance technologies for the ``reliable, efficient, affordable,
and environmentally sound use of fossil fuels that are
important to our nation's security and economic prosperity'' as
is their stated mission. Like many of my colleagues, I share
this commitment to the long-term use of our nation's most
abundant and affordable fuel source.
Unfortunately, the Administration's proposed budget for
fossil energy research and development appears to be at odds
with America's energy resources and needs. As in past budget
requests, the Obama Administration proposes to cut fossil
energy R&D this time by $32 million.
DOE apparently counts on Congress to increase funding for
fossil energy every year, and I'm glad to see the House
Appropriations Committee has proposed to restore funding for
fossil energy R&D again this year. However, this lack of
consistency is no way to manage a robust research and
development program.
While the Administration pays lip service to the important
role of fossil fuels in a clean energy future, there are
fundamental concerns with DOE's approach to fossil energy R&D.
DOE refuses to prioritize early-stage research and development
for innovative fossil energy exploration and production
technologies or research to develop and integrate technology to
make coal-fired power plants more efficient. Instead, the
Fossil Energy R&D program has become singularly focused on
carbon dioxide management.
DOE should expand access to America's oil and gas
resources, not use limited research dollars to help the EPA
measure emissions. Unfortunately, fossil energy innovation does
not appear to be a priority for this Administration.
The fiscal year 2017 budget proposal also lacks
transparency. The Administration proposes to eliminate funding
by fuel type in the fossil R&D budget. It argues that this can
streamline research for carbon capture and sequestration by
coordinating coal and natural gas programs. While CCS for coal
and natural gas power plants face similar technology
challenges, the proposed restructuring masks how federal
dollars are being spent. Congress appropriates funding by fuel
type to avoid this problem. Coordination of research when
appropriate can be cost-effective and save limited resources
for research and development. But coordination cannot come at
the expense of transparency.
The budget proposal also lacks transparency regarding the
Administration's Mission Innovation initiative. This is the
commitment made during the Paris climate change negotiations to
double federal investment in clean energy research and
development. According to the budget request, $564 million of
the $600 million request for fossil energy R&D is for programs
that support Mission Innovation. However, nowhere in the budget
does DOE explain the purpose of Mission Innovation or the goals
for fossil energy research and development conducted in support
of the initiative. It should be clear to stakeholders,
researchers, and Congress what the Department hopes to
accomplish in fossil energy and across DOE.
Finally, the Office of Fossil Energy has significant
management challenges. Large demonstration projects have been
poorly managed by the Department, with little transparency on
project decisions until a public announcement of pooled funds.
The Office of Fossil Energy should fairly enforce deadlines
and work with companies to ensure projects can be successful.
Instead, it appears the Office systematically ignores time and
cost limits. This type of sloppy management doesn't help
companies that work with DOE to develop groundbreaking
technology, and it certainly doesn't benefit the taxpayer.
Mr. Chairman, I want to thank our witness, Assistant
Secretary Smith, for testifying today, and I look forward to a
discussion about the direction and purpose of the fossil energy
research programs at DOE.
Finally, let me say that regrettably I have another
committee that is starting a markup or started a markup 20
minutes ago, so I'm going to have to leave, but I hope to
return.
Thank you, Mr. Chairman, and I yield back.
[The prepared statement of Chairman Smith follows:]
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Chairman Weber. Thank you, Mr. Chairman.
The Chair now recognizes the Ranking Member of the full
Committee, the gentlelady from Texas.
Ms. Johnson. Thank you very much, Mr. Chairman, and let me
express my appreciation to you and to the Ranking Member for
holding this hearing. And I'd also like to thank Assistant
Secretary Smith for being here today.
The Department of Energy's Office of Fossil Energy plays a
critical role in developing technologies and best practices
that minimize the environmental impact that we, and indeed the
world, cause when we extract and use fossil fuel resources.
While I'm also strongly in support of the Department's
efforts to advance renewables, energy efficiency, nuclear
power, and other clean energy sources as quickly as possible, I
recognize that we and our international partners are likely
going to continue to use significant amounts of coal, natural
gas, and oil to heat our homes and fuel our vehicles for
decades to come.
However, we can't bury our heads in the sand if we are
serious about tackling climate change. We can't just focus on
developing one set of energy sources, as promising as they are.
We need to do all of them.
This is why I was so excited about the announcement of
Mission Innovation, a commitment that the President and leaders
from 19 other nations made to double their government-supported
clean energy R&D investments over the next five years. This is
exactly the kind of commitment we need to cover the full range
of research and technology development activities required to
sufficiently address the climate crisis.
And yet, just a few months after Mission Innovation was
announced, the Department proposed large cuts to or the
outright elimination of a number of worthwhile programs carried
out by Assistant Secretary Smith's Office, with little
justification for those cuts provided in the budget request.
Examples include the elimination of the Carbon Use and Reuse
program, a 78 percent cut to Gasification Systems, a 73 percent
cut to fuel cell research, and a 33 percent cut to the Advanced
Turbines subprogram.
All of these programs aim to make fossil energy systems
cleaner and more efficient, which is consistent with the goals
of Mission Innovation. So, Mr. Smith, I hope you can help us
better understand the rationale behind these drastic cuts that
have been made, despite an effort to double overall funding for
clean energy R&D in the next five years.
In addition, and we have discussed before, I would like you
to provide this Committee with a clear explanation for the
Department's rather abrupt shift from support of the Texas
Clean Energy Project through the end of the year to your
proposal to reprogram the remaining, previously appropriated
funds for it. Your timely response to the letter from the Texas
delegation on this issue was helpful, as was my recent
conversation with the Secretary. And the Inspector General
report released two weeks ago on the project provided further
context. However, questions remain regarding the process that
the Administration followed to come to its decision.
I certainly understand that sometimes new research projects
are unsuccessful in meeting their initial goals, and difficult
decisions must be made to ensure that taxpayer dollars are used
wisely. But this needs to be done in a clear and transparent
fashion, with mutually understood milestones and clearly stated
potential consequences for not achieving them.
I look forward to working with you, Mr. Smith, and my
colleagues on the Committee, to address these concerns and to
ensure that you have the direction, tools, and resources you
need to help ensure that we are using our abundant fossil
energy resources as wisely and responsibly as possible.
Thank you, and I yield back the balance of my time.
[The prepared statement of Ms. Johnson follows:]
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Chairman Weber. I thank the gentlelady.
Let me introduce our witness today. Our witness today is
the Honorable Chris Smith, Assistant Secretary for Fossil
Energy at the U.S. Department of Energy. Prior to his
confirmation in 2014, Assistant Secretary Smith served as
Principal Deputy Assistant Secretary for Fossil Energy, and as
Deputy Assistant Secretary for Oil and Natural Gas. Assistant
Secretary Smith received his bachelor's degree in engineering
management from West Point and his MBA from Cambridge.
I now recognize Assistant Secretary Smith for five minutes
to present his testimony. Welcome, Chris.
TESTIMONY OF HON. CHRISTOPHER SMITH,
ASSISTANT SECRETARY FOR FOSSIL ENERGY,
U.S. DEPARTMENT OF ENERGY
Mr. Smith. Thank you very much, Mr. Chairman, and it's a
pleasure to appear again before this Committee, so thank you
very much for having me here today.
Today we're seeing new opportunities and challenges for our
fossil energy resources. This was highlighted in the recent
climate agreement in Paris. With the United States' leadership,
190 countries submitted plans to reduce their carbon emissions
to address climate change. COP-21 was an important first step
but it was only a first step. The mandate coming out of Paris
is that we must continue to innovate.
That's the idea behind Mission Innovation, a landmark
international effort to double clean energy research and
development over the next 5 years.
Mr. Chairman, in the clean energy economy of the future,
there will be those who build the technologies and there will
be those who buy them. The United States must be a builder and
a leader in this new economy.
We have a leg up in this race. Innovation is something that
we do well here in America and at the Department of Energy.
The Department is primarily a research organization focused
on developing clean energy technologies from wind to solar,
from geothermal to nuclear, but one of the most important
things that we are doing in our work is to enable the
sustainable use of our coal and natural gas resources. That's
what we do through my Office of Research and Development
program, and that's the core of our contribution to Mission
Innovation
The President's final budget emphasized the importance of
this work with a $31 million increase in those core activities
consistent with Mission Innovation, and through your funding,
Congress also recognizes the importance of fossil energy
research and development.
This R&D includes in-house research at NETL, the National
Energy Technology Laboratory, the only government-owned and
government-operated laboratory in DOE where we are working with
our partners to advance innovative technologies like CCS,
advanced power systems to ensure the sustainable use of natural
gas and coal. And just today we announced the selection of Penn
State to establish and lead a new university coalition for
fossil energy research, which will focus on the challenges to
fossil energy-based technologies.
I'd like to add that we're also working with those
communities that have been impacted by market pressures on coal
including exploring commercial opportunities for extracting
rare earth elements from coal. This is important to those
communities and to the Nation since China is currently the
dominant source for those materials.
We also sponsor a portfolio of major demonstration projects
which are critical to commercializing carbon capture
utilization and storage. These projects along with our regional
partnerships have stored nearly 12 million metric tons of
CO2.
As you know, however, the developments of any complicated
innovative technology will face difficulties. Some projects
won't reach completion, and I have had the opportunity to talk
with some of you about the Texas Clean Energy Project, but
we're also seeing real progress.
For example, NRG's Petra Nova 240-megawatt post-combustion
project will begin full capacity operation next January.
Southern Company's Kemper project is preparing gas fires for
the first lignite feed and syngas production and is scheduled
for commercial startup by third quarter of this year.
ADM's industrial CCS project will achieve full CO2
injection rate by early 2017, and the Air Products project is
expected to capture and store 3 million metric tons of CO2
by the summer.
Going forward, we will soon select a 10-megawatt pilot
project to test the next generation of carbon capture
technologies. We also have the opportunity to strengthen our
contribution to Mission Innovation. Our fiscal year 2017 budget
proposes that an initiative that would build on FER&D advances
to bring to market revolutionary methods and technologies that
capture, use and store CO2 for power plants as well
as from industrial sources.
Fossil Energy research and development is also pursuing
innovative ways to safely and sustainably develop our gas
resources including gas hydrates. R&D includes well design and
engineering-induced seismicity and technologies to treat and
produce waste for reuse.
We're also working to reduce methane leaks from our natural
gas infrastructure. That's why in the wake of Aliso Canyon
we've partnered with the Department of Transportation on a new
interagency task force on natural gas storage safety, the
safety of integrity of the Nation's natural gas infrastructure.
We're also collaborating with transportation to better
understand and mitigate risks associated with the
transportation of conventional and tight crude oils.
Mr. Chairman, innovation is critical to meeting the
challenges of climate change and the demands of a low-carbon
future. The Department of Energy is committed to developing
innovative fossil energy technologies to meet those challenges
and secure U.S. leadership in the global clean energy economy.
With that, I'd be happy to answer any questions that the
Committee might have, and again, thank you for giving me the
opportunity to appear here today.
[The prepared statement of Mr. Smith follows:]
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Chairman Weber. Thank you, Mr. Smith.
The Chair now recognizes himself for five minutes.
In your opinion, Mr. Smith, what is the appropriate role of
government in fossil energy research and development, and let
me be specific. In other words, what is the right balance of
investments between applied energy research versus the
demonstration and commercialization of energy technologies for
fossil energy? That is kind of a two-part question. Let me
restate it.
In your opinion, what is the appropriate role of government
in fossil energy research and development? I'll let you take
that one first.
Mr. Smith. Okay. Well, thank you, Mr. Chairman, and that's
a big question. I mean, that's the basis of our entire budget.
So the role of my program is developing those clean energy
technologies that are going to ensure that all forms of
domestic energy are relevant in the economy of the future. The
Department of Energy is a technological organization. It's what
we do. We develop technologies from wind to solar to enhanced
geothermal to biofuels to nuclear. An important part of all of
our goals be it innovation, job creation, energy securing,
reducing greenhouse gas emissions, is to ensure that all forms
of domestic energy remain relevant, and so the core of our
program is carbon capture and sequestration technologies,
ensuring that those technologies move forward so that all forms
of energy are reliable and part of the future for us.
Chairman Weber. Well, let me say this. When you're focusing
on--and as you know, in my district, Port Arthur, Texas, with
Air Products, the project that you and I were able to be there
for the groundbreaking on a very good project, a lot of carbon
sequestration captured and, you know, just the success of the
project, do you remember, was that $460 million?
Mr. Smith. Of that order.
Chairman Weber. So something in that area. And they've
captured, I think according to your statement, up to three
million tons now of CO2?
Mr. Smith. Three million tons for that project.
Chairman Weber. What does that cost per ton if you divide
that out?
Mr. Smith. We'd have to do the math on that, Mr. Chairman.
Chairman Weber. Four hundred and sixty million divided by
three million tons. That's a lot of millions of dollars per
ton.
It seems to me like what's happening is, when you go
focusing on carbon--CO2 capture, that it's kind of
like closing the barn door once the cow gets out because that's
on the back end of the energy chain, so to speak. You know,
you're using fossil fuel energy, which as we noted earlier, is
80 percent of the world's energy consumption, or energy usage,
rather, and I think they're saying probably still as much as 40
percent by 2050. So when you focus on the back end of fossil
fuel energy, doesn't that take your focus away from innovation
and technology on the front end?
Mr. Smith. Well, I'm not sure I agree with that
characterization, Mr. Chairman. The important thing that we
have to work on--and I agree with some of the statements you
made in your opening statement about the importance of
innovating, the importance of early-stage technology, the
importance of pushing the envelope in that way, and also agree
very strongly with some things that the Ranking Member
mentioned in his technology that the challenge of these
projects is not the technology per se but it's some of the
commercial issues around pushing forward and improving these
technologies and doing the demonstrations, an environment in
which it's free for companies to emit as much CO2 as
they want to in the environment. You don't have to pay for
that. So there's not a way for companies to capture the very
strong positive externalities that you get from capturing that
CO2.
Therefore, we have to work with industry to make sure that
we're doing demonstrations like the one we've done in your
district that you and I got to do the groundbreaking on. It's
important to show and demonstrate that those technologies are
available, that they work, that you get real projects built so
that coal and natural gas can continue to be part of our energy
mix.
Chairman Weber. But in all fairness, Mr. Smith, when you
look at that project, $460 million, 60 percent of it was paid
for by the American Reinvestment and Recovery Act, if I
remember, so I don't know what that math is, but--and it was a
great project and a great plan in our district and it led to a
lot of jobs, but realistically speaking, DOE, in my opinion,
their--your focus needs to be on improving that energy
efficiency, not on capturing what's considered by some to be on
the back end, you know, undesirable energy, a fuel, and so when
you focus on capturing the emissions, if you will, on the back
side, you're reducing your ability to actually focus on
innovating on the front end, and no project--I mean, I don't
think any project can be built with 100 percent free market
business money because when the government provided 60 percent
of that money to that project, of course it could be built, but
I don't think you can duplicate that.
Mr. Smith. Well, again, Mr. Chairman, in this current
market, that's necessary because it's free to emit as much
carbon pollution to the environment as you want to. I mean, the
optimal thing for a company to do is to run their plant and
just put that pollution into the environment because it doesn't
cost anything.
Chairman Weber. Well, I want to respectfully disagree, and
I'm running over here because, you know, we live in our
districts. I represent the Gulf Coast of Texas, five ports,
more than any other Member of Congress. Sixty percent of the
nation's jet fuel is produced in our district. It's almost 20
percent of the nation's gasoline east of the Rockies, so a lot
of energy production, and those of us who live and work there,
we want clean air for our kids and clean air and clean water.
We just do. And those industries do too and the communities do
too, and they strive to be as clean as possible.
But we could go on for a long time here, and I appreciate
you being here, and I'm way over my time, so I'm going to yield
now for questions to the Ranking Member of the whole Committee,
Mrs. Johnson.
Ms. Johnson. Well, thank you. I didn't realize I'd be
called out of order.
Mr. Smith, roughly how much of the Fossil Fuel Energy R&D
budget would you consider to be relevant to climate mitigation,
both domestically and if we can export these technologies
around the world? And in the context of Mission Innovation, how
does it make sense for so many of these programs to receive
such significant cuts or be eliminated entirely?
Mr. Smith. Thank you very much for the question. So if you
look at our entire $600 million budget request, I'd
characterize the vast majority of those projects being relevant
to reducing greenhouse gas emissions and promoting cleaner
energy. The core of our program is the carbon capture and
sequestration efforts, capturing CO2 out of power
systems, out of industrial sources, capturing that CO2
and storing it over--permanently so that CO2 does
not go into the environment.
In the Oil and Gas program, we're focused on environmental
sustainability and safety, so I'd say overall if you look at
our budget, the overwhelmingly vast majority of the work that
we do is very much relevant to the challenge of the clean
energy economy of the future.
In terms of our budget, our budget is consistent with the
idea of Mission Innovation, which is doubling of clean energy
R&D over the next five years, and in fact, we've got a core of
our program that is directly relevant to the challenge of
Mission Innovation. That core has been increased from $533
million to $564 million, so that's a $31 million increase. At
the same time, we've had some successes in our program and
we're rolling off of certain efforts which allow us to gain
some efficiencies.
For example, in our carbon storage program, we're moving
from the injection phase in some of our major regional
partnerships to long-term monitoring and verification. That is
a less costly phase of that research. It's just as important
but less costly, and what it allows us to do is, you know, in
an environment of very challenging budgets for us to reduce
funding in some areas as we make some advances or as some of
the technologies become less relevant and focus those funds on
areas that we think are going to be particularly relevant for
the types of topics that are going to be important for Mission
Innovation early TRL-level research and development that is
going to be truly transformational in reducing the costs for
capturing CO2.
Ms. Johnson. Hypothetically, if the Department's request
for $1.6 billion of additional so-called mandatory spending for
clean energy research is authorized during this Congress, would
it make sense for Fossil R&D to receive some of the additional
funding?
Mr. Smith. Well, indeed, Congresswoman, again, the core of
our program, we actually are increasing and that's something
that we'd like to--you know, we'd be happy to detail in more
granularity but we've added additional $31 million to those
core programs that are relevant to Mission Innovation, and over
time since--you know, I came into this role back in 2013 so the
2014 budget was the budget that I--you know, my first budget I
got to work on, which was an R&D budget of about $430 million,
and that has increased by 40 percent, you know, since the
fiscal year 2014 request to this year of $600 million.
So again, in an environment of tremendously challenging
budget pressures, I think our recognition of the importance of
this challenge has increased as has our budget request and the
successes that we are having in some of our programs.
Ms. Johnson. Well, considering that fossil fuel energy
generates over 60 percent of our electricity, don't you think
it would be wise to at least a fraction of that proposed
increase and put it toward technology development and
demonstration efforts to reduce environmental impacts of coal
and natural gas, or even mission-driven basic research that
could be handed off to industry when applicable?
Mr. Smith. So our materials programs are and remain very
important, everything from advanced computational efforts
through our major demonstrations. We've got a very wide range
of programs that are doing the early phase research and
development on the transformational technologies like chemical
looping and pressurized oxy-combustion all the way through the
major demonstrations, which we are working very intently with
our collaborators to move forward and be successful with. So
again, I concur with your observation that these technologies
are important, and indeed, I think that we're putting the right
effort into them.
Ms. Johnson. Thank you. I yield back. Time has expired.
Chairman Weber. I thank the gentlelady.
The gentleman from California is recognized for five
minutes.
Mr. Rohrabacher. Thank you very much, Mr. Chairman.
Let me just note that I think that the premise that we're
operating on in this hearing is just wrong. I think it started
right with Mr. Grayson, whose opinions I deeply respect but
disagree with, when he said that this is all about air
pollution, and CO2--it's about CO2. It's
not about air pollution. Pollution by the definition of most--
not most but many very prominent scientists is something that
endangers human life, endangers the health of human beings.
What we have here and the hundreds of millions of dollars if
not billions of dollars that we are talking about is all based
on the idea that CO2 is heating our planet, and this
theory, which we have to understand, pushing this theory, this
Administration is basically by doing--putting such an emphasis
on it, being willing to sign agreements that put enormous power
in the hands of global decision makers instead of just American
decision makers as well as have tremendous impact on jobs,
especially in the coal industry where we're talking about tens
of thousands of jobs that are being lost, and I'm very happy to
hear we're trying to do something to help them come through a
crisis when men and women who have earned a living and
supported their families are now just being thrown out because
of a theory, and I say the ``theory'' because there are
hundreds of scientists who do not believe that the global
warming theory based on CO2 that is heating our
planet is correct, whether it's Dr. Freeman Dyson of Cornell or
William Happer of Princeton, those are just two of hundreds of
scientists who just disagree, and it seems to me what we've got
here when we're talking about the money that's being spent and
the shift--forcibly shifting a reliance from coal to natural
gas and to wind and solar, et cetera, is running roughshod
basically over the livelihood and the well-being of many
American working people, and I--can you--I guess you're not the
one to explain global warming, the global warming theory, but
when we're talking about CO2 reduction, what are the
other benefits that you can see that justify this enormous
expense--how do you say--dislocation of our economy in order to
accomplish these goals?
Is there anything else but--somebody says air pollution. I
don't accept the fact that CO2 in any way causes
human health problems. Air pollution to me is worth trying to
do some things to try to protect health. There's no doubt about
that, but trying to basically fulfill this--base our operations
on the CO2 theory of global warming I don't believe
is justified. Maybe you could tell us what else besides global
warming is being benefited by these expensive and dramatic
changes that you're involved in.
Mr. Smith. Well, thank you very much, Congressman, for the
question. So there's a lot there in that question.
So maybe I'll refer back to COP-21, the global climate
event late last year. I went into COP-21 with the expectation
that maybe 60, maybe 70, maybe 50 countries would put forth
INDCs, their Initial National Determined Contributions, real
steps that countries are going to take in order to reduce
greenhouse gas emissions. With U.S. leadership we ended up with
190 countries, 190 countries, essentially all the participating
countries, made specific commitments to address climate change,
to address anthropogenic CO2, a remarkable outcome.
I mean, it's remarkable to get 190 countries to agree to
anything, much less something as difficult to address as this,
as fundamental as it is to our ideas around energy security,
and indeed, something that you actually have to take steps to
address. You know, 190 countries led by the United States. And
so in terms of an emerging consensus, I mean, there's an
emerged scientific consensus around this existential need to
address carbon pollution----
Mr. Rohrabacher. So it's all based on the CO2
theory then? There's other things, and you're talking about
CO2. Let me ask, does CO2--is there an
indication--I was--I just visited some hothouses where they're
growing different vegetables and plants, and I noted that they
were pumping CO2 into these hothouses to grow plants
that would have a greater production of food. Even here in our
own country we do that. If we are reducing the CO2
in the atmosphere, is that also going to result in a lower
production of food?
Mr. Smith. So----
Mr. Rohrabacher. I mean, all these people have a consensus
about air pollution. Is there a side impact as well beside the
dislocation of people's jobs that there'd be less food produced
in the world?
Mr. Smith. We actually--we're looking at beneficial uses of
CO2 that include taking CO2 for algae
production, so there are useful things that you can do with
CO2, and that has been part of our program. It's
been part of the EERE's program that looks at renewable energy.
So there certainly are beneficial uses of anthropogenic
CO2, but overall, there is an enormous challenging
of reducing greenhouse gas emissions so that we can get the
climate to sustainable levels. That's the core of our program.
That's the reason why we are working on----
Mr. Rohrabacher. Honest people can disagree with that, so
thank you.
Mr. Smith. And I did want to address this idea of forcibly
shifting from coal, and I've spent--you know, I've spent a lot
of time in coal-producing countries. I've spent some time with
the governor in West Virginia. We had a laboratory that's based
in Morgantown, West Virginia, a National Energy Technology
Laboratory. Coal country is under tremendous pressures but they
are market forces which are impacting coal. You have trillions
and trillions of cubic feet of natural gas that are available
and at commercial quantities that were not available years ago,
and that reduction in the price of natural gas has put a
tremendous pressure on coal that along with the need to
greenhouse gas emissions, so I'd say that the program--you
know, our efforts within the Office of Natural Gas within the
Office of Fossil Energy are to ensure that all forms of energy
remain relevant.
Chairman Weber. We do need to move on. I appreciate that.
The Chair now recognizes the Ranking Member for five
minutes.
Mr. Grayson. Thank you.
Regarding my friend from California and what he just said,
if he thinks that carbon dioxide doesn't cause any human health
problems, I'd invite him to put a plastic bag over his head,
tie it tightly around his neck, and see what happens next. He
says they're always trying to do that to him anyway.
Mr. Smith, tell me your sense of what the term ``corporate
welfare'' means.
Mr. Smith. I would demur from offering a definition, Mr.
Chairman. Is that a question--or Mr. Ranking Member, is that a
question in reference to our program or----
Mr. Grayson. I'd like to know--well, it's a question. I'd
like to know whether you think that anything that could be
conceived of as corporate welfare is properly a function of
your office.
Mr. Smith. So the function of our office is to make sure
that we are moving forward and deploying technologies that will
be necessary for the clean energy economy of the future, and
that's what we do, and in order to do that we have to work
together with industry, work together with academia, work
together with our network of national laboratories. It's
important for us to have corporate partners because that's the
way that you push innovation to the marketplace, and that's
what we do.
Mr. Grayson. Well, would you want to see in your office,
for instance, $100 million effort to try to improve fracking
technology? And if not, why not?
Mr. Smith. Well, early on we did have a major effort for
hydraulic fracturing. I mean, the very first horizontal----
Mr. Grayson. I'm talking about today.
Mr. Smith. Well, the nature of our program is, for us, a
success is something where you have an early-stage investment
where the government innovates. We create--we put out data and
results and outcomes that companies can then subsequently come
in and invest in, and so we're certainly way down the path in
terms of hydraulic fracturing. I mean, I came from Chevron.
That's where I was before I came to government. Companies do
this very well. I don't see a government role in helping
companies do things that there's already a commercial
motivation to move forward on.
Mr. Grayson. Do you happen to know what Exxon's annual
research and development budget is?
Mr. Smith. I don't know off the top of my head.
Mr. Grayson. It's actually bigger than yours. It's a
billion dollars a year, and it's been a billion dollars every
year for the past 5 years.
So do you think there's some need to try to make sure that
your office is not doing in a duplicative way at the expense of
the taxpayers the same work that a company like Exxon would be
doing?
Mr. Smith. We very specifically do exactly that.
Mr. Grayson. All right. Explain to me how you do that.
Mr. Smith. Well, so we're constantly in conversation with
the market, with market players. They're our partners in a lot
of these efforts. We know where they are in terms of be it
extractive technologies for natural gas or technologies to
commercialize carbon capture, for example. So, you know, we're
in touch with the market. We see where the market's going. We
monitor market forces. We understand what investment is being
put in place, and we have to identify those scientific
challenges that absent an active government role would not be
filled and which have an important impact on the public good.
That's basically our annual budget process.
Mr. Grayson. And by ``important impact on the public
good,'' you mean what you and I were both referring to earlier,
this idea that pollution is an externality, that companies have
no incentives to deal with it unless we create an incentive,
and if we don't create an incentive, then it's incumbent upon
the government to promote research and sometimes even regulate
in order to take care of the effects of that externality? In
fact, you used the phrase earlier ``positive externalities that
you get from capturing CO2.'' That was your phrase,
not mine. What did you mean by that?
Mr. Smith. So if you capture that CO2 and you
store it instead of pumping it into the environment, that--you
know, that avoided emissions has a definite benefit, and right
now the market doesn't pay companies for that. If you're an
emitter, you can emit as much CO2 as you want to and
you don't get charged for doing that.
So there is a positive benefit to reducing emissions. In
fact, our program is approaching 12 million tons of CO2
that we've stored through our R&D efforts and through our major
demonstrations. That's an enormous benefit. I mean, that is a
positive thing. Right now companies can't reap that benefit and
therefore you have to find other creative ways to make sure
that these projects get built that technologies continue to
advance. Otherwise companies aren't going to work on these
things, and we think that they're important.
Mr. Grayson. You're developing ways to sequester
CO2, the actual know-how, how to do that, that's
what you're doing in your office. What's the next step after
that? Once you're successful, what's the next step after that?
Mr. Smith. Well, I mean, the challenge that we have is
continuing to advance new systems that lower cost, that
fundamentally change the way that we combust hydrocarbons, the
way we capture CO2. So, you know, two other projects
that we're looking at kind of going forward for new pilots
would be pressurized oxy-combustion using oxygen to combust the
coal and therefore you get a very concentrated stream of water
vapor and then CO2 in the back end so you don't have
to capture the CO2. That's kind of precaptured.
The second thing we're working on is chemical looping,
which is another novel way of combusting CO2 that
you end up with a very pure stream of--combusting carbon so you
get a very pure stream of CO2.
Those are systems that, you know, need further research.
They need further development. They need to be investigated at
the pilot scale but could take an enormous stride toward
reducing the cost of capture and ensuring that all forms
including coal remain relevant in the economy of the future.
Mr. Grayson. But here's my point. You're not just doing
this for the sake of advancing scientific knowledge; you're
doing this so that we can actually sequester carbon on a large
scale and reduce pollution, correct?
Mr. Smith. That is correct.
Mr. Grayson. Thank you. I yield back.
Mr. Knight. [Presiding] Thank you very much.
And I will take the next set of questions. First I want to
thank the Secretary for coming out to Southern California and
to Aliso Canyon, not that it's hard to come out to Southern
California, but I appreciate him coming out and having the
hearing, and it was one of the biggest incidents of the year
without a doubt, and so my first--all of my questions will be
around Aliso Canyon and around the gas leak that plagued our
district for 118 days and continues to have serious issues.
Can you tell me what the connection is to the states? In
certain states we have--like in California, we have the CPUC.
We obviously have the Governor's Office that does an awful lot
of these types of regulations and issues and then we have CARB
and I could go on and on, and I'm sure everyone's state could
go on and on, so can you tell me from the DOE what their
connection is, what their stance is on connecting with the
states in reducing and the regulations that come out of the
states?
Mr. Smith. Well, thank you for the question. So we're the
technical organization. You know, we do research and
development. We've got a tremendous resource with the network
of national laboratories, you know, thousands and thousands of
researchers and scientists and engineers that cover the gamut
of scientific knowledge, much of which is relevant to
challenges like this. So our primary role at the Department of
Energy, we're not the regulators, you know, that's not our job.
However, we do have a very deep scientific bench that is really
relevant to states, local and federal authorities when it comes
to understanding risks, understanding how to mitigate risks,
quantifying concerns, helping local and state entities come up
with plans for mitigating those risks. We think we're an
important resource. And indeed, much of the research and
development that we do is geared towards quantifying concerns
that the communities have around the long-term safety and
sustainability of our fossil energy systems. We think that's an
important mission that we have and one that we look for
opportunities to work with state authorities.
Mr. Knight. Absolutely. I understand the regulatory issues
and who is in charge of what, but can you tell me--in other
words, if it wasn't an emergency, would you be reaching out to
some of these states to do some of these areas that have these
types of issues that do high-energy output, that do underground
piping, that do these types of things that can be dangerous,
and we've been doing them for 70 or 80 years, and we've learned
an awful lot. Are you reaching out to those groups and giving
them your expertise and maybe working on some of those issues
so that when they do regulations they're effective regulations
and the industry is able to continue on with the regulation?
Mr. Smith. Indeed, Congressman. I mean, we have numerous
interactions with everything from the Southern State Energy
Board to the American Association of Petroleum Geologists. We
have ongoing conversations with state geologists throughout the
United States. I mean, there's myriad entities that we work
with to--and that communication goes two ways. I mean, we get
great inputs from states in terms of things that they're
learning and their processes that would help us shape our
research and development program, and then we also look for
opportunities to share things that we're learning so that
states can be more effective regulators.
States of course--again, we're not the regulators. States
are covetous us with their regulatory autonomy, which I think
is important. But at the same time, every state--well, states
have different concerns but a lot of them are similar, and a
lot of things that states are concerned with are the very
issues that we are investigating within the Office of Fossil
Energy, with the National Energy Technology Laboratory. So
indeed, I look for--I look forward to having further
opportunities to collaborate with the State of California and
with other entities throughout the United States on these
important issues.
Mr. Knight. And very quickly, so we've seen the PIPES Act
that has moved through for underground piping, and there's been
an amendment that has been kind of to put a regulation across
the board in the federal government so that states are not
doing--one is doing this, one state is doing this, one state is
doing this. How would you feel as--is that a good--is that a
good line in the sand to say that the federal government should
be doing that or should we allow the states to just do whatever
you want and there's no federal regulation?
Mr. Smith. Well, Congressman, I'm not familiar enough with
the amendment to speak specifically to that particular
amendment or to that piece of proposed legislation, but
certainly there is a balance to be drawn, and again, we're not
the regulator but, you know, whatever entity is in charge of
putting in place rules or promulgating those rules, the
Department of Energy would look for opportunities to
collaborate to make sure that rules are put in place to
represent commonsense regulation that's consistent with science
and the quantified risk that we worked on.
Mr. Knight. Very good. Thank you very much.
And I'll recognize the distinguished gentleman from
Colorado.
Mr. Perlmutter. Thank you, Mr. Chair.
Mr. Secretary, thanks for being here. I've just--you know,
listening to this conversation and representing the suburbs of
Denver where we have a lot of activity in the environmental
community, obviously have substantial production of oil and gas
and we have coal in our state, so it's a combination of things,
and you know, there are some in my state that would completely
do away with any fossil-fuel production whatsoever because they
believe with everything in their soul that that's causing the
planet to warm and could, you know, lead to the extinction of
all of us. Then there are those that are in the industry
saying--some who say well, you know what, we're going to
produce, we have a very reliable energy sources here whether
it's oil and gas or coal, and we're going to just produce, and
I want to compliment you and DOE for trying to find a way that
uses innovation, imagination, invention to take a plentiful
energy source that we have and yet recognize the environmental
problems that it may be causing, and so you know, thank you for
that. I'm glad to see you all play a role in trying to take the
brains that we have and find a way to make these things work
without damaging the planet.
But my questions are on the Strategic Petroleum Reserve,
okay? And one of the things that we've seen--and I used to be a
bankruptcy lawyer and I cut my teeth on oil and gas
bankruptcies, and we watched the Saudis, who can produce at a
much lower price than we can, you know, back in the day drop it
from 30 bucks a barrel to 7 bucks a barrel. We've watched them
now pump into lower demand type of economy, take it from 107
bucks a barrel down to 30, and now we're at around 40, 45. And
I know DOE plays some--has some role with respect to the
Strategic Petroleum Reserves, which Congress has tapped to help
fund a couple of items out there, whether it's some of our
transportation, our budget generally. Can you explain to us--
and maybe it's not within your jurisdiction of your department
within DOE but can you explain to us how DOE analyzes, you
know, when we fill up the Strategic Petroleum Reserve, when we
draw down on it? I mean, is that a question that you're
comfortable with?
Mr. Smith. Thank you, Congressman. So the--you know, as you
know, oil prices are very volatile. In the 1998 time frame,
we're looking at $18, $20 prices. Ten years later in 2008, we
were up to $140. Oil prices subsequently crashed down to the
20s and are now back up to the 40s, you know, 44, 45. So a
remarkably volatile commodity for something upon which our
entire economy relies. I mean, the overwhelmingly vast majority
of miles that Americans travel are fueled by oil. So we still
have a very important strategic link back to oil and our
economy has a very high level of vulnerability to spiking oil
prices. We are importing fewer barrels than--we import fewer
barrels from other countries than we produce domestically for
the first time in decades, which I think is--you know, it's a
tremendous step forward. It reduces our reliance, helps us
balance the trade and job creation. I mean, I think those are
all positive things.
But the Strategic Petroleum Reserve remains very relevant.
I think we still definitely need this reserve to protect our
economy. It's the one thing that we have to protect us against
price spikes. The global markets are well supplied now as we
see from the lower oil prices but it's still a very uncertain
world so the reserve remains important.
We've been instructed to sell barrels, you know, both
through the bipartisan Budget Act and the Transportation Act.
You know, on the Executive Branch, we execute the law as passed
by Congress so we will operate consistent with the spirit and
letter of that law. One positive thing that we get out of that
is that about $2 billion that will be go back into the
modernization of the Strategic Petroleum Reserve to make sure
that that reserve remains ready and that we have facilities to
push incremental barrels out to the market in a way that
protects our economy. So we're going to execute that mission in
a way that's positive for this SPRO.
Mr. Perlmutter. And I just hope that you buy low and sell
high. Thank you.
With that, I'll yield back to the Chair.
Chairman Weber. So you were a stock trader as well as a
lawyer?
The Chair now recognizes the gentleman from Texas, Mr.
Neugebauer.
Mr. Neugebauer. Thank you, Mr. Chairman.
Secretary Smith, thank you for being here. In your prepared
testimony, you discussed the DOE's ongoing research and
development in the carbon storage focused primarily on the
permanent geological storage of captured CO2 from
fossil fuel systems. But in your testimony there's no mention
of putting the captured CO2 to use in enhanced oil
recovery.
Similarly, the entire fiscal year 2017 budget proposal
mentions enhanced oil recovery only twice in the context of
past projects. Given the potential for cost-effective carbon
storage, can you explain why facilitating EOR is not included
in a major part of the DOE's carbon storage program?
Mr. Smith. Thank you very much for the question,
Congressman, and it's actually a really good one.
So as we look at the necessity to get these projects moved
forward and built, enhanced oil recovery is I think as
important as it has ever been in terms of incentivizing these
projects. If you take that CO2, you capture it, you
put it into a pipeline and use it to produce an incremental
barrel that otherwise would have remained in the ground, you
can take that value and use it to pay for the project itself.
In fact, we've got a major demonstration in the State of Texas
just south of Houston, the Petra Nova Project with NRG, that's
doing exactly that. It's a 240-megawatt project that's using
enhanced oil recovery, and the total in economics of the
recovered barrels are important for the overall project
economics.
Now, when it comes to research, I don't see a direct R&D
role for the Department of Energy in terms of enhanced oil
recovery. In fact, that's something that industry has been
doing for decades and does very well. Now, as a methodology for
taking that CO2 and putting it to beneficial use, I
think that is tremendously important.
One thing that we have proposed are tax credits for
sequestration so that there would be a tax credit that you'd
receive for oil that goes into EOR. We think that's important
to incentivize the activity to push those projects forward. In
terms of an R&D role, that has not been in our program simply
because there's a very, very strong commercial drive for
private industry to put research and development and activities
and capital into that area. In fact, industry's gotten a lot
better at it.
Mr. Neugebauer. So your focus then for your research is
just cost-effective storage and not necessarily looking at
alternatives? I mean, the enhanced oil recovery and use of the
CO2 for enhanced oil recovery has been a very good
thing for the oil industry, and according to you is good for
the environment as well. So if we're not focusing--if we're
focusing on storage, then why are we not focusing more on if it
works in the oil industry, it might work in other areas?
Mr. Smith. Well, I mean, it comes back to a question I had
earlier, I believe from Mr. Grayson, about how we think about
where we invest. You know, we've got finite dollars, we've got
a limited budget, so where do we focus those dollars? We want
to focus those dollars on areas that have a benefit to the
taxpayer, have a benefit to the Nation in terms of energy
security, job creation and the environment, but are areas in
which industry will not invest in itself that but for the
involvement of the government that this research wouldn't
occur. So when we look at saline aquifers, for example, that's
certainly an area in which we think that we do have to put a
lot of effort. Otherwise companies are lining up to do that
research and development right now simply because it's free to
emit the carbon dioxide.
Enhanced oil recovery, we think there's an enormous driver
to invest in that research and development. In fact, we see
companies doing that. So most of the R&D that we do is going to
be focused on saline aquifer.
We will say that the major demonstrations, however, are
using enhanced oil recovery as their disposal method simply
because it's positive for the economics of the project. So
we're getting--you know, we're getting some bang for our buck
in terms of incentivizing EOR projects but it's not a focus for
our research, again, simply because it's something that the
private sector is running pretty hard on.
Mr. Neugebauer. Mr. Chairman, I yield back.
Chairman Weber. I thank the gentleman.
The Chair recognizes Eric Swalwell from California for five
minutes.
Mr. Swalwell. Thank you, Chair, and thank you, Assistant
Secretary Smith.
I'm interested in your testimony with respect to rare earth
elements. I had a bill last year that received an overwhelming
majority of support in the House of Representatives to have the
Department of Energy play a critical role in finding mines in
this country where we could harvest these elements which, as
you know, are used to make jet engines, cell phones, laptops,
anti-missile systems and the like. However, because you needed
two-thirds under that procedural vote, it did not pass. I'm
still hopeful that our Chairman Lamar Smith, who supported the
bill, and Majority Leader McCarthy, who also supported this
bipartisan bill, will bring it back.
But in your testimony, you referred to the National Energy
Laboratory researching the feasibility of extracting rare earth
elements from coal and coal byproducts. In March, nine projects
were selected to look into this topic. I appreciate that you
are working on this, and I wanted to know if you could give us
an update on what is the current state of the nine projects
selected in March, and what--which rare earth elements do each
of these projects hope to harness? When do you expect results?
Mr. Smith. Thank you very much for the question. So this
is--this is a project that we've got some enthusiasm for and
that we're pushing forward on. We've already had some really
interesting results in terms of increasing our understanding of
the occurrence of rare earth elements, not only in geologic
settings where you'd have some mining challenges but also in
tailings that come out of the coal-mining process and also in
coal ash. So we've done some work. The NETL is really
publishing some groundbreaking papers. We're increasing our
understanding of areas in which we might be able to find rare
earth elements in commercial concentrations that as you know
might reduce the reliance of the United States on importing
some of these important elements from overseas, primarily from
China.
Mr. Swalwell. And would this require burning the coal?
Mr. Smith. Well, in some cases of it, if you're looking at
coal ash, I mean, what you essentially have are some kind of
pre-combusted, pre-pulverized mass that then helps you in terms
of recovering the rare earth element. We see some promise
there. We also see some promise in tailings kind of in the
pre--in the mined residue that you get out of the mining
process, and we also see some potential in going out and
extracting it in mining operations of directly--that are geared
towards recovering rare earth elements, and you know, part of
our research is going to be exactly how do you extract
elements. That's kind of the core, how do you--the core of our
research. That's really the heart of the scientific inquiry
that we're putting forth presently.
So the--you mentioned I think we have eight or nine
solicitations that are in the process of being awarded or
they're right at the award stage now, so over the course of
this year I think we'll know a lot more about the results from
that work but we've already published some work that helps us
understand the potential, the commercial potential for rare
earth elements, and again, it's something that in coal-
producing countries--coal-producing parts of the United States
that have been negatively and adversely impacted by reduction
in coal use. This is something that has some promise for
bringing some economic activity to those areas.
Mr. Swalwell. Great. Thank you. I yield back.
Chairman Weber. I thank the gentleman.
Mr. Loudermilk, you are recognized for five minutes.
Mr. Loudermilk. Thank you, Mr. Chairman, Mr. Smith, for
being here.
Secretary Moniz regularly states that innovation is one of
the most important aspects of advancing energy technology.
However, it's very clean that the Clean Power Plan will
devastate the coal industry. My question is, is this the right
way to innovate to actually harm an entire industry so others
would prosper, or wouldn't we be better served investing more
in fossil energy research and technology development than
trying to regulate our way to success?
Mr. Smith. Well, thank you for the question, Congressman,
and this kind of steers us back to a point we've had an
opportunity to discuss a couple times in this hearing. It's
difficult to push forward with some of these clean energy
technologies when it's free to emit as much carbon pollution as
you want to. What the Clean Power Plan does is provide some
incentives for--you know, some mandates and incentives for
states to reach certain predetermined levels of CO2
emissions, and it's an all-of-the-above approach. You can meet
those targets using whatever methodology one chooses, be it
wind or solar or nuclear, or in the case of the part of the
technology that I'm working on, carbon capture and
sequestration to reduce greenhouse gas emissions coming out of
industrial sources and out of power sources.
So we believe it's very important that, you know, under the
Clean Power Plan that states will have the option of continuing
to use domestically produced sources of fossil energy including
oil and natural gas and that we're developing those
technologies to make sure that there are cost-effective ways of
capturing CO2 out of those sources.
Mr. Loudermilk. Another question. The Energy Information
Administration recently reported that coal dropped to 29
percent of the U.S. utility scale power generation down from
almost 38 percent last year. At the current rate of regulatory
impact, aren't the coal research and development programs at
DOE going to be too little, too late?
Mr. Smith. Well, I mean, we're seeing natural gas prices
down at $2.15, I think, today, so you're seeing very low
natural gas prices. They've gone down, you know, beneath $2,
and this was, you know, when I was in the industry not too long
ago and, you know, we were seeing close to double-digit natural
gas prices. That has a big impact on decisions that electricity
power generators make in terms of how they dispatch
electricity. It's been a real challenge for coal country. It
will continue to be a real challenge. But what we have to work
on--I mean, that's a market force that we're not going to be
able to unwind, and I'm not going to make any predictions about
the future of commodity prices. I mean, natural gas prices are
also involved, and I don't think we can count on any particular
price or any particular position in the dispatch curve of
various forms of power generation but what we do have to do is
make sure that we're continuing to innovate on technologies to
reduce greenhouse gas emissions out of all sources of energy.
So we try not to chase a commodity curve. I mean, we can't
say well, a price is a certain place and so therefore we're
going to stop research and development program. The challenges
remain the same, and so we want to give some certainty to our
researchers, and you know, the road is long in this area.
Mr. Loudermilk. And you mentioned the inexpensive natural
gas production, and since 2010, according to the Sierra Club,
we've lost about a third of the country's coal capacity that's
been shut down because of the regulations of the EPA. But we've
been able to avoid spikes in electricity costs because of the
cheap natural gas. Would you agree that the electricity rates
would have spiked much higher after those coal shutdowns if it
wasn't for fracking and the cheap natural gas?
Mr. Smith. Well, I mean, first I'd challenge the
characterization that coal is being challenged by EPA
regulations and that's the cause of the challenges around coal.
I just don't think that's correct. I mean, market forces have
had an enormous impact on coal and it's been driven by the
trillions and trillions of cubic feet of natural gas that are
available now that weren't available ten years ago. But----
Mr. Loudermilk. In Georgia, we had three coal plants shut
down because of EPA regulations, but you're saying that EPA
regulation hasn't had an effect on coal production?
Mr. Smith. I'm saying that the major effect--the major
challenge that coal faces is the fact that natural gas prices
are $2 and they're not $10, and that has a big impact on the
way that power generators decide to build plants. I mean, but
to your question, I think that the advances around hydraulic
fracturing, advances around horizontal laterals, our ability to
extract shale gas out of shale formations has been tremendously
positive for the United States. We're going to be net exporters
of liquefied natural gas. When I last saw the Chairman, we were
down in Savine passing the very first LNG export terminal that
I worked on when it was an import terminal, when it was an
industry. So this----
Chairman Weber. You need to work on some more of those.
Mr. Smith. Well, we've worked on quite a few of them.
Mr. Loudermilk. And so from what I'm hearing it's because
of the fracking and the access and the cheap natural gas we
have here in the United States has definitely helped offset
some of the loss of our coal production and keeping the prices
down for the consumers.
Mr. Smith. Indeed. I mean, 40 percent of our power
generation comes from coal, a big percent comes from natural
gas, and they're both important.
Mr. Loudermilk. Last quick question if I may, Mr. Chairman.
There is a movement to keep it in the ground, which would
stop fracking and access to this natural gas. I mean, we
actually have some presidential candidates who are campaigning
on this, we're going to keep it in the ground and put a lock on
accessing these commodities through fracking and natural gas.
Would that not cause a spike in electricity production should
as we've just been discussing the access to these commodities
is what's kept the prices low as we shut down coal. Would that
not have the opposite effect?
Mr. Smith. The increasing production of natural gas has had
a very positive impact on our economy. It's had a positive
impact on the environment. We understand--I mean, there are
concerns about some of the risks but those are things that
we've quantified and we believe that this is a process that can
be managed safely, so we think that natural gas is an important
part of the clean energy economy of the future. In fact, we've
been kind of explicit around that view.
Mr. Loudermilk. Thank you, sir. I yield back.
Chairman Weber. I thank the gentleman.
The gentleman from Texas, Mr. Veasey, is recognized.
Mr. Veasey. Thank you, Mr. Chairman, and Secretary Smith,
thank you for being here today. It's always good to see someone
else from Fort Worth on Capitol Hill, so welcome here today.
And I wanted to ask if you could touch very briefly on the
Texas Clean Energy Project. As you know, that is of huge
importance to the state and I wanted to see what you know about
it and if you can just briefly get me caught up on that.
Mr. Smith. Well, thank you very much for the question,
Congressman. So the Texas Clean Energy Project is a project
that was designed to--it's one of the major demonstrations
designed to capture CO2 coming out of a plant in
Texas. It's a project that we've been working on for the last
several years along with a company called Summit that's based
in Washington State. Along with all of our major
demonstrations, it's been kind of an important part of our
effort to ensure that technologies move from the desktop to the
laboratory out into the real world and get built and developed.
We've recently made--you know, over time we've allowed this
project to have additional time to meet some major milestones.
Whenever we have a major project like this, we put in place
very well thought-out controls to ensure that we're getting the
best value for the taxpayer. That project has some milestones
that it has not met in terms of getting financing for the
project, and so I've recently--just recently sat down with the
CEO of that company. We've discussed offering them a no-cost
extension that would allow them to continue to try to develop
the project at no additional cost to the taxpayer. Again, these
are difficult projects. They're tough projects. This is a
company that's been dogged in its pursuit of what we think is a
really important project for us. And you know, I foresee them,
you know, trying to continue to raise additional funding for
that project but at this point the U.S. government is not
putting additional taxpayer funds towards that project.
Mr. Veasey. Thank you very much for the update on that.
And I want to shift over to sequestration. It appears that
we've solved some key technological hurdles when it comes to
sequestering CO2 in geological formations but we
still have a lot of challenges that we have to overcome in that
area, and I wanted to ask you what are some of the key hurdles
left in DOE's research into carbon sequestration?
Mr. Smith. Well, thank you for the question. So we've got
seven major--seven regional partnerships across the United
States that are looking at the challenge of putting CO2
into geologic formations across the United States, and this is
looking at a variety of depositional environments, a variety of
geologic settings, so the geology in different parts of the
United States is different and therefore you have to do
different types of research about the effectiveness of storing
CO2 in formations across the United States.
The challenge of CO2 storage is that you are
storing just enormous, enormous quantities of CO2,
and that's one of the reasons why geologic storage in saline
aquifers is what we see as being kind of the future of carbon
storage.
We've learned a lot in that process. We've been able to
create a lot of data that we're able to provide in terms of the
potential of storing CO2 in different areas so we've
put out atlases that show the potential for carbon storage, and
we know that we've got a tremendous, tremendous resource in the
United States in terms of the storage potential for
CO2. We're continuing to work on issues around
monitoring and verification. We've got projects that have
cycled out of the phase of injecting CO2 into the
ground and have moved on to that medium-term monitoring and
verification, so there's more work for us to but we're working
very closely with state and local authorities. The end goal of
all this effort is to be able to scientifically quantify the
activity and the opportunity and to provide regulatory
authorities with the data they need in order to create a robust
permanent environment in the future in which we know that we're
going to have to capture all the CO2 and store it
for--store it in these geologic formations.
Mr. Veasey. Has DOE researched the public relations and
education aspect of siting the CO2 pipelines and
commercial storage sites?
Mr. Smith. Indeed. I mean, part of what we do, I mentioned
the atlases and the other publications that the NETL puts out.
I think that's an important part of the public outreach so that
we're clearly communicating the results of the project. People
know, you know, that we've understood the issues around long-
term geologic storage, everything from well bores to ability
all the way through induced seismic issues. I think it's
important that we take any of these risks seriously and that we
clearly communicate the scientific research so that we're
quantifying the risk.
Additionally, you know, projects like the ADM project that
we're doing in Illinois have a component of creating a public
outreach centers that we're able to communicate with the public
so that they understand our research and the process that one
would have to go through in order to accomplish one of these
projects.
Mr. Veasey. Thank you very much, and Mr. Chairman, in
closing, I hope that Mr. Smith has a chance to go back to his
alma mater of Southwest High School and talk with their program
that they actually have a program at the school that trains
people on, you know, exploration and the different aspects of
energy and being a petroleum engineer specifically, and so
hopefully you have a chance to go back to Fort Worth ISD and do
that.
And Mr. Chairman, I yield back. Thank you.
Mr. Smith. Thank you. I'll be back in Fort Worth this
Friday actually.
Chairman Weber. Marc, did they have multiple classes when
you were in high school? They weren't all just in one single
room with a wood-burning stove?
Mr. Veasey. No, we had moved past the schoolhouse----
Chairman Weber. Okay. I was just----
Mr. Veasey. --into a full school by the time I was there.
Chairman Weber. --curious. All right. Thank you. The
gentleman yields back.
The gentleman, the pride of East Texas, the Big Thicket, is
recognized, and you've got a lot of forest out there, Dr.
Babin, that uses CO2, I bet. You're recognized for
five minutes.
Mr. Babin. Those trees needs lots of CO2, or
they give a lot of oxygen back. Thank you, Mr. Chairman.
And thank you, Mr. Secretary. We appreciate you, and you
had mentioned a Houston project a while ago, and would you give
me the name of that?
Mr. Smith. That's the Petra Nova project. It's a
collaboration with NRG so it's a 240-megawatt post-combustion
capture project that's just south of Houston, Texas.
Mr. Babin. Just south?
Mr. Smith. Just south of Houston.
Mr. Babin. All right. Thank you.
And I noticed you're a graduate of West Point as well,
right?
Mr. Smith. I am indeed.
Mr. Babin. Yeah. That's good. Well, I have a son that went
to the Naval Academy. Go Navy, beat Army.
Mr. Smith. Okay. Beat Navy.
Mr. Babin. Well, funding for the TCEP, or Texas Clean
Energy Project, is a coal gasification project in Texas, which
we've talked about a little bit today, was pulled to fund other
priorities in the fiscal year 2017 budget. This Committee has
been working in a bipartisan manner to get to the bottom of the
problems with the project, and we appreciate the letter that
you sent in response to some of our questions about this
project, and in your response you referenced an internal review
that your office conducted of the project before making the
decision to rescind the funding. Can you commit to provide that
review to this Committee?
Mr. Smith. I'd be happy to respond to that for the record.
Mr. Babin. Okay. That'd be great.
The DOE Inspector General released a special report on TCEP
just last month, and in this report, the IG was very critical
of DOE's management practices, particularly when it came to
enforcing deadlines, cost ceilings, and managing risk for the
taxpayers. Your office has overseen several large project
failures and it's clear that there is a systematic problem in
the Office of Fossil management for large commercialization
projects. What steps have you taken to address these management
issues?
Mr. Smith. Well, thank you for the question, Congressman,
and that's obviously a big issue.
So first, to address the IG report, so the bottom line on
the IG report was that they recommended that the Department of
Energy continues to not advance funds to the TCEP project. When
we have a project like this, we take the overall award, which I
think was around $450 million for the TCEP project, and we
divide it up into phases, phase I, which is the project
development, and then phase II, which is construction and
operation, and we have milestones within phase I that allow the
applicant to get from phase I to phase II. These projects are
difficult. Again, the primary difficulty is commercial,
commercially difficult. You have to sell the CO2.
You have to sell the urea offtake. You have to sell the power.
You have to get your EBC contract in place. You have to get
financing. So there's lots of moving parts, and you're trying
to do this in an environmental which again it's free to emit as
much CO2 into the environment as you want to, so
they're commercially difficult.
They're important, and we worked with the Summit team, you
know, over time to give them more time to accomplish some of
the milestones. We worked with them to advance in funding from
phase II to phase I. Every time we do that, it's a case-by-case
decision. I mean, we don't have our feet set in stone. We have
to look at what the market's doing. We have to look at what
progress is being made, and we have to look at what the risks
are to the taxpayer of making the decision to advance funds
from phase II to phase I.
At some point, however, you decide that it's not the
prudent thing to do in terms of getting the best outcome for
the taxpayer, which is exactly what we did in this case. So we
have to make some hard decisions in some cases. We'd love for
all the projects to make it. But the bottom line is that these
projects are difficult, and if we knew they were all going to
make it, there probably would not be a role for the government
to help push these along. So----
Mr. Babin. Let me follow up with something real quickly
here. Looking at this and other failed or struggling projects
in the fossil portfolio, the connecting thread seems to be the
size and the goal of the project. It seems like when the Office
of Fossil undertakes a large commercialization project, there
are frequent problems and delays. The Department has
considerable expertise in research and development, and a long
history of success in fossil energy. Shouldn't DOE get the hint
and focus on fossil technology R&D instead of investing in
companies looking to commercialize energy technology?
Mr. Smith. Well, Congressman, we do both. I think that both
are important roles for our Department. So we invest in those
early-stage technologies from controls to systems to materials
to next-generation technologies like pressurized oxy-combustion
and chemical looping. We think there's an important role for us
there. We think there's also an important role for the major
demonstrations. Throughout our seven regional partnerships,
we've got a number of very, very successful projects that again
have stored almost 12 million tons of CO2 over time.
We spoke about the project that we did in Chairman Weber's
district, the Air Products project, the Archer Daniels Midland
project in Illinois, the Petra Nova project that you and I just
spoke about. These are examples of taking ideas from the
laboratory and putting them out into the field so they're
actually pouring concrete and bending rebar and erecting steel
and getting projects built. They're difficult. If they weren't
difficult, we wouldn't be working on them.
But--and we learn something every time we do one of these
things but I would characterize our risk management methodology
as being robust, as being sound, and again, we think that these
are really, really important projects and for the future of
fossil energy and making sure that all of our sources of energy
remain relevant. They're important for coal.
Mr. Babin. Okay. Thank you.
Mr. Chairman, thank you, and my time is expired.
Chairman Weber. I thank the gentleman, and I want to thank
Chairman, or Secretary Smith for his valuable testimony, for
being here, and the record will remain open for two weeks for
additional comments and written questions from members.
I do want to say in closing, however, though, that it's our
opinion that I think it would be better that the DOE would
focus on innovation rather than commercialization and kind of
leave as much of that to the private sector as we can. So we
thank you for being here, Secretary Smith, and this hearing is
adjourned.
[Whereupon, at 11:38 a.m., the Subcommittee was adjourned.]
Appendix I
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Answers to Post-Hearing Questions
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