Hearing :: Clearing the Air, Feeding the Fuel Tank: Understanding the Link between Energy and Environmental Security

Print

UNITED STATES COMMISSION ON SECURITY AND COOPERATION IN EUROPE 
(HELSINKI COMMISSION) HOLDS HEARING:
CLEARING THE AIR, FEEDING THE FUEL TANK, UNDERSTANDING THE LINK BETWEEN ENERGY 
AND ENVIRONMENTAL SECURITY


May 6, 2008

        COMMISSIONERS:

        REP. ALCEE L. HASTINGS, D-FLA., CHAIRMAN
       REP. LOUISE M. SLAUGHTER, D-N.Y.
       REP. MIKE MCINTYRE, D-N.C.
       REP. HILDA L. SOLIS, D-CALIF.
       REP. G.K. BUTTERFIELD, D-N.C.
       REP. CHRISTOPHER H. SMITH, R-N.J.
       REP. ROBERT B. ADERHOLT, R-ALA.
       REP. MIKE PENCE, R-IND.
       REP. JOSEPH R. PITTS, R-PENN.

       SEN. BENJAMIN L. CARDIN, D-MD., CO-CHAIRMAN
       SEN. CHRISTOPHER J. DODD, D-CONN.
       SEN. RUSSELL D. FEINGOLD, D-WIS.
       SEN. HILLARY RODHAM CLINTON, D-N.Y.
       SEN. JOHN F. KERRY, D-MASS.
       SEN. SAM BROWNBACK, R-KAN.
       SEN. GORDON H. SMITH, R-ORE.
       SEN. SAXBY CHAMBLISS, R-GA.
       SEN. RICHARD BURR, R-N.C.


WITNESSES/PANELISTS:

DR. JONATHAN PERSHING,
DIRECTOR,
CLIMATE, ENERGY AND POLLUTION PROGRAM,
WORLD RESOURCES INSTITUTE

DR. RICHARD BRADLEY,
HEAD OF ENERGY EFFICIENCY AND ENVIRONMENT DIVISION,
INTERNATIONAL ENERGY AGENCY

MS. JETTA WONG,
SENIOR POLICY ASSOCIATE,
AGRICULTURE & ENERGY PROGRAM,
ENVIRONMENTAL AND ENERGY STUDY INSTITUTE

MR. JUSTIN M. LEE, 
CEO, NEXSUN ENERGY, INC.

DR. ALEX MARKER, 
DIRECTOR FOR RESEARCH AND DEVELOPMENT,
SCHOTT NORTH AMERICA

       [The hearing was held at 3:00 p.m. in Room B-318 Rayburn House Office 
Building, Washington, D.C., Honorable Alcee L. Hastings, Chairman, Commission 
on Security and Cooperation in Europe, moderating]

     [*]
HASTINGS:  I will gather the hearing to order and I want to welcome everyone.

Today's hearing is the third in a series of hearings the Helsinki Commission is 
holding on energy security.  And, frankly, we could not be holding this hearing 
at a better time.  Not only are we faced with record high oil prices, but at a 
time when we are trying to find and use alternative fuel sources, such as 
biofuels.

We are seeing a shocking rise in food prices that is devastating the poor and 
straining the wallets of the middle class all over the world.

I'm very interested to hear the opinions of our panelists today on what, if 
any, connection there is between these two situations.

All government are struggling to find the right mix to meeting what seem to be 
competing demands for energy independence, sustainability and affordability.  
And there are lots of voices and perspectives out there vying for attention.

Sometimes, and most probably all of the time, it is instructive to take a look 
back before we look forward.

In the 1800s we relied on whale oil for heating and lights and it drove the 
whale population into decline.  Crude oil was around but it hadn't caught on as 
a fuel source.  In fact, one of the first uses here in the United States was as 
a health cure.

In the late 1800's people began scooping up the oil bubbling out of the ground 
and used it for kerosene to light their lamps.  And more oil was found and 
refined to make more kerosene for lamps.  The byproduct, gasoline, was simply 
thrown out because there was no use for it.

But the invention of the horseless carriage, which could run on the stuff that 
was being thrown away, changed history.  And by 1920 there were nine million 
motor vehicles in the United States along and gas stations were opening 
everywhere.  And here we are in 2008 consuming over 20 million barrels of oil 
per day.

What happens next?  Can we find the next vehicle or fuel that will carry us 
forward to a new energy paradigm or that solves our climate change, oil 
dependency and economic problems all at the same time?

The stakes are high.  The U.N. reports on climate change underscore a cruel 
irony that the overwhelming environmental costs of climate change will be felt 
in the countries least responsible for climate change and least able to deal 
with the consequences.

It will be an even greater tragedy if our own efforts to ameliorate climate 
change add an even greater burden on others.

We need to take a level-headed look at all of our options and try to realize 
what the consequences could be because there will be consequences.  The 
question is whether they are manageable and reasonable.

Before I turn to our first panel of witnesses, I'd like to note for the 
audience that, in honor of today's hearing focusing on the environment, we are 
going green and have not printed out the statements of each of our witnesses.  
You'll be able to find all of the hearing materials on our web site.  And we 
encourage you to do that.  We hope to institute this practice at future 
hearings as well, but today is our touchstone hearing so to speak.

You do have copies of the bios for the witnesses so I won't read them to you.

We have with us Dr. Pershing with World Resources Institute.  

And when we do get started, Dr. Pershing, we'll come to you, followed by Dr. 
Bradley with the International Energy Agency and then Ms. Wong with the 
Environment and Energy Study Institute.

We've been joined by my good friend and ranking member, Congressman Smith, 
Chris Smith, from New Jersey.

And, Chris, I don't know whether you're aware.  I just announced that we're 
going green.

(LAUGHTER)

And all of our hearing is going to be on the web site.  We didn't kill a lot of 
trees like we normally do today for that purpose.

But I'll turn to the ranking member for any statement he may wish to give.

SMITH:  Thank you very much, Mr. Chairman.  Green is good.  And thank you.

And thank you for the witness for being here and for sharing with us your 
expertise and insights.

I'm very pleased we're examining the relationship between the world's growing 
energy consumption and our overburdened environment.

Congress has an obligation to work to ensure healthy and safe environments for 
the benefit of our current and future generations.  To reduce our dependence on 
fossil fuels and achieve a healthier environment we need a multifaceted 
approach that approaches the tangled web of issues involved.  And we need to 
foster both energy independence and clean energy.

As ranking member of the House Foreign Affairs Subcommittee on Africa and 
Global Health, I'm particularly concerned about the relationship between energy 
issues and the sharp rise in food prices in the developing world.  Although 
right now food prices are rising in the United States, in general and for most 
of our lives, Americans have benefited from relatively low food prices.  

In fact, the average U.S. consumer spends less than 10 percent of his or her 
income on food while in much of the developing world families spend 60 to 80 
percent on food.  We can easily see how even small increases in food prices can 
bring real tragedy to poor countries. 

    For almost twenty years I've been working on the broad issue of climate 
change.  Back in 1989 I offered an amendment addressing global warming to 
legislation that was before the House.  And it passed.  In 1990 I introduced a 
bill that addressed the international aspects of global climate change. 

    It's been a long road, but we've taken some important steps.  In 2007 I 
joined with my good friend and colleague, the late Tom Lantos, on the 
International Climate Cooperation Re-Engagement Act of 2007.  Portions of that 
bill have since become law. 

    Our witnesses today will address renewable energy technology, a crucial 
part of the solution to today's challenges.  Renewable energies such as wind, 
solar, biomass and geothermal must continue to grow to represent a larger share 
of the world's energy supply.  

To sharpen the focus on renewable energy, I introduced bipartisan legislation 
-- along with my colleague, Representative Ed Markey -- that would have the 
United States help create an International Renewable Energy Agency.  This 
agency would work to "expand the availability and generating capacity of 
renewable energy to markets around the world in order to increase economic 
opportunity, drive technological innovation, enhance regional and global 
security and raise living standards, and reduce global warming pollution." 

    In the past, the U.S. helped with the creation of other international 
energy agencies, but none of them focuses primarily on renewable energy.  To 
ensure a healthy and safe environment for today and tomorrow, we must continue 
to reduce our dependence on fossil fuels and promote 21st century clean energy 
solutions. 

    Given rising sea levels, the increasing severity of storm surges, and 
higher temperatures the world over, the impact of global climate change is 
undeniable.  Unless we act now, we will see greater and greater threats to our 
way of life on this planet. 

    I'm looking forward to the testimony of our witnesses today.  Thank you for 
again convening this very important hearing.  And we're working together to 
find further solutions to the complex relationship between energy needs and 
environmental responsibility.

Thank you.

HASTINGS:  Thank you, Congress, I appreciate it.

And before we start with Dr. Pershing, I'd like to recognize the lieutenant 
governor of Wisconsin, the 43rd lieutenant governor, Barbara Lawton.

Governor, we welcome you.

Yes.

(LAUGHTER)

(APPLAUSE)

Thank you so much.

She has a distinguished history in this arena and, among others things, has 
resolved to develop her green economy agenda.  And working with her colleagues 
in the National Lieutenant Governors Association, has done an awful lot of work 
in this arena.

We have also have something in common, Governor, even though I'm twice your age.

(LAUGHTER)

But also, in Florida, I worked in the Florida Council of the Arts for a number 
of years in the early stages of my career.  But she has been active, the 
governor has, in the Wisconsin Arts Board.

And we are very pleased to have you here today.  And if our time permits, we 
would welcome your thoughts or questions as well.

Dr. Pershing, we'll begin with you.

PERSHING:  Does that work better?  Thank you very much.  Apologize.

My name is Jonathan Pershing.  I am the director of the Climate, Energy and 
Pollution Program at an institution called the World Resources Institute.  
We're a think tank, a nonprofit, nonpartisan think tank, based here in 
Washington; partner with business, with governments, with NGOs around the 
world; have partnerships in more than 70 countries working on climate, on 
biodiversity, on business practice, on global and environmental problems.  So 
it's from that perspective that I'll speak.

I wanted to make several key points in my opening remarks and very happy to 
answer questions.  I have a longer statement, which I have submitted to you.  
Hopefully, that will be constructive.

First and underlying everything that I say is I think there's a broad agreement 
that we need a safe and environmentally sound, yet a secure infrastructure.  No 
questions about that.

It's got to provide a full array of services.  It's got to ensure collective 
health and national security.  In my mind, it will require a fundamental 
updating of the energy infrastructure.

A successful, sustainable long-term energy policy will only be achieved however 
if it's linked to environmental solutions, particularly climate change.  

I use the analogy of the frying pan and the fire.  If energy security is the 
frying pan that we're now in, leaping out into the fire of a global warming 
world, those are going to be not in our collective interests.

At the moment we have an immediate energy security problem.  Gasoline prices 
are rising rapidly.  But frankly, the climate change problem is not far behind. 
 We've already seen substantial damages as indicated in the International 
Governmental Panel on Climate Change on impact of climate change.

The second point that I want to make is there are solutions.  So this is not a 
problem where we have to hide our heads in the same.  This is an area where 
there are concrete things that we can do today that would both address security 
and climate change simultaneously.

Perhaps the most significant of all of these is in fact energy efficiency.  In 
every successful model of climate change mitigation, as well as every 
successful model of long-term energy security, energy efficiency rises to the 
top and provides over one-third of emissions reductions projected in those 
models.  And it has an equivalent affect on global energy demand.

Policy is particularly relevant in the OSCE region.  Of course, of interest to 
this commission, apply particularly in the context of the former Soviet Union.  
And one of the graphs that I put into my chart showed that.  And you can get 
this very sense of countries that have substantial inefficiencies where gains 
are possible.  They would lead to gains in environment and gains in security, 
promoting national welfare in a combination that almost no other policy could 
match.

A second area for progressive research and policy is clearly renewable energy.

And, Mr. Smith and Mr. Hastings, you both raised this in your opening comments.

The United States and nearly every country in the world, but particularly the 
countries of the OSCE, have abundant renewable resources.  They've got wind.  
They've got solar.  They clearly all have major biomass potential.  

Tapping these resources would mean fewer imports, less fossil fuel in 
particular, shorter supply lines.  And that also means less vulnerability from 
a different side of the energy security debate.  And stability in fuel supply 
because we're not looking a price spikes in the market; we've got a domestic 
capacity which we can use.

The third point is we need to do is investment.  Perhaps the best case in point 
is capture and storage.  We don't tend to think of that as renewable technology 
but it's one way to substantially enhance energy supply without creating 
environmental damages.

The cost of CO2 is going to be high in terms of the CO2 emissions from a fossil 
fuel plant.  But, if we can capture that CO2, we could use the world's coal.  
That's not just the United States but that's Poland, that's Germany, that's 
Russia, places of high import globally.  But we could capture the CO2 and avoid 
the damages caused to the atmosphere not just of course of the CO2 emissions, 
but of local pollutants, toxics (inaudible) sulphur, et cetera.

The final point I want to make is the United States has to lead in this area.  
Our economy's the world's largest.  Our energy use is the highest in the world. 
 And, on a per capita basis, we're only surpassed by a very few countries.  
And, frankly, they're not ones we'd like to have in our list:  Qatar, United 
Arab Emirates.  These are not places where we think of ourselves as being 
comparable.  We think of ourselves as being more capable than that.

Without U.S. leadership, the rest of the world probably will not succeed in 
solving the problem.  And, in this context, there are a number of bills that 
are before both houses that may be relevant for consideration.  I just want to 
point out three broad ones as a framework for your consideration.

The first one is a bill that's currently before the Senate, S. 2191, that would 
cap greenhouse gas emissions.  It includes support for renewable energy.  It 
includes capture and storage for CO2.  These elements are ones that fit the 
criteria for energy security and climate.

Next year, you'll all be reconsidering the transportation bill; how that moves 
forward, clear implication for energy security and climate.  Transport accounts 
for the vast majority of U.S. oil imports.  And efficiency gains in the 
transport sector would be substantial.

So means the bill could look at fuels.  We could look at vehicles.  And, 
perhaps most importantly, we can look at reducing the number of miles that 
Americans travel to work and for leisure and for errands, and smart growth 
policies that may help reduce total demand.

Finally, on the biofuel side, which you both raised as a key element, I would 
suggest this is an indication of how to be careful:  what not to do.  We rushed 
in to promote biofuels because we thought it would be good for energy security. 
 And we thought it would be good for climate change.  But we clearly got it 
wrong.

The most recent science from biofuels suggests that, at best, it's only as good 
as gasoline and may be worse if we produce it from corn.  We need to find 
alternative technologies which may in fact be available, like switchgrass and 
other cellulosic solutions.  

But, as we currently move down the road, we're leading to cutting down the 
forests in the Amazon.  We're leading to substantial increases in food prices 
globally.  This to me speaks to the answer of the problem, which is integrating 
our solutions, not doing them piecemeal.  We can't have one that only deals 
with the climate without also looking at other issues of security.  We can't 
have one that only deals with security without also looking at things like food 
and the rest of the environment.  

Integration and careful and thorough work counts.

So, in conclusion, I strongly believe that the issues of energy security and 
climate change can be addressed.  If we do so, and if we do so wisely, we can 
have a much better world, a stronger global economy, one that works for the 
U.S., one that works for the OSCE countries and one that works globally.

Thank you very much.

BRADLEY:  Chairman Hastings (OFF-MIKE).  The IEA estimates that, by 2030, 
global energy demand will be 55 percent higher than in 2005 with fossil fuels 
constituting 84 percent of the increase.

In the IEA's world energy outlook from 2007, CO2 grows with no change in 
current policies by about 57 percent between 2005 and 2030.

Without changed polices globally, the fossil fueled past is prologued to our 
energy future.  Inertia characterizes both our climate system and our energy 
infrastructure.  Carbon dioxide has a long atmospheric residence time, more 
than a century, making the act of emitting merely irreversible for current 
generations and their children.

Much of the electricity generation and consuming infrastructure lasts many 
decades to a century.  The turnover rates for much of this capital can be 
altered, but at a cost, which is largely from the premature retirement of 
economically productive capital.

So what can governments do to foster the clean investments and adjust the 
relative time that investments are made?

There can be no serious doubt that establishing a price on carbon is a 
foundation measure in any domestic and international cost-effective framework.  
IEA governments certainly differ with respect to, one, when that price should 
be incorporated into the domestic and international portfolio; two, the means 
for delivering the price signal, should it be carbon taxes or emissions 
trading; or, three, the sectoral and geographic application of price?  

Such questions are in negotiations among governments now.  However, no policy 
measure can locate the least cost reductions in our highly diverse global 
economy as effectively as the price on carbon.

Nevertheless, IEA analysis has demonstrated that price will not be enough to 
achieve stabilization of emission concentrations.  Market failures and barriers 
sometimes prevent market participants from having the full range of options 
available to them for efficient and timely choices.

Certainly, technology research and development is one example.  The market will 
not adequately invest in R&D except when a technology is near 
commercialization.  

Three points need to be made. 

Government funding is essential.  Carbon capture and storage is an essential 
technology as coal is an important feature of the future energy supply mix in 
even aggressive policy scenarios.  

Governments need to cooperatively build 10 to 15 carbon-capture plants with 
various configurations to demonstrate to the market the essential overall 
operating characteristics of such a technology.

And, finally, not all renewable technologies are free of energy security risks 
not environmentally benign.  

Biofuels that are produced with natural gas, for example, are certainly exposed 
to energy security risks.  And first-generation biofuels can emit more CO2 than 
petroleum.  Other renewables can be subject to weather-related disruptions for 
considerable periods of time.

Energy efficiency is an essential element of any cost-effective policy 
framework and will not be fully exploited through market price alone.

It is important that energy efficiency policy address not only the new capital 
decisions, but also foster improvements in the existing capital.

Refurbishment of policy can improve the energy consumption character of 
refurbishment and maintenance decisions.  Energy efficiency is the first pillar 
in reconciling the apparently conflicting goals of stabilizing concentrations 
at safe levels and synchronizing capital replacement and renewal rates.  Energy 
efficiency, including that addressed in the existing capital refurbishment, can 
alter trends now and can provide time for new technologies to be made cost 
effective and to penetrate the market.

At the request of energy ministers at the G-8 Gleneagles Summit, the IEA has 
been assessing best practice and end-use policy.  From this work, we have made 
specific energy efficiency recommendations to the last G-8 summit.  We've made 
25 now, including the ones we're making in Hokkaido.  And progress is already 
evident in their implementation.

For example, we recommended that countries adopt a 1-watt standard for 
appliances when operating in the standby mode.  That is, the mode when 
appliances are turned off, when a red light is on.  This type of power 
consumption is rising rapidly in IEA countries and beyond.

For example, we estimate that without a standby power standard, IEA governments 
alone will build 21-gigawatt power plants by 2020 just to run our appliances 
when they are turned off.

Governments are starting to act, however.  Australia has adopted a standard and 
the European Union has proposed one.

U.S. Executive Order 13221 predates the IEA recommendation and applies a 
standby power to federal purchases.  And I'm pleased to say that two weeks ago 
the government of Thailand adopted such a standard.

The next step toward enhanced effectiveness however would be for governments to 
coordinate the standard setting in the appliance area.

The IEA has also recommended energy performance standards for lighting that 
have the effect of phasing out the most inefficient of incandescent bulbs.  

As you know from your own legislation, action is evident here in the United 
States.  But, in all, IEA governments are either adopting or putting in motion 
such policies.

I want to be clear however:  Energy efficiency is not a substitute for putting 
in place cleaner investment incentives now.  But, rather, it empowers a 
technology change agenda by making it affordable and timely.  

Putting incentives in place now, like a cost on carbon, is essential for energy 
investors -- essential for energy investors so they can begin to factor it into 
their investment decisions so they can know where policy is going and how it 
will be structured.  Investors can then respond effectively and in a timely 
fashion.  And markets can deliver affordability.  But only when governments 
clarify their intentions.

Thank you very much.

HASTINGS:  Let me say to you what is happening -- to you and to Mr. Lee and to 
Dr. Marker.  As you heard that bell, and there will be a second one that will 
go off in a few minutes, Congress Smith and I will be required to leave and 
vote.  We are reaching out to see if Senator Brownback, who is, I think, Mr. 
Lee knows very well, can come.

If he cannot, then I'm going to exercise the prerogative of the chair with your 
permission.  And that is this is a hearing and the hearing formality requires 
that a commissioner be present at all times during the hearing.

Can he come?  OK.

But with your permission, this is so important.  And I suspect that once we -- 
at the House of Representatives, we are probably going to be there an hour.  
There are five votes and a motion to instruct and the likelihood is that we 
will be there that long.

Rather than have you here, I could, after you, Ms. Wong, declare us not in a 
hearing but in a briefing.  And if we go to a briefing, then our staff members, 
who can go forward and receive your testimony -- you're testimony will be the 
same.  It'll be on the Web site as we proposed, having gone green. 

But as also critically important, I would appreciate it, if Mr. Smith nor I can 
get back here, that we be able to submit to you in writing questions that we 
would ask.  And then we will post those on the web site as well.

Is that a satisfactory arrangement with you?  I regret so much the fact that we 
are having a truncated environment but it's not much I can do about it.

Ms. Wong, if you want to go forward, I think Mr. Smith and I will at least be 
able to receive your testimony.

And then, Mr. Lee and Dr. Marker, if you all would come up after that?

WONG:  Chairman Hastings and Congress Smith, thank you very much.  And I'll try 
to be brief, given the circumstances.

I am very happy to be here to testify on behalf of the Environmental and Energy 
Study Institute.  EESI is an independent, non-profit organization founded by a 
bipartisan congressional caucus in 1984.  It provides policymakers with 
reliable information on energy and environment issues.

I'd also like to say congratulations on your first green briefing.

(LAUGHTER)

In 2006, biomass made up 3.4 percent of all the energy consumed in the United 
States.  It's important to realize that biomass is not a new technology.  It is 
in fact the oldest technology.

Biomass energy technology such as biofuels clearly have been recognized as a 
renewable energy technology that is a critical component of climate change 
mitigation strategies.

As the commission and Congress debate actions to address failing policies in 
agriculture, energy and food security, I would encourage them to take a 
two-pronged approached.

First, you could address our country's reliance on fossil fuels through 
increased production of sustainable biomass for energy production.

Second, you could assess international trade and policy and foreign policy that 
are affecting the United States and citizens of other countries on their food 
and energy price issues.

As global markets continue to weave themselves together, the tie between 
energy, land use for agriculture and climate change will become strikingly more 
clear.  Biofuel development has brought a laser beam attention to this tangled 
mess.

The World Food Programme of the United Nations has described the increase in 
the price of food as the silent tsunami threatening every continent.  
Unfortunately, much of the media has jumped to point fingers without doing its 
due diligence to find out what the real problem is.  The easiest target for 
blame was the increase in the production of biofuels.  But the problem is far 
more complex than that.

The U.N.'s Food and Agriculture Organization, the FAO, which has been assessing 
the food crisis on an ongoing basis, has said that, "There is no single factor 
that can be identified as being the main one responsible."

It goes on to say, "Nor is it possible to make a quantitative assessment on the 
contributions of the factors that have been influential in the increase in the 
price of food."  

All the same, it's important to talk about what the different factors.

Supply-side factors influencing the price of food include production shortfalls 
due to weather-related activities, diminishing commodity stock levels and, of 
course, the increase in energy costs.

Demand-side factors influencing the price of food include changing demands due 
to the consumption patterns of countries that are moving into higher growth in 
their income, speculation in financial markets, and biofuels for agriculture 
commodities.

In the United States, the acceleration and food price inflation, rising labor 
costs, rising commodity prices and rising energy prices have also contributed 
to the increase in the price of food.

Although it is clear that the price of food is influenced by a number of 
factors, in April 2008, a Texas A&M University study explains, "The underlying 
force driving changes in the agriculture industry along with the economy as a 
whole is the overall high energy costs."

It is critically important that sustainable biomass be considered as a part of 
a strategy to not just reduce energy costs, which they're doing now, but also 
to revitalize agriculture, reduce greenhouse gas emissions and restore the 
United States as a world leader.

But this can only be done if biomass is produced sustainably.  Biomass 
technologies must use a wide variety of locally appropriate feed stocks, 
including agriculture residue, wood residue, forest thinnings and waste 
materials that do not induce a long-use change, as Mr. Bradley has already 
discussed.

Biomass technologies must also be produced as good production practices.  They 
must be developed through appropriate technologies at the appropriate scale.

As I mentioned earlier, the commission could take a two-pronged approach to 
these issues.

First, they could address the country's reliance on fossil fuels through the 
increased production of sustainable biomass.  Technologies only become staples 
of our everyday lives through considerable investments and research, 
demonstrations, employment and commercialization.  It will be critically 
important to conduct a national biomass assessment to know how much biomass we 
can actually use sustainably for biofuels.

Second, you could assess the international trade and foreign policies affecting 
the United States and citizens of other countries on food and price issues.  
The United States should consider a return to a supply management program or a 
strategic grain reserve.  We have a strategic petroleum reserve, which has 
become essential to our economy.  We also need a strategic grain reserve, which 
is essential to life.

Finally, although it is clear that several factors have increased the price of 
food, a strong domestic U.S. market for biofuels has also contributed to this.  
But it has also reduced trade pressures created by the excessive dumping of 
cheap commodities on international markets.  

This, in turn, has helped to increase international prices for farmers 
worldwide, which is a good thing, but only if countries have the ability to 
react to those high prices in a way that is beneficial to their citizens.  
Unfortunately, this is not what we see happening.  

But what is worse:  Excessive dumping of cheap U.S. commodities, which have 
flooded markets in developing countries, slowing destroying those markets and 
putting farmers out of business, eventually forcing them into urban communities 
where they no longer have the ability to produce food, putting them at the risk 
of starvation; or extremely high food prices due to weather-related crop 
failure, political turmoil, depletion of commodity stocks, increased demand, 
all converging at once, creating a shortage that has hit developing countries 
and poor citizens, causing many more to starve?  

I know that neither of these scenarios are what we want.  But pointing a finger 
at biofuels is not going to solve the problem.

Furthermore, it's important to acknowledge that biofuels are already playing a 
substantial role in suspending the finite supplies for petroleum, which we are 
seeing is the underlying cause of food prices.  In the absence of biofuels, 
Merrill Lynch concluded that gasoline prices today would be 15 percent higher 
than they are currently.  This trend is only likely to strengthen in the near 
term.  

What kind of effect would this have on the price of fuel?  Biofuels, as we've 
already discussed, are just one part of a strategy, where more long-term 
policies, such as increased vehicle fuel efficiencies, smart growth practices, 
conservation and a variety of other technologies, like plug-in hybrids, also 
play a key role.

In the meantime, sustainable biofuels offer the only viable substitute to 
petroleum and the only means to protect our energy supply in a phase of 
uncertain international policies and rising oil prices.

Thank you for your time and attention.

HASTINGS:  Ms. Wong, we're going to have a quick question from Congressman 
Smith.

And then, Chris, if you'll be kind enough to put us in recess?  We think 
Senator Brownback is going to be here shortly.  And then he will reconvene.  
And then, time permitting, Congressman Smith and I will come back. 

And I'm going to head on over there.

SMITH:  Thank you, Mr. Chairman.

I have a number of questions but time doesn't permit that.

Let me ask you one question.  As we've been working on a number of climate 
change issues, it's been disturbing to me that some have seen the crisis as an 
engraved invitation to launch more nuclear facilities, which carry, in my 
opinion, unacceptable risk when it comes to potential weapon creation, the 
issue of the dirty bomb where terrorists might want to do something against one 
of those, meltdowns like we saw in Chernobyl, and just the huge proliferation 
of fissile material and nuclear material that will result.  

And then there's the waste problem, which nobody has solved.  Yucca Mountain 
will be filled within two years.  And you know, I think there's this idea, if 
you want to mitigate climate change, go nuclear.  And it's becoming a mantra, 
at least here on Capitol Hill, that I find very disturbing.

One of our energy bills just recently, a couple of years ago -- and I ended up 
voting against it primarily because of this -- was a huge new subsidy and push 
to create nuclear facilities.

We have two in the state of New Jersey.  I've been to both of them.  I'm not 
convinced that they're safe from every way that you look at it.

And I know -- for the record, I'm going to look at what your answers are for 
the record because I have now about a minute and a half to get to the floor.  
But if you could comment on it because it's being used by the nuclear industry 
and many in government to say just build out more nuclear facilities.  And it's 
a global phenomenon, not just a U.S. phenomenon.  And we'll pay a price for 
that forever I think.

So I would ask you to answer that when this hearing or briefing is reconvened.

And I would -- without objection, the commission stands in recess subject to 
the call of the chair.

(RECESS)

BROWNBACK:  Good afternoon, everybody.  My name's Sam Brownback and the 
hearing's going to be reconvened from the recess.  The House members have had 
to go over for a series of votes and so I know they have they send their 
apologies and probably have already given those for having to slip out of this 
meeting.

But I wanted to continue with the panels and presentations.  It's a very 
important topic on energy security and the environment.  We're all wrestling 
with this.  And what's happens anywhere, happens everywhere now because of the 
nature of what the environment moves.  And you don't contain it within one 
border.

So delighted to have on the second panel, Mr. Justin Lee, the CEO of Nexsun 
Energy, Inc.

Mr. Lee I'm familiar with and has an enterprise, an innovative ethanol 
operation going.  And he's building in my state, in Kansas.  And I'm delighted 
that they're doing it there.

I was just back home over the weekend and they're talking about the balancing 
of energy, the environment and the economy, the three E's that I think we're 
all going to have to balance a lot to be able to move forward, move forward as 
a society, move forward to clean up the environment, move forward to maintain 
the economy.

Also here to speak is Dr. Alex Marker.  He's director for research and 
development at SCHOTT North America. 

And delighted to have both of you gentlemen here.  You're full statements will 
be placed in the record as if read.  So you're welcome to summarize or present 
any way that you would like to.  And then we'll go to some questions afterwards.

I don't know if my House colleagues or anybody else from the Senate will be 
joining us.  I'm sure they will, if they can, come back from the vote.  But we 
want to certainly get this in on the record.  And I look forward to being able 
to quiz you and discuss these matters with you.

Dr. Lee, you want to start out?

LEE:  Yes.

Thank you, Senator Brownback, for holding this important hearing and for your 
gracious remarks about Nexsun Energy and for your invitation.

Now today I will testify on energy security and the climate changes.

Nexsun Energy is a developer of biofuel products and facilities, both domestic 
and internationally.  Our company was formed in 2005 following the enactment of 
the Energy Policy Act, which inspired me to build a company which would become 
a leading developer of a green energy project.

Today, I will discuss the production and use of ethanol in strengthening the 
energy security of this nation and how it benefits the environment.

In the past few decades, our economy greatly expanded with the benefit of cheap 
and abundant oil.  However, during the past five years, things have changed 
dramatically.  

Today, we have a decline in oil reserves, unprecedented consumption of fossil 
fuels and historically high gasoline prices and dramatic evidence of adverse 
climate changes.

This situation weakens our national security and threatens our daily lives.  
Unless we find prompt solutions, we and our allies are heading for irreversible 
economic and environmental disaster.

I believe alternative energy, such as biofuel, wind, solar and even hydrogen 
power, is the most feasible solution to these serious problems.  The use of our 
country's energy is no longer an option.  It is a necessary for our survival.  
We cannot rely on conventional sources of energy anymore.

Late last year, in an effort to resolve such concerns, Congress passed the 
Energy Independence and Security Act, which sets renewable fuel standards and 
mandates over 15 billion gallons of ethanol be blended by the year 2012 and 36 
billion gallons by the year 2022.

As this standard is met, the (inaudible) imports will be replaced with 
American-made homegrown fuel in significant amounts.  Accordingly, our 
dependence on foreign oil will be reduced.  And our national security will 
strengthen.

Thanks to producers, ethanol production has dramatically increased in the last 
few years, resulting in approximately seven billion gallons of production in 
2007.  As of April 4th, the year's consumed almost two billion gallons of 
ethanol, the equivalent of nearly 46 billion barrels of oil.  Ethanol also 
fuels close to 6 percent of American gasoline demand, roughly equal to all oil 
currently imported from Nigeria, the U.S.'s fifth largest foreign supplier.

Without ethanol in our fuel supply, gasoline prices could have been more than 
25 percent higher than they are today.

Ethanol can reduce oil imports and can replace gasoline in significant amounts. 
 It can also provide numerous and diverse benefits, including environmental, 
technological and economic and national security and health benefits.

Environmentally, ethanol is inherently safer than gasoline because it emits 
less hydrocarbons and other toxic gases.  It also rapidly biodegrades in 
surface water, ground water and soil.  As a result, it does not pose long-term 
pollution or health hazards.

Ethanol is clean-burning fuel produced by fermented sugars derived from such 
basic crops such as corn and (inaudible).  These crops are renewable, can be 
reproduced indefinitely without depleting our natural resources.  With today's 
other advanced technologies, we can produce ethanol from cellulosic biomass, 
such as wood waste, municipal waste and switchgrass.  

With a vast amount of unused farmland available in America, we can grow 
abundant biomass and other (inaudible) amounts that sustain the required level 
of production of ethanol in the United States.  Once implemented, this program 
will diminish the demand for conventional biofuel feedstock, such as corn.

Contrary to widespread media reports, ethanol production does not take food out 
of people's mouths.  Only 10 percent of the corn produced in the U.S. is 
actually used for human consumption.  

Moreover, ethanol has very little effect on food price.  According to industry 
data, energy prices and transportation and labor costs are the primary factors 
affecting food prices at the store today.

Ethanol industry also provides many positive solutions for America, especially 
at the present time.  Ethanol production stimulates and expands our economy.  
It creates jobs and increases revenues.  More importantly, it brings balance, 
balance to all sectors of our economy, from agriculture and manufacturing to 
the service industry.  

These benefits are available to all nations in the global market, including the 
member countries of the OSCE.

John Urbanchuk, a renowned biofuel economist, states in a report that was 
submitted that in 2007 the ethanol industry created over 236,000 jobs in 
various sectors of our economy, $12.3 billion of consumer income, and about $48 
million in capital spending, and almost $8 billion in state and federal tax 
revenues.

Let me show an example specific to Nexsun's business.  Mr. Urbanchuk has 
determined that Nexsun's 48 million gallon ethanol plant, which is under 
construction in Ulysses, Kansas, this one plant along will create 54 direct 
permanent jobs, as many as 942 indirect jobs, generate approximately $180 
million in annual revenues and millions of dollars in tax revenue and increase 
the household income.

Senator Brownback, the ethanol industry is growing.  It's dynamic.  The 
necessity and demand is compelling.  

However, the industry still remains in an infant stage.  It needs government 
support to nurture it until it fully develops and can sustain itself as an 
independent source of alternative energy.

To accomplish this, we must have long-term sustainable energy polices, 
including producer tax credits and the loan programs that support the 
widespread development and use of alternative fuels such as ethanol.  Such 
legislative action will reduce our dependence on foreign oil and strengthen our 
energy security.

Thank you very much.

BROWNBACK:  Thank you very much, Mr. Lee.  

And I said previously, I really appreciate, particularly the plant you've got 
in my state, obviously.  But many people have put forward ethanol plants.  And 
really the productoin has skyrocketed in the country.  You note the amount of 
ethanol and what we're replacing, of coming in, and the help it's giving on 
gasoline prices, that without it, we'd have much higher gasoline prices.  So 
that there's just a cumulative set of things and it's not the reason we have 
food prices going up.  

I think that's the big one that we need to talk with people about, that that's 
not what's causing it.  We had a terrible year on wheat production last year in 
my state, as they did in many places around the world, and really drove wheat 
prices up a lot.  Production's looking much better for this year.  And that's a 
much closer issue.  And also rice and the restrictions on its being able to be 
exported from producing countries is one that's a key one, too.

So delighted to have you here.  Look forward to some questions and answers and 
discussion with you.

Dr. Marker, thank you very much for joining us today.  The floor is yours.

MARKER:  Senator Brownback, thank you for the opportunity to speak with you 
today regarding the role of solar energy as part of a renewable energy 
portfolio in creating energy independence.

In just one hour's time, the amount of energy that the sun shines upon the 
Earth's surface exceeds the energy consumption of all mankind in an entire 
year.  In the five minutes I'll be speaking to you today, the sun shining upon 
the United States alone contains enough energy to satisfy America's power 
demands for an entire month.

Solar energy exists in many forms today.  The most commonly type of solar 
energy is photovoltaic power, often referred to as P.V.  In this technology, 
solar cells convert sunlight into valuable electricity.

The other major type of solar energy is called concentrating solar power, or 
CSP.  This type of energy converts the thermal energy created by the sun's 
radiation to heat a fluid that then spins the turbine, producing electricity in 
a utility scale-sized operation.  The capacity of these power plants is 
generally more than 50 megawatts, allowing them to produce enough electricity 
to meet the needs of tens of thousands of homes.

Over the decades, both of these technologies have been reliably providing clean 
energy to tens of thousands of Americans.  Photovoltaics have been in 
production for 50 years and SEG plants in the Mojave Desert have been operating 
for more than 20 years, providing 350 megawatts of electricity.  

Just last year, a 64-megawatt Nevada Solar One facility went on-line producing 
clean electricity to provide power to more than 15,000 households.

The U.S. is a sleeping giant when it comes to solar energy.  By extending the 
investment tax credit, this giant will awaken.

In 2007, the United States' P.V. installations -- installations increased by 45 
percent, installing more than 150 megawatts for the year.  There is also 
growing interest in utility-scale CSP projects.  More than 4,000 megawatts of 
installed capacity is in the pipeline and scheduled to come on-line in the next 
five to 10 years.

But what do these numbers really represent?  For one thing, the increase in 
solar energy adoption means increase in jobs.  It's forecasted if the ITC is 
extended, 62,000 manufacturing and distribution jobs will be created directly 
as a result of increasing adoption of renewable energy.  On top of that, there 
will be an increased demand for electricians, plumbers, roofers and engineers; 
potentionally thousands of new jobs created each year.

This is job growth for Americans, by Americans, for an industry that will 
benefit America.

In addition to job creation, there are other economic benefits.  Consumers will 
be able to combat volatile energy prices.  Utilities will finally have a power 
infrastructure that can meet peak demand.  Distributed solar operating on 
rooftops of buildings can stabilize grids and offset expensive infrastructure 
upgrades.

By 2020, the cost of generating solar power is forecast to become competitive 
with fossil fuel electricity production.

The company I represent, SCHOTT Solar, is in the construction phase of a large 
manufacturing facility in Albuquerque, New Mexico.  This plant will employ 
1,500 people in the production of photovoltaics and receivers for CSP power 
plants.

Over the long term, SCHOTT's investment in New Mexico will reach $500 million 
and the economic impact, it is forecast, is to exceed $1 billion.  And this is 
just what one company is doing in one community.  There are other companies 
undertaking similar large projects from Michigan to Oregon, and many more that 
are ready to do so once a clear commitment from the United States govenrment is 
established in the form of long-term investment tax credit.

Now is the time for extending the ITC.  If the renewable energy credits expire, 
the impact next year would be more than 100,000 jobs either lost or not 
created, according to Navigant Consulting.  Additionally, there'll be more than 
$20 billion worth of investments that won't be made.  And there is no doubt 
that that money and those jobs will go overseas.

Renewable energy is a domestic energy.  Domestic energy not only means jobs for 
Americans, but it means reducing our dependence upon potentially unstable 
regions of the world.  Renewable energy is as much about energy security as it 
is about reducing greenhouse emissions and creating thousands of new jobs each 
year.

We have the opportunity today to address the challenge of global warming while 
also growing our economy.  All we need to do is harness the power of the sun.

Distinguished members of the commission, I sincerely thank you for your time 
and consideration in this important matter.

BROWNBACK:  Thank you, Dr. Marker.  Appreciate that very much.

What I'd like to do is invite the first panel members back up to the table, if 
you don't mind coming up.  

And I want to keep you two gentlemen here as well and then just have questions 
for everybody.  If you're still here, I'd appreciate it.  And we'll get some 
microphones set up so we can get this all part of the record.  As long as we've 
got you all here, what I'd like to do is to be able to quiz everybody.  That 
would be great.  We can get that all set up.

While we're doing that, Mr. Lee, let me start with you, if I could.  You've got 
a plant that's under construction, I believe, or is it still, or is it 
constructed now?

LEE:  Yes.  We completed two plants in the state of Kansas, one in Garden City. 
 That was 55 million gallons with a capital investment over $100 million.  The 
second one, one month ago, we just completed in the city of Liberal in Kansas.  
That was a 110 million gallon facility and with a capital investment of $120 
million -- I'm sorry, $220 million -- which was completed and now is on-line in 
production.

BROWNBACK:  I've just -- I've been reading about some of these later plants now 
being put on hold because of a more difficult economic environment or difficult 
capitalization environment.  Is that -- I mean, that didn't affect your plants. 
 Are you finding that in other players in the industry?

LEE:  Yes, Senator Brownback.  We have some other projects.  Three more 
projects are in the stage of development.  And as everybody knows, we have a 
subprime mortgage crisis, and also the downturn of the economy, which impairs 
our ability to continue the work of development.  And it causes problems, yes.  
Definitely, it causes problems.  So we are looking for other sources of capital 
from overseas as well.

BROWNBACK:  I had a gentleman tell me the other day that when the cellulosic 
ethanol comes on-line -- and this is a plant designer -- that they believe 
they're going to be able to produce ethanol at near or around $1 to $1.20 a 
gallon, off of cellulosic ethanol.  Have you looked at that in some of your 
plants?  I know that technology's not production scaled up.  It's not scaled up 
for production yet.  But have you looked at that and the economics on the 
cellulosic side?

LEE:  Yes, Senator.  We've been working closely with a design builder who has 
technology in cellulosic biomass to produce ethanol.  And it is not, as you 
pointed out, not a commercial scale yet, but we are expecting to be that in 
actual production starting from 2010.  And of course, it costs more money to 
build one with cellulosic biomass.

And we have done some costs analysis.  Right now, with corn, per gallon, it 
costs about $2.  And yet, the cellulosic biomass, it costs more than $3 at this 
point.

BROWNBACK:  At this point?  Really?

LEE:  Yes.  And moving forward we're expecting with advanced technologies it 
will bring down and eventually it'll become more economical to use cellulosic 
biomass.

BROWNBACK:  So what's the cost driver right now that puts it above corn ethanol?

LEE:  Simply, the technology's still new.  And it has to be a larger scale, and 
it costs a lot more material to build one.  And in particular, the holding in 
the biomass to put in that feedstock into the production process, it costs a 
lot of money, and also to break the cellulose with enzyme that, again, the 
enzyme is quite expensive material.

BROWNBACK:  I'm curious.  I've had guys tell that what they envision in the 
future, that a lot of these plants will get started on grain-based ethanol, but 
in the future they will continue to have that, but they will develop a 
cellulosic stream of ethanol and that you'll end up probably having plants with 
both grain and cellulose streams, and then when it gets to the -- if I know and 
my term's right -- the beer stage of it that they'll blend the two components 
at that point and continuing the process from there.  

Have you looked at that thought or design?

LEE:  Yes.  The way I understand the cellulosic technology, in the beginning 
portion you have to -- now with the current ethanol plant, the conventional way 
of production using corn, you have to convert the beginning portion of it at 
production facility, which costs more than approximately 25 percent more in 
capital expenditure to bring this cellulosic technology on, to use that.  

And if I -- did I answer your question?

BROWNBACK:  Yes.  I'm just curious.  Do you think in the future you'll have two 
streams of feedstocks into a typical ethanol plant in the Midwest?  One will be 
grain and one will be cellulose, but they'll go into the same ultimate plant 
after the first several steps of processing?

LEE:  That's correct.  And we will use corn stock or corn cob or corn straw as 
the material.  Yes, in the beginning portion, yes, we have to use different 
feedstock to process to make ethanol and to go through the fermentation 
process.  Eventually, yes, we come up with the same product.

BROWNBACK:  But do you think in the future you'll -- what seems like to me is 
likely to happen is we put up a lot of grain-based ethanol plants.  In the 
future these will be both grain and cellulosic ethanol plants at the same site. 
 Do you think that would happen or do you see a different vision?

LEE:  I think it's not going to be separate, two facilities.  And it will be 
the beginning portion of the plant that will be sitting jointly in the 
beginning portion of it.  It'll be one facility.  But feedstock, the input will 
be different. 

BROWNBACK:  You wanted to get in on this, Ms. Wong?

WONG:  Absolutely.  

I think that there are multiple systems that are being developed.  Right now, 
it might even be up there right now, POET is looking at -- and they're an 
existing ethanol facility.  They're looking at corn cobs where it's a modular 
system where they would do what you're saying, is that it would be one facility 
that's existing and then they would co-locate another facility, do the 
breakdown through a fermentation process.  And then as the sugars come out of 
the fermentation process, it would be used in that beer stage that you were 
talking about.

So there's the modular system that people are talking and looking at closely.  
And then there's all sorts of other platforms where you could have multiple 
feedstocks going into a thermal chemical facility where you wouldn't have to 
have a second part of it where -- you know, the thermal chemical facility would 
break it out into different types of streams versus the fermentation system, 
which would break it out into sugar, which is what we see now.

So I think that there are multiple platforms that we would like to see more 
investment in to more toward cellulosic biofuels.

BROWNBACK:  Finally, Mr. Lee, there's been some discussion about taking the 
tariff off of ethanol coming into the United States, particularly out of 
Brazil.  I believe we have it off of a certain portion coming out of the 
Caribbean Basin.

And I think -- is the tariff 50 cents or 75 cents?

WONG:  Fifty-four cents right now.

BROWNBACK:  Fifty-four cents?

What would that do to investment in the industry in the United States today, do 
you think, if that tariff's taken off?

LEE:  First of all, the ethanol industry is new in the United States.  It's 
still in the infant stage.  And we need to protect the domestic market before 
we start importing.

First of all, in cost analysis, Brazil, in case, they use sugar cane.  And 
their capital investment a lot less than the ones in the United States because 
the process is different.

And so if they produce one gallon of ethanol with $1 and we it costs  $2, so 
it's more than double.  So if we start importing the ethanol, first of all, the 
old existing facilities that we have, 120 ethanol plants in the United States, 
it'll be all closed down because we cannot compete with the imported ethanol 
from Brazil.

And so in costwise, we cannot sustain and we cannot meet a renewable fuel 
standard, which was set in 2005 and in 2007, late last year.  And we need to 
keep our renewable energy and ethanol plants -- keep going.  If we import it, 
of course we understand the tariff issue, which is important, in terms of free 
trade, but we will not be able to sustain our ethanol plant.  And so, 
accordingly, I'm objecting to the idea of lifting the tariff...

(CROSSTALK)

BROWNBACK:  While the industry is so young.

LEE:  And let me point out, Mr. Senator, now, if we start importing ethanol 
from Brazil, basically we are end up the same result.  We are importing a great 
amount of our oil from overseas.  We'll be importing energy from overseas.  So 
rather we want to produce our energy domestically in the market in the United 
States.

BROWNBACK:  I'm going to get to the rest of you.  I want to get Dr. Marker real 
quick, if I can.  Then I want to bring in the rest of you.

I think everybody loves solar cells.  But it just always seems like it's going 
to be cost competitive and then, you know, then some places it's come along, 
and you (inaudible) these new plants.

You note in your testimony that by 2020 the cost of generating solar power is 
forecast to be competitive with fossil fuel.  Where is it now?  And what has 
kept it from being cost competitive with fossil fuel?

MARKER:  Most of it has -- the cost, for example, utility-scale power, OK, and 
the current technology for that that's in use is what's in use in the Mojave 
Desert, which is what's called trough technology, OK.  That costs somewhere, 
depending on the numbers you get, between 14 cents and about 18 cents, 20 cents 
a kilowatt hour.  Its primary purpose is it's used for peaking power.  And in 
places like California, it's already cost competitive.

BROWNBACK:  On peaking costs...

(CROSSTALK)

MARKER:  On peaking costs with traditional coal, particularly gas in 
California.  Peaking power will pay as much as 36 cents a kilowatt hour for 
traditional...

(CROSSTALK)

BROWNBACK:  And solar's burning the brightest right in the midday when you got 
a big peak.

MARKER:  Where the argument comes is the utility companies want to it to cost 
the same as coal which, right now, is about $0.05 a kilowatt hour.  But that's 
unrealistic.  The price is coming down because, for example, with the trough 
technology, our cells we're producing, the receiver tubes, we produce them in 
fully automatic production lines, we mass produced them, we have new production 
lines coming on.  Initial one in Germany, one just come on-line in Spain.  A 
third line will come on in Spain.  The fourth and fifth line will come on in 
New Mexico.

So as you get utility or you get large-scale production, that'll help bring 
costs down.  

The original tubes used in the Mojave Desert, the tubes that are used in early 
facilities were all made one at a time.  They weren't made through automated 
manufacturing.  

So the techniques for producing them and the quality of the tubes has 
increased.  The efficiency of the tubes have gone up.  And that all makes it 
more positive to bring the cost down.

The costs, especially in California, the costs of what they call the reference 
price, is based on a natural gas production facility.  They typically list that 
as 6 cents to 7 cents a kilowatt hours.  But that was when gas was costing $6 
per million BTUs.  Now it's up to $8, $9, $10 in some cases.  

So the cost of producing the traditional systems is coming up just as fast as 
the price of the economy of scale in production and gains in efficiency in the 
devices is driving the price down.

BROWNBACK:  And people want to put solar on their homes.

MARKER:  That now, that type is the photovoltaic.  That goes on homes.  That's 
used in distributed systems.  It's used -- they're starting to use it in larger 
systems, typically -- they just finished a large 15-megawatt P.V. system at 
Nellis Air Force Base in Nevada, which is one of the largest distributed grid 
connective systems that have been built with P.V.  Typically, they've been on 
houses.  They've been small commercial, under a megawatt-type systems.  But 
more and more, they're becoming larger distributed systems and they're all...

BROWNBACK:  Is that going to be cost competitive soon with fossil fuel?

MARKER:  Yes.  Again, you have the economy of scale.  The more production you 
do drives the production cost down because you have more people producing them. 
 They also are producing them more efficiently.

Part of the holdup in driving the price for P.V. down was the fact that there 
was a shortage of silicon, which 90 percent of the solar cells manufactured in 
the world are still based on silicon technology.  That problem is starting to 
be alleviated in that they are -- people are producing more silicon.  Also the 
manufacturers -- key manufacturers are setting up partnerships or joint 
ventures or whatever to guarantee that they have silicon supply so that that 
does not become an issue again in the future.

BROWNBACK:  Good.

Mr. Pershing, I want to ask you -- appreciated your paper.  And I have not read 
it through it, but I looked at the chart that I thought was very good on 
climate characteristics on the up-and-down axis, vertical axis, and then 
there's energy security on the other one, which I think is a nice mix.

I had a great meeting with the head of the Kansas City Power & Light utility 
company.  And I thought he summarized it the best.  He's the CEO of this 
Midwest utility company.  He says, "You know what?  Business people, we don't 
know anything."  

And he was saying -- and I thought, "Well, there's a refreshing statement."  I 
guess I should try that as a politician, just say, "You know what?  Look, we 
don't know anything about the future."

And so we're always just trying to bet on probabilities in the future. And when 
you're a utility, you're betting on big dollars with these probabilities.  And 
that's the problem here.

Now the one that he could agree upon and he said we all ought to do is 
conservation, that's low-lying fruit.  Nobody disagrees with it.  He'd like to 
build it into their rate structure to try to really incentivize that, which 
seemed to me to make some sense, too.

But if you're in his seat and you're trying to figure your billion dollars 
investment and you literally are betting the company on this, and you've got 
your grid and your information, what do you bet on right now?

I know -- I think you're wise in this.  You're saying we need to get about it 
and not depend on technology breakthroughs because we could exacerbate the 
problem.  But in a sense, he's kind of trying to wait and see what technology 
actually does break through before he puts a multi-billon bet-the-company bet 
on.  What should he put his money in?

I should say our money.

PERSHING:  Our collective money.  

It seems that's there's two questions that you're putting together, I think 
appropriately, but they're two separate issues.

The first question is what's the political context in which he puts his money 
down?  Will there be some global concern, some national concern about security? 
 Will that be the number one priority?  

In that case, he should expect energy prices to go up.  And if energy prices 
goes up, whatever they are -- if coal goes up in price or let's take natural 
gas, which is currently the most common new build that he might be investing in 
-- that's the one that he's got to deal with.

So if we take Mister -- the last comment, Mr. Marker's comment there about 
pricing for gas, it actually peaked out at almost $13 for MTCF (ph).  That's an 
awful lot higher than $6.  So if he's going to bet on gas, he has to take that 
into account.  

Or alternatively, is the environment going to be a big deal?  Will the 
resolutions that you're currently deliberating now in the Senate, around a cap 
on carbon prices, go in?  That'll set up a price.  Is it going to be $3 a ton?  
Well, the number in Reggie (ph), if he's out there in the East Coast, for 
electricity is expected to be between $6 and $8 a ton.  

Will it be the European price if he's investing globally?  The current price in 
Europe is over $30 a ton.

That framework will give him very different decisions.  I would suggest that 
that's the way he will likely do it.  He'll do a risk calculation based on 
those expected costs and values.

My personal guess, you, collectively in Congress, in the States, are worried 
about both problems.  You're going to create incentives for him to worry about 
energy and you're going to create incentives for him to worry about carbon.  
Those two will dictate where he falls on that chart.  

My personal guess, if he goes to coal and he can't do capture and storage, he's 
going to make a bad investment.  If he goes to gas and he hasn't figured in for 
a higher gas price and then goes for efficiency, he's made a bad investment.   
If he goes to renewables and hasn't looked at intermittency, which is a serious 
question, he's also made a bad investment.  Those are the points for decision 
making that he could use.

BROWNBACK:  How about nuclear?

PERSHING:  I think it's part of the mix.  

The question that was asked a moment ago, just before you arrived, Mr. Senator, 
from the two members of the House, was what would one do with nuclear power.  
My own sense about this is that it's again a matter of judging risks.

My personal view, and I was one of the lead authors in the IPCC report, my 
sense is the science is pretty compelling.  We are seeing damages.  We've 
seeing sea level rise.  We are seeing a consequence of less water.  

If we take a look at California, for example, we're seeing less water coming 
down off the coast range into the sunbelt and into the valley.  We're draining 
aquifers in the Midwest because of lack of replenishments because of lack of 
rainfall.  These are going to be big problems.

What's the worst damage?  Is the worst damage to have a nuclear power plant 
with a waste disposal stream that we currently can't manage or climate change?

And furthermore, if we don't do it here, do we seriously believe that it won't 
happen in China?  They're investing in nuclear power.  So is India.  We're not 
likely to stop those.  We may find a different kind of a paradigm in which we 
manage those risks, but we incorporate them into our larger thinking.

BROWNBACK:  So, if I'm listening to you as the head of that company,  OK, I do 
the renewables, but I got to do something for my base power.   And I didn't 
hear a good recommendation from you on the base power.

PERSHING:  I think, at the moment, you're likely to have to manage and hedge 
your risks on price with gas and begin to heavily invest in capture and storage 
and coal.

BROWNBACK:  Dr. Bradley, (inaudible) as much chance to look at your 
information.  

I guess I want to -- and I probably ought to conclude on this.  Like to give 
you and Ms. Wong both a chance to address any of the questions that I've raised 
or comments in this panel.  Probably be best to fill the record out.

BRADLEY:  Well, thank you, Senator.  Actually, I'd like to pick up on your last 
question about what are utilities likely to do.

I think Jonathan has correctly identified the two kinds of questions that are 
involved here and the risks that face utility investors, in fact, energy 
investors in general.

I'm sure that you have environmentalists in your office all the time 
encouraging you to act for the climate system sooner rather than later.  It's 
important for energy investors that you act sooner rather than later.  

It's the lack of action, the lack of a clarity about where the world's 
treatment of carbon is going to go that is holding back many of the 
investments.  It's hard to make a choice while there's considerable uncertainty 
about what the price of carbon is going to be and how carbon is to be treated.  

It leads utility investors to instead choose more marginal repowering and 
upgrading decisions rather than to do the substantial changes that ultimately 
are going to have to happen if we're going to stabilize concentration.

The second thing the utilities in the U.S. are telling us -- I had a 
conversation with Electric Power Research Institute the other day and they're 
very interested in electric utilities in energy efficiency and ways in which 
electric utilities can exploit in their rate base decisions the energy 
efficiency improvements.

Why?  Well, because it costs a lot of money to build a plant these days.  And 
it's escalating rapidly.

We saw oil and gas prices go up.  And, of course, oil prices are still going 
up.  But coal prices lately, if you've looked at coal prices in the last year, 
have gone up substantially.  

The reality is -- and the costs of construction of all those kinds of plants 
have gone up.

If you're a utility CEO, you're better off making more money with the existing 
capital than trying to build new capital and having that on your books for a 
while.  

That's the kinds of decisions that if, again, if there was public policy, as 
there is in some places in the U.S., where they can exploit assistance they 
give for energy efficiency decisions, that would be a quite profitable thing 
for them to do in the short run while they -- while we clarify what the long 
run situation is going to be on carbon.

BROWNBACK:  Ms. Wong, anything to add?

WONG:  I just have a few comments.  

One of your first questions was on the ethanol secondary tariff.  We do agree 
that it's very important to make sure that the existing ethanol industry moves 
toward cellulose, but we do have to make sure that we make those infrastructure 
changes which will be based on the current ethanol industry now.  So the tariff 
is going to be important to make those changes forward.

But it's also critically important on an environmental side to make sure that 
that tariff is up until we move towards more sustainable biomass.

We are very concerned about the issues of land shifting into more biofuel 
production in other countries.  This is often seen in developing countries 
where they have rain forests.  And when you see rain forests come up, as Dr. 
Pershing already mentioned, the carbon emissions from that are extreme.

BROWNBACK:  Huge.

WONG:  And we do not want to see that.  So I think it's important to think 
about the ethanol tariff in that perspective as well.

I think when it comes to talking about the new -- and not even new, but 
renewable technologies, we were taking P.V. and concentrating solar power 
earlier.  We have to level the playing field.  We have been investing -- the 
United States has been investing in fossil fuels for a century at least.  We 
have to be looking at those subsidies as well.  What do we need to do to level 
that playing field?  We heard about a carbon tax earlier.  Is that something 
that we need to consider?

And then last, on your last question, utilities, I absolutely agree with what 
the other panelists have said.  I also think it's important to look at where 
that utility is located.

We have renewable resources in the United States that we don't even think 
about.  When we look at biomass, which is what we mostly work on, there are 
other kinds of biomass out there besides switchgrass and corn.  We have woody 
biomass that we can use, specifically in the Southeast, that has been powering 
our sector, our energy sector.

I mentioned earlier in my testimony that biomass is 3.4 percent of the energy 
consumed in the United States right now.  It's not a new technology.  

So what we think is important is that utilities also look at what resources 
they have to use when it comes to renewable technologies.

And I think that's about it.

BROWNBACK:  It's an interesting point you make.

I've been going through -- we've done an audit at our home in Kansas, what we 
can do to make it more energy efficient.  And then I'm looking and saying, 
"Well, what can I do to generate electricity?"  I live on an area that's got 
about nine and half miles per hour wind.  So we could do that.  There's a pond 
in the back that's got 15 feet of fall off but there's not enough water in it.  
I'm looking at solar voltaic.

But it's the sort of thing you kind of sit there and scratch your head and say, 
"well, OK, wait a minute.  What could we actually do here"?  And it's an 
interesting -- and I finally decided that what I need to do is hire somebody as 
the consultant to tell me what I need to do.

(LAUGHTER)

Because I can't figure it out on my own.  And I'm just waiting for this great 
technology breakthrough.  I can't just spread in on my roof and plug it in and 
presto, chango, I've got electricity.  But, I mean, it's kind of an interesting 
time.

I was just in Greensburg, Kansas, Sunday, which a year ago had been blown away 
by a tornado.  And that it's caught the imagination of the country -- "Well, 
OK, this isn't a huge sized community.  It's 1,800 people.  Let's rebuild it 
green.  And we can do this.  We can try a whole bunch of interesting things."

So here's this geodesic dome in the flat plains of Kansas being built.  And I'm 
going, "Now, that's different."

(LAUGHTER)

But the guy that had the John Deere dealership, he's there.  And he's got two 
wind turbines on his unit.  One's of kind of a small commercial scale and the 
other's a personal scale.  Then they're looking at ways they can recycle their 
oil to heat the place.  And it will be the lead green John Deere dealership in 
the country.  And they're all excited about it.  And I'm excited for them 
because let's see how this works.  And they're trying a bunch of things.

And then they just put up a little art museum that the K.U. architecture 
students developed, built the whole thing.  And it's just got windows on the 
south side of it.  It's got three very small personal wind turbines outside of 
it.  And then they're brining in -- people are talking about green concrete 
that they've got in the area and everything.  And it's just a really 
interesting project that's going on.

Now whether this all works out, I don't know which one actually hits and makes 
it.  But I think it's important that we drive it and we try it.  And I do think 
there's a lot of things.

We've got some people looking at a biomass out of all the manure we've got from 
the cattle in the western part of the state.  Well, that goes back to a real 
old technology.  When the pioneers went across the plains, that's what they 
burned.

I just think we need to be innovative.  And we need to not frankly pick winners 
and losers but try to incentivize the whole field and see what comes forward.  
And I think it can be a very exciting time.

I appreciate your comments about the ethanol tariff.  I hadn't thought about 
the environmental impact.

A few years back I went to Brazil with the Nature Conservancy.  And they were 
working with a local group, buying back huge tracks of land in the Atlantic 
Rain Forest that had been broken out, farmed, and then the water table rose so 
they couldn't farm it anymore.  And then they planted this kind of floating 
grass on it that Brahma type cattle could feed on.  But it's not worth much as 
that.  So they were buying it back and letting it go back into trees.

We should put tax credits forward incentivizing that.  Let's support that 
because that helps us all with their tree production, instead of tearing them 
up and going into biofuels production that could take place.  So I don't want 
us to do policy things that are harmful.  And it is a bit of a tricky policy 
field I think.

I appreciate what Dr. Bradley's saying about there's a lack of investment 
because there's a lack of policy clarity now.

And I agree with you.

We're still at kind of the early end of this to try to pick it or even to peg a 
price of carbon or even establishing markets on it has big policy impacts and 
big cost drivers possibly with it.  

So what I'd love to see if a gazillion dollars go into this field, but by 
private investment, like Mr. Lee's group, going in and saying we're going to do 
this and somebody else is going to try that.  The objective all along is to 
reduce our CO2 footprint and make a cleaner environment and sustaining the 
economy.  

That's kind of policy threat to weave through.  But I think that's what we're 
all going to try to do.

I want to thank the panel for your presentation and your thoughts on a very, 
very important topic.  And we will use those.  And I appreciate your expertise 
and sharing it.

The hearing's adjourned. 

     [Whereupon the hearing ended at 04:33 p.m.]

END