My name is David Nemtzow. I am President of the Alliance to Save Energy, a bi-partisan, non-profit coalition of business, government, environmental, and consumer leaders dedicated to improving the efficiency with which our economy uses energy. Senators Charles Percy and Hubert Humphrey founded the Alliance in 1977; it is currently chaired by Senators Jeff Bingaman and James Jeffords as well as Representative Ed Markey.
Over seventy companies and organizations currently belong to the Alliance to Save Energy. If it pleases the Chairman I would like to include for the record a complete list of the Alliance's Board of Directors and Associate members, which includes many of the nation's leading energy efficiency firms, electric and gas utilities, and other companies providing cost savings and pollution reduction to the marketplace.
The Alliance has a long history of researching and evaluating federal energy efficiency efforts. We also have a long history of supporting and participating in efforts to promote energy efficiency that rely not on mandatory federal regulations, but on partnerships between government and business and between the federal and State governments. Federal energy efficiency programs at the Department of Energy (DOE), the Environmental Protection Agency (EPA), and other agencies are largely voluntary programs that further the national goals of environmental protection, as well as broad-based economic growth, national security and economic competitiveness.
Energy-Efficiency: A Bipartisan Tradition From the days of our first national nightmare of gas lines and soaring fuel prices, energy efficiency has had champions in Congress from both sides of the aisle. Sen. Charles Percy, who founded the Alliance to Save Energy in 1977, recognized the need to promote energy efficiency to address a glaring hole in our nation's economic security. He knew that a partnership between business, government, environmentalists, and consumer advocates would not only result in benefits for each sector, it would help avoid the need for coercive regulation when our problems reach crisis level.
That maxim is no less true today, even though oil supplies and prices have eased. Our fossil fuel economy is now believed by many to have put new stresses on our environment. Energy efficiency has been repeatedly cited as a key solution to slow the loading of carbon and other greenhouse gases into the atmosphere. Fortunately, we now have a quarter-century track record of showing how energy efficiency reduces air pollutants - including SO2, NOx, mercury, carbon dioxide, particulates, and others.
Support of action by the federal government to promote energy efficiency has also been historically bipartisan. Though the establishment of the Department of Energy and energy efficiency programs is most often associated with the Carter Administration, key advancements in federal efforts were made under the Reagan and Bush Administrations. While funding was cut severely from Carter-era levels, President Ronald Reagan signed the National Appliance Efficiency and Conservation Act (NAECA) the law requiring DOE to set energy efficiency standards for appliances and other equipment. That program has led to tens of billions of dollars in savings for the American people and significant carbon emissions reductions. The first Bush Administration, in the context of its support for the Rio Treaty, began to significantly expand funding for DOE energy efficiency and renewable energy efforts and created the Green Lights and Energy Star programs at EPA. In addition, former President Bush signed the Energy Policy Act of 1992, which expanded the scope and magnitude of energy efficiency efforts.
The House and Senate caucuses devoted to promoting renewable energy and energy efficiency continue that tradition of bipartisanship. Currently, the House Renewable Energy and Energy-Efficiency Caucus features 173 members from both parties, while the newer Senate version counts 32 of your colleagues as its members. Such support from all parts of the political spectrum is what has made clean energy a driving force in the American economy.
Today's Testimony I am here today to testify on the relationship of energy policy and environmental policy. At today's hearing I know you will receive testimony indicating that certain environmental policies make it more difficult to produce energy in this country, and other testimony that certain energy policies are lessening our nation's environmental quality.
That is small wonder, after all energy and environmental decisions are inexorably linked since so many of our environmental challenges result from the production, transportation and/or consumption of energy resources. Most notably, 80-90 percent of our air pollution comes from energy use, as does an even larger percentage of carbon dioxide, the leading greenhouse gas. Unfortunately, the list doesn't end there: energy use contributes significantly to other environmental problems, including water pollution, land use disruptions, toxic and nuclear wastes, etc. So we must accept that energy and environmental decisions are intertwined, and the policies designed to aid in one area will often have impacts - often negative - in the other.
That is why cutting energy waste and using energy efficiently is so critical. Energy efficiency means providing the services that our modern, in fact future, economy and lifestyles demand - lighting, heating, cooling, transportation, IT, and much more - but doing so with less energy input. Energy efficiency means relying on technologies -many of which are familiar, while others are still innovative or still in the laboratory, perhaps at Oak Ridge National Laboratory in the Chairman's home state or at the United Technologies company in the Ranking Member's home state - that can provide the same or superior services, productivity and comfort while using less energy input. And lessening energy input means reducing the numerous pollutants and environmental stresses that result from our currently wasteful energy practices.
II. ENERGY EFFICIENCY AND ENVIRONMENTAL POLLUTION
Proven Performer Increasing energy-efficiency has been reducing air pollution in the United States for at least 25 years. Alliance research shows that the gains made in energy efficiency alone during the past 25 years have resulted in 18 percent less air pollution today. This massive assistance to our environmental health is in addition to improvements made through the Clean Air Act and other air regulations.
The most polluting activity on earth is the production, transportation, and use of energy. Electricity generation, vehicle exhaust, oil spills, the heating and cooling of buildings, industrial processes, and myriad other uses of energy account for what is estimated to be 80-90 percent of environmental pollution in this country. As our population and economic activity increases into the 21st Century, environmental stresses on our air, water, and land will be heightened.
We can bring these large figures down to some snapshots. In March, 2000, the Rand Corporation completed a study of the economic and environmental impacts of utility energy-efficiency programs in California. Rand's analysis found that the reduction in demand for electricity achieved by these programs prevented a 40 percent increase in stationary source air pollution in California. In addition to these findings, it is important to note that Rand documented a return of roughly $1000 for every dollar spent on commercial and industrial energy efficiency by utilities between 1977 and 1995, and asserted that 3 percent of the 1995 California state gross state product can be attributed to these investments.
While some may now say that we could use more plants in California now that the current crisis has taken hold, it is important to note that energy-efficiency efforts by utilities were cut back drastically in the onset of deregulation in the state. Continued demand reduction through the end of the 1990s would have put the state in a significantly more secure position than it finds itself today.
NOx, Sox, and Carbon: EPA Data Alliance to Save Energy analysis of Environmental Protection Agency pollution data shows that energy-efficiency has been particularly effective at reducing emissions of nitrogen oxides and carbon dioxide. On average, since 1977, energy-efficiency measures in the U.S. have reduced nitrogen oxides by 13 percent over what annual emissions levels would have been. Energy-efficiency has reduced sulfur dioxide by an average of 3 percent per year. (See enclosed tables.)
Energy-Efficiency and SIPs: A New Tool for States More than ever, states are looking for innovative ways to meet their obligations under the Clean Air Act to develop and issue State Implementation Plans. A growing acknowledgement that energy-efficiency is an effective tool to reduce criteria air pollutants and carbon is fueling a new look at energy-efficiency set-asides and other measures.
We strongly support this move to look at energy and environment as two parts of the same equation. Their separation in the public consciousness - and Mr. Chairman, often times in committee jurisdiction - is the single biggest obstacle we have to solving our energy crises and environmental problems. If energy and environmental policy is moved in concert then better programs will be developed. With the U.S. Supreme Court's recent decisions regarding the State Implementation Plans for NOx and the eight hour rule for ozone, this effort should have new immediacy.
Climate Change and the Alliance to Save Energy Let me start, Mr. Chairman, by stating that the Alliance to Save Energy currently has no official policy on climate change. We are not on record regarding targets or timetables, the Kyoto treaty, nor any other proposed form of regulation to address the problem. However, we are very cognizant of both the science and politics surrounding the issue, and even more acutely, the potential for energy efficiency to be a large part of the solution to global climate change.
But we must look at where our carbon emissions would be without the investments that have been made in this country since 1977. (See enclosed table.) Mr. Chairman, our nation's emission of carbon would be a full one-third (33 percent) greater without the progress that has been made in the past quarter century.
Mr. Chairman, the Alliance is not surprised that energy efficiency stands to be a key component of nearly any climate change strategy. And slowing or stemming climate change should rightly take its place with economic growth, reduction of other environmental pollutants, increased national security, and promoting American competitiveness abroad, as a reason to move full speed ahead with research, development, and deployment of energy-efficient technology throughout the economy. We are such believers in the positive effects of energy efficiency that if you told us it cured the common cold, we might not be surprised.
However, energy efficiency becomes an even more crucial component for our nation's near-term future when we think of the fact that a huge amount of our nation's capital stock will turn over in the next 10 years. EPA estimates that fully 60 percent of our carbon emissions in 2010 will come from equipment not yet purchased. Decisions about how we develop and deploy technology will have a profound effect on whether the nation is even able to sufficiently reduce emissions if a political consensus on action to stem climate change should develop. In this context, energy efficiency becomes an insurance policy that the nation can ill-afford to pass up, and one that should be pursued with no regret.
Five of our most prestigious national laboratories recently came out with a study titled, "Scenarios for a Clean Energy Future." The conclusion of that study was that targeted investment in a selection of energy-efficiency measures could get us more than one half of the way to 1990 levels of carbon emissions. Furthermore, by 2020, these targeted efficiency measures would pay for themselves. Let me state that again Mr. Chairman. Five of our national laboratories believe that targeted investments in energy-efficiency can get our nation at least half way to the targets of the Kyoto treaty FOR FREE. In no place have I seen these findings refuted or substantially questioned. Yet few policy makers are seriously considering implementing these investments.
Frankly, Mr. Chairman, we should stop carrying on an increasingly surreal debate over how much evidence we need for a conclusive finding that climate change exists, and start putting in place an insurance policy that will benefit the country economically and environmentally no matter what happens - and mitigate potential impacts of global warming.
III. FEDERAL ENERGY EFFICIENCY EFFORTS
Energy efficiency Research, Development, and Deployment: Why the Federal Government? Back in 1995, when some in Congress were contemplating the dissolution of the Department of Energy, two major reports were released that came to the same conclusion: If we forego federal research and development in energy technologies, it will not be replaced in kind by the private sector. Both the Galvin Commission studying the national laboratories and DOE's Yergin Task Force looked at energy research and development and arrived at this conclusion. Among the reasons they cited as barriers to corporate efforts are high R&D costs, internal cost-cutting which has resulted in widespread downsizing of companies, uncertainty of property rights and the ability to capture all the benefits of R&D, and high initial investment in R&D capability.
In the early 1990s, federal energy research efforts were criticized for producing technology and innovation in a vacuum. While research accomplishments were substantial, many business leaders believed that these efforts were not relevant to markets for lighting, building materials, automobiles and other products. This decade has seen an exponential rise in cooperation, planning, and cost-sharing with the private sector to assure that federal research and deployment really do create the maximum value added. These process gains are exemplified by EPA's Green Lights and Energy Star as well as DOE's Industries of the Future and Buildings Roadmap programs.
Technology Deployment is Integral to a Successful Research Agenda Some critics of DOE and EPA energy efficiency efforts have argued that while basic research is an acceptable activity of the federal government, deployment and market transformation are not.
The need for having deployment in the toolbox of DOE is illustrated by the story of the flame retention oil burner. DOE did not develop this technology. However, in response to the oil price shocks of the 1970s, DOE worked with the oil heat industry to field test and promote the technology as a substantial energy-saver. The key was a program to train fuel oil technicians how to install these advanced burners to yield the most savings for homeowners.
The subsequent realization by the oil heat industry of its attributes created demand, and adoption of the flame retention head oil burner increased about ten-fold between 1979 and 1983. As of 1996, the technology was in use in about 7.3 million households, over half of oil-heated homes. The burner provides an 11-22 percent energy saving, Mr. Chairman, and, as of 1999, a conservative energy savings estimate of over $14 billion billion for consumers from a simple, existing technology -- in large part due to deployment efforts by DOE. DOE's responsibility for this benefit can be traced to addressing barriers that were inhibiting wide use of the technology, and accelerating market penetration.
Federal Programs: Have They Returned Our Investment? In 1996, Mr. Chairman, the General Accounting Office did a study of a variety of success stories which DOE had published in 1994. Unfortunately, the purpose of the study appeared to be political, and it attempted to discredit energy efficiency programs by attacking DOE's methodology for preparing the success stories. But rather than achieving this goal, it ended up validating billions in energy savings for a few key technologies which far outstrip out entire national investment in energy efficiency over the past 20 years.
Mr. Chairman, the accumulated success of these programs at saving money for American consumers and taxpayers is remarkable. The GAO study validated DOE's assertion that just five technologies* developed or assisted by the DOE buildings program resulted in $28 billion in energy savings over the past 20 years for an approximate $8 billion in investment in all energy-efficiency programs as of 1994. DOE has updated results for those programs that credits these technologies with returning $50.9 billion to the U.S. economy through 1999. Add gains from the low-income Weatherization Assistance Program, state energy programs, and building and appliance standards work, and returns total $89.6 billion. Add FEMP gains and it moves to $101 billion. Add the hundreds of other technologies to come out of the business, industrial, and transportation programs and the additional accrued energy savings of the past 5 years and you get a portrait of an overwhelmingly cost-effective effort which has contributed significantly and directly to the quality of life of Americans.
Mr. Chairman, I have yet to know of another federal program that has returned more than $100 billion to the economy for such a relatively small investment of $12.0 billion through 1999.
(*The technologies are: low-emissivity windows, electronic ballasts, advanced refrigerator compressors, the flame retention head oil burner, and DOE-II building design software.)
By the same token, the EPA Energy Star and Green Lights programs, as well as other EPA climate programs, have already returned more than $40 billion in energy savings to to the economy from less than $750 million in federal investment through 1999. In addition, these federal partnerships with businesses, state and local governments, school districts, non-profits, and other organizations have yielded reductions of more than 300 million metric tons of carbon equivalent pollution.
It must be noted, Mr. Chairman, that these dollar returns are from just lower fuel and energy bills - they do not include the economic value of reductions in pollution, increases in productivity and comfort of employees and consumers, or national security benefits of oil imports.
A More Comprehensive Audit Must be Performed Mr. Chairman, I believe we need an even more comprehensive review of the accomplishments of energy efficiency programs in the federal government that spans the work of DOE, EPA, the Agency for International Development, and other agencies. Until we get a clearer picture of the size and scope of the accomplishment of federal energy efficiency efforts, we cannot fully assess their value in a climate change context.
Tax Credits Numerous leading Senators and Representatives of both parties have introduced legislation to promote energy-efficient technologies. Rep. Bill Thomas of California has been a leader in promoting tax credits for energy-efficient new homes and for upgrading existing homes; Sen. Charles Grassley has done the same for highly efficient appliances; and Sen. Bob Smith has introduced legislation that covers homes, commercial buidlings and other equipment. And perhaps most significantly, Senators Murkowski, Lott and others included tax credits for energy efficiency in S. 388/S. 389, the Republican comprehensive energy package, and Senator Bingaman is expected to do so in his comprehensive bill.
These actions are a powerful bi-partisan endorsement of efficiency as an environmentally-responsive energy policy. The Alliance strongly supports such efforts.
Pubic Benefits Fund We are all familiar by now, Mr. Chairman, with the ongoing electricity troubles in California. These ills are now spreading to other states in the west, and Chicago, New York, and other eastern cities expect to experience shortages of electricity this summer. A reliable, affordable source of electricity is extremely important to Americans.
Public benefits spending, such as that which was assessed by the Rand Corporation for California has been immensely successful at delivering electric capacity cheaply, quickly, and cleanly. In fact, Mr. Chairman, we assert that the delivery of energy-efficiency measures is a cleaner, cheaper, and quicker strategy for assuring electricity supply in our cities than building new generation and upgrading transmission.
The bill that Sen. Bingaman is expected to introduce today will include a non-bypassable wires charge for electricity consumers that will go directly toward insuring reliability in the power supply, as well as helping low-income Americans meet rising costs, and assisting states in their efforts to bring greater renewable energy resources on line. We strongly support this public benefits fund for use to shore up huge gaps in public interest programs that deregulation has left by the wayside.
IV. ENERGY EFFICIENCY AND THE ECONOMY
Energy efficiency makes money and puts people to work. The economic gains from energy efficiency come in two forms. The greatest benefit comes from displaced costs -- money that households and businesses can spend elsewhere because they no longer have to spend it on energy. That spending includes additional investment and hiring additional workers. Direct economic benefits come from growth in industries that generate energy-efficient products and services. Companies that sell insulation or efficient windows domestically and/or for export employ Americans in high-skill service and manufacturing jobs. Secondary economic benefits come from businesses and consumers re-spending these newfound energy savings in sectors of the economy which are more labor-intensive than energy supply.
Energy efficiency Must Be Measured as an Energy Source Our energy system operates against the backdrop of a U.S. economy that has become significantly more energy-efficient over the past quarter- century. But we often fail to realize the actual contribution of energy efficiency to our GDP and national well being.
Mr. Chairman, it isn't easy to compare the contribution of energy efficiency to the environment and the economy with more traditional energy sources such as oil and coal. It requires the observer to regard saved or unused energy as created energy in the same way that oil comes out of the well and coal comes out of the mine. In addition, I think that any economist would tell you that energy efficiency measures have increased the supply of energy and thus helped to lower the price. Energy not used is just as salable and usable when conserved as when produced. Upgrades in energy efficiency made to home appliances, industrial equipment, building systems, or car and truck fleets serve as an energy source that increases our overall supply of electricity, coal, oil, and natural gas.
Energy-Efficiency, our Number 2 Energy Source in 1999 Alliance research shows that, for 1999, the most recent year for which we have complete data, energy efficiency was the second leading source of energy for U.S. consumption, and if we consider only domestic energy sources, it's number one. I might add, Mr. Chairman, this is an extremely conservative estimate, staying well within the tight parameters of Department of Energy modeling. Mr. Chairman, it would have been number-one if we declined to count oil imports, now more than half of this nation's oil consumption. Our analysis of 1999 energy consumption shows that energy efficiency provided the nation with 27 quadrillion Btus (quads), nearly 25 percent of U.S. energy consumption. While energy efficiency trails our mammoth oil consumption (38 quads), it significantly outstrips the contribution of natural gas (22 quads), coal (22 quads), nuclear (8 quads) and hydro (4 quads). (See attached chart.)
Mr. Chairman, the contribution of energy efficiency to our nation's overall supply is now so great that we cannot regard as an esoteric externality anymore. We must promote and support it in the same way we do the coal belt and the oil patch, which enjoy a variety of tax breaks and subsidies based on their use of fuel.
These figures show energy efficiency for what it is - an unparalleled driver of environmentally sound economic growth.
Mr. Chairman these economic snapshots of efficiency show an energy industry that spans the economy and the populace. But it is not an energy industry that looks like what we have known in the past. However, all the functions of traditional energy industries are represented. But with energy-efficiency, the miners are businesses trying to cut their costs. The roughnecks are homeowners trying to keep their families warmer in the winter. The geologists are mechanical engineers working to get more out of less. Energy efficiency is highly dispersed throughout the economy. And because of its diffuse nature, energy efficiency doesn't carry the political clout of the coal-mining regions, or of the oil and gas-producing regions. There is no "energy efficiency patch."
By the same token there is not a defined energy efficiency industry. Whirlpool makes highly efficient appliances but they sell washing machines and refrigerators, not energy efficiency. Honeywell sells controls that regulate building systems that can save a company millions of dollars a year, not energy efficiency. Owens-Corning sells fiberglass insulation which can make a house warmer, more comfortable, and more economical to live in, but they sell insulation, not energy-efficiency.
So when we have to make tough choices about what we do with federal dollars, we must think about energy efficiency as what it is - an energy source that is essential for the economic health of our nation - and one that is paying off like a gusher for the American people. And yes, Mr. Chairman, that energy is produced cleanly, displacing both conventional air pollutants as well as ones believed by many to be causing a warming of the Earth's climate. It enhances our national security, as this year we again went to war to protect our interests in Mideast oil fields. Energy efficiency cuts costs for businesses and consumers, and it increases our international competitiveness -- all the things we have traditionally talked about.
The tough choices on energy and climate must be made with a clear eye on the contribution to the environment, the economy, national security, and international competitiveness delivered in the past and promised for the future by energy-efficiency.
V. OTHER BENEFITS OF ENERGY EFFICIENCY
National Security As historians consider the reasons for the Persian Gulf War, one must acknowledge that the U.S. went to war with Iraq in 1991 in large part to defend our critical oil interests in the region. Within the past year, we have again gone to war with Iraq to protect those same interests. When considered by economists, the billions which American taxpayers spent to protect those interests - never mind the dangers posed to a half a million American soldiers -- should be added not onto our military or diplomatic budget, but onto our national expenditure for energy.
The U.S. has now crossed the line of being dependent for more than 55 percent of its oil consumption on foreign sources. Two-thirds of that habit comes from transportation. Without more aggressive research and innovation in automobile technology that situation will grow significantly worse in the coming decades for two reasons. One, U.S. consumption will continue to grow both in the number of vehicles on the road and the amount driven by each one. Two, the concentration of remaining global oil reserves will grow more consolidated in the Persian Gulf region as time goes on, making the U.S. more and more beholden to a region which demonstrates its volatility nearly every day. Consequently, U.S. dependence on foreign oil is projected to rise to nearly 60 percent within 10 years.
In the absence of Congressional support for increasing Corporate Average Fuel Economy Standards (CAFÉ), the Partnership for a New Generation of Vehicles remains our best bet for the development of cleaner, more fuel-efficient cars with which to reduce our dependence on foreign oil supplies. This program has come under some criticism, and perhaps it is valid to question why the Big Three automakers require millions of dollars in federal research to develop products that are less environmentally harmful. However, cleaner, more efficient cars remain a national priority, and PNGV is making progress. While much of the advancement made thus far through the program has been kept proprietary, the known advances in fuel cells and hybrids are getting us closer to clean cars. In fact, Mr. Chairman, the fact that this information is being kept proprietary is a good sign that progress is being made and that people are expecting money to be made in the future.
VI. INVESTING IN ENERGY EFFICIENCY: NOTHING TO LOSE AND EVERYTHING TO GAIN
Mr. Chairman, I have described here how energy efficiency has been a transforming force in the American economy, and how federal energy efficiency efforts have played a key role in that expansion. Investments in research, development, and deployment of energy-efficient technology pay for themselves many times over in economic, environmental, and national security benefits. In addition, these are strides forward that would happen much more slowly or even not at all without federal leadership.
Any evaluation of climate change programs must fully factor in the benefits of energy efficiency gains in any cost-benefit analysis. In order to do that, we must undertake a more comprehensive accounting of the benefits of federal energy efficiency programs that began 25 years ago, and have continued through today.
Mr. Chairman, I believe that due to their contribution to environmental quality energy efficiency efforts at DOE, EPA and other agencies should be escalated. Accordingly, I am deeply troubled by reports in the press - that appear to be accurate - that the Bush administration will be deeply cutting the DOE efficiency programs when it makes its FY 2002 budget recommendations in early April. I cannot imagine a worse way to face our nation's multiple energy crises and our environmental demands than by cutting energy efficiency programs. I have yet to learn of a federal investment that has yielded such rich rewards so broadly dispersed over the economy.
Thank you for the opportunity to testify before your Committees today. I'm happy to address any questions you might have.