Thank you for the opportunity to testify before you today on this extremely important subject: "Harmonizing the Clean Air Act with our Nation's Energy Policy." Some twelve years ago, when I served as Deputy Undersecretary for Policy at the Department of Energy in the Bush Administration, I was the Department's point person in the development of the Clean Air Act Amendments of 1990, both within the Administration and with respect to Congress. That experience, including countless hours with some of you around then-Majority Leader Mitchell's conference table to hammer out agreement between the Administration and the Senate, left me entirely persuaded that there is no more difficult, nor more important, challenge than coordinating our air quality objectives and our energy policy objectives.
Current Energy Consumption
Let me start first with where we are. In Figure 1, you can see total U.S. energy consumption for the year 2000, broken down by fuel source. (This and the other four charts used in my testimony all come from the U.S. Energy Information Administration's Annual Energy Outlook 2001, published in December 2000.) As you would expect, the three energy pillars on which we rely are oil (39%), natural gas (23%) and coal (22%), with nuclear, hydropower and non-hydro renewables making up another 16%, collectively.
That is a good snapshot, but to understand the challenge of harmonizing clean air and energy policy, we need to understand where we have been, and where we are going. Let's start with where we have been. . Figure 2 shows U.S. energy production by fuel from 1970 - 2000. Interestingly, total production has remained about constant. As a result, the growth in demand for energy has been met by imports, primarily of oil and natural gas. Coal and nuclear production have risen steadily. Natural gas production has still not returned to where it was in the early 1970s, although it is growing. Oil production is falling, hydro is virtually static, and nonhydro renewables, despite substantial federal and state incentives in the form of guaranteed markets, research and development spending, production tax incentives and other efforts to boost its production, have risen only slightly.
Future Energy Production - Electricity
The implications of these trends for future energy production, and for future air quality policy are highlighted in EIA's projected U.S. energy production by fuel, looking out to 2020, as depicted in Figure 3. The three emission-free sources of energy are projected to decline (nuclear), increase only slightly (nonhydro renewables) or remain static (hydropower). The decline in petroleum production levels off. Coal production continues a steady upward growth, and natural gas production soars, driven in large part by increased electrification of our economy.
This increased electrification of our economy deserves special attention. Buried in the dry statistical language of the Annual Energy Outlook for 2001 is a very profound statement:
Electricity demand is projected to grow by 1.8 percent per year from 1999 through 2020, higher than the rate of 1.3 percent forecast for the same period in AEO 2000. The higher demand projection results from the higher projected economic growth and a reevaluation of the potential for growth in electricity use for a variety of residential and commercial appliances and equipment, including personal computers.
In other words, between this year and last year EIA increased its forecast of annual electricity growth by 38 percent!
To meet this increased demand, which still is less than projected GDP growth, natural gas use for electricity generation, excluding cogeneration, is projected to triple over the next two decades, as 89 percent of new electricity generation built between now and 2020 is projected to be gas-fired. This is depicted in Figure 4.
Now I have always been "bullish" on U.S. natural gas resources, and the ability of our industry to develop the advanced technologies necessary to find and recover natural gas from ever more difficult locations, BUT this picture makes me uncomfortable. Whenever this country has decided as a matter of national policy that we will prefer one fuel (or as I call it, engage in "fuel fads"), the experience has been uniformly dismal. Nuclear was going to be too cheap to meter. Gas was in such short supply that we banned its use for electricity generation in 1978, and insisted that coal be used to generate electricity. Remember the Synthetic Fuels Corporation? One could even consider MTBE to be a similar fuel "fad." If nothing else, we should have learned from these experiences that our national well-being is best served by a diverse portfolio of energy supplies, and by setting performance standards, not dictating the means by which those standards should be met.
Let me point out also, with respect to this chart, that despite the phenomenal growth in the use of natural gas to generate electricity, coal remains the largest source of electricity.
Future Petroleum Consumption
Figure 5 expresses EIA's projections for future petroleum consumption. This is really a tale of cars, trucks and planes, and should not be a surprise given continuing growth in miles traveled by increasing numbers of SUVs, planes and trucks. Yes, there are exciting .developments with respect to hybrid vehicles, fuel cells and hydrogen fuels, but wide use of any of these is judged by EIA to be unlikely at least before 2020.
Implications for Clean Air Policy
Based on EIA's analyses, it plainly will not be possible for us in the foreseeable future to reduce in any meaningful way the use of coal to generate electricity, or the use of petroleum to fuel our cars. Therefore, air quality policies need to focus NOT on phasing out coal-based generation, but on developing and requiring deployment of technologies that will enable us to use coal more cleanly and efficiently.
Similarly, we can continue to reduce emissions from vehicles, both by improving fuels and by improving the vehicles, but we need to be mindful that we have pushed our existing refinery industry and the fuel distribution and storage infrastructure to its limits. The entire motor fuel supply system is more brittle and subject to disruption if anything goes wrong, because refined products are far less fungible, and it is more difficult to use imports to offset short-term disruptions. We saw this last summer in Chicago.
I have heard many times the argument that "industry always cries wolf," and ultimately, "if we regulate it, they will do it, and do it at less cost than they said they would." It is true that emissions reductions have been achieved at lower cost than initially predicted because of the use of flexible trading mechanisms, as in the SO2 reduction program contained in the Clean Air Act Amendments of 1990. There are important lessons here. But one is not that, "if we mandate it, they will do it and there will be no problem."
Last week, I heard the Governor of Washington report to the Energy and Natural Resources Committee that he has worked with EPA Region 10 to obtain waivers to allow diesel peaking generators to be used around the clock in order to keep the lights on in Washington state. Emissions from these generators are far worse than any coal-fired power plant.
In California, Governor Davis has issued an Executive Order requiring the South Coast Air Quality Management District to make NOx allowances available to power plans at $7.50 per pound, essentially suspending, for the time being, the AQMD's NOx reduction program based on an ever-shrinking pool of NOx allowances available.
I cite these examples NOT to suggest that air quality regulation is responsible for the Western electricity crisis. That would be overly simplistic. What these examples show is that sound energy policy is the ally, not the opponent, of good air quality policy. When we make it too difficult to site, construct and maintain adequate electricity generation, and when we place too much reliance on a single fuel, we expose the environment and ourselves as consumers to damage that can wipe out months and years of careful progress.
Conclusion and Recommendations
I commend you, Mr. Chairman, for conducting this hearing. At a time when California is struggling through rolling blackouts, the Northwest and much of the West is seeing soaring electricity prices, and much of the rest of the country is experiencing substantial increases in natural gas bills, we are reminded how essential it is that we have access to adequate, affordable supplies of energy. As a nation, we have made great progress in cleaning our air over the past decade. Unfortunately, the story with respect to our energy foundation is a far less happy one. If we do not work harder to keep energy and environment in better balance, both will suffer. . I would encourage this Subcommittee to continue and deepen its inquiry as to the linkages between energy and clean air policy. In the "Lower Body," on whose staff I served many years ago, the Energy and Commerce Committee now includes the Subcommittee on Energy and Air Quality. I think the collection of this jurisdiction in a single subcommittee is a very important step in addressing these issues in more integrated fashion. Senate Committee jurisdictions being quite different, I understand that such a subcommittee would be a good deal more difficult to construct here, but I encourage you to explore the ways in which this subcommittee can work more closely with your colleagues on the Energy and Natural Resources Committee. You have a great deal to learn from, and teach, each other, and both energy and air quality policy will be the better for it.
Thank you for your attention. I welcome your questions.