S. 485, The Clear Skies Act

May 8, 2003




The Hearing will come to order. Good Morning.


This hearing is the second hearing we have had on the Clear Skies Act (S. 485) and continues a discussion that we have had in this Committee for several years on the complex issue of how to clean our air by reducing emissions without putting our economy in a stranglehold. Today’s hearing will focus on the issues surrounding our use of natural gas to generate electricity.


There is, perhaps, no greater illustration of our need to harmonize our environmental and energy policies than the effects of fuel switching - from coal-based generation of electricity to natural gas-based generation - on our economy.


Americans consumed 22.6 trillion cubic feet of natural gas in 2001, currently consume approximately 25 trillion cubic feet annually, and are projected to consume up to 37.5 trillion cubic feet in 2025. Natural gas is used to heat homes, generate electricity, and in the commercial, industrial and transportation sectors.


Historically, the industrial sector has been the largest natural gas-consuming sector – consuming 7.5 trillion cubic feet in 2001 – followed by residential use for home heating, water heating and cooking. Natural gas consumption in the industrial and residential sectors is roughly equal to 1980 levels.


Natural gas use for electricity generation, however, has risen considerably during the last two decades – to 5.3 trillion cubic feet in 2001 – and is projected to grow even more dramatically over the next two. EIA projects that 30% of the electricity generated in 2025 will be natural gas-based – a significant increase over the 17% of our electricity that was generated by natural gas in 2001 and 19% in 2002.


Reliance on natural gas for even this much generation has put a tremendous strain on natural gas supplies and pushed prices on available gas to record high prices.


The President’s National Energy Policy Task Force projected that over 1,300 new power plants will need to be built to satisfy America’s energy needs over the next 20 years. Because of the emissions limits and regulatory uncertainty triggered by the Clean Air Act, the Department of Energy currently predicts that over 90% of these new plants will be powered by natural gas. Just this week, I was told by Linn Draper – the CEO of American Electric Power, which operates in several states including Ohio – that due to the regulatory uncertainty surrounding coal-based generation that confronts him, the only option he has when building new capacity is to switch to natural gas.


We do not have enough natural gas to power all of these new facilities, and we do not have the capability to increase our supply to meet this demand. We do – however – have major domestic reserves of natural gas in the Rockies, off the East Coast, off the West Coast and in the Gulf of Mexico that are off-limits for development. We have tremendous reserves of natural gas in Alaska without the ability to pipe it down to the lower 48. And – perhaps most disturbing – we have seen a 5.6% decline in natural gas supplies in the continental United States in 2002 and a 2.3% decline in domestic natural gas production in 2002.


Unless Congress develops a plan to deal with this situation, we are looking at major natural gas shortages and enormous increases in natural gas prices – which will inevitably lead to higher electricity prices.


Shortages in natural gas supply – and the resultant increase in natural gas prices – do not just affect utilities.  Many other industries rely on natural gas – such as the Agricultural Community, the Steel and Metal Industries, the Plastic Manufacturing Industry, Chemical and Polymers Manufacturers and the Food Processing Industry.


A major shortage of natural gas – coupled with skyrocketing energy prices – will ensure that many of our companies will no longer be able to remain competitive in the global marketplace. Today, we will hear from Jim Krimmel, the President of Zaclon, Incorporated – an Ohio based chemical manufacturer with worldwide sales – who will discuss the enormous burdens that increased energy costs have placed on his business and threaten the very existence of his company.


Although high natural gas prices have severely affected businesses and their ability to compete in the global marketplace, they have an even more profound impact on low-income families and the elderly. Each year, many Americans are forced to make choices between paying to heat their homes or for food and other essentials such as medicine when energy prices are high.


In order to defuse the time bomb of skyrocketing natural gas and electricity prices that is sitting in our lap, Congress must enact a comprehensive energy policy that will increase our development of natural gas supplies and ensure that we have a diverse fuel mix for electricity generation that includes nuclear, renewables, natural gas and coal. To get there, the Senate must pass both comprehensive energy legislation that promotes domestic natural gas development and multi-pollutant legislation that will streamline the regulatory process, maintain the diversity of our fuel mix and achieve greater emissions cuts to protect our environment.


I am pleased to note that our distinguished Majority Leader, Senator Frist, has brought the Energy Bill to the Senate floor this week in order to address our Nation’s need for a comprehensive energy policy. It is no coincidence that we are considering both energy legislation and environmental legislation at the same time – as they are really two sides of the same coin. Any worthwhile energy policy must take into account protection of the environment – and at the same time, any worthwhile environmental policy must take into account protection of our economy.


The Clear Skies Act (S. 485) is an example of environmental legislation that will protect our economy. It will improve the Clean Air Act by providing greater certainty that emissions are reduced while providing a stable regulatory environment that allows utilities to install necessary pollution controls without the fear that those controls will be obsolete before they are paid-for. It will result in cleaner air, less regulation and litigation. It will lower energy costs to manufacturers and American consumers. Simply put, this legislation will provide tremendous benefits to the environment and is crucial to the long-term survival of our economy and our manufacturing base.


The flexibility of the Clear Skies’ market-based cap and trade program and the certainty of its emissions reduction targets will ensure that the real emissions reductions called for in this bill can be achieved without forcing utilities to fuel switch and without forcing electricity and natural gas prices through the roof.


Perhaps most importantly, Clear Skies will help ensure that the least of our brothers and sisters will not be forced to forego heating their homes - and that our companies will not be forced to move overseas to remain competitive in the global market – due to sky-high electricity and natural gas prices.


As I mentioned at the beginning of my remarks, this is the second hearing we are holding in this Subcommittee on Clear Skies. It is my intention to hold a third hearing on this legislation in the near future that will focus on emissions reduction technology and issues surrounding the financial stability of utilities that are required to install such equipment in order to comply with Clean Air Act requirements.


I also intend to mark-up Clear Skies at the Subcommittee level following the Memorial Day recess – and I want to restate my firm commitment to push hard to have the full Committee report a bill to the floor - and to have the Senate pass it – this Congress.


I want to thank our first witness this morning, Deputy Secretary McSlarrow, for coming to present the Administration’s take on natural gas supply and pricing issues to the Subcommittee. I look forward – also – to the testimony of our other witnesses and to working with the members of this Subcommittee as we move forward on legislation to address these critical issues.