to thank the panel for being here this morning. I appreciate your testimony. We will be submitting some other questions to you if you would be willing to respond to them.

Thank you very much for being here.

Mr. HIRSCH. Thank you, sir.

Senator VOINOVICH. I would like to apologize to the next panel for the long wait that they have had.

Testifying today will be Mr. Thomas Stewart, Executive Vice President of the Ohio Oil and Gas Association. Following Mr. Stewart will be Mr. Jason Grumet, Executive Director of the Northeast States for Coordinated Air Use Management; Mr. Bob Slaughter, Director of Public Policy for the National Petrochemical and Refiners Association; and Mr. Carlos Porras, Executive Director of the Communities for a Better Environment; and Mr. Taylor Bowlden, Vice President of Policy and Government Affairs at the American Highways Users Alliance.

I understand that Mr. Bowlden worked for Senator Symms on the EPW Committee for 10 years.

I would like to particularly welcome Mr. Steward from Ohio, the Ohio Oil and Gas Association. I have worked with that organization during my years as a legislator and then as Governor of Ohio. Now, I would like to begin the testimony. Mr. Stewart, will you start?

STATEMENT OF THOMAS STEWART, EXECUTIVE VICE
PRESIDENT, OHIO OIL AND GAS ASSOCIATION

Mr. STEWART. Good morning. I am Tom Stewart and I serve as the Executive Vice President of the Ohio Oil and Gas Association, a trade association representing over 1300 oil and gas producers in the State of Ohio and allied support industries.

I am also testifying on behalf of the Independent Petroleum Association of America who represents thousands of independent producers throughout the nation and who I am proud to say is a fine advocate for our issues here in Washington, DC.

The exploration and production industry is distinguished by its breadth and diversity. Oil and natural gas are found in 33 States, 12 of which are represented on the committee. There are over 850,000 oil and gas wells in the country in areas ranging from arid plains and forests to wetlands. These wells produce from reservoirs that are shallow to ultra-deep. Production levels range from the very prolific to wells that produce less than one barrel of oil per day.

The operation of these wells has been regulated since the 1920's, with an increasing emphasis on environmental controls since the 1960's. Because of the diverse conditions associated with production, the regulatory process must be flexible in reflecting the unique conditions in each State and the areas within the States.

It requires the technical expertise which has been developed in each of these States and which does not exist within the Federal EPA. For this reason, Federal law and determinations issued by EPA have generally deferred regulation of the industry and the various States.

Furthermore, many studies catalogued by interstate oil and gas compact commissions have established that environmental regula

tion at the State level results consistently in higher standards of protection than does Federal regulation.

Complying with environmental regulation remains a significant cost for my industry, with estimates of annual costs ranging from $1.6 billion to more than $2.6 billion.

Equally important is understanding that independent producers, who range from large publicly traded companies to small business operations, drill 85 percent of the wells within this country. The common factor for these independents is that their revenues and hence their ability to meet environmental costs come solely from exploration, production, and sale of crude oil and natural gas from the wellhead.

So, unlike large major producers, the integrated oil and gas industry, the independents have no means of passing on production and regulatory costs through other operations such as refining and marketing.

Consequently, we place great emphasis on cost-effective regulation, limited paperwork burdens and avoiding duplicative regulatory requirements.

In general, the unique problems associated with the diverse nature of the E&P industry have been addressed, making the burden of regulation manageable. However, there are some exceptions. For example, the most compelling environmental issue confronting my industry is the movement to have U.S. EPA regulate hydraulic fracturing under the Save Drinking Water Act.

Hydraulic fracturing is a common and necessary procedure used by producers to complete the majority of domestic crude oil and natural gas wells. A producer performs the fracturing procedure to increase the flow of oil and gas from rock known to contain oil and gas, but the rock's natural characteristics do not allow oil and gas to reach the well bore in sufficient volumes.

The process involves pumping fluid, often fresh water, down the well and into the reservoir to create drainage ditches deep within the reservoir of the rock.

Since 1951, massive numbers of hydraulic fracturing jobs have been performed in Ohio and throughout the United States, dramatically increasing the nation's oil and gas resource base. This process revolutionized and made modern the Ohio oil and gas industry.

At the time that the Safe Drinking Water Act was enacted, the States had already developed extensive underground injection control programs to manage liquid waste resulting from operations. Congress recognized the States' efforts by modifying the Safe Drinking Water Act to allow States primacy based upon comparable State oil and gas UIC programs.

In so doing, Congress recognized that State UIC programs were well structured and that an overall Federal program would not be sufficiently flexible enough to deal with the varying circumstances from State to State.

At no time during these debates has there ever been a suggestion to increase hydraulic fracturing in the UIC waste management requirements. This is because fracturing is a temporary injection of fluids designed for well stimulation and is not underground injection designed for waste control.

Because of this and the purposes for which it was designed, it does not create an environmental problem.

Nonetheless, in the mid-1990's, the Legal Environmental Assistance Foundation, after years of failing to make and environmental case against coaled methane development, petitioned the U.S. EPA to regulate fracturing under the UIC program.

EPA rejected LEAF, arguing that Congress never intended UIC to cover fracturing. LEAF appealed this to the 11th Circuit Court, which in 1997 issued a decision, but did not address the environmental risk, but merely spoke to the plain language of the statute, saying that it should include it as underground injection. Initially, EPA responded to the LEAF decision by requesting that the Groundwater Protection Council study coal bed methane wells, which was the prime focus. After evaluating 10,000 wells, they found one complaint, the LEAF case Alabama well that EPA had already concluded was not a fracturing problem.

LEAF now returned to file a second case against EPA, likely to be decided this year, arguing that EPA should implement nationwide rules. If EPA loses this case, all hydraulic fracturing jobs could be federally regulated.

Simply stated, EPA's original rejection of LEAF's complaint implements the balance Congress struck between protection of drinking water while also encouraging the continued development of gas and oil resources.

However, LEAF would have EPA carve out fracturing for Federal regulatory oversight for steep, inactive and other injection methods. The National Petroleum Council estimates that 68 percent of the wells drilled in the next decade to meet natural gas demand would require fracturing.

To regulate fracturing under Federal regulation, as LEAF suggests, would drastically impede domestic recovery of oil and gas reserves. It would contravene the very purpose of the Safe Drinking Water Act.

Even if EPA wins the LEAF case, the likely result will be a rash of lawsuits of similar nature.

Not considered an issue at the time, the Safe Drinking Water Act was passed, Congress did not specifically excluded fracturing. Two decades later, the court ignored the facts of the issue and changed the scope of the law on a technicality.

We would hope that Congress would address this issue by legislation. We appreciate Senator Inhofe's efforts in this regard during the last session.

One other issue I would like to bring up of the many that are in my written testimony is the Endangered Species Act. While Federal land managers, principally the Bureau of Land Management, develop resource management plans, one of their most important concerns is habitat management. However, balance needs to be struck.

Endangered species is not a very big issue in Ohio, but it has had an impact. For example, in the Wayne National Forest of Ohio, a small oil and gas producer for an extended period has been seeking to obtain a permit from the Bureau of Land Management to drill a development well on a Federal lease tract.

Since applying for the permit in February 2000, the producer has been waiting for the Forest Service to perform an environmental assessment taking into account new information, if any, regarding endangered species.

It is ironic that the producer already operates two wells on the same property. It is even more ironic that continuous oil and gas operations have existed in this area since 1860. While this producer has been waiting for the Federal process to resolve itself, his requisite permits issued by the State have been issued and expired. Needless to say, he is frustrated with the process that stymies the drilling of a simple development well in what is the most mature oil and gas-producing basin in the United States.

Senator VOINOVICH. Mr. Stewart, I think you will have to wrap it up.

Mr. STEWART. I could not agree with what the other witnesses have said before, Senator. We do agree that there has to be a harmony brought between environmental regulation on a wide scope and the nation's energy supply. We encourage Congress to drive toward that by national policy or by separate issue.

Senator VOINOVICH. Thanks very much. We appreciate your being here.

Our next witness is Mr. Jason Grumet, Executive Director, Northeast States for Coordinated Air Use Management.

Mr. Grumet?

STATEMENT OF JASON S. GRUMET, EXECUTIVE DIRECTOR, NORTHEAST STATES FOR COORDINATED AIR USE MANAGEMENT

Mr. GRUMET. Thank you, Chairman Voinovich, Senator Inhofe and Senator Carper.

My name is Jason Grumet. I am the Executive Director of NESCAUM, which for over 30 years has been assisting the Northeast States in establishing a coordinated approach to our common air quality goals.

On behalf of those eight States, I would like to express our appreciation for the opportunity to testify before you here today.

The issues before the committee, Mr. Chairman, are clearly numerous and complex. I would like to, at the outset, commend you and Senator Lieberman for bringing this opportunity forward so we can understand better and explore the necessary connection between sustainable energy and environmental policies.

Mr. Chairman, the current focus on our energy situation in this country, presents clear challenges and also obvious opportunities, it is understandable and yet regrettable that our body politic tends to focus on energy issues during moments of scarcity, whether they are real or perceived.

At these moments of scarcity, the fundamental vulnerability of our nation's dependence on a monoculture of imported oil is most obvious. It is also at these moments of scarcity where long-term strategies which look at the environment's impact on energy and energy policy's impact on the environment, as well as strategies that understand the need to focus on more energy efficient demand side policies are often eschewed in favor of quick fix strategies

which try to provide immediate relief at the pump, socket and switch.

It is worth noting, Mr. Chairman, that Congress has boldly grappled with our country's hydrocarbon dependence in the past. The 1992 Energy Policy Act set forth ambitious but reasoned goals to try to break this monoculture of dependence on foreign petroleum. By 1999, 75 percent of the vehicles purchased by our government were supposed to operate on non-petroleum alternative fuels. By the year 2000, a full 10 percent of our motor fuels used in this country were slated to be non-petroleum and by 2010 that number was slated to rise up to 30 percent.

The best description of our success and approach to this effort has been sadly woeful, Mr. Chairman. Presently, less than 1 percent of the fuels used on our nation's highways are non-petroleum. The Energy Administration indicated that the 20 million barrel per per day use of oil is projected to rise to 26 million barrels per day by 2020. Last year, $100 billion of U.S. money was spent on imported oil. The trade deficit on the basis of that vast expenditure surged to the highest ever of $135 billion.

Mr. Chairman, as a founding member of the Governors' Ethanol Coalition, I know that you appreciate the need to diversify our energy stock to a more reliable, diverse and domestic feedstock.

However, I would respectfully submit to you and the rest of this panel that had our nation devoted the resources and innovation to achieve the goals of EPACT over the last decade, both the mood and the options available to us today would be far improved.

Mr. Chairman, I also agree with the statement you made initially that our economy today and tomorrow is going to rely on petroleum. I hope to take issue with that next tomorrow. It is my sincere hope that tomorrow's tomorrow will in fact enable us to have an economy that also relies on clean and renewable energy like fuel cells and electric vehicles.

We in the Northeast States are working diligently to try to bring that about.

I would like to focus on three regulatory policies, if I may, that deal with the issues that we must grapple with today to harmonize our existing dependence on petroleum with our very legitimate environmental needs.

I will try to touch on these quickly. I will not mention NSR at all because I think Attorney General Spitzer did a fine job on behalf of the Northeast States position.

First, Mr. Chairman, is the question of mobile source toxics. In 1990, this body adopted Section 202(1) of the Clean Air Act which "directs the agency to promulgate regulations to control hazardous air pollutants from motor vehicles and motor vehicle fuels."

These standards, at a minimum for benzene and formaldehyde should "reflect the greatest degree of emission reduction achievable for the application of technology which would be available."

Mr. Chairman, EPA's efforts in this regard have been uninspired at best. While we recognize that motor vehicles are responsible for known carcinogens that are emitted in excess of health standards throughout the country, we finally got a rule under court order from U.S. EPA that does nothing to actually reduce the emissions of these mobile source toxins.