ucts that we buy and then have a lifetime for maybe a decade or more using energy, we can influence our energy footprint by just being smarter about having modern performance standards.

Senator CARPER. Thank you.

Mr. NEMTZOW. Some of these issues have been covered, but let me suggest that the philosophy with which to approach your question is we should try to get the marketplace to work wherever possible, and that, I think, is a truism, but there is a "wherever possible" there.

Let me start with the exception first. In the energy marketplace, in the consumer marketplace there are many market values that classical economics teaches us about. For example, almost half of the refrigerators bought every year in this country are bought by somebody who will never, ever see the electric bill for them-landlords, home builders, developers-so they are going to buy based on what makes sense-first cost or looks. They don't have to pay the electric bill. They won't care about efficiency. Nobody would expect them to. That's a market failure that needs to be addressed by regulation or some other non-market force.

Let's talk about the marketplace, which is the right way to do it. First, of course, are price signals. You have to give people the price of their decision and the cost of it, as much as possible. One of California's many mistakes was to protect consumers from the reality of what was happening in the real world of natural gas prices. Consumers haven't conserved-well, they are conserving now, but they hadn't planned, they're not doing it voluntarily.

Even better than that is educating consumers about what products are out there and why it is in their interest, and there is a bevy of programs. Governor Pataki in New York is on TV all the time trying to head off his summer's problems. Governor Ridge I think will soon be there, of course, Governor Davis.

We talked about the Energy Star program. If you want to come to the Alliance to Save Energy home page, Senator, we have a calculator there where you can estimate how much energy you are saving or wasting at home and some opportunities for saving, so there are a lot of ways to educate consumers that you, as a policymaker, can support.

Finally, we talked about the tax incentives that the chairman asked about, and I think that is key in this day and age. To provide the economic incentives for those new technologies, get them out there, let people try them. You try it, you like it, and then the marketplace will be more friendly.

So those are some of the approaches, but there's a lot to do. Consumers now, after a decade of not having to worry about energy, of course have to worry about it now, so they are primed. Now we just have to give them the tools to make some smart decisions. Senator CARPER. Thank you.

Mr. ALEXANDER. Senator, thank you.

My company has been engaged in energy management and offering controls for a number of years-geothermal applications for residential homes, whole house energy efficiency. We are the largest mechanical contractor in the Midwest. We offer energy management controls on HVAC equipment, lighting equipment, and also a green roofs program, which is a reflective roof on buildings.

We have seen in this experience boils down to three simple prospects. I think a lot of it has already been talked about. First, you have to have a quality product that serves the needs of the customer. If it is a quality product, first in the door works.

Second, the customer has to see real-time prices. You cannot continue to have subsidized prices, controlled, capped prices. They must see real-time prices so they can make those kinds of economic decisions and choices which will allow the deployment of these new technologies, which are more expensive.

Third, we talked a lot about subsidies. I would suggest that if we look toward subsidies, you look toward subsidies that help the development and the initial deployment of the resource, because if you have a quality product, customers are seeing real-time prices, then what you need to do is to get the business started, but that there is not a large capital investment required for the market to get developed.

If you can do that and target subsidies toward the-there are direct subsidies to the customers-you could target those toward people that could not otherwise afford to make that capital investment because they don't have that ability to even make that tradeoff. That's where I think you should concentrate your effort. Senator CARPER. Thank you all.

Senator VOINOVICH. Thank you. That information, Mr. Hawkins, is very, very important. We undertook the green lights program in the State of Ohio, and it has just been wonderful. It is an initial high cost to get into it, but we've saved so much money. We asked the universities to do management studies-and this sounds like a no-brainer, but a lot of them weren't turning down their heat at night, and one of our universities saved almost $750,000 just by doing that, and others installing those automatic things at certain times when they're shut down.

There's a lot that can be done, and I was really impressed with your second-the energy efficiency right next to the petroleum. That is our No. 1 source. Then the next source was energy efficiency, which was terrific.

Mr. NEMTZOW. If I may comment, Senator, one of the problems is energy efficiency is invisible. What we want is for the Maytag appliance that's fuel efficient to look just like the other one. That's the plan. We want it to be invisible. But then our success story gets lost because of that invisibility.

Senator VOINOVICH. I'd just like to make one comment. One of the questions that I have got, and I think that maybe every member of this committee, and that is that we have conservation and we have technology and we have alternative fuels, and that's all happening, and some of it more rapidly than others. Then folding that into and I know this is difficult-but folding that into looking down the road 15 years, say, in terms of our energy needs, and what impact does that have on our use of natural gas, what impact does it have on nuclear power, what impact does it have on use of coal. It is how do you put all of this together in a way that doesn't get you off on one thing and you fail to recognize there's something happening over here. It is a very difficult thing for us to weigh.

I think part of what we are going to come up with here has got to take that kind of thing into consideration if we are going to deal with this thing appropriately.

I've spoken enough.

Chairman Smith?

Senator SMITH. Thank you, Mr. Chairman.

I think I indicated before, and as all four of you gentlemen know, we are trying over the next several months, and the purpose of these hearings is to try to gather enough information to be able to write a bill that amends, if you will, the Clean Air Act in a way that provides for the energy that we need and a safer, cleaner envi

ronment.

With that in mind, let me just probe with you a little bit, Mr. Hawkins. If we make the assumption that we are putting more carbon into the atmosphere than the natural system can accomplish across the board-we're not just talking utilities here-if we make that assumption and in order to reduce the CO2 levels in the atmosphere, if we assume that energy efficiency will increase if we give the right incentives to do it, we make some reasonable assumptions that Mr. Nemtzow talked about, which I agreed with, in terms of where we are headed with automobiles-I don't know what the timeline is, but we certainly have hybrid automobiles now. We're certainly moving toward fuel cells. As to when they are here, I don't know exactly. If we make the assumption that what Mr. Alexander just talked about a few moments ago, that with cleaner coal technology voluntarily administered with the company from New Hampshire, Powerspan, reducing emissions and reducing some of the emissions, if we make all those assumptions why is it necessary to go regulate specifically the powerplant, command control powerplant emission for carbon? Why can we not put all of these together and I can add one more, which is the creation of coral reefs, more tightening up the gas pipelines, providing reforestation or rain forest purchase, landfills. All of these things could be done in a trade and exchange program that would get us there, allow more flexibility, as they have all asked for, and get us there. Are you insisting that it be command, control, end-of-pipe, endof-powerplant emission control on carbon?

Mr. HAWKINS. To answer your question, Mr. Chairman, no, we are not insisting on end-of-pipe carbon control for powerplants, nor are we insisting on command and control. However, we do believe that sound policy is to establish a cap on carbon emissions, just as the successful 1990 law established a cap on sulfur emissions. That will permit a market mechanism for the electric sector to respond in a variety of ways so that it integrates reducing carbon with the objectives that are set forth for the other three pollutants.

If that isn't done, the risk is that the engineering calculation and the short-sighted cost calculation that is driven by discount rates will say, “All right, even though this strategy won't do anything to reduce our carbon, it will get us in compliance with sulfur, nitrogen, and mercury, so that's what you ought to do. Even if it means that 15 years down the road you are going to face an obligation to control carbon that you won't have put yourself in a position to deal with, I can show you with my slide rule and my calculator that the discount rate should cause you to ignore that right now."

But that's still a wasted resource, and it also perpetuates the release of carbon into the atmosphere at levels greatly in excess of what we need to start thinking about in order to get us moving.

So failure to integrate this runs the risk of investments that will be optimized for the other three pollutants, and if carbon is reduced at all it will only be because it is incidental to those other three decisions.

The analyses that we've seen say that you cannot robustly predict that you will get significant carbon reductions by pursuing the other three pollutants independently.

Senator SMITH. Even if we had a system involving credits provided to those utilities for such things as reforestation, coral reefs, etc.?

Mr. HAWKINS. Well, a credit is useful if there is an obligation that one applies the credit to, but if you don't have any obligation to limit carbon, then whether you pursue an opportunity to reduce carbon is going to be pretty questionable, because why are you doing it. Are you doing it because of some speculative future possibility? That causes the discount rate calculator to run even harder. Senator SMITH. Well, if you implement a voluntary system under a so-called "cap and trade system" out there, and you implemented a voluntary system to try to achieve the reasonable goals on these emissions, if it is getting results that's what we want, isn't it? I mean, I'm just asking you, can you envision any way of supporting any type of legislation that would-the result would be a reduction. Obviously, there will be a reduction in NOx, SOX, and mercury, but the result would be reductions in carbon, but without command control at each powerplant? Can you envision supporting any type of legislation that would accomplish that?

Mr. HAWKINS. We think that a target for carbon needs to be an integral part of the legislation, and we are willing to work with you, Mr. Chairman, to see if there are ways that you can robustly get a program that will, in fact, allow all of us to conclude that yes, we will hit that carbon target because there are effective and accountable means for determining what the obligations are, and even if they were flexibly implemented that they, nonetheless, will reliably produce a carbon target and achieve a carbon target.

So we are not locked into one particular formula for how one writes legislation to produce the carbon target output, and, indeed, I would point out that the Clean Power Act of 2001 does not specify how the carbon target is to be achieved. It leaves that in the bill that has been introduced to the administrator to design marketbased systems to achieve that target. But it is a clear target, and one that has meaning, and meaning that is as clear as it is for the other three pollutants.

Senator SMITH. Final point, Mr. Chairman. If we look at Mr. Alexander's example, where they are working with Powerspan, as I said, a New Hampshire company, on a voluntary basis-and mercury, as you know, is not regulated. However, if this pilot project which they're working on, if the preliminary reports are anywhere near accurate, you're looking at a possible 75 to 80 percent reduction in mercury with this technology without any regulation what

soever.

So I think we have plenty of evidence that the companies, utilities are willing to move forward on a voluntary basis, perhaps under a cap and trade system, to make these reductions. Indeed, we don't have one now and they are moving in that direction. That's a dramatic reduction in an emission that we don't even regulate, 80 percent.

Mr. HAWKINS. If I could comment, Mr. Chairman, in a deregulated electric market, capturing a portion of the market or losing it will depend on fractions of a cent per kilowatt hour. So if there are technologies that improve performance at zero additional costand I have to underscore "zero"-then sure, there is a possibility that they will be used. But unless that additional cost is zero, no matter how small it is, no matter how good a bargain it looks to be, if it does raise the cost of generation by a fraction of a cent, I would say it is not going to be chosen because of the forces of the competitive marketplace.

So if you want to accomplish it, it is critical that the industry have targets that apply to everybody so that it isn't just a matter of volunteerism, because volunteerism will carry you only so far in a very competitive market.

Senator SMITH. I'd just make one other point.

Mr. Nemtzow, in your discussions or your comments regarding autos, do you have any idea when you this ball park you think that a hydrogen vehicle, for example, would be-fuel cell vehicle would be marketed extensively here in the United States? Fifty years?

Mr. NEMTZOw. Less than that. I'd have to quote Samuel Goldwyn about not making predictions about the future, and so it is dangerous in this business.

Fuel cells that don't run on hydrogen you can expect much sooner. You'll see them this decade. Daimler-Chrysler is a leader domestically on select models.

The problem with hydrogen-of course, it works very well in the fuel cell. The problem is getting it to the customer, getting the infrastructure, and that's why the big three are betting, I think correctly, on gasoline for the next period of time because the infrastructure is there and it is much easier.

So I would say fuel cells, yes; hydrogen fuel cells, it's beyond this decade. Hybrids are the next exciting technology.

Senator SMITH. Sure, and I think looking at that-and, although that's not under anybody's proposal here on cap and trade—if, in fact, in the next 25 to 50 years-be generous and say 50-we take 50 percent of the source of all of the emissions we're talking about, including carbon, out of the equation completely because automobiles are no longer burning gasoline, we've made dramatic reductions and dramatic progress without any end-of-pipe regulation on the utilities that are producing the energy for us.

The question is when is Armageddon. I mean, is it 10 years from now? Twenty years from now? Fifty years? One hundred years? Is it tomorrow? I mean, that's really the issue, and those are things we all have to put in play here as we try to craft legislation that makes all this work.

Unfortunately, we don't have all those answers specifically.
Senator VOINOVICH. Thank you.