gines in terms of reducing NOx emissions. In addition, there are many uncertainties concerning the timing of EPA's proposed rules. Industry has indicated that they intend to fight the standards, especially the sulfur reductions for diesel fuel. It is possible that the emission benefits of the proposed rule will not be available until some time after 2010. In the meantime, natural gas vehicles are available now and they can deliver superior emissions performance with the added advantage of petroleum displacement.

6. THE FUTURE OF THE NATURAL GAS VEHICLE MARKET

The prospects for increased natural gas use for centrally fueled and other high fuel use fleet operations, such as taxicabs, refuse haulers, school and transit buses, airport shuttles and over-the-road trucks, are very good. The NGV industry has generally chosen to focus on high fuel use fleets and heavy-duty vehicles because their fuel consumption and refueling patterns make them the best choice for early introduction of alternative fuels. Initially, suppliers of natural gas are looking for customers that will use sufficient amounts of fuel to justify the capital investment in retail and private fueling. Another advantage of focusing on high fuel use fleets and operators of heavy-duty vehicles is that replacing these vehicles with alternative fuels provides the greatest amount of emission reductions.

While NGVs are commercially available, they generally cost more than their gasoline or petroleum counterparts. Light-duty NGVs for example, generally cost $3,500 to $5,000 more; heavy-duty NGVs cost from $25,000-$50,000 more. However, as more vehicles are sold, economies of scale will lower the incremental cost of NGVs. The Department of Energy estimates that light-duty NGVs will cost approximately $800 more than comparable gasoline models when mass-produced. Unfortunately, we are still far from seeing the economies of scale that will result from mass production. For example, Ford Motor Company produced over 100,000 Crown Victoria Sedans last year. Of these, only 1,000 were natural gas-powered.

Some people have questioned the continued need for alternative fuel vehicles, particularly since the U.S. EPA announced plans to make gasoline and diesel fueled vehicles of all sizes much cleaner. While there is no question that conventionally fueled vehicles have gotten cleaner and will continue to do so, natural gas vehicles too can continue to become cleaner. Alternative fuel vehicles will continue to be necessary to offset the increased number of vehicles and increased growth in vehicle miles traveled projected by the U.S. Department of Transportation.

Many experts also believe that eventually hydrogen-based fuel cell vehicles will replace the internal combustion engine. It is important to understand that natural gas provides an excellent pathway to a hydrogen transportation future since natural gas can be used to supply the needed hydrogen for fuel cell vehicles. (In fact, almost all stationary fuel cells currently in commercial use derive their hydrogen from natural gas.) As the demand for hydrogen grows, natural gas could be converted into hydrogen at distribution centers or at refueling stations and supplied to hydrogen vehicles. The natural gas infrastructure that is in place today (including the existing pipelines, fueling stations, fuel storage systems and garages and maintenance facilities retrofitted to safely handle a gaseous fuel like natural gas) can be used to support the hydrogen future. In addition, because of the growing NGV market, there are an increasing number of mechanics, inspectors and other transportation professionals that are becoming familiar with servicing gaseous fuel vehicles. It is difficult to imagine how the nation could transition from a petroleum-based transportation system directly to a hydrogen system. Therefore, natural gas is not just an excellent pathway to a hydrogen transportation future; it may just be the only way to transition to that future.

It also should be kept in mind that it will be decades before fuel cell vehicles could become a substantial percentage of the U.S. vehicle population. Internal combustion engines, whether used in traditional vehicles or hybrid electric vehicles, will continue to power most vehicles for the foreseeable future. Natural gas vehicles will always be cleaner than comparable gasoline or diesel vehicles using the same technology, including hybrid electric technology.

RECOMMENDATIONS

There are a number of policies and programs that the federal government could and should put in place to accelerate the purchase and use of alternative fuel vehicles. Some are refinements of existing programs; some are new. Many fall within the purview of the U.S. Department of Energy or Environmental Protection Agency. However, all require congressional leadership in terms of continued authorizations and/or appropriations. The NGVC recommends that Congress support the following policies and programs:

a. Financial Incentives

Support the CLEAR ACT. In April, Senators Hatch and Rockefeller introduced S. 760, a bipartisan bill titled Clean Efficient Automobiles Resulting from Advanced Car Technologies (CLEAR ACT). That bill currently has 11 cosponsors. A companion bill, H.R. 1864, was introduced in the House in May. S. 760 would provide meaningful tax incentives for the purchase of alternative fuel and advanced technology (fuel cell and hybrid) vehicles, the use of alternative fuels, and investments in alternative fuel infrastructure. These proposals are market-driven non-regulatory approaches to promoting AFVs and their use. A credit against income taxes is provided for individuals and businesses for the acquisition of alternative fuel vehicles. The amount of the credit depends on the environmental benefits the vehicle provides. A credit against income taxes also is provided to retail sellers nationwide for the sale of alternative motor fuels. We recognize that the CLEAR ACT is not in the jurisdiction of this Committee. However, we believe that it is critical that the energy policymakers on the Energy Committee send a clear and unambiguous message that enactment into law of the provisions the CLEAR ACT is a critical part of a national energy strategy and in the best interest of the country.

Provide More Funding to State and Local Government Fleets. State and local government fleets are increasingly turning to alternative fuel vehicles as a strategy to help bring their communities into compliance with National Ambient Air Quality Standards. (Indeed, 75 percent of covered state government fleets are required by EPAct to be capable of operating on alternative fuels.) Because of the financial pressure of other priorities, this transition to AFVS is proceeding slower than it could or should be. Congress should provide state and local governments matching funds for AFV acquisition for their fleets, with a higher level of matching for states that commit to a higher percentage of AFVs in the state's fleet than required by EPAct. Congress also should increase funding for the Department of Energy's Clean Cities Initiative. Over 80 cities across the country have established Clean Cities coalitions, which are public/private partnerships dedicated to in the increased use of AFVs. The Clean Cities program has been extraordinarily successful, and its efforts should be recognized and encouraged.

Fund Local Government Model AFV Demonstration Projects. Last month, Rep. Sherwood Boehlert (R-NY), chairman of the House Science Committee, introduced the "Alternative Fuel Vehicle Acceleration Act" (H.R. 2326). The bill would establish a nationwide alternative fuel vehicle energy demonstration and commercial application_competitive grant program by providing $200 million in federal grants to up to 15 communities. The grants could be used to deploy AFVs and connect them to existing transportation systems to help create AFV intermodal networks. Rep. Boehlert plans to include H.R. 2326 in the energy package being developed by the House Science Committee. The Energy Committee should consider similar legislation.

Support the Green School Bus Program. Recent studies indicate that children riding on older school buses are exposed to potentially dangerous levels of emissions. We join with the Union of Concerned Scientists to urge passage of legislation to provide school districts with funding to replace diesel school buses with alternative fuel buses, especially older school buses that may not meet today's safety standards. b. Research, Development and Demonstration (RD&D)

Expand Funding for NGV RD&D. NGVs are good, but they can be made better. Significant R&D is still needed to (1) improve engine efficiency, (2) further reduce engine emissions, (3) reduce the cost and improve the reliability of fueling_infrastructure, and (4) demonstrate natural gas systems in new applications. The Energy Committee should direct DOE to substantially expand its NGV RD&D program to bring it in line with the new Five-Year NGV RD&D Plan developed jointly by the NGV industry and DOE.

Include NGVs in Advanced Automotive Technology R&D. As discussed above, from the perspective of energy security and the environment, natural gas is a superior fuel to gasoline and diesel for hybrids and fuel cells. Therefore, natural gas could and should play a very important role in the deployment of advanced automotive technologies such as hybrid electric and fuel cell vehicles. Existing federal advanced vehicle programs, however, have focused on liquid (primarily, petroleum-based) fuels for these vehicles. The Energy Committee should instruct DOE to include gaseous fuels in its advanced technology vehicle program.

c. Restructure EPAct

EPAct includes specific goals for petroleum reduction through the use of non-petroleum alternative motor fuels. To help achieve these goals, the Act requires alternative fuel provider fleets, the federal fleet and state government-owned fleets to

acquire light duty AFVs. The law allows these fleets to meet up to one-half of their AFV purchase requirements through the use of biodiesel. Each 450 gallons of biodiesel used (2,250 gallons of B-20) by a fleet equals one AFV. As discussed above, EPAct's success in encouraging OEMs to bring AFVs to the market stands in stark contrast, however, to its success in actually helping to displace petroleum with alternative fuels. Fuel provider fleets and the federal fleet are required to operate their AFVs on alternative fuel, but only if such fuel is reasonably available. Many fleets have met their EPAct requirements by acquiring flex-fuel vehicles (vehicles that can operate either on alternative fuel or conventional petroleum fuel), and then operating them on gasoline. Consequently, according to the recent General Accounting Office study discussed above, very little petroleum actually has been displaced through the use of alternative fuels in AFVs owned by these fleets. Congress should make the following modifications to EPAct to increase its effectiveness in reducing the use of petroleum:

i. Create an Optional EPAct Compliance Alternative. Some state government and fuel provider fleets have expressed a desire for greater flexibility in meeting the AFV acquisition requirements. Congress should modify EPAct to provide state government and fuel provider fleets with an optional approach to meeting their EPAct requirements that offers them substantially greater flexibility. In exchange, the program would ask them to accept a voluntary commitment to actually reducing their use of petroleum fuel. Under this program, state government and fuel provider fleets would have the option to continue to meet EPAct requirements as they have in the past (i.e., by acquiring AFVs, meeting up to one-half their requirements through the use of biodiesel and, for fuel provider fleets, using alternative fuel where available). However, this proposal also would provide them the option of opting out of the vehicle acquisition and fuel use requirements by agreeing to reduce a percentage of the petroleum they use in their fleet operations. This percentage would be equal to the amount of petroleum that would be displaced if all AFVs they own and would be required to acquire under EPAct if they remained subject to the vehicle acquisition requirements operated on alternative fuel exclusively. The Department of Energy would be required to issue rules regarding the calculation of this amount.

If a fleet elects this option, all actions it takes to reduce petroleum consumption would be counted under the rules DOE must issue. These actions could include:

• the use of biodiesel (every gallon of biodiesel used would count),

⚫ the use of hybrid electric vehicles and neighborhood electric vehicles (based on the amount of petroleum displaced compared to a conventional vehicle in the same weight class),

⚫ the actual use of alternative fuel in all their vehicles, including light-, mediumand heavy duty vehicles and

⚫ the amount of fuel displaced as a result of substantial contributions they make to getting other fleets or persons to reduce petroleum consumption.

This flexible approach would result in meaningful petroleum displacement, provide incentives for acquisition of AFVs, hybrid vehicles and neighborhood electric vehicles and encourage increased use of biodiesel. Since the option is voluntary, it would not constitute an unfunded mandate.

ii. Credit for the acquisition of heavy-duty vehicles. Congress should permit fleets covered by EPAct to count dedicated medium and heavy-duty vehicles they acquire toward their EPAct requirements.

iii. Enforcement. Congress should direct DOE to send a report to the Senate Energy and Natural Resources and House Energy and Commerce Committees within 90 days of the date of enactment regarding compliance with EPAct requirements by federal, state and fuel provider fleets. DOE should be instructed to detail the efforts it has made to enforce the requirements of the Act, as well as to promote the use of alternative fuels by these fleets. DOE also should be required to publish the report in the Federal Register as well as to publish enforcement actions under EPAct. d. Other

Accelerate Mobile-to-Stationary Credit Trading. Under current Environmental Protection Agency (EPA) regulations (open market trading guidance and the Federal NOx Budget Trading program), the use of mobile emission credits to offset stationary source emissions is either prohibited or discouraged by overly bureaucratic requirements. Where used, the process has been extremely burdensome. Congress should direct EPA to develop regulations to encourage and facilitate mobile to stationary source emissions trading, and to update its Mobile Emissions Model to include natural gas vehicles and other low-polluting technologies. EPA should be instructed to develop methodologies for ensuring that mobile source emission reduc

tions are real and verifiable, and move expeditiously to ensure that mobile reduction credits are part of its regulatory programs.

CONCLUSION

On behalf of the Natural Gas Vehicle Coalition, I appreciate the opportunity to provide our views on these critical issues. It is clear that the U.S. must take steps to lessen its dependence on foreign oil. Natural gas vehicles can help to significantly reduce dependence on foreign oil. It also is clear that America's urban areas must reduce their levels of air pollution. Natural gas vehicles are the cleanest vehicles commercially available today and will continue to be tomorrow. The U.S. currently has the best technology in the world for using alternative transportation fuels. It is critical for the U.S. to capitalize on this technological edge and begin to move alternative fuels into the marketplace. Government incentives continue to be necessary to make this happen. With government incentives and leadership, the private sector can greatly expand the market for alternative transportation fuels.

The CHAIRMAN. Thank you very much.

Mr. Marshall.

STATEMENT OF GARY MARSHALL, VICE CHAIRMAN,
NATIONAL ETHANOL VEHICLE COALITION

Mr. MARSHALL. Good morning, Mr. Chairman.

The CHAIRMAN. Good morning.

Mr. MARSHALL. Glad to be here today. I want to talk with you a little bit about the National Ethanol Vehicle Coalition, which is the primary advocacy group for the use of E-85, or 85 percent ethanol, as a form of alternative transportation fuel. The NEVC is comprised of a number of different members, including the 26 members of the Governors Ethanol Coalition, the National Corn Growers Association, several State corn growers associations, which I actually work for the Missouri Corn Growers Association, as well as several automobile manufacturers, ethanol companies, and others.

We are primarily interested in E-85 as an alternative fuel source, but we are obviously very supportive of the use of ethanol as E10. We have other advocacy groups out there working on E-10 and certainly we are very supportive of efforts such as S. 1006, the Renewable Fuels Act. But we are going to focus our remarks today on E-85, and obviously the biggest challenge that we have had, as people have been talking about all morning, has been the development of infrastructure to fuel automobiles with E-85, 85 percent ethanol. We are hoping that we can help today to integrate E-85 into a broad-based national energy strategy.

Today, most of the ethanol produced in the United States comes from corn. But as ethanol demand increases, we are going to see ethanol produced from a number of different feedstocks, including agricultural wastes, wood waste, and even municipal solid waste. We support and advocate all of these different forms of feedstocks, including biomass, agricultural waste, and feed grains.

Briefly, the automakers have made significant investments to bring E-85 compatible vehicles to the marketplace at no additional cost to consumers. By the conclusion of market year 2001 there will be approximately 1.9 million flexible fuel vehicles on the Nation's highways capable of consuming more than 1.5 billion gallons of ethanol annually if the infrastructure was available. The number of these vehicles continues to increase. We are going to see more this year, more introduced next year.

Different styles of vehicles will be compatible to use alternative fuels, like E-85. These vehicles can run on 85 percent ethanol, they can run on 10 percent ethanol, they can run on conventional gasoline. So if you do not have access to the 85 percent ethanol, you can use something else if you are traveling away.

Again, the problem has been finding the infrastructure, putting the infrastructure together to produce E-85. We can use the existing infrastructure to deliver it. The gasoline tanks, we have to have a dedicated tank for the E-85, but the pumps, just like we see in many of the filling stations across the country today, we can utilize those directly for E-85. So there is an additional cost of putting in the different tanks and so forth, but the infrastructure could be made available relatively easily. It just has not been completed to this point in time.

Now, just for a couple of brief interesting comments. If these 1.9 million flexible fuel vehicles were able to use E-85 as its primary fuel source, we would displace 34 million barrels of imported petroleum, use an additional 530 million bushels of corn, generate an additional $3 billion in farm income, develop a marketplace for the production of ethanol from biomass and waste materials, significantly reduce the emissions of non-methane hydrocarbons, carbon monoxide, and air toxics, implement a reduction of more than 4.3 million tons per year of greenhouse gas emissions, and help establish a long-term sustainable alternative domestic transportation fuel.

As more of these automobiles come on line, obviously we believe there is no other form of transportation fuel that provides the broad range of environmental and economic benefits to the Nation as does E-85. But as I have been saying, obviously there are impediments to achieving those results. Lack of infrastructure-today we have only about 200 public E-85 fueling stations in the United States.

Ethanol contains less energy on a Btu basis than does gasoline and even with the existing blenders tax credit a gallon of gasoline equivalent E-85 often exceeds the cost of unleaded gasoline.

The automakers have been criticized for producing flexible fuel vehicles that do not operate on alternative fuels, but we can change that with help. The Alternative Motor Fuel Act of 1988 provided credits to the automakers to encourage the production of these alternative fuel vehicles and these credits, while limited, have assisted the automakers in achieving the corporate average fuel economy standards proposed and provided for by law.

They have been criticized, again, for not taking advantage, or for taking advantage of the CAFE credits provided by Congress and that little of the alternative fuels have been used. The automakers have only been doing what has been available to them. The incentives were there for the production of the vehicles. The incentives have not been there for the use of the fuels. Congress obviously intended that these incentives be used to initiate and promote the production of the vehicles. Now we need these same types of things for the fuel.

I would like to offer a very general set of conclusions and recommendations that the committee might want to consider. No. 1,