The CHAIRMAN. Mr. Nadel, you agree that the price will come down substantially for this higher efficiency air conditioner if it is mandated, is that your view as well?

Mr. NADEL. Yes, it is, and that is based on past experience. Before the SEER-10 standard was set, the ARI members estimated it would cost more than $700 in extra cost. DOE estimated it would cost-I cannot remember the exact figures, something like $340 extra. If you look at the U.S. Census Bureau data, in fact, the cost in 1992 did not go up at all, so when manufacturers sharpen their pencils, when the market share increases from the current roughly 5 percent for SEER-13 up to 100 percent, there will be dramatic cost reductions.

The CHAIRMAN. This Energy Star labeling program that EPA and now DOE are both involved in, how effective is it? Is there something we should be doing to strengthen that program?

Mr. Nadel, do you have a view as to whether there ought to be some statutory change that would strengthen or expand that program, or do you think it is working just the way it ought to?

Mr. NADEL. I think the program is working very well. However, I think it will help some to actually establish a statutory base for the program. Now, there is no official statutory basis. There is general directives to DOE and EPA to improve energy efficiency, reduce pollution, but not a specific directive.

I do know in the bill that the House Energy & Commerce Subcommittee reported out yesterday there are some specific provisions authorizing Energy Star and giving some directives to the programs that I think will be helpful.

The CHAIRMAN. Dr. O'Hagan, did you have a view on that?

Dr. O'HAGAN. Yes, Mr. Chairman. We think that is a very good program as it applies to consumer products, and I think the focus ought to be kept in that area, and also Energy Star buildings. We do not think it is valuable, however, in the industrial area. It has been proposed to be extended, for example, to motors.

We think that the NEMA Premium program which has been launched by the industry and has even higher standards than the Federal standards is a preferred approach, but certainly, as far as consumer products and commercial buildings is concerned, it is an excellent program. It also leads to the point, Mr. Chairman, and also to the question of the light bulbs that you mentioned, the need that we pointed out for education, and for people to understand the economics.

It is very hard for a consumer to pay $15 for a compact fluorescent when they can get an incandescent lamp for 50 cents, and that is a pretty hard sell without a real understanding of the long-term benefits of making that purchase, so it is for that reason that we think a lot of emphasis needs to be put in educating the public as to the benefits of energy-efficient products.

The CHAIRMAN. Well, I think all of this testimony is very useful, and I appreciate you all being here, and we will try to learn from it as we put a bill together.

Thank you very much. The hearing is adjourned.

[Whereupon, at 11:50 a.m., the hearing was recessed, to be reconvened on July 17, 2001.]

NATIONAL ENERGY ISSUES

TUESDAY, JULY 17, 2001

U.S. SENATE,

COMMITTEE ON ENERGY AND NATURAL RESOURCES,

Washington, DC. The committee met, pursuant to notice, at 9:38 a.m. in room SD106, Dirksen Senate Office Building, Hon. Jeff Bingaman, chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN,

U.S. SENATOR FROM NEW MEXICO

The CHAIRMAN. The purpose of today's hearing is to consider proposals to reduce the demand for petroleum products in the light duty vehicle sector. The committee has held several hearings on the subject of gasoline supply and price. Most recently was a field hearing in South Dakota chaired by Senator Johnson on renewable fuels. Today we are shifting the focus to the demand side of the equation.

Although this committee does not have direct jurisdiction over vehicle fuel efficiency standards, it does have jurisdiction over research and development, over alternative fuels, and over overall energy policy. Several bills which have been referred to this committee propose strategies to reduce gasoline consumption, either through fuel diversification or increased efficiency. We have asked witnesses to review and comment on some of those bills. S. 597, S. 388, S. 883, S. 1053, and S. 1006 are the ones that I currently am aware of.

Witnesses should feel free to comment on any other measures referred to this or any other committee.

The New York Times this morning reported on a draft of the National Academy of Sciences report on improving vehicle efficiency. According to that article in the Times, the report, which was requested by Congress last year, will find "fuel economy of new vehicles, especially sport utility vehicles and pickup trucks, could be raised by as much as 10 to 11 miles per gallon over the next 6 to 10 years, with the extra cost offset by savings on gasoline."

The panel preparing this report did not include anyone from the environmental community. Yet the findings seem to be fairly consistent with a recent study by the Union of Concerned Scientists. We will have an opportunity this morning to explore the types of technologies that can be deployed in the near term and in the future to achieve greater efficiency.

The Times story also follows up on the issue of sales of flexible fuel vehicles that can use either gasoline or ethanol to meet current

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fuel economy targets. Close to a million of these vehicles, mostly trucks and SUV's, are currently being manufactured. Yet very few actually burn ethanol.

The committee has been a strong proponent of the use of alternative fuels. In fact, alternative fuel vehicles were a major focus of the Energy Policy Act, the last major legislation, energy legislation, passed by the Congress. Unfortunately, the goals of EPAct with respect to alternative fuels have not been met, in part due to the lack of available refueling infrastructure, but also due to the disincentive to use the alternative fuels inherent in flexible fuel vehicles. The goals of fuel diversification remain as valid today as they were 10 years ago. We will hear from some of the witnesses this morning on what we can do to increase the use of those fuels. There are numerous reasons we need to be serious about reducing our reliance on petroleum products, from energy security and economics to the global environment, and I hope the hearing will help give the committee guidance on how we can develop policies to both achieve greater efficiency and also greater fuel diversity in the vehicle sector.

Senator Murkowski.

STATEMENT OF HON. FRANK H. MURKOWSKI, U.S. SENATOR FROM ALASKA

Senator MURKOWSKI. Good morning, Senator Bingaman. Again, I think it is important that we have these continued hearings. Starting off the new week, we have had I think some 21 weeks have gone by since we submitted in general the broad comprehensive energy bills, your bill and my bill before the committee. CAFE standards are high on everybody's agenda and you mentioned the article in the New York Times. It is rather misleading in the sense that one can assume it says that the panel urges higher fuel efficiency for automobiles as a final document.

There is a letter that has gone out from Mr. Bill Colgazier, Executive Officer of the National Research Council of the National Academy of Science, July 16, concerning this draft report, and his indication is that: "We believe it is critical for readers to understand that this document is not a final Research Council report. It does not carry the weight of a final peer reviewed study. Further, the study of the National Research Council undergoes significant changes during an anonymous peer review process. Moreover, in the case of this particular study the study committee will be meeting July 17 and 18 to address comments made about the draft. More than 300 comments have been received to date. More are anticipated. Therefore, it is important to understand that the study at this stage is still a work in progress.

"Once the committee has responded to review comments and documented its changes, the Academy's report review committee will determine whether the committee has been responsive to the review's comments. The final work is expected to be issued on July 31."

So I think we should reflect on the reality that this is still a draft, that the New York Times report does not necessarily reflect the final comments expected from the National Academy of Sciences on CAFE standards.

You know, we have seen comments of many people that suggest that all we need to do to address our energy crisis is to initiate CAFE standards. We have seen over a period of time the reality that our cars are getting more fuel efficient, but this has not shown up in the faulty measure of automobile performance, that is miles per gallon. We have got a couple of charts here that I would like to have in evidence.

The fact is that manufacturers have maintained fuel economy despite consumers' demand for performance. If you look at the scale, this is EPA's 2000 fuel economy trend reports and it is a rather complicated chart: weight, miles per gallon, manual, and zero to 60, in a time sequence. As shown on the right, the point is if we had kept cars of the 1980's and made the same improvements in vehicle technologies, fuel economy would have been well over 35 miles per gallon. But instead of choosing fuel economy-and I use the word "choosing" because I think it is appropriate the American people by their own free will seem to have chosen vehicles with improved performance.

It should not be the prerogative of this Congress in my opinion, or any radical environmental groups, the deprive the public of their choice. The automakers simply respond to the needs of their consumers and make the vehicles that people seem to want to buy.

Now, that is the faulty logic of CAFE standards. You cannot regulate consumer behavior without trampling to some extent on individual freedoms and passenger safety. Automakers can make all the fuel efficient vehicles they can, but if no one buys them what have we accomplished? I think the indications are that of the ten most fuel efficient automobiles made in the United States today, they only constitute one-and-one-half of one percent of the automobile sales.

Now, what does that say for America? Well, I think you can draw your own conclusions, but that is not what motivates the purchaser. So the question is at what point do we dictate this? Now, perhaps we should work to produce more vehicles running on alternative fuels or new technologies like fuel cells, vehicles that provide all of the performance characteristics consumers demand in the form that they can recognize, and provide them with tax incentives if that is necessary to choose these new technologies over established vehicle technologies.

The energy bill that we have introduced, S. 389, contains these incentives as put forth by Senator Hatch and a number of others. I think this is the right way to proceed.

Let us not be fooled into thinking that we need only tighten CAFE standards to solve our energy problems. We should instead focus on getting advanced vehicle technologies to market and into the hands of consumers. As we will hear from our third panel, exciting opportunities await us in the area of replacing gasoline with natural gas, ethanol, and electric vehicles. But there is a critical lack of refueling facilities. As we know, you just cannot drive up anywhere and fill up your tank, and there is not a mass market for these vehicles as yet.

Perhaps it is worth asking whether maybe we have been keeping score of the wrong scorecard. The focus on miles per gallon of gasoline puts alternative fuels certainly at a disadvantage and certainly

overlooks and ignores their potential. Perhaps it is time for a new metric that directly addresses the goal of reducing dependence, as an example, on foreign oil, one that would promote finding another alternative to gasoline.

So I hope that our witnesses will also reflect and comment on the negative impact of CAFE standards on alternative fuels and their development, and ask whether there is a better way to provide for fuel diversity in our transportation sector. Reducing our needs for gasoline would reduce our dangerous dependence on imported_oil and provide energy security to a greater degree for Americans. Energy security means job security, it means economic security, it means our American standard of living.

We should be careful to foster this fuel diversity in a way which does not stifle innovation and technological development. We look forward to the suggestions on how we might do this as part of a comprehensive energy plan.

Thank you, Mr. Chairman, and thanks for holding the chart so still for so long.

The CHAIRMAN. Thank you very much.

Why don't we start with our first panel. We have Mr. Barry McNutt, who is the Senior Policy Analyst with the Office of Domestic Policy and International Affairs in the U.S. Department of Energy; and Mr. Robert Shelton, who is the Executive Director of the National Highway Traffic Safety Administration. Mr. McNutt, why don't you go right ahead.

STATEMENT OF BARRY D. McNUTT, SENIOR POLICY ANALYST, OFFICE OF DOMESTIC POLICY AND INTERNATIONAL AFFAIRS, DEPARTMENT OF ENERGY

Mr. MCNUTT. Mr. Chairman, members of the committee, good morning. Thank you for the opportunity to be here. As you said, my name is Barry McNutt. I am a Senior Policy Analyst with the Energy Department's Office of Policy and International Affairs. I have a brief oral statement I would like to make and I request that my written testimony be included as part of the record of this hearing.

The topic of this hearing, reducing demand for petroleum products in the light duty vehicle sector, is a problem that we have worked on for a long time, starting with the Energy Policy and Conservation Act in 1975 and running most recently to the President's National Energy Policy and the Department's ongoing vehicle efficiency, alternative fuels, and renewable fuels efforts.

That we have worked on this goal of reducing petroleum demand, almost three-quarters of which is in the transportation sector, for more than 25 years, we have passed numerous pieces of legislation, and we have a variety of ongoing programs I think is certainly telling as to how difficult the problem is.

We have a limited number of options to reduce petroleum demand in any significant way in the light duty vehicle sector. Clearly, improving vehicle fuel economy has to be part of any serious effort to address that goal. We have the technology to make significant progress without sacrificing other attributes that are important to consumers. The challenge we face is getting this technology