APPENDIX

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN TO ANN MESNIKOFF

Question 1. Background: Congress established the initial standards for CAFE in 1975, and delegated responsibility for setting new standards to the Administration, specifically the Department of Transportation. Congress provided the Administration with four factors to consider in setting new standards: technical feasibility, economic practicability, the effect of other federal motor vehicle standards on fuel economy, and the need of the United States to conserve energy.

a) You mentioned in your testimony that the biggest step we can take to curb global warming is raising CAFE standards to 45 miles per gallon for cars and 34 miles per gallon for light trucks. Over what timeframe would you propose this?

Answer. A 45/34 mpg standard for cars and light trucks could be achieved over a 10 year period. The original law began phasing a doubling of car fuel economy (from 13.8 mpg to 27.5 mpg) in 1978. The law provided a stepped up increase until the 27.5 mpg standard was achieved in the late 1980s. The auto industry requested this system.

The auto industry has indicated that it would prefer a two step increase at 5 years and 10 years. Either this system or one that had a percentage increase each year would be an acceptable means to arrive at higher CAFE standards.

Question 2. How would you rate your current proposal against the four factors that Congress provided to the Department of Transportation for raising CAFE standards? The four factors are: technical feasibility, economic practicability, the effect of other federal motor vehicle standards on fuel economy, and the need of the United States to conserve energy.

Answer. The proposal of a 45/34 MPG standard for cars and light trucks meets each of the four factors set forth in the CAFE law.

Technical Feasibility-Currently, auto manufacturers are sitting on technology that could vastly improve fuel economy. Some simple steps that could be added to, or changed in, today's vehicles to increase their fuel economy are: improved aerodynamics, low-rolling resistance tires, variable valve timing, and composite fenders and body panels made of high-strength and lightweight materials.

In addition, consumers can now purchase gasoline-electric hybrid engine vehicles. A hybrid vehicle combines a small gasoline internal combustion engine with an electric motor. The gasoline engine recharges the batteries for the electric motor, which is the primary power source for the car. These vehicles do not need to be plugged in, like an electric vehicle. The car is so efficient because it mostly runs on an efficient electric motor and because the gas engine runs at a nearly constant speed (at its most efficient speed) and switches on and off as needed. An onboard computer determines when it is needed to recharge the advanced nickel-metal hydride battery or when it is needed to help accelerate the car e.g. when entering a highway. Honda offers a two seat 70-MPG version called the Insight and Toyota offers a 5-passenger sedan, the Prius.

Economic Practicability-The aforementioned technology is extremely affordable and practical to install, manufacture and provide to consumers. The Union of Concerned Scientists found that auto makers have the ability to increase the fuel economy of America's most popular SUV, he Ford Explorer, from, 19 mpg to 34.1 mpg, for approximately $935. The initial investment of $935 would be returned to the customer in less than two years through savings at the pump. Over the lifetime of the vehicle, consumers would save $5500.

In an earlier study, the Sierra Club (with the Center for Auto Safety) found that a dramatic improvement in fuel economy could be achieved for cars. By adding improved aerodynamics, low-rolling resistance tires, variable valve timing, and composite fenders and body panels made of high-strength and lightweight materials the Ford Taurus could achieve 42 MPG. The cost of these improvements would again be reclaimed by the consumer in less than two years through savings at the gas pump.

Effect of other motor vehicle standards on fuel economy-The CAFE standards, if implemented in a similar manner as they were under the original law, would not have an adverse effect on other vehicle standards. Moreover, no other motor vehicle standards conflict with the need for increased mile per gallon standards. CAFE can safely and efficiently be implemented in conjunction with other motor vehicle safety standards.

Importantly, CAFE standards do not require small cars. Vehicle safety and fuel economy are both driven by technology. Safety is a function of design (crumple zones) and safety technology, such as air bags. These safety factors do not conflict with fuel economy technologies. Cars today are an average of 250 pounds heavier than pre-CAFE cars, but are much more fuel efficient. Automakers achieved over 86 percent of the improvements with technology. For example, in the 1970s Volkswagen replaced its old Beetle with the Rabbit, reducing its fatality rate 44 percent while improving its fuel economy 25 percent.

Need to conserve oil-The U.S. currently imports 55 percent of its oil. The transportation sector is the leader in oil demand, with motor fuels accounting for 65 percent of oil consumption-mostly in the form of gasoline. In fact, cars and light trucks alone guzzle 40 percent of the oil consumed in the U.S. Oil imports account for $50 billion of our national trade deficit. In addition, there are enormous military costs of protecting oil from the Persian Gulf, including defending oil-producing nations as we did in the 1990 Gulf War.

Demand for gasoline has been steadily rising, in large part due to the boom in light truck sales, especially sport utility vehicles. Today, about half of all new vehicles sold in America are light trucks. Many of these are SUVs, which average 1216 mpg. The average fuel economy of new vehicles sold in 1999 was at its lowest point since 1980, meaning that fuel consumption is rising.

The most noticed consequence of our oil dependence is the price of a gallon of gasoline at the pump. Prices at the gas pump in March were more than 50 percent higher than last year's prices-upwards of $1.50 per gallon for regular unleaded gasoline due to a small cut-back in OPEC oil production.

But the consequences of oil dependence go far beyond draining consumers pockets and our economy. Oil has extensive environmental impacts that begin with drilling and continue through to burning it in our cars and light trucks. Demand for oil creates a constant pressure to drill in our pristine wilderness areas, particularly the Arctic National Wildlife Refuge and also off the coasts of California, Florida and other states.

The single biggest step that the U.S. can take to save oil and curb global warming is to make our cars and sport utilities go further on a gallon of gas by raising miles per gallon standards. In fact, improved standards will save more than we import from the Persian Gulf can expect to get from the Arctic and offshore California combined.

There is no question that there is a need for the nation to conserve oil. The existing standards save more than 3 million of barrels of oil per day reducing U.S. dependence on imported oil. Without these savings, the U.S. would be importing at least 1.5 million barrels more every day than today's current levels. In its August 2000 report entitled "Automobile Fuel Economy: Potential Effects of Increasing the Corporate Average Fuel Economy Standards," the General Accounting Office concluded that raising CAFE standards can reduce oil consumption and thereby reduce global warming pollution. New standards could save another 3 million barrels of oil every day.

Question 3. You mentioned that CAFE is an average standard and some carmakers may develop more efficient cars to offset the lesser efficient vehicles such as SUV's. Should there be a separate standards for cars and light trucks?

Answer. The current system has two standards, one for cars and one for light trucks. In either case, the standards have not changed in years (14 years for cars and light trucks standards have stagnated for 19). A single standard system could work if the standard is high enough and no longer contains loopholes that allow auto makers to game the system.

As we have seen, since 1975 the auto industry has gamed the system and exploited loopholes. These practices have eroded the average fuel economy of new cars sold in 1999 to its lowest point in some 20 years. Automakers have used the lower standards for light trucks, once only 20 percent of the vehicle market, to create and mass produce vehicles that pervade and erode made under the CAFE law. Auto makers are pushing more and more car-like vehicles into the light truck category simply to assist them in achieving the low 20.7 mpg standard.

In addition, the current system also gives automakers credits for producing flexible fuel vehicles-vehicles that can run on ethanol, gasoline, or both. Since there so few ethanol pumps (as few as 40, mostly in the Midwest), these vehicles will

never see a drop of alternative fuel, yet the automakers are receiving credits toward meeting today's standards.

A two standard system, that closes the existing loopholes, will continue to be the most effective means of ensuring that both light truck and car fuel economy are improved. At the current levels, closing the light truck loophole would be a significant first step (both cars and light trucks would be achieving a 27.5 mpg standard, but still be considered separately). But, again, raising standards for both cars and light trucks is necessary. Sierra Club, however, would consider supporting a combined standard in the future.

Question 4. In your statement you mentioned that passenger vehicles are responsible for 20 percent of U.S. greenhouse gas emissions. What would you consider to be the main sources for the other 80 percent? And what is the best possible solution for curbing that 80 percent?

Answer. Power production accounts for more than a third of U.S. emissions. Many electric utilities still use coal to produce electricity, spewing millions of tons of carbon dioxide and other pollution into the atmosphere every year. Converting these plants to burn cleaner natural gas could solve part of the problem.

Harnessing the clean, abundant energy of the sun and wind is critical to solving the global warming problem. Technological advances have brought the cost of electricity generated by the wind down by 85 percent since 1981. Wind "farms" are now producing energy from coast to coast. Solar energy technology has made remarkable progress, as new photovoltaic cells have been developed to convert ever-greater amounts of sunlight directly into electricity. Today the costs of wind and solar power are approaching that of cheap, dirty coal plants.

Midwestern states in particular hold enormous potential as sources of renewable energy. Renewable sources currently make up less than 1 percent of the energy market in the U.S. However, states like Kansas, Nebraska, North Dakota, and South Dakota hold the potential to become the Saudi Arabia of wind power. In addition, we can develop biomass crops, such as switch grass, that can be used to generate electricity cleanly and that are grown in an environmentally sound system. We need to invest more in research; development and demonstration to put these clean domestic technologies over the top and enact standards that require an increasing percentage of our energy to come from these clean, renewable sources.

We could do much more to save energy in our homes and office buildings. More energy efficient lighting, appliances, heating and air-conditioning could keep millions of tons of carbon dioxide out of the air each year. For example, a compact fluorescent bulb used in a home can prevent 400 pounds of coal from being burned (as compared to a incandescent bulb).

Industry and buildings account for another third of emissions, and again, efficiency improvements are the key to reductions.

Question 5. Ford Motor Company has recently set an example for other automakers, by voluntarily raising the fuel efficiency on Ford SUVs. Could you comment on the improvements being made by SUV manufacturers? And the potential impacts of these improvements? Do you believe other auto makers will follow Ford's lead? Answer. Under the recent announcements, Ford and GM will increase fuel economy of SUVs, which make up approximately 1/5th of the fleet, by a rate of 5 percent a year. This is close to the 6 percent annual increase in fuel economy the Sierra Club has advocated for the last decade. It is important that they have committed to improving fuel economy through superior technology. Ford has said they will achieve this goal without relying on loopholes in the law. Sierra Club is concerned that automakers might turn to diesel engines for some of these improvements. Diesel exhaust has been identified as a possible carcinogen and also contributes to smog pollution.

These pledges disprove the theory that Detroit cannot improve fuel economy-the claim they have been making for years. These types of commitments to cleaner vehicles are good for the environment and good for business.

While Sierra Club welcomes these pledges, they do not obviate the need for setting new CAFE standards for the light truck fleet as a whole, which includes pickups and minivans. New standards will ensure that all automakers improve the fuel economy of light trucks.

Question 6. Do you have any research which contrasts the effectiveness of an increase in CAFE standards to less popular solutions such as an increase fuel taxes, to curb the demand for oil and gas?

Answer. A less popular solution such as an increase in gas taxes or alternative fuels would not be as effective as increasing CAFE standards. We know from experience that CAFE standards cut oil consumption and thereby reduce greenhouse gas emissions. It is a single policy that is extremely effective.

This summer the equivalent of roughly a 50 percent tax (the average increase in gas prices) was felt around the country due to OPEC's reductions in supply. Despite the sharp jump in price, Americans did not change their driving behavior, carpool more, take public/mass transportation or buy less SUVs. An increase in gas or fuel taxes would have to be large enough to cause these things to happen. A similar situation to the 1970s tripling of oil prices would have to occur to see an impact demand for gas or fuel.

Alternative fuels have their shortcomings too. We are a long way from having an infrastructure to bring the alternative fuels to consumers. Additionally, each of the proposed alternative fuels, such as ethanol, has problems.

Question 7. Why do you believe that raising CAFE standards is the single most effective measure to improve energy efficiency?

Answer. America's cars and light trucks spew out more CO2 than the total emissions of all sources in all but three other countries (China, Russia and Japan). While there is no technology to scrub CO2 from our cars' exhausts, we can make them pollute less by making them more fuel-efficient. By using today's technology, carmakers could safely increase the fuel economy of cars and light trucks without significantly changing their size or performance. The biggest single step we can take to curb global warming is to make our cars and sport utilities go further on a gallon of gas by raising Corporate Average Fuel Economy (CAFE) standards to 45 mpg for cars and 34 mpg for light trucks.

The existing standards save more than 3 million of barrels of oil per day and reduce U.S. dependence on imported oil. Without these savings, the U.S. would be importing at least 1.5 million barrels more every day than today's current levels. Even with the oil savings from CAFE, cars and light trucks consume 40 percent of the oil used in the U.S. every day-almost as much as we import.

A gallon of gas is essentially pure carbon and weighs about 7 lbs. When burned, the weight of the carbon is nearly tripled by the addition of the two oxygen atoms, forming CO2. Thus, every gallon of gas burned directly emits 19 lbs. of carbon dioxide from the tailpipe. Including upstream emissions from refining, transport, and refueling, each_gallon of gasoline burned emits a total of 28 pounds of CO2 into the atmosphere. Raising CAFE therefore dramatically reduces CO2 emissions.

CAFE standards have additional benefits. CAFE standards help in the effort to clean the air. By reducing oil consumption, the standards keep 500,000 tons per year of carcinogenic hydrocarbon emissions, a key smog-forming pollutant, from upstream sources-refining and transporting of oil and refueling at the pump-and out of the air we breathe. The standards, therefore, improve air quality, helping polluted cities and states achieve Clean Air Act requirements.

Because fuel economy for cars doubled between 1975 and the late 1980s, a new car purchaser saves an average of $3,000 at the gas pump over the lifetime of the car. With today's high fuel prices, CAFE delivers more than $40 billion annually in consumer savings. Consumers can spend these dollars in their communities on food, housing, and clothing, instead of on imported oil.

Question 8. What other viable and cost-effective options exist for improving energy efficiency?

Answer. Investing in Renewable Energy: While many congressional leaders are now calling for immediate action to reduce gasoline prices, they have blocked efforts to increase energy efficiency and reduce oil consumption. In the last 2 years, Congress has significantly under-funded the Administration's proposals.

For example, funding for research for energy conservation, solar and renewable energy, was at 20 percent less than requested levels in FY 2000, or $273 million for FY 1999 and 2000.

Efforts to provide tax incentives to spur the purchase of energy efficient vehicles and other products, the use of renewable energy, and clean renewable electricity production have also be stymied by congressional action-funding at by 98 percent less than requested in FY 2000, and by 100 percent less than in FY 1999, when Congress provided no funding. Those decreases represent $7.1 billion for the 2

years.

Last year, Sen. Jim Jeffords (R-VT) led efforts to add $62 million to solar and renewable energy programs, but it was defeated. In the last 2 years, Congress cut $7.4 billion from the Administration's efforts to reduce our consumption of energy. These programs would have saved business and consumers $70 on their energy bill for every $1 invested in these programs, which might have mitigated the cost of rising gasoline prices.

Weatherization: When the Northeast was hit with a cold snap in February, the high cost of home heating oil was a major issue. Congress, since 1995, has slashed funding for important programs that would help reduce oil consumption and im

prove energy efficiency. In Fiscal Year 1996, the energy efficiency budget was cut by 30 percent. Energy efficiency helps to reduce demand and save consumers money. In addition to cutting funding for energy efficiency programs in general, Congress has slashed funding for the Weatherization Assistance Program, a program that provides essential services to low-income families. The program provides up to $2,000 per household to weatherize homes-improving insulation, windows, furnaces, etc. Weatherization has been shown to improve a home's efficiency by 23 percent, which would decrease demand for oil and save money in the long term.

Low-income families were the hardest hit by high oil prices in a cold snap. By slashing funding for the weatherization program Congress ensured that homes were less efficient and required more oil to provide much needed warmth. Congress must invest in programs like weatherization to insure that the most vulnerable members of society are not left in the cold in the future.

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN TO
FREDRICK D. PALMER

Question 1. You stated that the "no growth" electricity policies of the environmental community and the State of California has hit a wall. Electricity is now scarce and expensive in California.

a) What do you propose that the State of California do today to reverse their electricity dilemma?

b) How much would you say Silicon Valley has contributed to this?

c) Are you aware of any actions that Silicon Valley companies are taking in response to this situation and their need for an uninterruptible power source? Answer. California recently passed legislation expediting siting of new power plants. This is a commendable step. However, the legislation apparently allows expedited siting only for those plants that do not have major environmental impact. The standard is unfortunately vague. Expect the environmental community to challenge any fossil fuel-fired plant on environmental grounds, including climate change concerns. For example, natural gas-fired power plants are now in environmental favor, but natural gas is a carbon-based fuel (like coal) even though CO2 emissions from a gas-fired unit on a percentage basis are lower than coal by about half. Nonetheless, if you could replace all coal-fired electricity generation in the United States today with natural gas-which you cannot do-you nonetheless would do nothing to lower the threat of apocalyptic global warming according to greenhouse theory. Remember always in these discussions that the argument is not over stabilization of greenhouse gas emissions. Under greenhouse theory, you have to go 60 percent below 1990 levels of CO2 emissions by humans, otherwise the apocalypse is upon us no matter what we do.

There is no doubt that the Silicon Valley technology boom contributed greatly to the increase in electricity demand in California. In Seattle, Washington, for example, a huge debate is going on now over whether additional generation should be secured by Seattle City Light to meet the needs of a number of proposed electricityconsuming data centers for the telecom revolution-consumption in the range of hundreds of megawatts. The American Public Power Association's Public Power Weekly newsletter recently ran a story on this development. The text of that article is attached.

Silicon Valley, of course, already has gone through its robust growth phase with respect to the technology companies that have located there and mushroomed in employment and activity. I don't have a precise number as to the contribution made by the companies located there, but I was in San Francisco this summer when electricity demand outstripped supply in the Bay Area and it was front-page news every day. Those complaining loudest were those using the most electricity, namely the technology companies in Silicon Valley.

Silicon Valley companies are installing electric generating capacity onsite to provide themselves with uninterruptible power 24 hours a day, 7 days a week. These generators use natural gas or diesel fuel, thus they emit CO2 when used. The generators come in the form of micro turbines and/or fuel cells (primarily micro turbines right now) or diesel generators.

This development is explored in depth in the new Mark Mills/Peter Huber newsletter, Powercosm. The law of unintended consequences says if we restrict regulated utilities from generating using fossil fuels, unregulated entities will find a way to provide electricity for themselves and will turn to small generators, which tend to be expensive and inefficient, and use natural gas and/or diesel fuel in the process.