of Colorado that we ought to be exceedingly careful about how the water in the area might be impacted by this largest mine in the country, OK?

Would the State law then apply in that situation?

Mr. QUARLES. Well, let me say first this is a very complicated area. I think it would be a mistake to try to include a special rule in this bill that would apply to synthetic fuels demonstration plants that would treat them differently from any other mining activities on Federal lands.

The rule, as I understand it, is that those mining activities are governed by controls to be established by the Department of the Interior, and I would really recommend against changing those ground rules for these plants.

As I think you know, we are very anxious that the Department of the Interior proceed with the development of its regulations to control mining everywhere, including on Federal land-and have made a number of recommendations about features which we feel the regulations show.

It seems to me the correct approach is to make those regulations adequate. If it is determined that the States should be given authority to establish more stringent regulations, then do that on a broad basis, but don't come in and have one rule in this bill for these plants and something different in all the others.

Mr. WIRTH. I understand your answer today, OK. There are a great number of people who, as I have stated many times, are very concerned about the arrogance with which that area of the country is being treated, all right?

Mr. QUARLES. Yes.

Mr. WIRTH. And they're deeply suspicious of leaving it to a regulatory function, leaving it to the combination of the Administration and the large companies coming in, or are just very suspicious of leaving to the Administration.

The question I think that many Western States want to ask you is would you, and would this Administration, affirm that the States have the authority to set environmental management standards exceeding those of the Federal Government?

Mr. QUARLES. Well, that is not the current law, as I understand it, on Federal lands, and I would not

Mr. WIRTH. Would the answer then be "No"?

Mr. QUARLES. The answer at this point would be "No."

Mr. WIRTH. Even for federally leased lands as well, leased to a private operation? You can see that this is a very, very tricky procedural issue right now.

Mr. QUARLES. It is, and in honesty I don't know that I'm prepared to give you a well-considered answer to the question.

Mr. HAYES. Yes, sir. Mr. Quarles, Mr. Brands will be staying and Dr. Gage will be staying.

If it's all right, I would like to recognize Mr. Mosher who has a question for Mr. Quarles, and then he will have to leave.

Mr. MOSHER. Thank you, Mr. Chairman. I don't want to keep Mr. Quarles from his plane. Just a quick question, which may be risky, but do I sense accurately that EPA in order to fulfill its responsibility that it will have in any commercial synfuels development above

all else needs base line data that it doesn't now have, and that you look upon this proposal, the synthetic fuels commercialization program, as a very welcome additional opportunity to begin getting that base line data. Is that

Mr. QUARLES. That's exactly correct.

Mr. MOSHER. And you also are using undoubtedly some data that ERDA has been developing in its work?

Mr. QUARLES. Yes.

Mr. MOSHER. But you look upon this as a positive opportunity to fulfill your mission?

Mr. QUARLES. We do and we support it.

Mr. HAYES. Mr. Quarles, thank you very much.

Mr. QUARLES. Thank you, I apologize.

Mr. WIRTH. Mr. Quarles, might we write to you?
Mr. QUARLES. Yes, please do.

Mr. WIRTH. And could you give us a response to that question? Mr. QUARLES. I'd be pleased to respond further, but I'd also like to continue to discuss it personally with you at some other occasion. Mr. WIRTH. Fine. Thank you very much.

Mr. HAYES. Thank you, Mr. Quarles.

With Dr. Gage still here and Mr. Brands, I would recognize

Mr. MOSHER. Could I just ask an additional-not Mr. Quarles, but his associates?

Mr. HAYES. Yes.

Mr. MOSHER. I mentioned the work that ERDA's been doing. Would you look upon some of these ERDA reports, at the work they have been doing in the synthetic fuels, as being very useful for providing base line data that I was talking about?

Mr. BRANDS. Let me state

Mr. HAYES. Would you state your name for the record?
Mr. BRANDS. I'm Mr. Paul Brands.

Perhaps Stephen Gage can help with this answer since it's a little more in his area. We are looking forward to acquiring more of the monitoring data which ERDA is gathering in their program included in the fiscal 1976 budget. We would hope that a fair amount of this data could be useful in helping with some of the monitoring information that we would like to get to help provide insights on new standards, or technologies.

I think, as was mentioned earlier, in the EPA's research and development programs, we have some efforts under way to acquire related kinds of information. I think very definitely our research and development office, ERDA, will be working closely to acquire the needed information.

Mr. MOSHER. Well, do you feel that the mechanisms that now exist and the attitudes that now exist-do you feel that you now have a good coordinating relationship so that you can now get the information from ERDA?

Mr. BRANDS. Yes, I think so, I think clearly they do. Perhaps Steve Gage would like to elaborate.

Dr. GAGE. There are, Mr. Mosher, quite a number of avenues of interaction at this point. We have testified several times before the Subcommittee on the Environment and the Atmosphere on the interagency program which ties EPA and ERDA together.

Dr. Liverman of ERDA, who is here today, has also testified along with me at those times. We do have, as I restate, many areas of interaction. I think that we're taking very seriously within the agency a requirement in Reorganizational Order No. 3, which established the Environmental Protection Agency, that the agency use whatever environmental data that is developed by any other Federal agency in the development of the agency's regulations.

This has practical limits. It has legal constraints as well, and I think that these are the kinds of problems that we'll be working through together. We will use and will welcome the data developed by ERDA very much over the next few years as we move into a regulatory program for entire new synthetic fuels industries.

Mr. MOSHER. Thank you, Mr. Chairman.

Mr. HAYES. Thank you, Dr. Gage. Thank you, Mr. Mosher.

Our next witness is Mr. James L. Mitchell, the Associate Director of Natural Resources, Energy and Science of the Office of Management and the Budget (accompanied by William McCormick of OMB). Mr. Mitchell, you are recognized. Do you have printed testimony? Mr. MITCHELL. Yes.

Mr. HAYES. The Members have Mr. Mitchell's testimony before them.

STATEMENT OF JAMES L. MITCHELL, ASSOCIATE DIRECTOR FOR NATURAL RESOURCES, ENERGY, AND SCIENCE, OFFICE OF MANAGEMENT AND BUDGET

Mr. MITCHELL. Rather than read the testimony, Mr. Chairman, in view of the hour, I think it might be more helpful just to summarize a few of the highlights, and then answer questions.

Mr. HAYES. If you would, please.

[The prepared statement of James L. Mitchell is as follows:]

Statement of JAMES L. MITCHELL, ASSOCIAte Director for Natural ReSOURCES, ENERGY AND SCIENCE, OFFICE OF MANAGEMENT AND BUDGET

I am pleased to appear before you on Director Lynn's behalf to offer testimony on the President's proposed Synthetic Fuels Commercialization Program and to respond to your questions regarding this proposal and the legislation needed to implement it. I again wish to emphasize the President's strong support for favorable Congressional action of the $6 billion loan guaranty authorization (Section 103) in a form consistent with Administration suggestions. Enactment of this authorization will permit us to proceed with implementation of this strategically important program now, taking full advantage of the extensive work completed by the Interagency Synthetic Fuels Task Force and building on the opportunities to proceed now in the private sector.

The issue before you on synthetic fuels is simple: If we as a nation do not act now to find ways to produce clean, economical, environmentally acceptable fuels on a commercial scale to use our plentiful domestic resources of coal, oil shale and municipal waste, ten years from today, we will inalterably be at the mercy of foreign suppliers of oil and gas. This can mean high prices, embargos, threats, etc. We cannot as a powerful nation compromise our strength in such a fundamental way. We need to move ahead now with a synthetic fuel commercialization program.

Such a program over the next 6-8 years will provide us with:

Needed information on the commercial feasibility of producing synthetic fuels and whether they can be produced on a commercial scale in a clean, economically competitive, environmentally acceptable way.

An initial industry capacity of about 350,000 oil equivalent barrels/day that, if successful, can be used as a basis for expansion to over a million barrels/day

in a few years. This capability will offer the potential in the next decade to significantly reduce our dependence on foreign supplies.

We are prepared to move now to implement this program which is a logical follow-on to a considerable amount of work that has been completed by both the Congress and the Administration.

(1) Last year, the Congress enacted the comprehensive Federal Nonnuclear Research and Development Act that established a broad framework and authority for undertaking and promoting a full range of energy research, development and demonstration programs. Also, the ERDA was created as a major agency to carry out the objectives of the Nonnuclear Act and as well to continue those programs authorized under the Atomic Energy Act. We are proposing to use major existing authorities to conduct the proposed synthetic fuels commercial demonstration program consistent with the stated purposes of these statutes and the clear intent of the Congress.

(2) During the past eight months, the Administration has completed a very extensive analysis covering all aspects of synthetic fuels commercialization including an assessment of the technological, financial, environmental, and regulatory and social impact. Over ten agencies participated in the task force effort which resulted in the recommendation to proceed with the 350,000 barrels/day program. This recommendation was subsequently supported by the Departments of Interior, Commerce, Treasury, State and Defense, FEA, ERDA, EPA, and CEQ. The formal comments of most of these agencies have been provided to the Committee. We believe we have done our homework and have a sound program design and are ready to proceed. We have provided you with the full details of this study including the task force's 1800-page, four-volume report.

(3) The President has strongly endorsed the task force recommendation to proceed immediately with the 350,000 bbls/day program and has asked Dr. Seamans to establish a Synthetic Fuels organization in ERDA to administer the implementation. If the Congress provides the loan guaranty authorization, ERDA can proceed with the implementation.

(4) The Administration's initial program is a limited commercial demonstration program of about 12-15 plants involving differing technologies that will be administered in a controlled manner approximating conditions to provide full information on commercial feasibility. Because of the limited nature of this program, it will not result in broad upheavals of our capital markets, quality of life, or environmental conditions.

I would like now to provide to you further information on a number of issues which have raised concern among members of the Committee.

RELATIONSHIP WITH THE ENERGY INDEPENDENCE AUTHORITY PROPOSAL

The President's recent proposal for the establishment of an Energy Independence Authority with $100 billion in funding authorities is designed to provide financial and regulatory assistance to domestic energy projects in a number of areas including synthetic fuels. The Administration is fully aware of the magnitude and far-ranging potential impact of this proposal. It is recognized that the Congress will want to conduct extensive hearings and thoroughly debate the merits of this proposal. All of this will take time-time that would be lost in the case of synthetic fuels which we feel is ready for implementation now. This matter has been discussed with President Ford and he strongly supports implementation of a commercial demonstration program in ERDA now. Once Congress has acted on the proposed Energy Independence Authority, a determination can be made regarding the timing of the transfer of the synthetic fuels program.

SOCIAL IMPACT ASSISTANCE

One of the questions in your letter to Director Lynn requests further information on how the Administration proposes to address a potential need for Federal assistance for public infrastructure development. Before describing our suggested approach, I would like to review the anticipated need for such assistance.

The proposed 350,000 barrels per day program would involve only about 12-15 actual synthetic fuels plants. A suggested plant mix includes: 3 high btu gasification plants; 4 industrial/utility fuel plants; and 5 biomass conversion to gas/ liquids plants.

While it's impossible to predict specific site locations at this time, it is likely that only 4 or 5 plants (oil shale and coal gasification) will be located in remote areas with little or no existing social infrastructure.

Summarizing, we expect at least one-half or more of the plants in the commercial demonstration program to be located near urban areas that are capable of meeting the needs of any population increase. For these cases, the building of such plants is likley to create needed jobs and ease the unemployment rate. Affected existing communities, for the most part, should be able to meet social needs.

Where a major synfuels plant such as oil shale or high btu gas is located in a remote, underdeveloped area, the locality could encounter a major strain on its capacity to provide, in a timely fashion, public facilities to meet the needs of the increased population. The locality may encounter difficulty in raising capital because the uncertainty of the plant's ultimate success can hinder the bond markets from working efficiently.

Recognizing that under certain circumstances, synfuels plants could expose communities to unusual risks, we are proposing to add an organic authority to enable ERDA to redeem community bonds which have been issued to finance public infrastructure in support of ERDA-sponsored synfuels plants and which are in danger of default because of an actual plant failure. We believe that this is an efficient and equitable solution to the infrastructure problem because it enhances State and local access to capital markets and encourages the pass through of costs to the end users.

Finally, I would emphasize that while a new plant would result in an influx of new population, this would result in substantial tax revenues, an increase in employment opportunities, and over the long term, a substantial tax revenue base. We feel that this assessment and approach to impact assistance is reasonable. We don't intend to ignore this important issue but rather to deal with it in terms that will meet the needs of the program.

BUDGET ESTIMATES/AUTHORIZATIONS FOR SYNTHETIC FUELS

Another area of Committee interest is the price guaranty and construction grant funding authorizations necessary for the 350,000 bbls/day program. Dr. Seamans has transmitted a proposed authorization bill to the Congress on this topic.

Estimating the exact expected cost and corresponding budgetary authority necessary for the commercial demonstration program is complicated by the longterm nature of the synthetic fuel plant construction and operation (25-30 years) and by other significant uncertainties including: the future foreign/domestic market prices of oil and gas, the cumulative effect of inflation over this time frame, the overall success/failure rate of the plants.

In view of these uncertainties and the need to develop "best possible" estimates for the full program, a rigorous financial analysis effort has been completed. In the process of developing budgetary estimates for loan guaranties as well as price guaranties and grants, numerous program cost scenarios were estimated by changing assumptions for the market price of oil, inflation rates, cost of coal resources. Extreme scenarios were calculated based on pessimistic assumptions, e.g., market price of oil $7 per barrel. As a result of these analyses, budgetary requests have been formulated that will be ample to cover most unforeseen contingencies. The estimates are for the full term of the program and unless extremely adverse developments occur, the authorizations will be adequate to complete the program. It should be recognized that the budgetary authorization estimates do not represent actual expected cost to the government but rather are estimates for funding authority necessary to implement the program.

While the total authorizations requested for the program exceed $11 billion, the actual cost to the government of the program is expected to be a small fraction of the requested authorization because:

Most loan guaranties are expected to be repaid and at least a portion of any defaults will be covered by fees charged for the loan guaranty and sale of any project assets that are covered.

Actual price guaranty payments are likely to be significantly lower than the requested authorization if the world price of oil continues to increase which is likely.

Costs to the government will be incurred for the construction grants up to $600 million and for expenses to administer the program estimated at $10-$15 million annually.

Except for the most unusual circumstances, the following authorization levels will be adequate to allow execution of Phase I of the Synthetic Fuels Commercialization Program: