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for PNGV R&D within the FY 2000 Budget for the Climate Change Technology Initiative. This request is only made more urgent by increasing international competitive pressures in this area of high-mileage vehicle technology and increasing concerns about our trade deficit.

For our economy and our environment to reap the benefits of high fuel efficiency technologies, we must get those technologies out of the laboratory and onto the highway. Our domestic manufacturers have repeatedly stated that the issue is not whether they can build advanced technology vehicles, but rather whether there is a "business case" for marketing them.

That is where the President's new tax credit in the FY 2000 Budget for fuel efficient vehicles comes in. As General Motors Chairman John Smith, Jr. said last year, "We believe a tax credit for consumers can be an effective way to stimulate development and promote acceptance of new technologies."

The new CCTI tax credit would provide incentives to the purchasers of high-mileage vehicles in the early years, when customer experience and acceptance is building, and will help accelerate the move to production volume at which car makers can reap economies of mass production. The President's proposals include a step-ladder of incentives -- from $1000 to $4000 -depending on the improved mileage of the new vehicles.

This tax credit can help make the business case during the initial period when critical decisions must be made. The credit will help offset the incremental cost of new technology at low production volumes, bridging the gap to consumer volumes that justify larger capacity investment by the manufacturers. The stimulant, market-transforming effect of the vehicle tax credit goes well beyond the four-year scope of the proposal and the consumers who directly benefit. In our view, the EIA analysis substantially underestimates these benefits.

Let me turn to my second example within the industrial sector, Combined Heat and Power (CHP) systems. DOE has set a goal of effectively doubling CHP capacity in the United States by 2010. If successful, this implies an

increased capacity of nearly 50 gigawatts of CHP systems with benefits ranging from lower emissions of both carbon and nitrogen oxides to important energy bill savings for industrial consumers. We think this is an important goal that is achievable with a mix of policies supported by the Administration.

The EIA analysis fails to capture both the economic potential and the impact of the overall mix of CHP policy proposals supported by the Administration, looking only at the tax credit proposal. The tax credits, however, will go hand in hand with reforms to be announced later this week in the Administration's electricity restructuring proposals that will remove statutory and regulatory barriers to the advancement of CHP technology. The EIA analysis also does not include the full array of CHP technologies, especially the district energy systems; does not reflect the enormous contribution from the private sector developers of this technology who are the ones that will most benefit from the tax credits; and uses problematic cost assumptions for CHP systems. Our analysis indicates that such costs may be too high by a factor of two or more. This is supported by independent analysis as well as by industry-based data.

The EIA report overlooks many other considerations in evaluating the CCTI. First, the EIA analysis is based only on energy-related carbon emissions. The potential reductions from the other gases must also be considered in evaluating the Administration's overall climate plan,

Second, EIA does not include any calculations of ancillary benefits such as lower NOx or SO2 emissions, enhanced productivity benefits, strengthened international security, or improved energy security. Yet all of these benefits are well-documented.

Finally, the EIA analysis includes impacts only within the U.S. economy. It does not estimate the international effects of either CCTI or the other various policies advocated by the Administration. In fact, the CCTI would encourage the development of technologies that potentially could be exported to the rest of the world. In addition, any energy savings could translate into improved international competitiveness for many U.S. businesses.

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Our proposed tax credits are part of a well-balanced total package that includes research and development, tax credits, and voluntary technology deployment programs. This package will be very effective at speeding up change in capital investment decisions.

And that is what the CCTI is all about: speeding up change. Given enough time, energy-efficient technologies would gradually penetrate the market without federal incentives; market barriers would fall as the benefits of this kind of capital investment became more widely appreciated. But the Clinton Administration wants to speed up the process because the stakes are high. Earlier and faster market penetration is well worth the investment now, not only because we make significant reductions in CO2 emissions, but because of other economic, environmental, and national security benefits.

In other words, the speed at which we move into the future will affect the quality of the future. Today we have an opportunity to speed up the flow of capital investments in technologies that will improve our future quality of life in several important ways. We cannot ignore this opportunity. EPA is prepared to work in partnership with all sectors of the economy, with other federal agencies such as the Department of Energy, and with state and local governments to help deploy tomorrow's technologies today.

Our CCTI programs deserve to be expanded because they work very well. We'd like to carry our past success into the 21st century, and with the support of this Subcommittee and the rest of the Congress, we will.

This concludes my prepared statement. I would be happy to answer any questions that you may have.

DAVID M. GARDINER
ASSISTANT ADMINISTRATOR
OFFICE OF POLICY
U.S. ENVIRONMENTAL PROTECTION AGENCY

David M. Gardiner has served as the Assistant Administrator of EPA's Office of Policy (OP) since June 14, 1993. Mr. Gardiner directs the Agency's analytic and policy development activities regarding climate change. Adminstrator Browner has also charged him with establishing EPA's new Center for Environmental Information and Statistics. In addition, Mr. Gardiner leads several of the Agency's major initiatives to reinvent environmental regulations, particularly in the areas of paperwork reduction, community-based environmental protection, economic analysis, and innovative approaches to specific industries like transportation, electric utilities, agriculture, environmental technology, and metal finishing.

Prior to joining EPA, Mr. Gardiner was the Sierra Club's Legislative Director in Washington, D.C., where he directed efforts on a broad range of environmental issues, including air, water, and waste pollution, energy, the international environment, and land protection policy.

Mr. Gardiner received his Bachelor of Arts degree in history, with honors, from Harvard University. He resides in Arlington, Virginia, with his wife and three daughters.

Chairman CALVERT. I thank the gentleman.
Dr. Hakes, now is your chance to defend yourself. (Laughter.]
TESTIMONY OF DR. JAY E. HAKES, ADMINISTRATOR, ENERGY

INFORMATION ADMINISTRATION
Dr. HAKES. Thank you, Mr. Chairman.

Mr. Chairman, and, members of the Committee, I want to thank you—I think-for this invitation to compile a report

(Laughter.] Dr. HAKES. On the likely carbon savings from the Climate Change Technology Initiative and, also, for the opportunity to testify today.

Our assignment from the Committee was to estimate the savings from the baseline estimates of carbon growth in EIA's "Annual Energy Outlook 1999." (Chart.) [The information follows:)

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