conventional fuels and the full set of federal policies outlined in Option III-yields a solar contribution of 31.4 quads in the year 2000 out of a total national energy budget of 95 quads. The solar contribution, then, would be just over 33 percent, or one-third, of the total national energy budget.

Is this reasonable? It may error on the conservative side.

Two years ago, in a study for the Worldwatch Institute, I concluded that we could derive 40 percent of our energy from renewable recources by the year 2000 without engaging in a war-style mobilization. I was considering a set of programs similar to those contained in the high option in the Domestic Policy Review. The principal differences were that I expected a somewhat higher contribution from biomass, a somewhat lower contribution in the form of electricity, and a more successful conservation effort than is projected by the DPR.

But the uncertainties involved in 20-year forecasts are so great that this is little more than quibbling. The DPR numbers are clearly in the right ballpark.

The principal analytical contribution of the Domestic Policy Review was its exploration of existing marketplace biases against renewable sources of energy. The background work done for the DPR staff found that the annual marketplace bias produced by direct federal subsidies to conventional fuels, unaccounted environmental externalities, and price regulation of conventional energy sources amounts to about $100 billion. This is a much higher figure than I, and most other analysts, had expected to find; yet it appears to have been conservatively arrived at. Since almost all of this bias is due to federal action (or inaction), it constitutes a strong rationale for federal intervention on behalf of solar development.

The most important deficiency of the Domestic Policy Review is in its assessment of the cost of its high option. Virtually everyone interested in solar policy thinks that Option 3 would cost $113 billion to implement, and in an era of fiscal frugality this is the kiss of death.

However, this $113 billion is a dreadfully misleading number. To begin with, Option III spells out an alternative strategy in which financial incentives are phased out in the mid-1980s and replaced by regulatory measures. Under this strategy (included in the text, but not the tables, of the DPR) the gross cost to the federal government through the year 2000 is reduced to about $80 billion.

Moreover, all the solar resources harnessed under Option III would displace conventional fuels, and all these conventional fuels receive federal subsidies. Since these subsidies would not have to be paid if the fuels were not used, they should be subtracted from the solar subsidies. Through the year 2000, the direct subsidies to displaced conventional fuels would probably amount to approximately $30 billion. In addition, the widespread use of solar energy would reduce the need for many indirect federal outlays, such as for public health, unemployment & welfare programs, the national petroleum stockpile, etc. These indirect savings probably total well in excess of $10 billion. After making such subtractions, the net costs of Option 3 through the year 2000 would be under $40 billion in the low case and around $70 billion in the high case. The average annual cost then would be comparable to our current expenditures on nuclear energy.

PANEL I-SOLAR ENERGY FUTURES-DENIS HAYES, WORLDWATCH INSTITUTE, WASHINGTON, D.C.; PAUL CRAIG, PROFESSOR, DEPARTMENT OF APPLIED SCIENCE, UNIVERSITY OF CALIFORNIA-DAVIS; GERALD BENNINGTON, ASSOCIATE DEPARTMENT HEAD, ADVANCED ENERGY AND RESOURCE ANALYSIS, MITRE CORP., MCLEAN, VA.

Mr. HAYES. Thank you very much. I have a formal statement that I have submitted for the record. I will make a few brief remarks in ad hoc fashion at this time.

Mr. OTTINGER. Without objection, your full statement and the statements of all of the witnesses will appear in the record. You are welcome to proceed.

Mr. HAYES. Like several other people in the room, I read_the front-page story on the gasoline shortage in the Washington Post. Since my tank was nearly empty, I hurried and spent some time in the gasoline line.

I mentioned to a few people there that I was interested in solar energy and was going to be testifying today on solar energy.

The response from each of these people was the same: "What good is that going to do? We have a shortage of gasoline and we can't run our cars on solar collectors."

Technically, of course, I suppose we could run cars on solar collectors, although it would not be an intelligent way to proceed. What we should do with solar collectors and passive solar designstwo technologies which are ready for rapid deployment today-is put them on houses; it would save heating oil, and it is relatively easy to convert this heating oil to gasoline.

In a broader sense, solar energy includes anything that uses sunshine within a few years of the time it arrives at the Earth. This includes such things as growing biological crops, converting them into fuels, including liquid fuels, which can be domestically substituted for gasoline. If we were to meet the gasohol goals set out in option 3 in the domestic policy review, we would make rapid strides toward alleviating this country's gasoline crisis.

I would like to skirt relatively rapidly through the specific set of questions that I was asked to address. The first was to assess whether the domestic policy review's goals and objectives are realistic ones. I will confine my remarks entirely to the high option within the domestic policy review.

I think that the numerical targets that the document establishes are probably conservative. Those targets incidentally are higher than is generally recognized. Most people think that the domestic policy review's high case would lead to a 25-percent contribution to the Nation's energy supply.

If you examine the numbers with some care, you find that the high cost would lead to a 33-percent contribution to the Nation's energy supply.

The total national budget at that point is 95 quads. When you add the contribution from the base case to that from the incremental addition provided by option 3, you have 32.4 quads, or 33 percent of the total national energy budget.

The domestic policy review provides a number of analytical insights. It also had a number of flaws. It seems to me that the principal insight, the principal analytical achievement of the study,

was to ask the question: If all of this stuff is achievable, if solar is attractive economically and environmentally and it gives us more jobs, if solar technology lends itself to decentralization and resiliency and can be put on line fast, why isn't it happening?

The answer that they came up with was a formidable one. They said that, if you look at the direct subsidies that the Federal Government is currently giving to conventional fuels, if you look at the uncounted environmental costs that are associated with conventional fuels that would be displaced if we went to solar energy, and if you look at the distortion introduced into the marketplace by Federal and State regulations that bias the marketplace against investments in solar and conservation, the aggregate total of those three distortions amount to $100 billion a year.

With a $100 billion marketplace distortion coupled with the fact that those who would buy solar technologies have much less ready. access to capital than the large firms that invest in conventional fuels that itself, I think, constitutes an explanation for why solar has not moved more rapidly than it has, and it also constitutes a strong rationale for why Federal intervention on behalf of solar now is essential.

Among the flaws in the domestic policy review are numerous small things, such as failing to distinguish among different energy quality levels, failing to distinguish between, for example, crude oil in a tanker and delivered heat inside a residence. But the fundamental flaw in the document is in the costing of the high option. Virtually everybody in the solar analytical community thinks that the high option delivers 25 percent of the Nation's energy at a cost of $113 billion over the course of the next 20 years.

As the work sheet appended to my statement makes clear, that should, in fact, be 33 percent rather than 25 percent under the studie's assumptions. More importantly, the cost, rather than being $113 billion, should be substantially less. Part of this has to do with the environmental advantage that we haven't included in the tables of the document, but another very important part of it is that, as the solar technology comes on line, it is not going to be adding to energy demand; it is going to be displacing conventional fuels.

The more solar you have, the more conventional fuels you displace; and, since we subsidize each of those conventional fuels, a net analysis should subtract the subsidies for the displaced fuels from the subsidies to the solar.

A ball park estimate of the amount that we would be saving in conventional fuels between now and the year 2000 in the form of direct Federal subsidies would be on the order of magnitude of $30 billion. In addition, there is a series of indirect costs associated with conventional fuels-costs for health care, costs for welfare and unemployment-than a more labor-intensive technology would allow us to get around.

Those excess costs would be at least $10 billion. Subtracting 30 plus 10 from 113 gives you a total cost of about $70 billion. In addition, within the domestic policy review option 3, it is shown. that we can go with that $113 billion approach or also in the mid1980's we can begin to move away from financial incentives for solar into mandatory programs for solar.

That sort of option-"3B", as it were-reduces the total cost from $113 billion gross to roughly $80 billion gross. If we take $40 billion away from that $80 billion, it leaves us a net figure in the regulatory scenario of $40 billion over the course of the next 20 years. If averaged out over 20 years, that represents less public money than we are currently investing by the Federal Government in nuclear power. Yet I don't know anyone who is even a strong proponent who believes that we can get as much as 12 or 15 percent of the Nation's energy budget out of nuclear by 2000. If the domestic policy review analysis is correct, that same level of Federal investment will get us one-third of our energy supply from renewable resources.

I think the option 3 program becomes a more credible one when the additional financial perspectives are introduced.

The final thing I would like to say is that the analysis has been done and it has been reviewed to some extent. There are problems with parts of it but, I think, compared to the range of Federal studies that preceded it, this is the best piece of analysis that has been done so far.

It was completed more than 6 months ago. Since that time it has simply been gathering dust. But this was not a low level study; this was a blue-ribbon group making a direct report to the President.

I hope the White House is going to be making a decision as to which of those options it intends to pursue expeditiously, that it will submit them in the form of proposed legislation to Congress quickly and that Congress will very quickly pass everything that the administration submits to it out of the range of options that the domestic policy review contains.

However, I am confident that the administration, in an era of fiscal austerity, is not going to endorse all of the options contained in the third scenario of the domestic policy review. I hope that your two subcommittees will independently assess those options that the administration omits and, if they seem to make sense and are in the national interest, I hope you will go beyond the President's program. I am not advocating that you tie up the legislation that the administration presents. I think that has to be passed expeditiously. I am only saying that I hope you will view it as only a modest first step in the right direction. Thank you. Mr. OTTINGER. Thank you very much.

We will hear next from Dr. Paul Craig. He has been involved in a study of California's energy future with respect to their energy needs that could be satisfied from renewable resources and how you get from here to there.

I hope you will give us a word about your progress on that study and whatever else you would like to tell us. I recognize Dr. Paul Craig.

[The biographical sketch and prepared statement of Mr. Craig follow:]

BIOGRAPHICAL SKETCH OF PAUL P. CRAIG

Paul P. Craig is a Professor in the Department of Applied Science at the University of California at Davis. He has served as Director of the University of California Energy and Resources Council, and is a Member of the National Coal Policy Project. Prior to joining the University of California he served with the National Science Foundation in various capacities, including Deputy Director and Acting Director of

the Office of Energy R&D Policy, the Office supportive of the Director of the NSF in his role as Presidential Science Advisor. Craig is a physicist, and published over 60 research papers while working at the Los Alamos Scientific Laboratory and the Brookhaven National Laboratory.

His present interests are energy policy, with particular emphasis on conservation and renewable resources.