Joint Overview Statement of

Dan W. Reicher Assistant Secretary for Energy Efficiency and Renewable Energy U.S. Department of Energy

Robert S. Kripowicz Principal Deputy Assistant Secretary for Fossil Energy U.S. Department of Energy

to the
Hearing on the
Need for a National Energy Strategy
House Committee on Appropriations
Subcommittee on Interior and Related Agencies
July 26, 2000

Mr. Chairman and Members of the Subcommittee:

Energy, once again, is back on the Nation's agenda. Today virtually every American is acutely aware of the price of gasoline at the pump - it is perhaps the single most well-known price of any commodity sold in our economy. Last winter, many Americans confronted difficult - and in some cases, dangerous - circumstances brought about by a scarcity of home heating oil. This summer, as peak demand for electricity rises, some utilities are warning of possible supply interruptions in the Nation's electric power.

In short, from factories to the farmbelt, the availability of reliable, affordable energy has reemerged as a major concern for the majority of Americans.

Since the first "energy crisis" in 1973, every Administration has published a "national energy strategy" of some form. In the 1970s, when skyrocketing oil prices - predicted to top $100 per barrel - seemed to assure that almost any new energy source would be competitive, national energy strategies tended to be overly prescriptive. For example, the energy strategy produced in 1976 by the Energy Research and Development Administration (a predecessor to DOE) dictated both specific technologies to be developed and the years in which each should be commercialized. Similarly, the strategy to develop a national synthetic fuels industry in the aftermath of the 1979 oil disruption was based on forecasts that the upward trend in energy prices would continue.

By the 1980s, moderation in world oil prices brought economic reality back into focus, and energy strategies increasingly emphasized reliance on market forces. Bipartisan efforts led to a largely decontrolled oil and natural gas market. The return to market reliance meant that some new energy technologies, while achieving technical successes, failed to attain economic parity and fell by the wayside. Many others, however, met both technical and economic success and moved into the energy mainstream.

The energy strategy of the Clinton Administration has attempted to capture the most economically sound principles of both past and present. The Clinton Administration has published two statements of its national energy policy: one in July 1995 and a second in April 1998. Both contained the common threads of:

• A reliance on competitive markets as the "first and foremost" principle of energy policy. The last 25 years have shown repeatedly that free markets are the best means of assuring an adequate supply of energy to meet demand. One reason our Nation has sustained the longest period of economic growth in modern times is because we have trusted in market forces to get the most for the American consumer.
• Targeted incentives and regulation used sparingly when markets are not sufficiently flexible to address critical national challenges. Release of emergency low-income energy assistance funding (LIHEAP) when the health and wellbeing of Americans were at risk, and support for tax incentives for renewable energy or to increase domestic oil and gas production are examples where the Administration has employed this principle in its energy policy.
• International cooperation, recognizing that oil and other energy markets are in reality global markets. Oil production from any location benefits the supply and stability of all consuming nations. Likewise, the most effective emergency preparedness requires international cooperation. Technology development and deployment are similarly global in nature, as are environmental problems - and solutions - especially in the matter of greenhouse gas emissions.
• A commitment to technology which has helped keep energy prices affordable while improving the quality of our air and water, and has provided superior "made-in-the-USA" products for both domestic and global markets. Where new energy concepts offer significant public benefits but are too risky for commercial ventures, the Federal government has assumed the lead role. As market potential materializes, government-industry cost-sharing partnerships are developed to expedite development and first-of-a-kind deployment. Ultimately, the federal role diminishes and the private sector assumes responsibility for gaining widespread market acceptance of new energy technologies.

These fundamental principles have served Americans well. For example:

• Since the mid-1970s, the energy intensity of our economy - the amount of energy used per unit of economic growth - has declined by 40 percent;
• In 1974, we consumed 15 barrels of oil for every $10,000 of real gross domestic product (measured in 1996 dollars). Today we consume only 8 barrels.
• Since 1970, coal use in the United States - primarily for electric power generation - has more than doubled, yet sulfur emissions and nitrogen pollutants from power plants have declined by 70 percent and 45 percent respectively, and the U.S. still has the lowest cost electricity of any free market economy.
• Natural gas, largely discounted as a future energy resource in the late 1970s, is today one of our fastest growing - and most promising - fuels for 21st century power plants, factories, homes, and automobiles.
• Due largely to the Strategic Petroleum Reserve and a cooperative international energy response, a war in the Persian Gulf had little long-term effect on oil consuming economies - a situation that would have been unthinkable in the 1970s.

Yet, as recent events have shown, we cannot become complacent about energy and its role in our everyday lives. Energy challenges remain and must be addressed by an evolving national energy strategy. The Administration's energy strategy today focuses on four challenges we consider most important to America's energy future. Our individual statements will cover in more detail the strategies and efforts we have underway to address the following challenges:

Challenge #1 - Enhancing America's Energy Security - Reducing our Vulnerability to Volatile Oil Markets.

The United States remains heavily dependent on crude oil. Since 1985, domestic crude oil production has declined by 34 percent, while domestic oil consumption has increased by more than 23 percent. That has led to an increasing reliance on imports which now supply just over 50 percent of U.S. oil demand, counting both crude oil and petroleum product imports.

It is important to note that recent dramatic swings in oil prices have largely resulted from an imbalance of less than 3 percent in world oil supply and demand. The world consumes about 75 million barrels of crude oil per day. A 2 million barrel per day supply overhang led to the price plunge in 1998; a 2 million barrel per day supply shortfall contributed to the global price hike of this year. Therefore, actions the U.S. can take to either reduce demand or increase supplies by 1 to 2 million barrels per day can have a very significant dampening effect on volatile oil markets.

Strategies:

• Reduce oil's share of the national economy
• Boost domestic oil production
• Increase the protection provided by the Strategic Petroleum Reserve
• Help increase capacity and diversity of the world's oil producers and strengthen producers' commitments to free market principles.

Challenge #2 - Improve the Environmental Acceptability of Energy Production and Use

The United States has made significant progress in the last 25 years to improve the quality of its air and water. Yet, in many areas - especially urban centers - persistent problems with air quality have led to increasingly stringent requirements on both emitters and fuel providers. Internationally, responding to the threat of climate change is the greatest challenge facing the energy sector. Our goal must be to minimize the negative environmental effects of energy production and use without imposing exorbitant added costs on consumers or decreasing the reliability of our energy infrastructure.

Strategies:

• Develop cleaner, more efficient technologies for traditional and future fossil fuel-fired power plants;
• Invest in clean, renewable energy technologies
• Develop ultra-clean fuels for transportation
• Encourage the greater use of natural gas
• Enhance end-use efficiency
• Explore the potential of carbon sequestration

Challenge #3 - Increase the competitiveness and reliability of U.S. energy systems. Creating more competitive energy markets is not unique to this Administration - it spans both Republican and Democratic Administrations. In the mid-1970s, a labyrinth of outdated and counterproductive pricing regulations had handcuffed America's natural gas industry, stifling exploration and production and conveying the false impression that America's gas supplies were on the wane. Today, a restructured and highly competitive gas market has caused a resurgence in prospects for this clean, affordable fuel. The decontrol of gas prices, the advent of competition in interstate gas transportation, and the ability of industrial customers (and increasingly, residential customers) to contract directly for their own gas supplies has clearly provided benefits to both producers and consumers.

Strategies:

• Extend the benefits of restructuring the electricity sector
• Encourage the development and deployment of distributed power technologies
• Ensure a sound natural gas infrastructure

Challenge #4 - Ensure a robust U.S. energy future. Although energy technology improvements - developed with both government and industry support - have greatly improved the way we produce and use energy, the U.S. will undoubtedly need even better technologies to meet long-term security, economic and environmental challenges. The strength and stability of our energy future will also be determined, in large part, by its diversity. There will be a role for both traditional fossil fuels and emerging alternative energy resources.

Strategy:

• Recognize the unique responsibility of the Federal Government to maintain a core national investment in technologies that may be highly beneficial to society but are not yet profitable for private development.

Conclusion - A Shared Commitment

Achieving the goals of any national energy strategy requires a shared commitment. Federal agencies need to cooperate and coordinate activities. State agencies and organizations must play a significant role in both shaping and implementing the strategy. And the Congress must share in the belief that pursuit of these goals is a priority, especially when resources are allocated.

The commitment to a sound energy strategy must also extend to the private sector which will be engaged through public-private partnerships in those areas beneficial to the national good. Finally, recognizing that many of the problems - and benefits - are global in nature, other countries must be involved.

If these shared commitments can be achieved, we can leave future generations with a more livable country and a thriving energy sector with a wide variety of affordable, safe and healthy energy options.

As we have indicated, more detail on each of the energy strategies identified in this testimony is provided in our individual statements.