Energy Priorities for the Next Congress

Address by Sen. Jeff Bingaman (D-NM)

Chairman, Committee on Energy and Natural Resources

United States Senate

Center for Strategic and International Studies

Nov. 17, 2008

“We have a real opportunity to make progress on comprehensive and forward-looking energy policy in the 111th Congress. We have just elected a new President, Barack Obama, who campaigned on a strong platform of energy efficiency, energy security, and renewable energy. That gives us the ability to harness his strong interest in energy to an effective bipartisan strategy in Congress.

“When you can get a combination of White House leadership and bipartisan Congressional engagement, chances of real progress are substantial. That was certainly the case with the passage of the Energy Independence and Security Act of 2007. President Bush helped by putting forth some important policy initiatives in his 2007 State of the Union Address -- calling for more production of alternative transportation fuels, and for higher fuel economy standards for automobiles. In the Senate Energy Committee, we developed what we considered to be a strong energy bill with a large majority on both the Republican and Democratic sides of the Committee. That formed the basis for the bill the Senate took up and passed. Ultimately, both the House of Representatives and the Senate came to closure on a final piece of bipartisan legislation that the President signed in December 2007.

“The Energy Independence and Security Act of 2007 is projected to make a real difference in the trajectory of our future oil imports and carbon dioxide emissions. According to an analysis by the Energy Information Administration, the 2007 Act will lower our oil imports over the next several years, with savings of 3 million barrels per day in 2030. The Act will also reduce carbon dioxide emissions by about half a billion metric tons per year by 2030. I don’t think we can identify any previous energy legislation that has ever made such a difference.

“But as important as these reductions are, we must also recognize that, in comparison to the problems we face, these reductions are relatively modest. They are only a small down payment on what we must do if we are to fully secure our energy security and effectively prevent dangerous global warming.

“This morning, I would like to talk about out some of the principal energy challenges that I think we will face in the next Congress. I would put them in 6 different categories. Briefly, those challenges are in:

1. Deploying clean energy technology;

2. Improving energy efficiency;

3. Maintaining adequate supplies of conventional fuels as we make the transition to newer forms of energy;

4. Increasing energy innovation;

5. Making energy markets more transparent; and

6. Maintaining the proper balance between energy and environment policies, especially as it relates to global warming.

“These are challenges that I plan to work on, as Chairman of the Senate Energy and Natural Resources Committee. I’ll be doing that in close coordination with the new Administration and in concert with both the Democrats and the Republicans on the Committee. Let me describe each of these challenges in a little more detail.

1. Deploying Clean Energy Technology

“The first major set of challenges that we face are in the deployment of new clean energy technology -- particularly in the electricity sector.

“For many years, I have advocated a national renewable electricity standard for generation. In my view, we need a strong, long-term market pull for generation technologies that utilize clean energy sources such as wind power, solar power, biomass, and enhanced geothermal systems. In the coming Congress, I think we have an opportunity to see this idea finally being implemented. A national renewable electricity standard will enhance the diversity of domestic electricity generation, position the United States to regain the world technology lead in these areas, and start preparing our electricity sector for the inevitable requirements to reduce greenhouse gas emissions.

“Next year, I hope we can work in a bipartisan way to formulate the strongest renewable electricity standard that we can pass through the Congress. Other forms of stimulating renewable electricity generation, such as through the tax code, can help, and they have helped, but by themselves they cannot do the job that is needed. The tax incentives, in particular, have been too intermittent and short-lived to send the consistent signal that electricity resource planners and investors need. The shortcomings of a tax-only strategy are being highlighted by the current recession and credit crunch. Tax credits have less value when there are no taxable profits against which they can be used.

“In addition to more renewable generation, we need to implement a smart and robust national transmission grid. I see significant bipartisan sentiment growing around the country that is in favor of addressing some tough issues that have kept us from developing a strong national electrical grid. These issues include transmission planning, siting, and cost allocation. All of these issues are difficult. Doing something on any of them will require intensive dialogue among a large set of stakeholders. In addition to these issues, we must adequately fund the Smart Grid programs that Congress put in place in the 2007 Act. Not only would quick implementation of these Smart Grid programs strengthen one of our critical national infrastructures, doing so would also quickly create new jobs. For these reasons, I hope that significant Smart Grid funding can be in a stimulus bill when one gets enacted.

“Another key clean energy technology for the future is carbon dioxide capture, transportation, and storage. In the next Congress we need to enact a comprehensive approach to this technology that addresses the need to rapidly deploy commercial-scale projects. There are important regulatory questions that we need to address, as well as funding issues for these large projects of this type.

“The final major issue with respect to clean energy technology deployment that I want to mention this morning is the issue of financing for large-scale deployment of new technologies. For several years now, we have been looking for ways to facilitate the large-scale investments that are needed by the energy sector. This problem has become even more acute as a result of the meltdown in financial markets. In 2005, we created a loan guarantee program at the Department of Energy, to help commercialize innovative energy technologies. To date, the program has yet to issue a loan guarantee, although that slow start was in part due to conflicts among the Congressional appropriations committees. I think we need to take a hard look in the new Congress at whether this program is structured correctly, or whether the loan guarantee mission could be more effectively exercised by an entity outside the Department of Energy. We also need to look at ways in which we can supplement the existing loan guarantee authority with other mechanisms to help finance large, new clean energy projects.

2. Improving energy efficiency

“A second major set of energy challenges relates to improving energy efficiency. I’ll begin with the topic of energy efficiency in transportation. One of the most important things we did in the 2007 Act was to increase CAFE standards for the first time in 30 years. And we set up a direct loan program to retool Detroit. This past September, Congress gave that program enough money to make $25 billion in loans.

“We are all aware that there are major pressures to restructure the automobile industry. As we do that, we in Congress need to look at how to create additional incentives for promoting energy efficiency in transportation. With gasoline prices falling, we need other economic incentives to encourage consumers to continue to buy the most fuel-efficient cars. And our vehicle tax incentives need to be overhauled and brought up to date. Right now, in my view, they are too technology-specific.

“After the transportation sector, the next largest source of potential efficiency improvements is in the building sector. Our current Federal laws to promote building efficiency are too weak. We need to do more to promote the adoption of modern, energy-saving building codes across the country. We also need to do a better job of giving building owners and prospective buyers more information on the energy performance rating of their buildings. The Department of Energy has engaged a lot of builders in this country constructively through its “Build America” program. We should look for ways to strengthen this program.

“Another subject we need to deal with in energy efficiency is energy efficiency standards for appliances. We need to look for ways to enhance the existing appliance standards program, and should consider whether alternative regulatory approaches, such as one used by Japan in its so-called “Top Runner” program, makes sense.

“Finally, in the area of energy efficiency, we need to redouble our efforts to reduce the industrial sector’s energy intensity by 2015. Without such a program, volatile energy prices will continue to damage our manufacturing base and threaten higher-wage American jobs.

3. Maintaining adequate supplies of conventional fuels as we make the transition to newer forms of energy

“Our push for new clean sources of energy, and greater energy efficiency, does not mean that we can ignore our existing major sources of energy. We must make the transition to an energy future where our reliance on traditional fossil fuels will be lessened. But that transition will not happen overnight. Our energy strategy has to make sure that we have adequate supplies of conventional fuels as we go through that transition. We need an intelligent policy to continue to promote domestic production of oil and natural gas, both onshore and offshore. That production has to be undertaken in an environmentally responsible way, and with recognition that multiple users and stakeholders are involved. The reason we wound up with the congressional Outer Continental Shelf moratorium in the first place, back in the early 1980s, was as a reaction to a large and ill-conceived offshore leasing effort by former Interior Secretary James Watt. I hope that we are smarter and more strategic this time in how we go about dealing with offshore oil and gas resources. Perhaps the right next step would be to undertake a serious and expeditious inventory of the energy resources on the Outer Continental Shelf. Congress called for an inventory in the Energy Policy Act of 2005, but never provided any funds to carry it out, so the result was not meaningful. Major energy development projects require a steady strategy and steady investments over the long term, so they need to be based on a stable political consensus that isn’t reversed every few years. That means that our energy decision making on the Outer Continental Shelf, as well as onshore, needs to be based on the best data we can collect on both the energy and environmental characteristics of potential areas for production. Getting that data on a priority basis will greatly increase the chances that we will make energy supply choices that will be sustainable economically, environmentally, and politically.

4. Increasing energy innovation

“Our ability to deliver new energy technologies and innovations obviously depends crucially on our ability to fund new energy science and engineering, and on training the next generation of energy researchers, engineers, and technicians. Our investments in these areas have been totally inadequate over the past decade, and we need to boost these levels substantially. I believe that the enactment last year of the America COMPETES Act, with strong bipartisan support, indicates that this strengthening of Federal science and technology programs is possible.

I look forward to working with colleagues both on and off the Energy Committee to get those enhanced resources put in place.

“Along with enhanced resources, we need to take a look at every stage of the innovation process and examine how effective our existing programs are at spurring innovation. The Bush Administration did not do much with the ARPA-E concept, and apparently has not had much success in implementing the DARPA model at the Department of Homeland Security, either. One of our challenges in the next Congress and the new Administration will be to see how we can set up an entity that focuses on prototyping transformative energy technologies that fall between the existing institutional cracks in the system.

5. Making energy markets work more transparently

“A fifth major set of challenges in energy policy relates to the functioning of energy markets. As oil and gas prices gyrated wildly over the last year, most of us became aware of what experts like Dan Yergin has been referring to as the “new fundamentals” in energy markets. Obviously, we haven’t repealed the laws of supply and demand, but there are other forces at work that are affecting energy prices, particularly in patterns of energy investment and trading. We need better data and oversight over these new market players and forces, if we want energy markets to function effectively in the future.

6. Maintaining the proper balance between energy and environment, especially in global warming policy

“The final challenge I wanted to discuss is maintaining the proper balance between energy and environment policy. We face an international climate crisis that demands a worldwide revolution in energy technology, if we are to prevent potentially catastrophic environmental changes. We need to push forward with that energy revolution. The scale of our energy system, both here in the United States and globally, is so large that if we want to see real changes anytime soon, then we don’t have the luxury of partisan delay. When a cap-and-trade bill came to the Senate floor earlier this year, much of the debate was on the generalities of dealing with climate change and not on the specific merits of any particular part of the bill that was proposed. We now need to have a robust debate on how best to construct a mandatory regulatory regime to mitigate global climate change.

“Building a broad consensus on what that regulatory regime should look like will not be easy. No one I’ve spoken to is anticipating quick action on a cap-and-trade bill when the new Congress convenes next year. Frankly, for as much time as many of us in Congress have spent on the issue, we are still uncovering new complexities of this issue, in terms of its multiple effects on the ecosystem and the economy, both globally and here in the United States.

“There are some important lessons that I think we have learned from our experience with legislating on climate change in this Congress. I have come up with 10 principles for how we might make real bipartisan progress on the issue in the next Congress, and have put them on a handout that I’ve brought this morning. I won’t go over each of those principles here in detail, but I will touch on one important theme.

“I believe that we need a system for regulating greenhouse gases that is a great deal more streamlined than what we have been considering to date. As the various proposals have developed, including the one I developed with Senator Specter, there has been a natural tendency to try to accomplish a number of different priorities in a single climate bill. Many of these priorities are worthwhile, but they are also not directly connected to the establishment of an actual regulatory system of tradable emission allowances. The resulting excessive complexity may have hurt the cause of climate legislation more than it has helped.

“Fortunately, we don’t have to try to do everything that is worth doing about global climate change in one gigantic bill. In fact, it would be far better if we got started on some of the necessary preliminaries well before we instituted a cap-and-trade system.

“For example, the ultimate cost of any cap-and-trade system will be greatly influenced by the quality of the technologies that are ready to be implemented to reduce or avoid greenhouse gas emissions. If we wait until we start auctioning allowances under a cap-and-trade system to make the funds available for these technologies, we simply won’t have the technologies in time to support meaningful early reductions.

“Since almost all human-caused carbon dioxide emissions are related to energy production, transportation, and use, an energy bill is an excellent opportunity to address these technological prerequisites, in advance of a cap-and-trade bill. A well-designed and executed energy bill will reduce both the complexity and the cost of any eventual cap-and-trade bill.

“Several different Senate committees have opportunities in their specific jurisdictions to clear the way to an effective overall approach to global warming. I look forward to working with colleagues on the Senate Energy and Natural Resources Committee to help create this sort of forward momentum.

Conclusion

“I have just gone through a partial list of the key challenges that will face us in the next Congress related to energy and global warming. I’m sure that many of you can add to this list.

“My immediate plans for the next several weeks, as Chairman of the Senate Energy Committee, are to reach out to and consider the ideas of my colleagues on both sides of the aisle, and on and off the Committee, as we prepare for the next Congress. Then, when the new Congress convenes, I hope to put forward a starting point for energy legislation that will be both bold and broadly supported.

I think that the Committee has a long history of bipartisanship, stretching back to Senator "Scoop" Jackson in the 1970s, and including important energy laws by past Chairmen such as Bennett Johnston in 1992 and Pete Domenici in 2005.

“Energy is not, in my view, an inherently partisan issue. If we care about our nation's future, we need to look for the bipartisan, substantive, and forward-looking approach to energy that has marked our successes and progress in the past. I am looking forward to working with the incoming Obama Administration and my colleagues in Congress to help ensure that that is the case.

“Thank you for inviting me this morning, and I’d be pleased to answer some questions at this point.”

Ten Principles for Climate Legislation

Sen. Jeff Bingaman

1. Legislation should be focused directly on the effort to reduce greenhouse gas emissions. We must avoid the temptation to use climate legislation to accomplish a number of different priorities that might be worthwhile, but have little to do with the ultimate goal of reducing emissions.

2. We should pass legislation with a minimum of carve-outs for particular states, regions and industries. The program needs to be sufficiently transparent and straightforward in order to get long-term buy-in from the public.

3. Planning should be focused on the near-term and re-evaluated as it evolves. We need to force a fresh look at the program at least once a decade.

4. We need to make use of our existing departments and agencies to administer the programs and Congress needs to be involved in appropriating the funds through existing committee structures. A significant time and opportunity cost is associated with starting a new institution from scratch. We need to make good use of the existing institutions we have.

5. We need to set ambitious but achievable targets for emission reductions. Targets are critical to avoid dangerous interference with the climate system, but it will not do us any good to legislate targets that are unattainable or technologically unfeasible.

6. We need to provide assurances that the costs will not go out of control, either through excessive prices for emission allowances or excessive volatility. We need to be honest that a new program will have costs. Those costs are necessary as investments to reduce climate change, but costs that go out of control will merely shake public confidence.

7. We need an upfront commitment to technology even before cap and trade legislation could take effect. Especially what is needed is to figure out if carbon capture and storage will work at the scales we will need.

8. We need to figure out how any new climate change law will interact with the Clean Air Act. We need to make clear at the outset that a new climate change law supersedes whatever might be in the Clean Air Act or figure out how to work through the responsibilities covered under each statute.

9. We need to ensure that we start the program up in a workable manner, including the initial deadlines and timelines that we set in law. Deadlines for new rulemakings by agencies and departments must be achievable to meet.

10. There needs to be a single national cap-and-trade program for greenhouse gases. The energy infrastructure of the United States crosses State boundaries, and energy markets are regional and national in scope. We cannot effectively regulate something as central to the energy system as carbon dioxide emissions on a state by state basis.

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