My name is David Nemtzow. I am President of the Alliance to Save Energy, a bi-partisan, non-profit coalition of business, government, environmental, and consumer leaders dedicated to improving the efficiency with which our economy uses energy. Senators Charles Percy and Hubert Humphrey founded the Alliance in 1977; it is currently chaired by Senators Jeff Bingaman and James Jeffords as well as Representative Ed Markey.

Over seventy companies and organizations currently belong to the Alliance to Save Energy. If it pleases the Chairman I would like to include for the record a complete list of the Alliance's Board of Directors and Associate members, which includes many of the nation's leading energy efficiency firms, electric and gas utilities, and other companies providing cost savings and pollution reduction to the marketplace.

The Alliance has a long history of researching and evaluating federal energy efficiency efforts. We also have a long history of supporting and participating in efforts to promote energy efficiency that rely not on mandatory federal regulations, but on partnerships between government and business and between the federal and State governments. Federal energy efficiency programs at the Department of Energy (DOE), the Environmental Protection Agency (EPA), and other agencies are largely voluntary programs that further the national goals of environmental protection, as well as broad-based economic growth, national security and economic competitiveness.

From the days of our first national nightmare of gas lines and soaring fuel prices, energy efficiency has had champions in Congress from both sides of the aisle. Sen. Charles Percy, who founded the Alliance to Save Energy in 1977, recognized the need to promote energy efficiency to address a glaring hole in our nation's economic security. He knew that a partnership between business, government, environmentalists, and consumer advocates would not only result in benefits for each sector, it would help avoid the need for coercive regulation when our problems reach crisis level.

Support of action by the federal government to promote energy efficiency has also been historically bipartisan. Though the establishment of the Department of Energy and energy efficiency programs is most often associated with the Carter Administration, key advancements in federal efforts were made under the Reagan and Bush Administrations. While funding was cut severely from Carter-era levels, President Ronald Reagan signed the National Appliance Efficiency and Conservation Act (NAECA) the law requiring DOE to set energy efficiency standards for appliances and other equipment. That program has led to tens of billions of dollars in savings for the American people and significant carbon emissions reductions. The first Bush Administration, in the context of its support for the Rio Treaty, began to significantly expand funding for DOE energy efficiency and renewable energy efforts and created the Green Lights and Energy Star programs at EPA. In addition, former President Bush signed the Energy Policy Act of 1992, which expanded the scope and magnitude of energy efficiency efforts.

The House and Senate caucuses devoted to promoting renewable energy and energy efficiency continue that tradition of bipartisanship. Currently, the House Renewable Energy Caucus features well over 100 members from both parties. Such support from all parts of the political spectrum is what has made clean energy a driving force in the American economy.

Today's Testimony

I am here today to testify on how investment in energy-efficient technologies can help address our energy needs, ease strain on our energy supply, reduce air emissions harmful to the environment, and save taxpayers money. At no time since the late 1970s has energy been such a prominent topic of public debate. The release of President Bush's energy plan, and now the consideration of comprehensive legislation by Congress, have served as platforms for a great national conversation regarding what we want out nation to look like as the 21st Century proceeds.

Mr. Chairman, all energy sources are not created equal. Some cost more than others. Some pollute more than others. Some require the approval of local communities to be transported from one place to another, whereas others do not. Some generate profits that accrue only to a few, while others disperse benefits widely among the public.

By virtue of its ability to ease strain on energy supplies thus reducing energy prices, increase reliability of supply, not only not exacerbate - but reduce - pollution, increase our national economic security, and disperse benefits widely over the population, energy efficiency is a superior choice for investment by the federal government.

Let me also say that while energy efficiency should be the cornerstone of national energy policy, the nation will also need clean, new energy supplies. Our energy problems are severe enough that we will need major contributions from both the supply and the demand side of the meter.

Americans want a true, aggressive effort to achieve energy efficiency, Mr. Chairman. The American public is concerned about our nation's energy use and believes that energy efficiency and conservation are key components to addressing our energy needs. A Gallup poll published in mid May found that 85% of the U.S. public showed strong support for mandating more energy efficient appliances, buildings and cars. And support is only rising. An ABC News/ Washington Post poll released on June 5th found that of the 1004 adults surveyed, ninety percent support action by the federal government to encourage more energy conservation by business and industries. Ninety percent also support action by the federal government to encourage more energy conservation by consumers. An overwhelming 89 percent of those polled said they would "require car manufacturers to improve the fuel-efficiency of vehicles sold in this country."

I hope the recent debate over energy policy has resolved at least one point. When we talk about energy efficiency, we are not talking about personal sacrifice, or any other reduction in economic well-being or quality of life. Energy efficiency means providing the services that our modern economy and lifestyles demand - lighting, heating, cooling, transportation, IT, and much more - but doing so with less energy input. Energy efficiency means relying on technologies - many of which are familiar, while others are still innovative or even still in the laboratory that can provide the same or superior services, productivity and comfort while using less energy input. And lessening energy input means reducing the numerous pollutants and environmental stresses that result from our currently wasteful energy practices.

Energy efficiency makes money and puts people to work. The economic gains from energy efficiency come in two forms. The greatest benefit comes from displaced costs -- money that households and businesses can spend elsewhere because they no longer have to spend it on energy. That spending includes additional investment and hiring additional workers. Direct economic benefits come from growth in industries that generate energy-efficient products and services. Companies that sell insulation or efficient windows domestically and/or for export employ Americans in high-skill service and manufacturing jobs. Secondary economic benefits come from businesses and consumers re-spending these newfound energy savings in sectors of the economy which are more labor-intensive than energy supply.

Our energy system operates against the backdrop of a U.S. economy that has become significantly more energy-efficient over the past quarter- century. But we often fail to realize the actual contribution of energy efficiency to our GDP and national well being.

Mr. Chairman, it isn't easy to compare the contribution of energy efficiency to the environment and the economy with more traditional energy sources such as oil and coal. It requires the observer to regard saved or unused energy as created energy in the same way that oil comes out of the well and coal comes out of the mine. In addition, I think that any economist would tell you that energy efficiency measures have increased the supply of energy and thus helped to lower the price. Energy not used is just as salable and usable when conserved as when produced. Upgrades in energy efficiency made to home appliances, industrial equipment, building systems, or car and truck fleets serve as an energy source that increases our overall supply of electricity, coal, oil, and natural gas.

Alliance research shows that, for 1999, the most recent year for which we have complete data, energy efficiency was the second leading source of energy for U.S. consumption, and if we consider only domestic energy sources, it's number one. Mr. Chairman, it would have been number-one if we declined to count oil imports, now more than half of this nation's oil consumption. Our analysis of 1999 energy consumption shows that energy efficiency provided the nation with 27 quadrillion Btus (quads), approximately 22 percent of U.S. energy consumption. While energy efficiency trails our mammoth oil consumption (38 quads), it significantly outstrips the contribution of natural gas (22 quads), coal (22.0 quads), nuclear (8 quads) and hydro (4 quads).

Mr. Chairman, the contribution of energy efficiency to our nation's overall supply is now so great that we cannot regard it as an esoteric externality anymore. We must promote and support it in the same way we do the coal belt and the oil patch, which enjoy a variety of tax breaks and subsidies based on their use of fuel.

Mr. Chairman these economic snapshots of efficiency show an energy industry that spans the economy and the populace. But it is not an energy industry that looks like what we have known in the past. However, all the functions of traditional energy industries are represented. But with energy-efficiency, the miners are businesses trying to cut their costs. The roughnecks are homeowners trying to keep their families warmer in the winter. The geologists are mechanical engineers working to get more out of less. Energy efficiency is highly dispersed throughout the economy. And because of its diffuse nature, energy efficiency doesn't carry the political clout of the coal-mining regions, or of the oil and gas-producing regions. There is no "energy efficiency patch."

By the same token there is not a defined energy efficiency industry. Whirlpool makes highly efficient appliances but they sell washing machines and refrigerators, not energy efficiency. Honeywell sells controls that regulate building systems that can save a company millions of dollars a year, not energy efficiency. Owens-Corning sells fiberglass insulation which can make a house warmer, more comfortable, and more economical to live in, but they sell insulation, not energy-efficiency.

So when we have to make tough choices about what we do with federal dollars and initiative, we must think about energy efficiency as what it is - an energy source that is essential for the economic health of our nation - and one that thus far has paid off like a gusher for the American people. And yes, Mr. Chairman, that energy is produced cleanly, displacing both conventional air pollutants as well as ones believed by many to be causing a warming of the Earth's climate. It enhances our national security, as this year we again went to war to protect our interests in Mideast oil fields. Energy efficiency cuts costs for businesses and consumers, and it increases our international competitiveness -- all the things we have traditionally talked about.

The tough choices on energy must be made with a clear eye on the contribution to the environment, the economy, national security, and international competitiveness delivered in the past and promised for the future by energy-efficiency.

Whether in relation to volatility in oil supplies and gasoline prices, electricity, or price spikes in home heating fuels, we must consider the range of options available to deal with our national energy problems. That requires a close look at demand side as well as supply side measures. Prudent decisions require the comparison of costs and an assessment of what the benefits are and where they accrue.

Let's look at the electricity situation. Earlier this year, Vice President Cheney cited the Energy Information Administration (EIA) projection that we would need at least 1300 additional power plants to satisfy our new electricity needs through 2020. His comments left the impression that this was a fait accompli, and that Americans would have to face that fact as surely as the Sun setting in the west.

When we look more closely at the facts, Mr. Chairman, building 1300 new plants is only one item on a menu of alternatives we can employ to meet our electricity needs. But, in fact, aggressive investments in energy efficiency could free up enough electricity supply to eliminate the need for most of those 1300 plants. And it would do it in a way that would be much better for the environment, dispersing benefits much more broadly across the economy.

Let's examine the facts behind the 1300-powerplant argument. DOE's forecast is based on the Energy Information Administration's Annual Energy Outlook, which uses a macroeconomic model called the National Energy Modeling System (NEMS). But NEMS, like all models, can miss the mark. For example, in 1999 NEMS predicted no increases in natural gas prices. The 1300-powerplant forecast would drop dramatically if it used these inputs:

230 of the 1300 power plants are for replacing current units, a task much easier than building completely new units. So the net new demand for power is actually 1070 plants.

300 power plants' worth of capacity, already in the pipeline, will come on line by the end of 2002. That leaves the need at 770.

Appliance efficiency standards for clothes washers, water heaters, and air conditioners, passed by the Clinton administration in January, and agreed to by the Bush administration, will reduce demand by 127 power plants in 2020. That cuts the need to 643.

If the Bush administration supported the air conditioner standard at the SEER 13 level approved by Clinton, instead of the reduced SEER 12 level they announced in April, another 43 plants would be saved, reducing the need to 600. Pursuing strong standards for commercial air conditioning would save another 50 plants, cutting the need to 550.

Programs to reduce energy use in new buildings, such as building energy codes, tax credits, and public benefit programs, would avoid 170 power plants. That means reducing new homes' demand by one 1 kW per home, and new commercial building demand by 1 watt per square foot. Modern building codes alone can easily achieve those kinds of savings; doing so takes the need down to 380 power plants.

Programs to improve existing buildings, by targeting residential air conditioners, commercial lighting, and commercial cooling, can trim demand projections by another 210 power plants. That leaves the tally at 170.

Since our electricity industry is producing 300 plants over the next two years, it is reasonable to assume that another 170 can be brought on line over the following eighteen. Many if not all of those could be renewable-energy plants, producing little or no pollution.

Realizing the energy efficiency gains, especially the 380 power plants from new and existing buildings, will take a concerted effort, involving increased R&D funding, aggressive support for building codes, new federal tax credits, and public benefits funding from electricity sales to support state-based efficiency programs.

Before we arrive at what the solutions to our energy problems should be, Mr. Chairman, we need to do this kind of analysis. What are our options? What can be done quickly and cleanly. What is the relative cost of the options?

The Alliance to Save Energy believes that the following five items should be contained in any national energy policy legislation:

National System Benefits Trust Fund

Targeted Tax Credits for Highly Efficient Products and Technologies

Increased Fuel Economy in the Transportation Sector

Increased Investment in Energy Efficiency Research and Development

Expand the Appliance Standards Program

Many parts of the nation are facing on unprecedented challenges in preventing electricity shortages, reducing air pollution, and responding to high consumer energy bills. Energy efficiency provides the cleanest, fastest, and cheapest way to respond to these needs. A federal public benefits fund is the most effective national means to support these needed investments.

One of the reasons that demand-growth overtook electricity supply in California is the fall-off in energy efficiency spending by utilities in beginning in 1995. The onset of competition in California changed the traditional relationships between state regulators, utilities, and the need to provide public benefits, such as energy efficiency and renewable energy investments and low-income programs. These programs had been highly successful in California up until that time. The Rand Corporation issued a report in 2000 that quantified the benefits of the state's utility energy efficiency programs, finding that between 1980 and 1995, utility efficiency investments generated roughly $1000 in returns for every $1 spent. Rand also found that the overall economic benefit to the state from these programs was responsible for 3 percent of the California gross state product in 1995. Finally the study concluded that energy efficiency programs had avoided a 40 percent increase in stationary source air pollution during that period. Some have characterized energy efficiency in California as a failure and a cause of current gap between demand and supply. That is highly inaccurate. In fact, it was wildly successful. They just didn't grab enough of it.

The Alliance supports the creation of a systems benefit trust fund, to augment state spending on just the kind of measures that were so successful in California. The fund would come from a non-bypassable charge on electricity, which would then go to match state expenditures on energy efficiency, low income programs, renewable energy, and state-based research and development.

States are spending about $1.7 billion this year on public benefits programs, including efficiency, renewables, low-income programs, R&D, and related public goods. A federal match at this level would raise another $1.7 billion annually. The residential share of this would amount to about $6 per year per family-about 50 cents a month.

The benefits would be enormous; they are projected to include: 92,000 Megawatts of electric capacity savings by 2020 (equivalent to about 300 powerplants); 1.24 trillion kWh saved over 20 years, cutting consumer energy bills by $100 billion; and 150,000 tons of nitrogen oxides emissions avoided.

The public benefits fund is off-budget, providing an efficient way to support the states in their efforts to respond to their mandates for reliability, clean air, and affordable energy. 50 cents a month is a very small price to pay for keeping the lights on, the air clean, and energy bills down.

Members of both parties in both the House and Senate have introduced legislation to promote tax credits to spur energy-efficient technologies and products. The Alliance believes that tax credits provide strong mechanisms to both attack market obstacles to the adoption of efficient products and provide an incentive for the rapid adoption of the next generation technologies that are not yet produced on a mass basis.

The Alliance supports establishing tax incentives in the following areas:

Residential tax credits for the construction of highly-efficient new single family homes and substantial upgrades of existing homes.

A production tax credit to manufacturers of extra-high efficiency refrigerators and clothes washers.

A tax deduction for investments in new multi-family and other commercial buildings.

An investment tax credit for purchases of highly efficient hybrid gas-electric and fuel cell vehicles.

A tax credit and/or accelerated depreciation schedule are provided for investment in combined heat and power systems

The intensive of analysis of specific proposals is currently taking place in the Ways and Means Committee. I urge this Committee to work with that Committee to promote these important energy-related tax incentives.

The fuel economy of today's cars and light trucks are at their lowest point in twenty years. But while fuel economy has fallen, oil imports and oil prices have continued to rise. U.S. oil imports have more than doubled over the past 15 years and prices of petroleum imports hit $110 billion, or one quarter of the U.S. trade deficit in 2000. Cars and light trucks consume 40 percent of the oil used in the U.S. every day and emit 20 percent of U.S. carbon pollution. With gasoline prices rising across the country America has found itself in a crisis of its own making. We must raise the fuel economy of the vehicles on American roads.

Fuel economy standards are popular everywhere but Detroit, thus making them a bone of contention in Congress. In fact, eighty-nine percent of the adults polled this month by ABC News/Washington Post support action by the federal government to require car manufacturers to improve vehicle fuel efficiency in the U.S.

There are many ways to increase fuel economy including closing what is known as the light-truck loophole which would make the SUV parked in the supermarket meet the same 27.5 mile per gallon CAFE standard as the car beside it. In 1999, this loophole cost consumers $27 billion at the pump; closing it would save at least 1 million barrels of oil a day. Another option is increasing the fuel economy of cars and light trucks to meet a 40-mile per gallon standard that could save 1,500 gallons of gas per second. Or, a consumption cap could be applied to encourage manufactures to continue to increase their fleet fuel efficiency without the standard CAFE formulation. Offering tax credits for high efficiency vehicles can contribute to the transformation of America's gluttonous vehicle market.

The American public is tired of paying too much at the pump because they don't have the choices at the auto dealership to get the car they want with the high-efficiency technology that is available. And it is available. A report by the Union of Concerned Scientists released Wednesday shows that US automakers could produce a fleet of cars and trucks that get an average of 40 miles per gallon by 2012, and 55 mpg by 2020 with no decrease in safety or performance. This increased fuel efficiency would save consumers billions of dollars each year, cut 273 million tons of annual greenhouse gas emissions by 2010 and 888 million tons by 2020, and create tens of thousands of new jobs in the auto industry.

In 1996, Mr. Chairman, the General Accounting Office did a study of a variety of success stories detailing energy and cost savings to the Nation which DOE had published in 1994. Unfortunately, the purpose of the study appeared to be political, and it attempted to discredit energy efficiency programs by attacking DOE's methodology for preparing the success stories. But rather than achieving this goal, it ended up validating billions in energy savings for a few key technologies which far outstrip out entire national investment in energy efficiency over the past 20 years.

Mr. Chairman, the accumulated success of these programs at saving money for American consumers and taxpayers is remarkable. The GAO study validated DOE's assertion that just five technologies 1 developed or assisted by the DOE buildings program resulted in $28 billion in energy savings over the past 20 years for an approximate $8 billion in investment as of 1994. DOE has updated results for those programs which credits them with returning $50.9 billion to the U.S. economy through 1999. Add gains from the low-income Weatherization Assistance Program, state energy programs, and building and appliance standards work, and returns total $89.6 billion. Add FEMP gains and it moves to $101 billion. Add the hundreds of other technologies to come out of the business, industrial, and transportation programs and the additional accrued energy savings of the past 5 years and you get a portrait of an overwhelmingly cost-effective effort which has contributed significantly and directly to the quality of life of Americans.

Mr. Chairman, I have yet to know of a federal program that has returned more than $100 billion to the economy for the relatively small investment of $12.0 billion through 1999.

By the same token, the EPA Energy Star and Green Lights programs, as well as other EPA climate programs, have already returned more than $40 billion in energy savings to the economy from less than $750 million in federal investment through 1999. In addition, these federal partnerships with businesses, state and local governments, school districts, non-profits, and other organizations have yielded reductions of more than 300 million metric tons of carbon equivalent pollution.

One of the true top performers in energy efficiency has been the appliance standards program at the Department of Energy. Every refrigerator that is sold today is well more than twice as efficient as the comparable model from 25 years ago. The same is true for a variety of other products. These improvements have been very successful and cost-effective. A key route to increasing the energy efficiency of the economy is to expand the appliance standards program to include additional products such as commercial refrigerators, torchieres, ice makers, traffic lights, and exit signs, as well as reducing the stand-by power requirement of electronic appliances. The savings in 2020 are estimated to reach $20 billion per year from expanding this highly successful program.

In addition, Mr. Chairman, the Alliance strongly supports the rule promulgated by the Department of Energy earlier this year to raise energy standards for residential central air conditioners and heat pumps to a Seasonal Energy Efficiency Rating (SEER) of 13. Soon after taking office, the Administration elected to rollback the rule and to reduce the proposed increase to SEER 12. This was done despite the fact that due to worsening electricity problems in Western, and perhaps other, states and increases in electricity prices, the SEER 13 standard is even more cost-effective and justified than it had been earlier. Furthermore, all major air conditioner manufacturers already sell models that meet the 13 standard and that two of them strongly support the original rule. Additionally, as you know, earlier this week, a lawsuit was initiated by the Natural Resources Defense Council, the Consumer Federation of America, three state Attorneys General and others to reverse that decision. I ask this Committee to urge the Administration to take into account the new facts governing the nation's electric reliability and prices and to re-affirm the SEER 13 standard.

CONCLUSION

A comprehensive national energy policy must seize the opportunity to exploit energy efficiency in each of these critical areas. Public opinion is overwhelming that a true effort to increase efficiency is desired by the nation. Many times, Mr. Chairman, I have sat in hearings and listened to Members say that, despite our best efforts at energy efficiency, we still need to focus on production. I do not now, nor have I ever said that energy-efficiency can do all that needs to be done to provide for the energy needs of this country. I will say, however, that - as a nation - we have not even begun to give our best effort to make our economy more efficient.

A balanced, comprehensive energy policy must take aggressive steps to save energy wherever it is cost-effective and feasible. Energy-efficiency may be our second largest energy source, but it should be our first energy priority.

Thank you for the opportunity to testify before your Committees today. I'm happy to address any questions you might have.