[Senate Hearing 107-858]
[From the U.S. Government Publishing Office]
S. Hrg. 107-858
TECHNOLOGY TRANSFER PROGRAMS AND COMPETITIVENESS IN THE GLOBAL
MARKETPLACE
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
to
RECEIVE TESTIMONY ON THE EFFECTIVENESS AND SUSTAINABILITY OF U.S.
TECHNOLOGY TRANSFER PROGRAMS FOR ENERGY EFFICIENCY, NUCLEAR, FOSSIL AND
RENEWABLE ENERGY; AND TO IDENTIFY NECESSARY CHANGES TO THOSE PROGRAMS
TO SUPPORT U.S. COMPETITIVENESS IN THE GLOBAL MARKETPLACE
__________
SEPTEMBER 18, 2002
Printed for the use of the
Committee on Energy and Natural Resources
U.S. GOVERNMENT PRINTING OFFICE
85-284 WASHINGTON : 2003
___________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
DANIEL K. AKAKA, Hawaii FRANK H. MURKOWSKI, Alaska
BYRON L. DORGAN, North Dakota PETE V. DOMENICI, New Mexico
BOB GRAHAM, Florida DON NICKLES, Oklahoma
RON WYDEN, Oregon LARRY E. CRAIG, Idaho
TIM JOHNSON, South Dakota BEN NIGHTHORSE CAMPBELL, Colorado
MARY L. LANDRIEU, Louisiana CRAIG THOMAS, Wyoming
EVAN BAYH, Indiana RICHARD C. SHELBY, Alabama
DIANNE FEINSTEIN, California CONRAD BURNS, Montana
CHARLES E. SCHUMER, New York JON KYL, Arizona
MARIA CANTWELL, Washington CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware GORDON SMITH, Oregon
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
Brian P. Malnak, Republican Staff Director
James P. Beirne, Republican Chief Counsel
Jennifer Michael, Professional Staff Member
Bryan Hannegan, Staff Scientist
C O N T E N T S
----------
STATEMENTS
Page
Baca, Sylvia, Vice President, Health, Safety and Environment, BP
America, Inc................................................... 21
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................ 1
Logan, Jeffrey, Senior Research Scientist, Advanced International
Studies Unit, Pacific Northwest National Laboratory............ 26
Renberg, Dan, Member of the Board of Directors, Export-Import
Bank of the United States...................................... 36
Schochet, Daniel N., Vice President, ORMAT Technologies, Inc.,
Sparks, NV..................................................... 16
Smith, Carl Michael, Assistant Secretary for Fossil Energy,
Department of Energy; accompanied by Robert Dixon, Senior
Advisor, Office of Energy Efficiency and Renewable Energy;
George Person, Acting Director, Office of American and African
Affairs, Office of Policy and International Affairs; and Bill
Trapmann, Energy Information Administration, Office of Natural
Gas............................................................ 3
APPENDIX
Responses to additional questions................................ 39
TECHNOLOGY TRANSFER PROGRAMS AND COMPETITIVENESS IN THE GLOBAL
MARKETPLACE
----------
WEDNESDAY, SEPTEMBER 18, 2002
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, D.C.
The committee met, pursuant to notice, at 9:35 a.m. in room
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman,
chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
MEXICO
The Chairman. The hearing will come to order. Thank you all
for coming.
This morning we are here to consider the general subject of
technology transfer, more specifically the role the Government
can and should be playing to support private sector efforts to
achieve sustainable energy policies in developing countries.
Given the positions that have been taken by the Bush
administration at the recent World Summit on Sustainable
Development in Johannesburg, I felt that it was important to
also try to hear from the Department of State. Unfortunately,
they declined to testify.
Technology transfer and deployment is one of the most
important issues for the health of the world environment and
economy. Commitments made today to energy technologies and
related infrastructure will influence the world energy system
for much of this century. The right public policies can
significantly reduce inefficiencies in the system from the
source to the end use.
For the most part, governments do not make direct
investments. The private sector does. A striking example that I
have found disturbing is how poor natural resource development
policy is resulting in the complete loss of valuable resources
in many countries. I recently was in Africa with the majority
leader and other Senators, and became very much aware of this
problem, particularly in Nigeria. In the absence of modern
technology and sound resource policy, developing nations are
building in excessive costs and locking out environmental
protection, and diminishing their own development potential.
Cooperation at the international level promotes outcomes
that are favorable to U.S. interests, including the sharing of
costs and risks of developing new energy technologies. We need
to do a better job of focusing on the long term when it comes
to energy policies and greenhouse gas emissions, and the
failure to do so means pushing the consequences of global
climate change onto future generations.
U.S. participation in the global environmental facility and
the many energy initiatives discussed at the World Summit on
Sustainable Development has in my view been paltry at best. The
United States is behind by about $210 million in its funding of
the Global Environmental Facility. The United States declined
several leadership opportunities on clean energy issues at the
World Summit on Sustainable Development in August, key issues
in which the United States was absent included renewable energy
and the World Bank Group's Global Initiative on Gobal Flaring
Reduction.
This World Bank global flaring reduction initiative seeks
to support the efforts of the oil industry and national
governments to reduce the wasteful venting and flaring of gas
by identifying areas where common approaches and collective
actions can strengthen existing efforts. The immediate need for
oil export revenues often leads governments of oil-producing
countries to disregard the importance of developing the
associated natural gas resources. This neglect has a high cost
for individuals and local communities. I mentioned the
circumstance we encountered in Nigeria.
The acceleration of greenhouse gas concentrations from the
wasteful venting and flaring of natural gas. That is obviously
a major concern as well. Key to making progress in this area is
the development of public-private partnership to build local
infrastructure. In Johannesburg, the World Bank launched its
Global Gas-Flaring Reduction Public-Private Partnership to
address this.
Recognizing the World Bank initiative as a good business
proposition, the oil and gas industry is an active participant
in this. Regrettably, our own government has not been. The Bush
administration has chosen to sit on the sidelines and to watch
other countries take the lead. As the world's largest importer
of crude oil and oil products and user of those, the United
States should join with industry and the world community to
provide leadership in addressing this problem. I hope we can
hear some comments and suggestions from today's witnesses that
will help us to move forward in designing a national energy
policy that is consistent with the need to develop a consensus
on how to improve our government management of greenhouse gas
technology programs and allowing the benefits of the technology
that we have to be used worldwide.
I want to thank everyone for being here. Our first witness
today is Mike Smith, who is the Assistant Secretary for Fossil
Energy at the Department of Energy. I think this is the first
testimony you have given to our committee, at least in
sometime, since we confirmed you, and we are glad to have you
here and look forward to hearing your views. Then I will have a
few questions. Why don't you go right ahead.
STATEMENT OF CARL MICHAEL SMITH, ASSISTANT SECRETARY FOR FOSSIL
ENERGY, DEPARTMENT OF ENERGY; ACCOMPANIED BY ROBERT DIXON,
SENIOR ADVISOR, OFFICE OF ENERGY EFFICIENCY AND RENEWABLE
ENERGY; GEORGE PERSON, ACTING DIRECTOR, OFFICE OF AMERICAN AND
AFRICAN AFFAIRS, OFFICE OF POLICY AND INTERNATIONAL AFFAIRS;
AND BILL TRAPMANN, ENERGY INFORMATION ADMINISTRATION, OFFICE OF
NATURAL GAS
Mr. Smith. Thank you, Mr. Chairman, very much. I do have a
formal written statement that I would offer for the record.
The Chairman. We will include that statement, and all of
the written statements of witnesses in the record.
Mr. Smith. Thank you, Mr. Chairman.
The statement I have submitted for the record covers topics
that cross virtually the entire Department of Energy. Some go
well beyond my area of responsibility in fossil energy,
therefore I have with me today several staff members from other
organizations within the Department who will assist me in
answering some of your more detailed questions.
Mr. Chairman, the Department of Energy takes technology
transfer very seriously, both as it applies domestically and as
it positions our domestic firms to compete more vigorously
overseas. Globally, our aggressive policies of industrial
partnering and technology transfer have well-positioned U.S.
firms to compete in the world marketplace.
We are still the leaders in technology for producing clean
power from coal and exploring and producing oil and natural gas
and converting the power of the wind and sun into usable
energy, and in producing energy efficient machines and
appliances. This technological leadership is especially
important, recognizing that in the first half of this century
the market for new energy technologies just in the world's
developing and transitioned economies could approach $25
trillion.
In your letter of invitation, Mr. Chairman, you asked that
we address several specific elements of international
technology transfer. First, you referenced the 1999 report by
the President's Committee on Advisors on Science and Technology
PCAST that examined the Federal role on global cooperation on
energy innovation. The committee recommended that an
interagency working group be created. This group would improve
the coordination in bringing a new strategic vision to U.S.
international energy research, development, demonstration, and
deployment.
Subsequent to the PCAST report, the Senate added language
to the report accompanying the fiscal year 2001 appropriations
bill that directed the formation of the clean energy technology
export, or CETE, working group. Although not referenced in the
PCAST study directly, the Senate report closely mirrored the
recommendations of PCAST.
CETE is co-chaired by the Energy Department, the Department
of Commerce, the U.S. Agency for International Development, and
six other agencies participate. The President's national energy
policy, issued in May 2001, referenced the establishment of
CETE, and the President has subsequently cited the importance
of this interagency group in carrying out portions of his
climate change initiative.
Last year, the nine CETE agencies submitted their first
annual status report to the Congress. In the near future, the
5-year strategic plan for the initiative will be submitted to
Congress, which will include possible examples of future
projects and time horizons.
You asked, Mr. Chairman, about the actions we are taking to
counter low competitiveness in renewable energy technologies
from foreign developers. At the recent World Summit for
Sustainable Development in Johannesburg, which the chairman
mentioned, the administration announced the Clean Energy
Initiative, powering sustainable development from village to
metropolis. This initiative is intended to be a framework to
encompass a large number of key development issues through
partnerships with other countries and organizations.
The Clean Energy Initiative has three focus areas, first,
new access to energy services through the U.S. Agency for
International Development, second, increasing the efficiency of
energy generation, supply, and use through the Department of
Energy, and third, changing vehicle and domestic energy use
patterns through the Environmental Protection Agency. We expect
this initiative to further the recommendations of the PCAST
study and to help build practical partnerships for implementing
clean energy and efficiency projects. This could include gas
flaring initiatives, which I will discuss in more detail in a
moment.
We also believe that the CETE initiative can be one of the
principal means we have for assuring that we are working in
support of U.S. industry's competitiveness abroad. The CETE
initiative, the Clean Energy Initiative, and the national
energy policy are all consistent and complementary.
You asked, Mr. Chairman, about whether export controls or
other regulatory impediments hinder or prevent U.S. companies
from participating in commercial activities internationally. In
our discussion with private sector officials, areas have been
identified where the U.S. Government may be able to accelerate
the international deployment of clean energy technology.
In many cases, one of the highest priority actions we can
take is to assist the governments of developing countries in
adapting a policy, legal and regulatory framework that will be
more receptive to clean energy technologies and foreign
investors. As an example, we are working closely with China in
advance of the upcoming Beijing Olympics to identify
opportunities for the application of U.S.-developed clean
energy technologies.
Finally, Mr. Chairman, you asked about the practice in
several nations of venting and flaring natural gas, and the
World Bank's initiative to reduce the loss of this valuable
energy resource. My formal statement goes into the issues of
gas flaring in some detail, but let me summarize it with three
major points.
First, about 60 percent of all gas flaring and venting
occurs in just eight countries. Second, the global flaring of
natural gas as a percentage of total oil production has
declined significantly in the last 20 years. In 1977, for
example, OPEC nations flared approximately 50 percent of the
gas they produced. Earlier this year, the current president of
OPEC reported that today just 8 percent of their total gas
production is flared.
Third, the Department is working on two fronts to help
reduce gas flaring at home in the programs I oversee. We are
developing new technologies that could convert natural gas into
high quality fuels like methanol and low sulfur diesel. The
advantage is that in many cases these products can be shipped
to markets through an existing oil pipeline infrastructure.
Internationally, we have a large number of bilateral and
multilateral efforts underway to promote the development and
commercial use of natural gas resources as an alternative to
venting or flaring. Beginning on page 9 of my submitted
testimony, I have listed some of those international efforts,
although as my formal statement says the list is actually
longer than the items cited.
We are actively engaged in discussions with the World Bank
and with other U.S. Government agencies, foreign energy
ministries, and the private sector regarding the global gas-
flaring reduction initiative. We generally support efforts to
fully utilize this gas. It is my understanding that at the
recent Johannesburg meeting, the issue was discussed in a panel
forum held in conjunction with the world summit.
Before committing to specific financial or other support,
we want to examine the details of the proposed effort by the
World Bank and consult with other potential partners. As
Secretary Abraham committed to you in an August 13 letter, we
will keep you informed of our progress with the World Bank as
details emerge.
Thank you again, Mr. Chairman, for allowing me to testify
this morning.
[The prepared statement of Mr. Smith follows:]
Prepared Statement of Carl Michael Smith, Assistant Secretary for
Fossil Energy, Department of Energy
I am representing several elements of the Energy Department today
in presenting this testimony on U.S. energy-related technology transfer
programs. The Department takes seriously the importance of transferring
federally-supported technologies to the private sector where they can
be applied for the public good.
Throughout our agency's existence we have made technology transfer
a fundamental part of the Department's overall mission. Over the past
50 years, the U.S. government has financed more of the world's
scientific research and technology development than any other nation.
These federal investments have paid off handsomely for our Nation. The
U.S. economy and technology sectors are the envy of the world, thanks
in large part to our unique innovative capacity. From information
technology to biotechnology to materials science, U.S. scientists and
high tech workers are generating new products and trail-blazing
revolutionary discoveries every day.
For example, within the Office of Fossil Energy, the organization I
oversee, more than 90 percent of the research and development we pursue
is conducted in partnership with the private sector. Almost all of it
involves some form of private sector cost-sharing which ensures that
the non-federal participant has a vested interest in the successful
commercial application of the emerging technology. We also regard the
transfer of knowledge and technology from R&D programs at our national
laboratories and universities as one of our highest priorities.
technology transfer from an international perspective
It is useful when discussing the important topic of energy
technology transfer to consider the current world energy outlook. The
clean energy policies the U.S. government adopts today will have
profound influence on the shape of the global energy system for many
decades to come.
Between now and 2050, the combined growth of the energy sector in
developing and transition economies will account for over half of
global energy growth. Ninety percent of the markets for energy
efficiency, coal, nuclear, and renewable energy technologies are
expected to occur in these countries in the coming decades and
investments in new energy technologies in these markets will likely
approach $15 to $25 trillion.
While energy sector modernization will help improve the standard of
living and health standards in these countries, rapid growth in total
world energy use will also pose new challenges. If future energy use
trends continue, the world could witness increased air pollution
problems as well as increased levels of atmospheric carbon dioxide.
That is why it is important to encourage international adoption of
energy efficient fossil fuel technology, nuclear power, and renewable
alternatives.
Strategic investments in advanced clean energy technologies by the
U.S. private sector in partnership with the U.S. government will
increase U.S. market share and competitiveness in these growing markets
while addressing environmental concerns and increasing U.S. jobs.
Public/private cooperation in international clean energy technology
development and deployment provides opportunities for U.S. companies to
access global markets. By working with government, U.S. companies can
gain access to innovative ideas and work to open doors to these world
markets. For the U.S. government, this cooperation will help lower the
cost of energy for U.S. consumers, spurring economic growth. It could
also help reduce international dependence on oil supplies from volatile
regions and potentially reduce nuclear proliferation risks.
the report of the president's committee of advisors on science and
technology on international cooperation on energy innovation
In your letter of invitation, Mr. Chairman, you asked specifically
about the 1999 report by the President's Committee of Advisors on
Science and Technology (PCAST) entitled Powerful Partnerships: The
Federal Role in International Cooperation on Energy Innovation. This
report was one of the most noted efforts by the government in recent
years to address U.S. competitiveness in the international clean energy
market.
The report concluded that existing Federal activities in support of
U.S. technology transfer were scattered among several agencies, each of
which focused on its efforts individually or in certain circumstances
engaged with only a small number of other U.S. government agencies.
PCAST determined that a new strategic vision and coordinating
structure could link the disparate initiatives of the U.S. government
and unite them into a coherent effort. The PCAST report recommended the
creation of an interagency working group that would improve the
coordination of U.S. international energy research development,
demonstration, and deployment.
Senate Report 106-395, on the FY 2001 Energy and Water Development
Appropriations Bill, directed the formation of such a working group
that would improve the federal government's role in promoting exports
of clean energy technologies, working in collaboration with U.S.
industry. This working group on Clean Energy Technology Export (CETE)
is co-chaired by the Department of Energy, the Department of Commerce,
and the U.S. Agency for International Development. Six other agencies
of the U.S. government also participate in the working group, including
the Departments of State and Treasury, the Environmental Protection
Agency, the Export-Import Bank, the Overseas Private Investment
Corporation, and the U.S. Trade and Development Agency.
I have included further discussion of the CETE initiative below as
it relates to efforts to counter the potential loss of international
competitiveness in renewable technology.
administration position on coeect and corect
COEECT The Committee on Energy Efficiency Commerce and Trade
(COEECT) was an interagency working group formed for the purpose of
assisting the U.S. energy efficiency industry to compete in the
international market against competitors who received substantial
export assistance from their governments and against barriers to entry
into foreign markets. COEECT's purpose was to increase energy
efficiency exports, thus creating U.S. jobs and reducing global
environmental pollution. To accomplish this mission, COEECT consulted
and collaborated with representative industry groups and relevant
Federal agency heads to coordinate and leverage the actions and
programs of the Federal Government affecting the export of energy
efficiency products and services.
COEECT produced and distributed specific market assessments of
energy opportunities and supported state-level peer-exchanges with a
range of countries to help develop federal and local energy efficiency
regulations and programs. COEECT focused on market development,
financing, training, education, and management.
COEECT was initially funded in FY 1993 and received peak funding in
FY 1995 and FY 1996 with $1.116 million provided in both years.
Congressional appropriations for COEECT declined after FY 1996. Given
the desire of Congress to decrease funding for this program, the
Department chose, in FY 2002, to fund programs that ranked higher on
our priority list.
CORECT The Committee on Renewable Energy Commerce and Trade
(CORECT) was a 14-member interagency working group of the Federal
Government. The primary objective of CORECT was to increase U.S.
competitiveness in the export or transfer of Renewable Energy
technologies. CORECT worked with U.S. Export Council for Renewable
Energy (ECRE) in establishing export strategies and identifying
barriers. CORECT's partners also included multilateral and regional
development banks, commercial banks, foundations and other non-
governmental organizations.
CORECT also worked with Latin America and the Caribbean (LAC), Asia
and the Pacific, Africa, and Eastern Europe and the Commonwealth of
Independent States. LAC was the highest priority market. In the time
since it began in 1984, CORECT built a strong partnership with the U.S.
renewable energy industry. This led to the strengthening of U.S.
exports in solar, wind, geothermal, hydropower and biomass
technologies.
In 1997, the Department's request for funding of CORECT was not
approved by Congress, nor was it approved the following year. Given the
desire of Congress to no longer fund CORECT, the Department has not
requested any funds for this initiative since 1998.
improving competitiveness in renewable energy technologies
To improve competitiveness in clean energy technologies, including
renewables, the Administration has proposed funding in its FY 2003
budget request to support the Clean Energy Technology Export (CETE)
Initiative.
The CETE initiative is a senior-level, multi-agency, multi-
technology partnership that combines the resources of the U.S. federal
government and the capabilities of the U.S. private sector to
facilitate the export of clean energy technologies abroad. The CETE
Working Group will approve CETE program activities, approve the
framework for assessing program performance, commit agency roles in
support of CETE, and submit an annual report to Congress. This body
will outline the most effective manner for carrying out the designated
activities and establish a detailed timeline for the achievement of
project goals and for project completion.
CETE can improve the ability of the United States to respond to
international competition, stimulated by market demand, by leveraging
the resources of federal agencies effectively and efficiently and by
raising policy issues that may hamper the export of U.S. technologies
abroad. Because the United States is a leader in clean energy
technology, expanding the global markets for clean energy technology
and encouraging open competition for these new markets will result in
substantially greater gains for U.S. exports.
Senate Report 106-395 requested the preparation of a five-year
strategic plan for the CETE program and annual status reports. The
first annual status report was prepared in consultation with all the
nine participating CETE agencies and submitted to Congress in April
2001. Since the submission of this annual report, the Administration
has enunciated a similar vision in the international component of the
National Energy Policy and in other official statements by the Office
of the President. These Administration statements have called for U.S.
national initiatives to promote the development, export and use of
clean energy technologies, especially in developing countries and
countries in transition. Illustrative examples of possible CETE
projects and time horizons are included in the CETE five-year strategic
plan, which will be submitted to the Congress in the near future.
export controls and regulatory impediments that hinder u.s. companies
U.S. industries also have expressed the view that they are
constrained in some cases by government regulation. Policies such as
complex tax rules and trade sanctions against foreign countries often
reduce the competitiveness of U.S. industries in foreign markets.
Although trade sanctions can be an important U.S. foreign policy tool,
competitors often fill the void in these markets, thereby expanding
their market share at the expense of U.S. companies.
Consultations with private sector representatives over the past
several months indicate that the U.S. private sector has identified
areas where the U.S. Government can help accelerate clean energy
technology. These areas include assistance to developing countries in
implementing a policy, legal, and regulatory framework that will be
more receptive to clean energy technologies and foreign investors.
The U.S. Agency for International Development spends a substantial
percentage of its energy budget on policy and regulatory reform in
developing countries which helps open energy markets to U.S. industry.
The U.S. Department of Commerce is in the best position to address U.S.
industry views on the various export controls administered by federal
departments and agencies.
the importance of public-private partnerships in regard to the world
bank's global gas flaring reduction initiative
Your letter of invitation, Mr. Chairman, also asked that we discuss
gas flaring reduction.
Defining Gas Venting and Flaring. Gas venting and flaring are two
ways of disposing of natural gas. Gas flaring refers to gas that is
ignited and burned at either the site of production or at the
processing plant or refinery. Gas venting involves a release of the gas
directly into the atmosphere without burning. Gas venting can occur at
several points along the supply chain during field production, during
transmission, or at the point of final use. Because released or
escaping natural gas, which is predominantly methane, is hazardous and
potentially explosive, when gas releases are anticipated, it is safer
to flare the gas than vent it.
According to the World Bank, sixty percent of all gas flaring and
venting occurs in just 8 countries (Algeria, Angola, Indonesia, Iran,
Nigeria, Mexico, Russia, and Venezuela).
In the United States, gas is not allowed to be vented at refineries
or natural gas processing plants, but is sometimes permitted at the
point of production for testing well productivity at the startup of
production. Whenever venting and flaring occur, this represents the
loss of a valuable energy commodity.
In addition, some emissions from flaring and the methane emissions
from venting pollute the environment and are generally unhealthy to
humans and ecosystems. Methane is a more potent greenhouse gas than
CO2, and its impact on global climate may be 20 times
greater than that of CO2. Natural gas flaring and venting on
a worldwide basis accounts for approximately 1 percent of the carbon
dioxide emissions resulting from the consumption of fossil fuels.
U.S. Gas Flaring Regulations and Data Collection. In the early
1940's, gas flaring in the U.S. began to decrease largely because
states took the lead in addressing gas flaring as a resource
conservation and environmental safety issue. All of the state actions
to prevent the waste from flaring were subsequently upheld in courts.
Blowout preventers are technology required by states and the federal
government for on and offshore wells to prevent blowouts that waste
vast quantities of oil and gas. It is important to note that oil and
gas producers in the U.S. have embraced these regulations and
technologies because conservation of oil and gas is profitable to them.
Also, unlike in many other countries where the central government owns
all of the oil and gas resources, in the United States it is individual
producers under state or federal regulations that control the amount of
methane that goes into the air. Notably, the United States has a long
history of regulatory practice and technology development to address
gas flaring and venting.
In the United States, gas flaring regulations are determined by
each state and the relevant state agencies unless the resource is on
Federal land. Most states do not allow flaring except in case of an
emergency. Offshore on the Outer Continental Shelf (OCS), companies
operating on federal leases have to report their production and gas
flaring to the Minerals Management Service (MMS). In order to flare
gas, companies are required to get a permit from MMS if the flaring is
to last longer than 48 hours. In addition, oil wells can flare up to 48
hours when doing equipment change-outs or maintenance.
On Federal onshore and Native American oil and gas leases, the
restrictions are less significant because in most cases companies do
not flare gas at all but rather sell it commercially through already
existing pipelines available in the oil and gas fields. No gas flaring
is permitted except in very limited circumstances authorized in advance
by the appropriate Bureau of Land Management (BLM) field office, and
usually would apply to a new well for cleanup purposes, well testing,
and emergency equipment problems. The BLM also monitors gas plants for
flaring purposes, which is approved for only a limited amount, for
example, when there is an equipment malfunction. In those cases it must
be for safety reasons.
Generally, both the Energy Information Administration (EIA) and the
Department of Interior's Minerals Management Service (MMS) combine gas
flaring and venting data as a single reporting category. Annual data on
gas venting and flaring in the United States have been compiled from a
variety of MMS and State agency sources for years beginning with 1936.
The EIA has been collecting annual data since 1995 through voluntary
submissions from the States and MMS. The underlying producer or
reservoir data have not, however, been available to EIA to support data
validation or adjustments for standard definitions and procedures.
Current data shows that the United States flared and vented an average
of 105 billion cubic feet (bcf) of natural gas per year since 1998.
This amounts to approximately one-half of one percent of gross natural
gas production during the period.
Status of International Gas Venting and Flaring Data. It is
difficult to get an accurate picture of international trends in gas
venting and flaring. There are several sources of data available on
international gas flaring and venting in other parts of the world, but
statistics are not available for some countries, and much of the
existing international data available to the public is uncertain. Given
these limitations, the figures that are available from the EIA, the
World Bank, and CEDIGAZ (Paris-based gas industry information agency)
show that natural gas flaring and venting for the world as a whole
declined steeply in the early 1980's, and have since leveled off at
approximately 3500-4000 bcf (about 100-110 billion cubic meters) per
year since then. In 2000, flaring and venting worldwide was equal to
about 3 percent of global gross natural gas production.
On Sept. 4, 2002, at the World Petroleum Congress, Nigeria's
Rilwanu Lukman, the president of the Organization of Petroleum
Exporting Countries (OPEC) noted that just 8 percent of OPEC's total
gas production is burned off today compared with 50 percent in 1977.
The United States generally supports improvements in international
energy statistics including natural gas supply, demand, venting and
flaring. The U.S. is a member of the International Energy Agency (IEA),
the Asia Pacific Economic Cooperation (APEC) and the United Nations
(UN) and works with each to support the preparation of sound, reliable
international statistics. DOE represents the U.S. at meetings of these
organizations, sharing U.S. energy information with member countries
through their data programs and working with member countries on a
range of statistical issues.
DOE also participates in the global ``Joint Oil Data Exercise''
that is being led by APEC, the European Union (EU), the IEA, the
Organization of Petroleum Exporting Countries (OPEC), the Latin
American Energy Organization (OLADE), and the UN. The Joint Oil Data
Exercise is an effort geared to the timely reporting of oil information
to help make the current markets more transparent. DOE also
participates in the International Energy Forum which is also beginning
to examine data quality issues. Further, at the recent U.S.-African
Energy Ministerial conference held in Casablanca, Morocco, in June
2002, DOE expressed a strong interest in the development of an African-
wide energy data initiative currently being supported by the IEA and
the World Energy Council.
Reasons for Gas Flaring. Worldwide, most gas is flared or vented
for economic reasons, generally one of the following: a lack of markets
to sell the gas; a lack of infrastructure such as an integrated gas
pipeline network to use the gas locally; and an inability to convert
the gas to a refinery feedstock or usable fuel such as diesel fuel,
liquefied natural gas (LNG) or liquefied petroleum gases (LPG) due to
financial, infrastructure, and/or market constraints. Also, development
of the gas sector is so costly that in some cases it would take away
from resources needed for oil development and therefore retard oil
development prospects. Gas associated with oil production cannot always
be inexpensively reinjected since in many cases only a very small
percentage of gas that would be flared is needed to maintain reservoir
pressure.
There are three principal outlets for utilizing gas that would
otherwise be flared international markets, domestic markets, and
reinjection to maintain well pressure. All three of these outlets
require considerable investments to ensure the gas' commercial
viability. International markets for flared gas could include cross-
border pipelines or converting flared gas to liquefied natural gas
(LNG) for export. LNG is in many respects an alternative to pipelines
for monetizing remote or stranded gas resources. Many economies,
including the United States, EU, China and others, import LNG to serve
restricted market areas. Advances in LNG technologies have reduced
costs and improved efficiencies in the LNG value chain: liquefaction,
transportation and re-gasification.
Regional cross-border pipelines provide a means to export the gas,
such as with the proposed West African Gas Pipeline, for electric power
demand. For domestic markets, if an integrated pipeline system is in
place, the flared gas could be utilized for electricity for industrial,
residential, and commercial purposes. Gas-to-liquids technology is
costly, but if available, liquid products could be produced that could
be marketed locally, such as diesel fuel.
Flared gas could also be converted to LPG, providing a cooking
fuel. However, often the gas market has to be developed in a country in
order to be able to use it. The cost of developing a gas infrastructure
is high, usually requiring assurances of long-term demand for the gas
and policies and regulations in place to support it. Due to the income
levels of many developing countries, the population often cannot afford
to pay for the gas.
The National Energy Policy (NEP) released in May of last year
includes recommendations for expanded development and utilization of
natural gas resources. The DOE, in support of the NEP, has been
involved in research and development, policy coordination and
regulatory activities domestically, bilaterally and multilaterally in
this area.
Department of Energy (DOE) Research and Development. The Department
of Energy is involved directly and indirectly in research and
development activities and as a partner with other organizations to
assist in gas flaring reduction. DOE has recently spent approximately
$10 million per year on novel conversion concepts and development of
ceramic membrane technology to convert natural gas to synthetic gas
that can be used to make environmentally superior fuels (i.e. hydrogen,
methanol, and ultra-low sulfur diesel). This research is primarily
focused on bringing stranded domestic gas to market, but these
technologies could also be used to convert flared gas to usable
products around the world.
International Activities Aimed at Reducing Gas Flaring. Bilaterally
and multilaterally, DOE is working with various countries and
organizations to promote the development and utilization of natural gas
resources, which, in turn, will directly contribute to the reduction of
gas flaring and venting.
The examples that follow do not constitute a comprehensive list of
all DOE/USG international activities in the natural gas sector. In
every case, however, it is our goal to promote international best
practices in the establishment of natural gas policies and regulations
that will promote sustainable gas development and use and minimize
flaring and venting. Only a handful of countries are responsible for
the bulk of gas flaring and venting and, whenever possible, we are
looking to refocus our international efforts on these countries.
World Bank: DOE has been actively engaged in discussions
with the World Bank and various U.S. Government agencies, and
others, about the World Bank's initiative to reduce global
flaring of natural gas. DOE is supportive of this important
initiative in principle. We are considering the appropriate
nature and scope of our support for this initiative, including
possibly through direct funding, in-kind contributions, and
working to enlist greater U.S. and international support.
In Nigeria, through an interagency agreement with the U.S.
Agency for International Development (USAID), DOE is providing
$100,000 to the World Bank to assist the Government of Nigeria
with developing a downstream gas strategy that will assist in
addressing gas flaring. Through this same interagency
agreement, DOE is also providing assistance to the Government
of Nigeria in reviewing regulations governing the use of
pipeline facilities for transport of crude oil, petroleum
products and natural gas and developing guidelines for common
carrier and open access regulation of new and existing
pipelines. These guidelines will be presented in the form of a
manual that will be circulated to key Nigerian decision-makers
for comments. DOE will also assist in preparing a brochure for
investors in the natural gas sector in Nigeria. The brochure
will cover key topics of interest to private investors, such as
the existing legal, fiscal, and regulatory regime. The USG,
through its contractors, is also conducting an analysis of the
current fiscal regime for gas development in Nigeria and
comparing that with existing practices in other countries.
The West African Gas Pipeline (WAGP), is a proposed gas
transmission pipeline project designed to connect Nigeria's gas
reserves to markets in Benin, Togo, and Ghana (with Ghana being
the primary market for the gas). The Governments of these four
countries, together with the Economic Community of West African
States (ECOWAS), Chevron and Shell, are partners in the
process. The gas supplies from Nigeria will be used to generate
electricity and available for sale to other gas producers in
the four partner countries. USAID has provided technical advice
to the project. Some of the gas from Nigeria that is currently
flared will be sold through the West African Gas Pipeline.
In Algeria, DOE, in conjunction with the Government of
Algeria, is exploring the expansion of LNG trade between our
two nations, and adding to the gas supply of the U.S. while
reducing gas flaring in Algeria. On May 29, 2002, we held a
Preliminary LNG Roundtable that started the dialogue on
expanding this LNG trade. On November 27, 2002, we are planning
a ministerial level roundtable that will be led by Secretary
Abraham and Algerian Minister Khelil.
For Asia Pacific Economic Cooperation (APEC), DOE is the
United States Government's energy representative to APEC. In
1998, APEC Energy Ministers endorsed a Natural Gas Initiative
that recommends policy and regulatory steps to accelerate
investment in natural gas supplies, infrastructure and trading
networks in the APEC region. APEC members agreed to undertake
this initiative because they realized that public financing
could not meet the significant increase in demand for natural
gas projects over the next twenty years. This initiative was
sponsored by the United States and Japan and developed in close
cooperation with the business community, and within the context
of APEC's overall goals of economic cooperation, trade, and
investment liberalization. The initiative suggests thirty-six
policy and regulatory reform options to reduce perceived risks
for private investors and sponsors. APEC's Energy Business
Network has identified ten priority options among the thirty-
six. In addition, APEC Energy Ministers have endorsed a program
to assist APEC members who request practical advice on the
implementation of recommendations. The APEC Energy Business
Network provides expert teams, which have visited Thailand,
Peru and the Philippines.
In India, DOE has been active in implementing a
recommendation in President Bush's National Energy Policy (NEP)
directing ``the Secretary of Energy to work with India's
Ministry of Petroleum and Natural Gas to help India maximize
its domestic oil and gas production.'' Key actions taken
include organizing the ``Indo-U.S. Conference on Building
Natural Gas Markets in India,'' held April 17-18, 2002, in New
Delhi, and having a senior DOE official join the Indian Oil
Minister this past June in Houston to help promote U.S.
investment in the Indian upstream oil and gas sectors.
In Bangladesh, under a Participating Agency Service
Agreement with USAID, DOE has conducted a gas resource
assessment with the U.S. Geological Survey. The goal was to
assess the technically recoverable undiscovered gas resources
of Bangladesh that might be found in a 30-year period (2000
2030). Through this interagency agreement, the Energy
Information Administration established a program in energy data
collection techniques, dissemination techniques and analysis
methods that helped to improve the expertise of the Government
of Bangladesh's staff analysts and associated organizations,
including Petrobangla. Under a second agreement with USAID,
DOE's Clean Cities Program will conduct a workshop in
Bangladesh on the development of compressed natural gas
technology.
In Venezuela, DOE has commented on draft versions of
Venezuela's draft natural gas policy, and is exploring ways to
assist with the development of the natural gas sector,
including regulatory capacity building and research and
development activities.
Under the North American Energy Working Group, a trilateral
consultative mechanism with Canada and Mexico, there is a
Natural Gas Experts Group exploring ways to enhance gas
development, trade, and interconnections. Bilateral informal
gas talks are ongoing with Canada.
There is a U.S.-Mexico Cross-Border Working Group to promote
trade, interconnections, and expanded development and
utilization of natural gas in Mexico. With DOE support, this
group is planning several technical and regulatory workshops
that will include United States and Mexican Government
counterparts from government and industry.
With Russia, on May 24, 2002, Presidents Bush and Putin
issued a Joint Statement on the New U.S.-Russian Energy
Dialogue. This Joint Statement gave the responsibility for
implementing this Dialogue to the Department of Energy and
specifically to the Russian-American Working Group on Energy
Cooperation. Secretary Abraham had laid the foundation for the
Working Group in November 2001, during his meeting with Russian
Energy Minister Igor Yusufov. The Working Group will deal with
a number of energy issues including, global oil markets;
investment; technology; and information exchange. In the
technology area, discussions are under way on how to deal with
the serious Russian problem of gas flaring associated with the
production of oil. Current ideas include use of the gas-to-
liquid technology to transform the gas into a liquid that can
be used either on site or put into oil pipelines for shipment
to markets.
With Kazakhstan, in December 2001, the United States and
Russia signed an Energy Partnership Declaration. Under this
Energy Partnership, there have been extensive discussions on
the appropriate utilization of Kazakhstan's extensive natural
gas resources. The U.S. Trade Development Agency has provided
funding for feasibility studies to study the issue. It remains
an area of active discussion and study.
With China, the U.S. Government has encouraged China in its
plans to increase natural gas use. A U.S.-China Oil and Gas
Industry Forum was established in 1998 to foster bilateral
cooperation and discussion on oil and gas development. The
Forum has had four successful sessions, most recently in July
2002, in Houston. An exchange of natural gas experts between
the United States and China was also sponsored under this
Forum. In addition to DOE activities, the Environmental
Protection Agency (EPA) sponsored, in cooperation with China's
State Development Planning Commission, a two-year study on
expanding natural gas use in China. The study was completed in
April 2002. DOE is also participating in a major assessment of
China's energy prospects, infrastructure, potential and
policies being conducted by the IEA in Paris. The study
identifies policies and investment frameworks needed to
encourage greater use of natural gas in China.
conclusion
Our ability to create new knowledge and technological innovation
will directly impact our national prosperity, security and global
influence. American technological leadership is anything but assured in
today's global economy. We face more challenges to our innovative
capacity and long-term competitiveness than ever before.
By continuing our ongoing interagency efforts, our international
outreach effort, and government-industry partnerships, we can continue
to meet the competitive challenges in the evolving world energy market.
In these partnerships, industry can get better access to new knowledge
and leverage it more effectively. Realizing this win-win through
effective technology partnerships may prove to be the key to America's
continued leadership in the 21st century.
This completes my prepared statement. I will be pleased to answer
any questions the Committee Members may have.
The Chairman. Thank you very much. This Clean Energy
Initiative that I gather was announced by our own State
Department that you referred to at the Johannesburg meeting,
what are the concrete actions that are currently underway
within the Department of Energy or elsewhere in the
administration to implement that?
Mr. Smith. If I could, Mr. Chairman, with the chair's
permission, I was not at the Johannesburg summit. Other
officials from DOE were, but I would ask Mr. Bob Dixon, who is
our senior advisor in our Office of Energy Efficiency and
Renewable Energy, if he could address the chair.
The Chairman. Sure. Have a chair there.
Mr. Dixon. Good morning, Mr. Chairman. Robert Dixon, Office
of Energy Efficiency and Renewable Energy for the record. Thank
you for your question. Since returning from the World Summit on
Sustainable Development in Johannesburg, there have been a
series of planning meetings, among the participating agencies,
the Department of Energy, EPA, AID, State and others, to
develop an implementation plan, an action plan for the three
elements of the President's announcement.
The plans are in draft form. We are consulting among the
technical agencies with the State Department, we are also
working with our private sector and non-government organization
partners to vet these plans, and we expect the plans will
continue to be refined and polished.
The Chairman. If you would tell me the three elements of
this initiative again.
Mr. Dixon. Yes. There are three pieces. The first piece
deals with the development of renewable energy resources. That
effort is led by the Agency for International Development. The
second piece----
The Chairman. And this is to assist underdeveloped
countries in developing renewable energy resources, is that an
accurate description?
Mr. Dixon. Yes, Mr. Chairman.
The second piece is a piece that deals with energy
efficiency improvement in developing countries around the
world, and that piece of work is led by the Department of
Energy, and then the third piece again deals with
transportation systems and communities and that work is led by
the Environmental Protection Agency.
The Chairman. I would gather that anything we might do in
the way of assisting some of the countries that have this
practice of gas flaring going on, that would be under the
second of these, increasing the efficiency of energy use, is
that right? If it is covered under this initiative, it would be
covered under that section?
Mr. Dixon. Yes.
The Chairman. Is it going to be covered as a part of this
initiative, or is it not?
Mr. Dixon. The intent is to coordinate all the pieces in
our international portfolio, and I need to turn to Mr. Person
or Mr. Gale behind me to go into any further detail.
The Chairman. Okay, anyone who has got detail, I would just
be interested in knowing if we are actually going to do
anything on this subject. I cannot determine that we have as
yet, and I wondered if there is any plan for us to do anything
on this subject.
Mr. Smith. Mr. Chairman, this is Mr. George Person, who is
from our Policy and International shop. He is the Director of
American and African Affairs in our Policy and International
Office.
Mr. Person. Good morning, Mr. Chairman. As Mr. Dixon noted
earlier, we are in the process of developing followup
activities from the summit, and talking with some of the
colleagues that were there. It was emphasized that natural gas
flaring reduction clearly would be one of the energy efficiency
elements that we would seek to coordinate, and so I will be
coordinating more closely with some of those colleagues next
week to see how we can weave in elements of our natural gas
development strategy, including whatever role we play in the
World Bank initiative, and to the broader WSSD followup
activity.
The Chairman. I know I did get this letter from Secretary
Abraham when I inquired about why we were not participating in
the World Bank effort, and I gather from Mr. Smith's testimony
this morning that we are still looking at that. Where will the
decision be made in the administration on the extent of our
involvement in that World Bank effort? Is it the Department of
Energy? Is it the Department of State? Is it the White House?
Where is that decision made?
Mr. Smith. Mr. Chairman, it is my understanding it will be
a joint decision, that we are monitoring those activities that
are now--in fact, there is a meeting today, I understand, and
we are closely looking at that and developing our policy, and
we will coordinate with those other agencies, but it is an area
of interest, of course.
The Chairman. But it will be a joint decision made by this
interagency task force that is working on this initiative, is
that what I am to understand?
Mr. Smith. I do not know, Mr. Chairman, specifically, but I
would be happy to determine that and report promptly back to
the committee.
The Chairman. If you could let us know as to exactly how
this decision is going to be made, and who will make it, that
would be very useful. I am encouraged that there is more
coordination, but obviously, if there is nobody actually
feeling it is their responsibility to do anything, you can
coordinate a long time.
Mr. Smith. Certainly I will be happy, Mr. Chairman, to
fully report to the committee on that.
[The information referred to follows:]
Regarding the World Bank's Gas Flaring Initiative, Chairman
Bingaman requests that Mr. Smith report back to him on how and
by whom a decision will be made on whether or not the U.S. will
participate in the World Bank's Gas Flaring Initiative.
The Department of Energy (DOE) is the lead agency and is in
discussions with other U.S. Government entities, including
White House offices and the Department of State, regarding the
nature and scope of U.S. participation. We will keep you
apprised of our progress.
The Chairman. Thank you.
The Energy Information Administration database on domestic
gas-flaring is based on voluntary submissions from the various
States and from the Department of the Interior. I understand
there have been some problems in collecting data. There have
been major and fairly frequent revisions of that data once it
is collected. Have you looked at this? Do you know, are there
actions we need to take in order to improve the quality of this
data? How do we ensure that we are collecting decent data for
ourselves, and then secondly, I guess, how could we assist with
the collection of better data internationally?
Mr. Smith. Mr. Chairman, that, of course, has been a
problem to get accurate numbers, and there are several sources
for numbers, and the Energy Information Administration does
track that worldwide. I do have Mr. Bill Trapmann from EIA, who
I think can answer the chairman's question a little bit more
specifically.
The Chairman. Very good.
Mr. Trapmann. At EIA we have been in the short term
recently working with the States on data quality issues that we
have become aware of. We have tried to coordinate with them on
improvements in their data collection and reporting.
Longer term, we are looking at the possibility of
collecting production data directly from major producers in an
attempt to get this information more directly from the source.
We hope that that would improve the timeliness and quality of
this information.
The Chairman. It would seem that that would make a lot of
sense. As you see it, is there legislation required in order
for you to change that mode of collection, or is it just a
decision you need to make and advice producers that you want
that information? How does that work?
Mr. Trapmann. I do not believe there is legislation
required for that collection authority. It is a decision we
would have to make based on the expected benefits versus the
cost of the program.
The Chairman. Do you have any time frame for making that
decision?
Mr. Trapmann. I am not aware of a set time frame. We are
expecting to have our review of the possible or potential
project by sometime next summer.
The Chairman. So next summer, you would have again--tell
me, what would you have by next summer?
Mr. Trapmann. We would have looked at the possibility of
conducting a new survey with direct collection of these data
items from the companies themselves.
The Chairman. Would you be ready next summer to decide
whether to begin obtaining information directly from the
producers?
Mr. Trapmann. I think we would have to get back to you on
that. I am not aware of how the decision process would be
structured for this.
The Chairman. Do you know, can you advise, are any of the
folks who are here from the Department of Energy advised about
what is the current state of collection of data
internationally, or do we have any knowledge of that, or have
we paid any attention to that?
Mr. Trapmann. We do pay attention to the international
sphere. The EIA does not have collection authority for
international data. We rely on secondary sources, the World
Bank, for example, as a provider of these data items.
The Chairman. So if they do not have the information, you
would not have access to it, either?
Mr. Trapmann. I do not believe so.
The Chairman. All right. Well, I do think if you could
perhaps get back to us as to how some of these decisions are
being made in the Department, how they are expected to be made,
not just the Department but in the Government generally, I
think that would be useful.
Frankly, I have had difficulty understanding why--as the
world leader in technology development and oil and gas
production generally, it seems unusual to me that we are not
providing some level of leadership in this World Bank effort,
unless we disagree with it, and I have not found anyone in the
administration who has told me a reason why we would disagree
with what they are doing. It would seem to be a fairly logical
and straightforward way in which we could assist much of the
underdeveloped world and ourselves at the same time.
[The information follows:]
The following is the Energy Information Administration's
(EIA) response to Chairman Bingaman's request for information
regarding EIA's decision-making process for a new survey on gas
flaring data:
The project described by Mr. Trapmann is a multi-year
project to improve basic natural gas production data. The
exploration of data collection options and related work is
scheduled to end in June 2003. According to this plan, the
assessment and testing of selected data collection options
would occur during the remainder of calendar year 2003. A
decision to proceed with any option, to be made by the EIA
Administrator, will depend on its relative merits and available
resources. Public input will be a key aspect of any decision to
change EIA data collection operations. Prior to any new data
collection survey, EIA would invite public comment on the
proposal through a Federal Register notice. The decision is
expected to be made in December 2003 and would be followed in
2004 by a request for Office of Management and Budget (OMB)
approval of data collection authority and reporting burden.
System design and implementation would be conducted in the
latter half of 2004. Data collection would start early in 2005.
Only the initial feasibility study is funded at present.
Subsequent project work requires multi-year funds.
The primary intent of the current phase of this EIA project
was the examination of options for the collection of improved
production data. However, the recent indication of greater
interest in venting and flaring data can be accommodated by a
shift in the work plan. The expanded scope and possible
acceleration of project schedule would increase the associated
costs.
Well, I appreciate very much the testimony, and we will
probably have other follow-up questions in the future.
Mr. Smith. Thank you again, Mr. Chairman.
The Chairman. Thank you very much. Why don't we go to our
second panel, Mr. Daniel Schochet, who is with ORMAT
International, Sylvia Baca, who is vice president of health,
safety, and environment with British Petroleum, and Jeffrey
Logan, who is the senior research scientist with Pacific
Northwest National Laboratory. Thank you all very much for
being here. I appreciate it very much.
If you will each take 6 or 8 minutes, however much time you
need to make the main points in your testimony, the main points
you believe we should focus on, and we will include your entire
statement in the record.
Mr. Schochet, if you would start.
STATEMENT OF DANIEL N. SCHOCHET, VICE PRESIDENT, ORMAT
TECHNOLOGIES, INC., SPARKS, NV
Mr. Schochet. Yes, thanks, Mr. Chairman.
The Chairman. I hope that is the right pronunciation.
Mr. Schochet. That is absolutely correct. I appreciate
that, Mr. Chairman. I want to thank you for this opportunity to
testify. I am vice president of ORMAT Technologies of Sparks,
Nevada. My testimony is based on ORMAT's experience in the
development of geothermal projects in the United States and in
16 countries worldwide. We have been successful in
international competition in the transfer of geothermal
technology. However, we are currently facing barriers which
increasingly hamper if not preclude future investment in
international projects.
What we find is that lenders are reluctant to make long-
term loans for renewable energy projects in areas such as
Eastern Africa, where there are high country risks, and this
despite the fact that Kenya and Uganda, with their combined
population of 50 million, could be 100-percent geothermal
powered.
Just by way of introduction, ORMAT employs 600 technical
staff worldwide. We are a technology based company, with annual
sales somewhat over $100 million primarily from geothermal
projects, including 700 megawatts in 17 countries, of which 200
megawatts are in the United States, and these plants range from
200 kilowatt village power units to 130 megawatt central
station power units. We also have a number of projects which
use our technology to generate electricity from recovered
industrial waste heaps.
I would like to address the issues identified by the
committee in the following manner. First, U.S. agency programs
have been effective in supporting international private
investments, but we find that such support has weakened in past
years.
An example of the support, in 1985, with a U.S. Department
of Energy $50 million loan guarantee, ORMAT developed in
California the first large scale commercial binary power
project. This project was successful, and it repaid its
guaranteed loan with a private refinancing 1 year after plant
startup. Though we were awarded projects in developed countries
based on competitiveness, and by developed countries I am
speaking of New Zealand and the Azores and others, in
developing countries the competition from foreign countries
supported by their aid agencies was often impossible to
overcome.
Our breakthrough came in the Philippines in 1991, where we
won two small geothermal projects using a mixed credit loan
from Ex-Im Bank and USAID. Subsequently, two larger projects
totalling $250 million in value were awarded to us, and this
was by 1995, both with the support of the Ex-Im Bank, and these
loans have since been 50 percent repaid, so this was a
successful example of U.S. agency activities.
Second, U.S. energy firms are competitive in the world
market, but we do need some additional support in overcoming
barriers to effective technology transfer and private
investment. As I said, though, we have won international
projects on the basis of performance and costs. We are meeting
increasing barriers to financing, and these include country
risk, the creditworthiness of the power purchaser, financing
barriers, including difficult access to multilateral agency
funds, and institutional barriers.
As examples, in Guatemala, with the IFC leading a group of
institutions, a complicated review process delayed the
financing of a 27 megawatt geothermal project for 3 years and
resulted in unnecessarily increased cost. In this case, we were
only able to execute the project by taking the construction
risk ourselves.
We are currently developing the Olkaria III geothermal
project in Kenya, where a $50 million investment by ORMAT in
drilling and construction has removed all the technical risks.
However, the private lenders and investors, as well as the
multilateral agencies, are reluctant to provide long term
financing due to the risks inherent to Eastern Africa.
Mr. Chairman, in considering my suggestions for
improvement, I want to note, and I agree, that the
implementation of viable renewable energy projects in
developing countries could create a pattern for their
sustainable economic development. In that case, public-private
partnerships will provide the only solution for financing such
projects. We feel a USAID and U.S. Ex-Im should again team up
to support the competitiveness of U.S. firms by providing
specifically credit support and enhancements, front end
contingent grants and loans, and long term debt and equity.
This would mitigate country risks and attract private
investments, and I want to say that we are believers in
contingent grants, rather than pure grants. This would mean
that if a project is successful, the project revenues would
repay the grant in full.
In addition, since a healthy domestic renewable energy
industry is essential for export market, Congress should
support the use of renewable energy by the passage of the H.R.
4 energy bill, including the renewable portfolio standard, and
the extension of the production tax credit for all renewable
technologies, including, we hope, the recovered industrial
waste heat.
It is important to add, Mr. Chairman, that industry is also
working on the challenges this hearing is exploring. Next April
in Kenya we will participate in a conference hosted by the
Business Council for Sustainable Energy. This conference will
have its objective to determine how to overcome the barriers to
geothermal development in East Africa.
I understand, Mr. Chairman, you were recently in Kenya and
undoubtedly heard a great deal about the geothermal potential
in that country. Well, ORMAT's Olkaria III geothermal project,
as the first private power project in Kenya, has opened a new
development chapter. This can be the success story which
unlocks the vast geothermal potential in Eastern Africa. We
think Olkaria III is the ideal case for another interagency
teaming success story, hopefully with the support and guidance
of this committee.
Thank you, and I would be happy to answer any questions.
[The prepared statement of Mr. Schochet follows:]
Prepared Statement of Daniel N. Schochet, Vice President, ORMAT
Technologies, Inc., Sparks, NV
Mr. Chairman, distinguished members of the committee, ladies and
gentlemen, thank you for the opportunity to appear before you. My name
is Dan Schochet, I am Vice President of ORMAT Technologies, Inc. of
Sparks Nevada. ORMAT Technologies was initially based in Hopkinton,
Massachusetts from 1972 to 1984 when we moved our U.S. headquarters to
Sparks, Nevada, where our geothermal activities have since been
centered.
My testimony today is based on the direct experience of ORMAT in
the development, investment and operation of renewable geothermal
energy projects in the USA and 16 other countries. In particular we
have invested our corporate funds in the ownership of geothermal power
projects in the Philippines, Guatemala, Nicaragua, and Kenya as well as
in the USA.
We have been successful in international geothermal competition and
have participated in the transfer of geothermal technology. We also
enjoy excellent relationships with our international colleagues.
However we are currently facing barriers, which increasingly hamper, if
not preclude, future investment in such international renewable energy
projects.
Renewable energy projects are capital intensive since the initial
cost includes the lifetime supply of fuel energy. They are typically
less than 100 MW and considered as small. This creates a natural
reluctance on the part of lenders to make long-term loans for such
projects. This is particularly true in Eastern Africa, where the
potential for geothermal development is enormous. For example both
Kenya and Uganda, with a combined population of 50 Million, could be
100% geothermal powered. With this tremendous geothermal potential,
power sectors, which are beginning to undergo reform, should capitalize
on this underutilized resource.
Kenya already has a geothermal success with the operation of the
multilateral funded Olkaria I geothermal project. ORMAT's Olkaria III
geothermal project, as the first private power project in Kenya, has
opened a new development chapter. However to turn this project into a
U.S. success story in Kenya, which can unlock the vast geothermal
potential in Eastern Africa, we need to first make Olkaria III into a
U.S. interagency teaming success story.
ormat profile
By way of introduction, The ORMAT Group of Companies, founded in
1965, employs some 600 engineers, technical specialists, and staff
world wide, with annual sales of over US$ 100 million, primarily
related to renewable energy. As a value-added and technology-based
company we develop and manufacture renewable and sustainable power
generation systems and projects, fuelled from locally available energy
sources. These include:
Over 700 MW of geothermal power plants in 17 countries,
including 200 MW in the USA. These plants range in size from
200 kW village power units in Thailand and Austria to a 130 MW
central station power plant in the Philippines. Some 150 MW of
these geothermal power plants are currently owned and/or
operated by ORMAT in the USA , Kenya, Guatemala, Nicaragua and
the Philippines,
ORMAT also built successful demonstration projects
generating electricity from otherwise unused industrial waste
heat in a cement plant, on a pipeline compressor station and on
a refuse derived fuel installation.
issues
To address the issues identified by this Committee, I would like to
note the following:
1. Effectiveness of U.S. Agency Programs in Supporting International
Private Investment
Our company has enjoyed the benefits of U.S. agency programs and
leveraged the assistance from various agencies to support both domestic
and overseas projects, with significant U.S. industrial value added and
technology transfer components. Some examples are:
In 1985 we acquired the East Mesa, California geothermal
project, which was eligible for a U.S. DOE $50M loan guarantee.
With the guaranteed loan we developed the first commercial
scale binary geothermal power plant. This successful project
repaid the guaranteed loan, with a private re-financing one
year after plant startup; and jump-started private sector
investment in the U.S. geothermal industry.
Internationally, in developed countries such as New Zealand,
Iceland and Portugal, ORMAT was awarded projects based on our
experience and competitiveness. But in developing countries,
the competition of Japanese, French and Italian companies
supported by their Aid Agencies was impossible to overcome. Our
breakthrough came in the Philippines where, with U.S.
government advocacy, ORMAT won two 16 MW projects on a Build-
Transfer-Operate (BTO) basis in 1991, using mixed credit loans
from Ex-Im Bank and USAID. This successfully introduced ORMAT's
clean sustainable technology into the Philippines.
We subsequently won a project in the Philippines, for a 130
MW plant, in which we incorporated 85% U.S. content and used
specially modified GE steam turbines. CalEnergy Company made
the equity investment as the project owner and ORMAT executed
the Engineering Procurement and Construction (or EPC) turnkey
construction contract. 50% of the Ex-Im loan to CalEnergy has
now been repaid. ORMAT was subsequently awarded a U.S.
Department of Commerce E award: the only U.S. geothermal
company so honored.
We also received a 50 MW, competitive award in the
Philippines, for optimizing existing geothermal plants without
drilling new wells. This project, in which ORMAT invested $15M
of corporate funds as an equity owner, was constructed with a
term loan of $45M from the U.S. Ex-Im Bank, fast tracked from
application to closing in 6 months as their first project
financing for Small Business. Approximately 43% of this loan
has been repaid to date.
2. Consistency of U.S. Policies Addressing Technology Transfer and
Private Investment
ORMAT's overseas projects operate with locally hired and trained
engineers and technicians. There are no expatriates employed at any of
our facilities, and our factory engineers provide support, often by
real time linked computers, along with periodic visits to provide
refresher-training courses.
During the 1995-2002 period we constructed a number of power
plants for our account as well as for other owners overseas,
where we were able to take advantage of our U.S. geothermal
technology transfer by utilizing our engineers from ORMAT's
Philippine operations staff to assist in the construction and
training in several other countries.
Despite ORMAT's ongoing investment in international
geothermal projects, with their concomitant technology
transfer, the support from U.S. agencies has waned in past
years. Though small grants for studies and conferences have
been forthcoming, these have not as yet addressed the real
problems of supporting private investment in technically sound
renewable projects, and overcoming market and institutional
barriers in developing countries.
3. Relative Competitive Position of U.S. Energy Firms in the World
Market
From a competitive standpoint ORMAT has been able to win projects
internationally on the basis of its track record, its technical
superiority and the cost effectiveness of its equipment and services.
However there have been increasing competitive barriers, particularly
in the areas of project financing, where we are often faced with strong
Japanese and European competitors.
Our development in Guatemala was executed, with the IFC
leading a group of institutions financing the 25MW Zunil
project. However, here we encountered a complicated structure
and review process, which a small project cannot support, and
which delayed the financing for 3 years and resulted in
unnecessarily, increased costs. Completion of this project was
only possible because ORMAT took the risk of the construction
financing.
We are currently developing the Olkaria III geothermal
project in Kenya, where a $50M investment by ORMAT in the
drilling of wells and in construction of the first phase power
plant, has removed all technical project risk. We are in the
process of pursuing the long-term loan for the project, however
the private sector lenders and investors, as well as the
multilateral agencies, who are normally involved in such energy
projects, have displayed a reluctance to provide financing due
to the Eastern African country risks.
4. Barriers to Effective Technology Transfer and Investment
Financing of renewable energy projects in international markets and
the entry into these markets in general are hampered by various
barriers, consisting primarily of:
Country Risk Barriers: Most Renewable Energy projects in
developing countries face country risks that private sector
investors and lenders will not accept. Currently with even U.S.
Investor Owned Utilities undergoing credit downgrading, the
utilities in areas like Eastern Africa are simply not
considered as commercially creditworthy.
Market Barriers: Renewable Energy projects are relatively
small and the cost of the review process may be prohibitive.
Institutional Barriers: The playing field is not level for
Renewable Energy projects, which often require specific
regulatory framework, when compared with larger conventional
energy projects, which are more attractive to the host country
and the agency involved.
Financial Barriers: These include barriers resulting from
--Competition from Japanese, French and Italian
companies in projects supported by their export
agencies, and
--Difficult and lengthy access to multilateral
financial institution funds.
5. Suggestions for Improvements
Mr. Chairman and members of the Committee, I would like to make
several suggestions for improving this situation. Since energy is vital
to poverty alleviation and economic growth in developing countries;
enabling implementation of viable renewable energy projects would
create a pattern of sustainable and environmentally sound development.
Due to the country risks and barriers, we believe that Public-Private
Partnerships provide the most effective and often the only solution for
financing such projects, as follows:
U.S. agencies, such as U.S. AID and U.S. Ex-Im, should again
team up to support the competitiveness of U.S. energy firms by
providing either credit support or other enhancements to
attract both investment and long-term project loans. Such a
joint approach can overcome barriers to meet the financing
needs of projects in Developing Countries, where U.S. interests
are of concern, and creditworthiness support is required.
Examples of governmental inter-agency cooperation includes
the support which helped U.S. exporters penetrate the
Philippine geothermal market, where ORMAT obtained two project
finance loans from Ex-Im Bank for over $200MM, and successfully
competed against credits from other countries. Here U.S.
Government funding was 1/3 grant and 2/3 loan.
Front-end contingent grants or soft loans, to defray a
portion of initial capital expenditures can be leveraged to
share and mitigate country and market risks;
Long-term senior and/or subordinated debt, and equity
participation by U.S. agencies can provide a platform for
private sector investment and technology transfer, and
Finally, we realize that a healthy domestic renewable energy
industry is essential to support a successful export market. We
therefore respectfully request that the support of the U.S.
Senate and Congress for the use if renewable energy in the USA
and abroad be demonstrated by the passage of the Energy Bill.
This should include the Renewable Portfolio Standard (for
Geothermal, Wind, Solar, Biomass and Recovered Waste Heat) as
well as the extension of the Production Tax Credit to all
renewable energy technologies. This will accelerate the market
introduction of new technology and give U.S. firms a jump start
in export markets.
east africa--where the philippines was 12 years ago
I want to close my testimony by noting that at the World Summit on
Sustainable Development the U.S. and other nations committed themselves
to supporting the New Partnership for Africa's Development (NEPAD). The
partnership's goal is to secure energy access for at least 35 per cent
of the African population within 20 years.
Our Case In Point here, is the potential for geothermal development
in Eastern Africa, a U.S. interest area, with enormous resources in
every country along the Rift Valley. For example both Kenya and Uganda,
with a combined population of 50 Million, could be 100% geothermal
powered.
With this enormous geothermal potential, and with power
sectors beginning to undergo reform, East Africa may be able
capitalize on this as yet underutilized resource;
Recognition of this large potential within the area, and of
the need for Public Private Partnerships is evidenced by the
support given to the East African Geothermal Energy Development
Initiative announced at the World Summit for Sustainable
Development in Johannesburg by the U.S. Business Council for
Sustainable Energy (one of the lead partners along with UNEP).
Supporting U.S. agencies for this initiative included USAID,
USTDA, U.S. Geological Survey, and others.
Kenya is already a genuine geothermal success story with
technology transfer in the Olkaria I geothermal project from
many countries, including Iceland and New Zealand.
Olkaria III, in Kenya, as the first private power project in
Kenya has opened a new development chapter; and this geothermal
success story in Kenya can unlock the vast geothermal potential
in East Africa. Olkaria III is the ideal case for another
interagency teaming success story.
The Chairman. Thank you very much. Before I ask any
questions, let us hear from the other two witnesses. Sylvia
Baca, we are very glad to have you here, representing BP.
STATEMENT OF SYLVIA BACA, VICE PRESIDENT, HEALTH, SAFETY AND
ENVIRONMENT, BP AMERICA, INC.
Ms. Baca. Thank you, Mr. Chairman. It is good to be back.
It has been 3 years today that I was before this committee for
my confirmation hearing, so it seems fit that I am back once
again.
The Chairman. Well, we miss you in that old job.
Ms. Baca. Thank you, Mr. Chairman.
Again, thank you for the opportunity to participate in
today's discussion. As you know, BP is a major energy company
with 110,000 employees, operating in about 100 countries around
the world. We are involved in the exploration, production, and
transportation of crude oil and natural gas, also in refining,
marketing of fuels, manufacturing of petrochemicals, as well as
in the production of solar and gas-fired power generation.
BP is the largest oil and gas producer in the United
States, and nearly half of our assets and our people are here
in this country, Mr. Chairman. At BP, Mr. Chairman, we believe
that energy and environmental policy can go hand in hand. We
are committed to achieving an appropriate balance between the
two, and to finding new ways to deliver clean products while
minimizing our impact on the environment.
Mr. Chairman, through this hearing today, the committee is
evaluating barriers to effective technology transfer and
investment in clean energy, as well as looking at the
importance of public-private partnerships to reducing gas
flaring and venting.
Mr. Chairman, you are to be commended for your interest and
attention to this important international issue, and it is
going to require the participation of all stakeholders, and
that is government, industry, nongovernmental agencies, in
order for any sort of real material results to be achieved.
The World Bank gas-flaring study we believe was a first
important step in highlighting the issues that are associated
with flaring and venting. This study aims to support the
petroleum industry and national governments in efforts to
reduce flaring and venting of gas associated with the
extraction of crude oil. We participated in this study. We
support many of the findings of the study, and we have recently
reiterated our support for the initiative at the World Summit
for Sustainable Development in Johannesburg earlier this month.
We did have a contingent from BP who participated in
Johannesburg.
I would first like to say that BP's flaring and venting
reduction activities are aligned with our overall health,
safety, and environment corporate policies, and that is to
minimize and do no harm to the environment. Our policy is to
eliminate continuous hydrocarbon gas disposal by flaring and
venting. Our business units have aggressive improvement plans
in place to achieve this policy, and until elimination is
totally achieved we are using the best available technology to
deliver reduction results.
It is increasingly recognized that international flaring
and venting not only are wasting valuable natural resources,
but they also contribute significant greenhouse gas emissions
to the atmosphere. The ratio of gas vented to gas flared is
very crucial, because the impact of methane on the environment
is about 21 times greater than that of CO2, so the
significance of these reductions is very clear.
Despite commitments by governments and companies, global
flaring levels have remained virtually constant since 1983, and
as we know, much of the incremental growth in global oil
production will come from countries and regions that currently
have large flaring problems. Therefore, companies and countries
will face a major challenge in finding outlets for this gas
that would otherwise be flared.
From BP's perspective, Mr. Chairman, the single most
important step that can be taken to address gas flaring on an
international scale is the further development of international
and domestic natural gas markets. If these markets develop,
incentives will be in place to encourage local governments to
monetize their natural gas resources, rather than them being
left to be vented.
Further development of international markets will also
create a positive social and economic benefit, including the
reduction and lowering of greenhouse gas emissions, as well as
improving poverty and also providing a means of cost-effective,
reliable, clean fuels for these economies that otherwise would
not have access to them.
Mr. Chairman, one of the potential solutions to global gas
flaring exists in the form of North American natural gas, where
the demand is expected to grow substantially in the coming
decade to about 30 TCF per year. It is generally agreed that
traditional suppliers of North American supply will be
insufficient, and therefore other sources will have to be
tapped in order to meet the growing demand.
Supply sources include Canadian as well as Alaskan natural
gas, and LNG from Trinidad and West Africa. We believe that
these LNG supply sources can compete in the U.S. market, and
will play a role in meeting that demand. However, post
September safety and security issues have complicated the
debate around LNG, and have forced governments and others to
reexamine policies related to the siting and the expansion of
LNG facilities.
Natural gas reinjection is another means of reducing
flaring. Gas reinjection is used in many areas throughout the
world to increase pressure in oil reservoirs and thereby
enhance oil recovery. Much of this is being done on the North
Slope in Alaska. Other options include reinjecting gas into
reservoirs for later use when markets can be further developed.
All of these options will be enhanced through government
policies that encourage participation. These can be achieved
through sound fiscal and regulatory frameworks that provide
incentives for investment. Simply stated, Mr. Chairman, BP
views gas flaring and the associated hydrocarbon losses as not
only an economic but an environmental issue. Such losses, we
believe, are a distinct area, through the performance
management and good business practices, significant operational
and environmental improvement can be achieved.
I would like to share with you just a couple of examples
where we are reducing our flaring and venting. In Egypt, Mr.
Chairman in recent years gas was just an unwanted byproduct and
even considered a nuisance at our operations. In fact, most of
it had been just directly vented into the atmosphere.
Since those days, much has been done to capture the gas and
to reduce our emissions. Many of the fields have had pressure
support through gas reinjection and a system of pipelines has
been put in place, and we have now been able to provide energy
to the local economy. Gas that would have otherwise been flared
and wasted has now been captured and is being used in the Egypt
fuel economy, is being used to support natural gas vehicles, as
well as fuel butane for the local economy. This has proven to
be not only good for the Egyptian economy and the environment,
but has also been a good business option for us as well.
In the United States, Mr. Chairman, in an area you are
familiar with, the Western United States, specifically the San
Juan Basin, we have replaced approximately 2,500 valves that
separate our fluids from gas at the wellhead and, as a result,
we are now capturing about 2.9 million cubic feet of gas per
day that would otherwise have been emitted into the air. That
gas we are selling on the open market.
Best practices, Mr. Chairman, 4 years ago BP set up an
internal network to facilitate the exchange of ideas and
technology for the improvement of our environmental
performance. This network of employees facilitates the best
practice sharing and problem-solving through an interactive
means. This is how we transport our technology across our 110
business units across the world.
Also, as you know, Mr. Chairman, we are engaged in the
development and marketing of renewable energy as well. We are
one of the largest solar provider companies in the world, and
we have an aggressive program in place to aggressively grow our
solar market here in the United States as well and worldwide.
Also, we have recently engaged in a contract with Chevron-
Texaco in Norway to conduct a wind project, and so we are
taking steps forward in wind energy as well.
So Mr. Chairman, with that, I would be happy to answer any
questions you might have.
[The prepared statement of Ms. Baca follows:]
Prepared Statement of Sylvia Baca, Vice President, Health, Safety and
Environment, BP America, Inc.
Mr. Chairman and Members of the Committee, I am Sylvia Baca, Vice
President of Health, Safety and Environment for BP America, Inc. Thank
you for the opportunity to participate in this discussion today about
technology transfer and natural gas flaring.
BP is a major energy company with 110,000 employees operating in
over a 100 countries around the world. We are involved in the
exploration, production and transportation of crude oil and natural
gas; refining and marketing of fuels; manufacturing and marketing of
petrochemicals, and solar and gas-fired power generation. BP is the
largest oil and gas producer in the US and has nearly half of its
assets, resources and people (45,000 employees) in this country.
At BP we believe energy and environmental policy go hand-in-hand.
We are committed to achieving an appropriate balance between the two
and to finding new ways of delivering clean products while minimizing
impacts to the environment.
While the science is still provisional, in recent years evidence of
global warming has accumulated, suggesting that human activities are
having an impact on the climate. BP believes that the debate is too
important to ignore and therefore, our company has made public
commitments to reduce our emissions globally. Since making those
commitments, tremendous advances have been made across our company to
translate them into real results. In many instances, our experience has
demonstrated that it is possible to improve both environmental and
business performance.
Through this hearing, the Committee is evaluating barriers to
effective technology transfer and investment in the energy industry as
well as the importance of public-private partnerships to reduce gas
flaring.
The Committee is to be commended for its attention to this
important international issue that will require participation of all
stakeholders--government, industry and non-governmental organizations--
to achieve material results.
The World Bank gas flaring study was an important first step in
highlighting the issues associated with gas flaring. The study aims to
support the petroleum industry and national governments in efforts to
reduce flaring and venting of gas associated with the extraction of
crude oil. We participated in the study, support many of the findings
and reiterated our support for the initiative at the World Symposium
for Sustainable Development in Johannesburg earlier this month.
I would first like to say that BP's flaring and venting reduction
activities are aligned with our overall health, safety and
environmental policy goals--to do no harm to the environment.
Our policy is to eliminate continuous hydrocarbon gas disposal by
flaring and venting. Our business units have improvement plans in place
to achieve this policy and until elimination is achieved, best
available technology will be used to deliver reductions.
It is increasingly recognized that international flaring and
venting not only waste valuable natural resources but also contribute
significant sources of GHG emissions. The ratio of gas vented to gas
flared is crucial because the impact of methane on the environment is
about 21 times greater than that of CO2 so, the significance
of these reductions is quite clear.
It is estimated that global flaring and venting totals almost 10
bcf/d. Of this, 50% occurs in Africa and countries of the Former Soviet
Union; with Nigeria being the single largest contributor at about 20%
of world total. (There are efforts underway in Nigeria to bring down
the level of flaring over the next several years however, the challenge
will be to do so while production is increasing.)
Despite commitments by governments and companies, global flaring
levels have remained virtually constant since 1983. As we know, much of
the incremental growth in global oil production will come from
countries and regions that currently have large flaring problems.
Therefore, companies and countries face a major challenge in finding
outlets for this gas that would otherwise be flared. According to the
World Bank Global Gas Flaring Reduction report, global oil production
capacity is forecast to increase by 60 percent from 2000 to 2020, and a
similar trend can be expected for associated gas production. If
existing regional ratios of gas flared to oil produced are maintained,
forecasts for incremental oil production imply increased levels of
flaring will also increase by similar amounts during the same period.
However, substantial reductions in flaring during the next 20 years
may be possible if current national and corporate policies and
strategies designed to reduce flaring continue. These reductions can be
achieved by greater gas utilization in international and domestic
markets, site use and re-injection. The key challenge is developing
markets for this resource.
From BP's perspective, the single most important step that can be
taken to address gas flaring on an international scale is the further
development of international and domestic natural gas markets. If these
markets develop, incentives will be in place to encourage local
governments to monetize their natural gas resources, rather than
allowing them to be vented. Further development of international gas
markets will create positive social and economic benefits including
lower GHG emission, poverty reduction and cost-effective, reliable,
clean fuels through greater energy supply diversity.
One potential solution to global gas flaring exists in the form of
the North American natural gas market where demand is expected to grow
substantially in the coming decade (to @30 TCF/YR). It is generally
agreed that traditional supply sources in North America will be
insufficient and therefore, other supply sources will have to be tapped
in order to meet growing demand. Supply sources include Canadian and
Alaskan natural gas and LNG from Trinidad and West Africa. We believe
that these LNG supply sources can compete in the US market and will
play a role in meeting demand. However, post-September 11 safety and
security issues have complicated the LNG debate and have forced
governments to re-examine policies related to sighting and expansion of
LNG facilities.
Natural gas re-injection is another means of reducing flaring. Gas
re-injection is used in many areas throughout the world to increase
pressure in oil reservoirs and thereby enhance oil production. Other
options include re-injecting gas into reservoirs for later use when
markets are further developed.
All of these options will be enhanced through government policies
that encourage participation. This can be achieved through sound fiscal
and regulatory frameworks that provide incentives for investment.
By focusing on gas flaring and greenhouse gas emission reductions
at BP, we have added hundreds of millions of dollars of value to the
company. Much of this has been delivered through improvements in energy
management and energy efficiency. For example, we can now track
reductions to specific projects where technologies have been
implemented to reduce emissions. And, as an added benefit, we are able
to share these practices across the company.
Simply stated, BP views gas flaring and the associated hydrocarbon
losses as an economic and environmental issue. Such losses are a
distinct area where, through performance management and good business
practice, significant operational, economic and environmental
improvements can be achieved.
Now I would like to share a few of our gas venting/flaring and GHG
reduction success stories.
Egypt--In the early years, gas was an unwanted by-product, even a
nuisance. In fact most of it was vented directly to atmosphere. Since
those days much has been done to capture the gas and reduce emissions.
Many of the fields have had pressure support through gas re-injection,
and a pipeline network now supplies an onshore gas plant. Gas that
would have otherwise been wasted is now captured and used as fuel in
Egypt; to power vehicles and butane is available for heating and
cooking. This has proven to be not only good for the Egyptian economy
and the environment but also extremely good business.
San Juan Basin--Sometimes the solutions are quite simple. For
example, in our lower-48 gas business unit, we replaced approximately
2500 valves that separated fluids from gas at the wellhead. As a
result, we are now capturing approximately 2.9 million cubic feet of
gas per day instead of emitting it into the atmosphere.
Texas--We have taken a holistic approach to energy management at
our Texas City refinery. We have implemented a range of process changes
to drive down energy cost--this has enabled us to reduce greenhouse gas
emissions by 300,000 equivalent CO2 tones.
West Trinidad--A new flaring strategy, combined with improved
operational control have delivered an approximately 18% reduction in
the amount of gas flared. These reductions have helped to counteract
other flaring increases in the region and the ongoing program to
address emissions in Trinidad will provide the further reductions over
the next few years. By the end of 2004 we will have eliminated routine
gas disposal.
North Sea--We have had substantial voluntary reductions in the
North Sea which enabled BP to actively engage in the United Kingdom
Emissions Trading Scheme. This is an example of a market mechanism that
is providing an actual incentive for further reductions.
Technology Transfer in BP--Four years ago, BP set up an internal
network to facilitate the exchange of ideas in technology and to
improve environmental performance. This network of employees
facilitates best-practice sharing and problem solving through
interactive means. The network allows for instant access to corporate-
wide knowledge and allows for sharing of best practices across the
company.
As an energy company, BP is also engaged in the development and
marketing of renewable energy solutions; solar and wind, in particular.
With nearly 20% of the global market, BP is one of the world's leading
solar companies. In 2001, BP Solar produced over 57 Megawatts of solar
cells with $200 million in sales. Our intention is to increase annual
sales to 300MW by 2007 and to use solar to provide access to energy to
5 million people. We can imagine a future where the windows, walls and
roofs of buildings power entire homes and businesses. Recently, we
announced plans with Chevron-Texaco to build a 22.5 MW wind farm at our
jointly owned Nerefco refinery near Rotterdam. The aim is to generate
electricity equivalent to the consumption of 20,000 households, thereby
displacing some 20,000 tones of CO2 annually.
The fact is, there are barriers to widespread use of these
products. This is due largely to costs structures and design
limitations. However, we do envision a future where substantial markets
will emerge for these products. In our view, governments around the
world are engaged in a constructive fashion to encourage the use of
these products, largely through tax and regulatory policy.
Mr. Chairman and members of the committee, I want to thank you
again for the opportunity to be here today. I would again like to
commend you for your focus and leadership on this important global
issue. I would be happy to answer any questions.
The Chairman. Thank you very much for your testimony.
Why don't we go ahead with your testimony, Mr. Logan.
STATEMENT OF JEFFREY LOGAN, SENIOR RESEARCH SCIENTIST, ADVANCED
INTERNATIONAL STUDIES UNIT, PACIFIC NORTHWEST NATIONAL
LABORATORY
Mr. Logan. Thanks, Mr. Chairman. I appreciate the
opportunity to testify here today on U.S. technology transfer
programs.
Engaging, developing, and transitioning economies in energy
and environmental issues matters profoundly to the United
States. When the ``Iron Curtain'' fell, Congress supported
programs that successfully engaged the former Soviet Union,
using minimal resources but leveraging profound change.
Relatively secure programs helped secure weapons of mass
destruction and prompt energy and environmental policy reform,
and to organize investments that made major improvements in
people's lives. U.S. programs have helped change the
fundamental relationship between America and its former
enemies, and made America more secure.
America benefits from the transfer of efficient and clean
energy technology to developing and transitioning economies in
three ways. First, it creates jobs at home and improves our
trade balance, second, it reduces global environmental impacts
by cutting carbon dioxide, methane, and sulfur dioxide
emissions from energy conversions, and third, it generates
security benefits by helping less stable countries and regions
to develop their economies.
This contribution to international development gives people
a stake in peace and stability by helping them achieve their
own aspirations. We see this outcome in better relations with
Russia and China as a result of cooperation in trade.
Much of the world's energy future will be set in concrete
over the next few decades. The largest investments in energy
supply and conversion systems will occur in developing and
reforming countries, and these will soon lock in technologies
for decades to come. The long lead time required to move
technologies through the innovation pipeline means that efforts
to deploy technology in the second quarter of this century need
to be started today.
The Advanced International Studies Unit at Pacific
Northwest National Lab with support from the EPA, the
Department of Energy, the Agency for International Development,
the World Wildlife Fund, and several private foundations, has
built nongovernmental not-for-profit organizations in Russia,
the Ukraine, Bulgaria, Poland, and the Czech Republic. These
organizations have developed world class expertise, each with
staffs of 15 to 50 people. Each center is now self-sustaining
and fully independent.
Together with the centers, we have helped organize over $1
billion in energy efficiency investment projects in transition
economies over the past 5 years. Similar efforts in China have
contributed to greater transparency and market reform in that
large country. China offers a case study in the role of energy
sector cooperation, with special relevance for large countries
like India and Pakistan.
China has long suffered severe economic constraints and
environmental problems due to distorted markets, outdated
technologies, and inefficient management. Ongoing Sino-U.S.
collaboration on energy efficiency and fuel-switching helps to
catalyze additional measures to improve energy efficiency,
reduce pollution, and boost U.S. exports in energy
technologies.
Successful cooperation relies heavily on local experts in
partner countries. In some foreign assistance efforts, donor
personnel provide all the leadership and utilize most of the
resources, and when the aid money is exhausted, they return
home with little to show for their efforts in the target
country.
By contrast, American efforts to build energy efficiency
centers in transition economies have anchored long-term
substantive engagement between American experts and local
energy specialists. This approach acknowledges and invests in
existing human resources, engaging both public and private
sectors in each country.
Our partnerships with transition and developing countries
have relied on three technology transfer mechanisms, policy
reform, financing, and capacity building. Policy reform, which
means getting prices right and making prices matter, can
support development and cut pollution by reducing distortions
and subsidies that encourage energy waste. Programs to develop
financing multiply the effectiveness of Government funds by
helping to provide conditions necessary to attract investors.
Lack of credit, collateral, or funds to prepare business
plans are the biggest barriers to energy efficiency and fuel
switching in many economies. Some of the most practical work
U.S. agencies have done to address these problems have been in
capacity building. This approach is illustrated by our effort
to create centers of local expertise and to promote reform and
innovation for the deployment of energy efficiency and selected
supplyside technologies. Our experience in the former Soviet
Union, Eastern Europe, and China has proven the value of
capacity building and project finance as a means of
accelerating the transition to a democratic market economy.
The Central European nations of Poland, Hungary, and the
Czech Republic are prime examples of the value of this
development path, and U.S. programs in these three have
contributed measurably. These countries have eliminated much of
the energy waste that stem from the legacy of central planning
by implementing hard budget constraints, meaningful energy
prices, institutional reform, and economic restructuring.
Nations failing to implement those measures elsewhere have
robbed citizens of economic and social well-being, creating
conditions that increase the risk of proliferation of weapons
of mass destruction.
Building the foundations of energy sector innovation means
enhancing management and technical capacity, reforming the
energy sector, and organizing finance for innovative
investment. Mr. Chairman, U.S. self-interest would be served by
increasing international energy cooperation, particularly with
the transition and developing economies, where most energy
demand growth will occur this century.
U.S. economic, environmental, and national security
interests are tightly linked to global energy use. Energy
technology innovation improves our security, helps the United
States avoid inflation and recession, expands our market share
in multibillion, multihundred billion dollar per year global
energy technology markets, and mitigates atmospheric emissions
in the fastest growing energy demand markets.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Logan follows:]
Prepared Statement of Jeffrey Logan, Senior Research Scientist,
Advanced International Studies Unit, Pacific Northwest National Lab
Engagement in energy and environmental problems in developing and
transition countries matters profoundly to the United States. When the
Iron Curtain fell, Congress supported programs that successfully
engaged the Former Soviet Union using minimal resources but leveraging
profound change. Relatively small programs helped secure weapons of
mass destruction and prompt energy and environmental policy reform and
to organize investments that made major improvements in people's lives.
U.S. programs have helped change the fundamental relationship between
America and its former enemies, and made America more secure.
International engagement through support of policy reform and
technology transfer especially by leveraging private sector investment
brings security, environmental, and trade benefits to Americans. (See
Box 1.) Unfortunately, distractions and competing demands may cause us
to miss historic opportunities to correct problems in unstable and
underdeveloped regions.
_______________________________________________________________________
Box 1.--The U.S. Stake in Global Energy Markets
Economic
Development
Energy technology exports
Environmental Mitigation
Local air quality
Regional acid rain
Global warming
U.S. Leadership
Energy Science
Supply- and demand-side technology
International Security
More secure supplies of foreign oil
Nuclear non-proliferation
Political stability in developing countries
U.S. Values
Human rights
Civil society
Equity, self-determination, stewardship
U.S. President's Committee on Advisors on Science and Technology,
Powerful Partnership: The Federal Role in International Cooperation on
Energy Innovation (Washington, D.C.: The White House Office of Science
and technology Policy, June 1999). available at http://www.ostp.gov/
html/P2E.pdf.
_______________________________________________________________________
The transfer of efficient and clean technology from the United
States to developing and transition economies helps the United States
in three main ways. First, most directly, it creates jobs at home and
improves our trade balance. Second, it reduces global environmental
impacts by reducing carbon dioxide, methane, and sulfur dioxide
emissions from energy conversion. And third an often overlooked but
extremely important contribution it generates security benefits by
helping unstable countries and regions to develop their economies. This
contribution to international development gives people a stake in peace
and stability by helping them achieve their own aspirations. We see
this outcome in better relations with Russia and China as a result of
cooperation and trade.
Energy matters greatly for global environment, for regional
security in key parts of the world, and for the future of some of the
world's poorest people. U.S. assistance in South and Central Asia can
help create partnerships in these areas by developing financing for
energy productivity investment projects, especially in demand-side
efficiency and natural gas development and transportation.
Development is constrained in many areas because energy utilization
infrastructure is inadequate to provide for basic human needs, economic
development, and environmental protection. In India and Pakistan, per
capita energy use is only one-tenth that of the United States and
frequent power shortages interfere with production and constrain
delivery of basic services. We have an opportunity to help develop
cleaner, low-risk energy alternatives than these nations might adopt
otherwise. And it should not be forgotten that developing country
carbon emissions will likely surpass those from developed countries
within the first half of this century, highlighting the need for
developing country participation in an international effort to reduce
the risk of climate change.
what works
The greatest leverage for energy and environmental engagement comes
with supporting market-based policy reform and in developing financing
to implement emissions-reducing projects. Economic reform getting
prices right and making prices matter can support development and
reduce pollution in countries including India, China, Russia, and
Brazil by reducing distortions and subsidies that encourage energy
waste. Programs to develop financing multiply the effectiveness of
government funds by helping to provide conditions necessary to attract
investors. Lack of credit, collateral, or funds to prepare business
plans are the biggest barriers to energy efficiency and fuel switching
in many economies.
The experience of Central Europe proves that general economic
reform works to improve the energy and environmental balance. It is
well known that the formerly planned economies ranked as the most
energy wasteful in the world. Energy intensity (energy per unit of real
output) serves as an index of reform, as an indicator of successful and
unsuccessful policies. Our latest data show that not only has Central
Europe cut energy intensity by one third over the last decade, but that
Russia and Ukraine have finally begun to follow suit. Reducing energy
intensity has had major benefits for the economies and environment of
the formerly planned economies. (See Figure 1.)* The region has
achieved this success by implementing hard budget constraints,
meaningful energy prices, institutional reform, and economic
restructuring. Russia and Ukraine, for example, have recently more than
doubled their rates of collection of utility payments to over 90
percent.
---------------------------------------------------------------------------
* Figures 1-3 have been retained in committee files.
---------------------------------------------------------------------------
Some of the most practical work U.S. agencies have done to address
these problems has been in what we call ``capacity building.'' (See Box
2.) This approach is illustrated by our effort to create centers of
local expertise to promote reform and innovation for the deployment of
energy-efficiency and selected supply-side technologies. Our experience
in the Former Soviet Union, Eastern Europe, and China has proven the
value of capacity building and project finance as a means of
accelerating the transition to a democratic market economy. Countries
that have adopted energy sector reforms have more rapidly achieved
civil society combined with economic recovery, which in turn have
helped foster peace and security. The Central European Nations of
Poland, Hungary, and the Czech Republic are prime examples of the value
of this development path, and U.S. programs in these three have
contributed measurably. These countries have eliminated much of the
energy waste that stemmed from the legacy of central planning by
implementing hard budget constraints, meaningful energy prices,
institutional reform, and economic restructuring. Nations failing to
implement those measures elsewhere have robbed citizens of economic and
social well-being, creating conditions that increase the risk of
proliferation of weapons of mass destruction. Building the foundations
of energy-sector innovation means enhancing management and technical
capacity, reforming the energy-sector, and organizing finance for
innovative investment.
_______________________________________________________________________
Box 2.--Elements of Technology Transfer
Building human skills
Reforming Energy policy
Leveraging private investment
_______________________________________________________________________
Successful cooperation relies heavily on local experts in the
partner countries. In some foreign assistance efforts, donor personnel
provide all the leadership and utilize most of the money and, when the
aid money is exhausted, return home with little to show for their
efforts in the target country. By contrast, American efforts to build
energy efficiency centers in the former Soviet Union have anchored
long-term substantive engagement between American experts and local
energy specialists in the transition economies. This approach
acknowledges and invests in existing human resources, engaging both
public and private sectors in each country.
The Advanced International Studies Unit, with support from the
Environmental Protection Agency, the Department of Energy, the Agency
for International Development, the World Wildlife Fund, and private
foundations, has built non-governmental, not-for-profit organizations
in Russia, Ukraine, Bulgaria, Poland, and the Czech Republic. These
organizations have developed world-class expertise each with staffs of
15-50 people. Each center is now self-sustaining and fully independent.
Together with the centers, we have helped organize over $1 billion of
energy-efficiency investment projects in transition economies over the
past five years. (See one example in Figure 2.)
Similar efforts in China have contributed to greater transparency
and market reform in that large country. China offers a case study in
the strategic role of energy sector cooperation, with special relevance
for large countries like India and Pakistan. China has long suffered
severe economic constraints and environmental problems due to distorted
markets, outdated technologies, and inefficient management. The World
Bank estimates that approximately eight percent of the country's gross
domestic product is lost each year due to pollution that damages human
health, natural ecosystems, and physical infrastructure. Fortunately,
China has made progress with energy efficiency having reduced the
energy required to produce its GDP by one-third or more. China's post-
reform economy has grown faster than energy use for more than two
decades. Ongoing Sino-U.S. collaboration on energy efficiency helps to
catalyze additional measures to improve energy efficiency, reduce
pollution, and boost exports of U.S. technology.
Policy Development
Assistance objectives can be linked to assistance mechanisms
including policy assessment, investment project development, and
technology information provision. Examples of productive activities can
be drawn from the experience of the existing centers created with U.S.
support. For example, the Polish energy efficiency center, FEWE, helped
draft Poland's Energy Law that provides for utility investments in
energy efficiency. FEWE specialists served on the steering committee
that developed regulations for implementing this law. The center in the
Czech Republic, SEVEn, has bolstered local efforts to improve
efficiency by drafting energy strategies that have been implemented in
Prague, Plzen, Tabor, Bechyne, Mimon, Nymburk, and Cesky Krumlov. Each
plan was tailored to the needs of the specific locality and included
methods for cutting costs by implementing energy efficiency projects.
The Russian Center CENEf developed energy conservation laws that have
been enacted in Chelyabinsk, Tula, Nizhnii Novgorod, Sakhalin,
Kostroma, Ryazan, and Yaroslavl. The U.S. Department of Energy
continues to provide support for similar programs, but unfortunately
the sums available for such efforts are extremely limited.
Another example comes from work in Bulgaria with EnEffect, the
center in Sofia, which has worked with the Global Environment Facility
to support municipalities in developing their own energy efficiency
offices and infrastructure. This effort has recently been supported by
the Agency for International Development through its Municipal Energy
Efficiency Network. But, again, the resources available for this and
similar efforts are quite small.
The Chinese center, BECon, helped develop the energy conservation
law approved by the Chinese National People's Congress in 1997, and has
since assisted provincial-level ministries in developing the
regulations, standards, and monitoring and enforcement measures needed
to implement the law. Significantly, BECon has worked with the World
Bank to create and develop the first-ever energy-conservation service
companies in China.
Business Partnerships
The centers can assist companies to do business in their countries
by providing the most successful avenue for technology transfer foreign
investment. The existing centers have been successful at helping
private companies analyze existing and potential new markets for their
products, identify barriers and ways to overcome them, and access
information on privatization, tax, property, and other laws that affect
the company through the following:
Filling information needs for industry through interaction
with firms and regional industry experts.
Gathering information on financial and technical resources
and conducting market surveys for companies and their products.
Preparing business plans and feasibility studies.
Working with energy efficiency experts and in-country
authorities to develop innovative ways to finance energy
efficiency investments.
Similar efforts could follow the model of the business development
work of the existing six transition economy centers. A sampling of
their experience follows. ARENA-ECO was instrumental in securing $50
million in investment for energy efficiency improvements in 15
industrial facilities and initiating a $30 million program to upgrade
the efficiency of schools and hospitals in Kiev; BECon worked with
Armstrong International to help establish the U.S.-Chinese joint
venture Kangsen-Armstrong Company, Ltd. to produce high-efficiency
steam traps in China. The plant began production in 1995 and the annual
production capacity of 100,000 steam traps per year will likely be
expanded; SEVEn in 1995 helped establish the first energy service
company (ESCO) in the Czech Republic, and it continues to do business
with industry, schools, and hospitals in that country.
Local centers of expertise can be designed to help introduce
market-based approaches for the utilization of new technologies in
developing countries. To fulfill this objective, local experts could
conduct major efforts to develop policies, create partnerships among
local and American businesses, demonstrate and train specialists in new
energy systems, and to educate the public.
Such centers can be not-for-profit, non-governmental independent
entities. The centers help forge partnerships between suppliers of
modern energy-efficient equipment and services and in-country partners.
For these business efforts to succeed, the centers encourage legal
reform to develop incentives for energy conservation. In the centers we
established more than a decade ago, the effort has yielded a large body
of collaborative research. In addition, new domestic laws and
international agreements have been enacted to support energy
efficiency. Independent evaluations of the transition economy centers'
have been very positive, and the program has won a number of
prestigious international prizes, including three Global Technology
Leadership Awards (International Energy Agency) and two International
Energy Project of the Year Awards (Association of Energy Engineers).
These examples illustrate the types of accomplishments that
continued and expanded engagement can be expected to achieve, with
specific accomplishments appropriately tied to priority objectives and
activities. The key is selecting the people with the qualifications and
motivation to do the job, and providing them with the necessary
equipment and technical resources through the core period. (To learn
more, the interested reader is encouraged to visit www.pnl.gov/aisu.)
the need for renewed engagement
Energy cooperation in Central Europe and China has accelerated
development and ameliorated environmental conditions, even while
cutting the costs of providing basic energy services. It would be
reasonable to take the best elements of those successes and apply them
to reduce the risk of proliferation in the South Asia, the Middle East,
and Central Asia. This effort could build good will and more open
market-based systems by investing in people, leveraging indigenous
scientific capabilities, and supporting local experts. Our experience
has shown that tackling fundamental problems can help minimize future
conflict.
For example, the U.S. government could support new centers of
regional energy cooperation. These centers might have as their goals
development of local capacity and working together to solve regional
development problems stemming from energy investment constraints. This
effort should be focused on clean systems like natural gas and energy
efficiency technologies to ensure cleaner, more-affordable investment
without causing new environmental or security-related concerns. A key
focus could be to develop project-based financing on a regional basis.
This effort will address a major failure of international energy
development in the targeted countries, which is the lack of investment
in infrastructure and productive capacity necessary for creating jobs.
Countries like Pakistan and India do not lack technical skills to
utilize energy for productive purposes. However, many such developing
economies still require the entrepreneurial and financial planning
skills necessary to develop, implement, and manage fungible projects.
The purpose of this proposed effort would be to provide training in
business plan preparation to fill the need for entrepreneurial skills,
and to use the training as an opportunity to develop and finance
serious, job-creating investments. U.S. experts have extensive
experience in such efforts, having led in numerous successful projects
of this type in countries around the world.
Another key component of an international energy strategy led by
the U.S. would be establishing a natural gas network connecting the
Caspian Region and South Asia and another connecting Russia and China.
Helping China develop its own natural gas resources would bring major
benefits for the United States by reducing China's level of carbon
dioxide and methane emissions, and with them the risk of global
warming. It should be noted that China's gas resources have been
overlooked and understated. (See Figure 3.)
By creating the skills to meet the needs for regional security,
investment, regulatory reform, and infrastructure development, U.S.
government and industry could work together to accelerate development
and promote stability through inter-dependence. Such efforts would
require strengthening regional cooperation and communication, and
improving the relationships that are necessary for U.S. companies to
operate in these markets. Greater use of natural gas in South Asia can
address chronic air pollution problems, improve economic efficiency,
reduce greenhouse gas emissions, and expand business opportunities for
U.S. oil and gas companies.
South Asia and China have shown encouraging signs of accelerating
development of the natural gas sector, but important hurdles remain.
Comprehensive policy frameworks have yet to emerge to help guide
investment, allocate scarce resources, and minimize risk. Local
companies are often hindered by outdated technologies and management
practices, resulting in inefficiency and high cost. Natural gas
projects especially among end-users are slow to develop due to
conflicting authority, lack of incentives, and entrenched coal
interests. Personnel in these countries' gas sectors are not fully
prepared to function in the increasingly market oriented economies and
need training in finance, regulation, policy, safety, planning, and
management. Expanded use of natural gas can help Asian economies
improve air quality, increase economic efficiency, and reduce growth in
greenhouse gas emissions. Despite these advantages, Asia's natural gas
sector has been relatively slow to develop.
To adequately address the opportunities for U.S. engagement in the
energy markets of transition and developing countries around the world,
an expert review panel in 1999 called for a doubling of U.S. government
support for international activities described in this testimony. In
the much more challenging international environment of today, this
funding could be considered an investment in global security.
Legislation already adopted by the Senate wisely adopts that approach
and deserves the support of the American people.
conclusion
Much of the world's energy future will be set in concrete over the
next two decades. The largest investments in energy supply and
conversion systems will occur in developing and reforming countries,
and these will soon ``lock in'' technologies for decades to come. The
long lead-time required to move new technologies through the innovation
pipeline let alone penetrate markets means that efforts to deploy
technology in the second quarter of this century need to be started
today.
Great leverage for greenhouse gas emissions reductions comes with
supporting market-based policy reform and in organizing financing to
implement energy technology transfer in developing and transition
economies. Economic reform getting prices right and making prices
matter can help reduce emissions in countries as diverse as Brazil,
China India, Pakistan, Russia, Saudi Arabia, and Ukraine by reducing
distortions and subsidies that encourage energy waste. Efforts to
organize investment financing for energy innovation can multiply the
effectiveness of government funds.
U.S. self interest would be served by increasing international
energy cooperation, particularly with the transition and developing
economies where most energy demand growth will occur this century. U.S.
economic, environmental, and national-security interests are tightly
linked to global energy use. Energy technology innovation improves our
security, helps the United States avoid inflation and recession,
expands our market share in multi-hundred-billion dollar per year
global energy-technology markets, and mitigates atmospheric emissions
in the fastest-growing energy demand markets.
The Chairman. Thank you very much for your testimony. Let
me just ask a few questions.
Mr. Schochet, let me ask you first, your testimony
indicates that you believe there has been a decline in the
level of support from the Ex-Im Bank and from USAID for U.S.
companies such as your own that are trying to engage in
projects in some of these countries. Is that an accurate
paraphrase of what you said?
Mr. Schochet. Yes and no. There has been a decline in
support, but I do not believe that I want this to be a
criticism of Ex-Im. I think this is more a criticism of the
constraints placed on Ex-Im with regard to where they finance
and how they finance Ex-Im is a bank, and as a bank, for
example, they are currently cooperating with us and looking at
our project in Kenya, and because it is in the process of
undergoing financing I cannot really speak about it, but I can
say this.
They are looking at it as a bank would, whereas I believe
that U.S. Government policy in an area of concern should allow
them a greater latitude in dealing with issues, for example, in
Eastern Africa, so that a private sector bank simply will not
make a loan in Eastern Africa because they will not take the
country risk, or they say the utility in Kenya is not
creditworthy, and in fact the World Bank private sector
financing and the IFC has said the same thing.
We really do not want Ex-Im to come to the same conclusion.
They are almost our last and best hope, and we feel that what
Ex-Im should be looking at is a bank, but a bank that is
implementing U.S. policy, so we feel to that extent the support
of Ex-Im and USAID is weakening, and I think it is weakening
primarily because the policy perhaps constrains them from
taking more aggressive action in providing credit support and
loans.
The Chairman. And which policy is it that you are saying
constrains Ex-Im Bank that was not in place before? Mr.
Schochet. I think the policy they have--and again, I am
circumspect because I do not want to be placed in a position of
criticizing an excellent agency. I think perhaps they are
acting too much like a bank, and not enough like an extension
of U.S. export policy.
The Chairman. All right. Let me ask Sylvia Baca about her
testimony here. You indicated that BP is cooperating, as I
understand it, with the World Bank initiative to reduce the
flaring and venting of natural gas, and is doing that as a
corporate entity irrespective of the policy of the U.S.
Government in this area. Is that an accurate description of
what your company's policy is?
Ms. Baca. Mr. Chairman, the World Bank initiative went out
and asked for various partners to come to the table to discuss
what the practices are out there, and BP was very happy to
cooperate on that.
The Chairman. Separate from the World Bank effort, or in
coordination with the World Bank effort, is there a move, on
the part of oil and gas producers, to adopt a set of best
practices, or acknowledge what the best practices are related
to this issue, in order to come to a more uniform agreement on
that?
Ms. Baca. I cannot really speak for any of the other
industries, but I can tell you from our perspective that as I
said in my testimony, we look at flaring and venting as not
only an environmental problem for us, but it is an economic
problem as well. As long as the resource is being flared or
vented, it is being wasted, so we look at it on two fronts. We
are looking at it from an economic lens as well as an
environmental lens.
We do share lots of operations with partners, other
companies, and I think we have taken an aggressive stand in
terms of our deep desire to reduce the emissions and so we are
actively working with our partners where we have the joint
venture situation to aggressively implement reductions, whether
they be on the flaring or venting side.
The Chairman. The example you have in your testimony about
the replacement of 2,500 valves in the San Juan Basin, when did
that happen?
Ms. Baca. Mr. Chairman, this was very recently. This was in
the last couple of years. As you know, Lord Brown made a
commitment that BP would reduce its greenhouse gas emissions by
10 percent, to the 1990 Kyoto baseline, so we went around the
company looking for various places where we could make those
reductions. This was an area where we gained a significant
amount of reductions in the United States.
As you know, that whole San Juan Basin, Wyoming Basin,
there is a lot of methane production gong on there, and by just
a simple change-out of our wellheads there we were able to
significantly reduce our greenhouse gas emissions. That methane
was being vented into the atmosphere. We have been able to
capture it, turn it around, and sell it. We are making money on
it.
The Chairman. And I gather that none of this was required
by any regulatory agency?
Ms. Baca. No, Mr. Chairman. This was not required.
The Chairman. So other producers that are operating in that
basin may be continuing to vent, not having done the changeover
of valves that you are talking about?
Ms. Baca. That is quite likely, Mr. Chairman.
The Chairman. Now, is that peculiar to the San Juan Basin
that there is no regulation of such venting, or is that common
throughout the continental United States?
Ms. Baca. Mr. Chairman, I do not know the answer to that
question, but I can get back to you on that.
The Chairman. I would appreciate that.
Mr. Logan, let me ask you, your laboratory has focused on a
lot of these issues of how to improve energy efficiency and
reduce environmental impacts of energy production. Have you
done anything to try to rank, order, or prioritize which are
the problems that are most in need of attention, which are the
areas where the greatest progress can be made, the easiest,
those kinds of questions?
Mr. Logan. Yes, Mr. Chairman. That is actually a very
region-specific question. Most of our work has occurred in the
transition economies such as the former Soviet Union, where the
legacy of central planning and very, very low energy prices
made energy waste endemic throughout the economy, and some very
simple measures could make tremendous impact in those
countries.
The Chairman. And what have you identified as the most
attractive targets to deal with first, to really make progress
there in the former Soviet Union countries, if you have done
that?
Mr. Logan. Well, in the industrial sector, helping to
implement reforms so that energy prices do matter, helping to
train entrepreneurs in how to prepare a business plan so that
they can get financing, and helping to train people in the
Government to develop regulations and legal reforms, things
like that, are probably the most useful in those sets of
countries.
The Chairman. Okay. I have had concerns in trying to think
about what policies we ought to spend our time working on. I
have had difficulty trying to compare a policy to reduce
venting and flaring of gas, for example, against a policy to
reduce industrial emissions, and to see which of those would
have the largest benefit. Have you done any analysis of that
sort of thing?
Mr. Logan. Well, as Ms. Baca mentioned, the greenhouse
impact of methane emissions, which is basically what vented or
flared gas is, are 21 times more powerful than standard carbon
dioxide emissions, but you would have to look at each country
individually.
Nigeria, for example, probably the most powerful impact
would come from preventing or capturing the methane emissions
that occur there, and as you probably know, from a business
point of view making practical use of natural gas that would
otherwise be flared requires a full chain of upstream,
midstream, and downstream uses, so not only do you need to
capture the gas and have pipelines to send it to markets, but
you also have to make sure that there are end users in each of
those markets to make use of the gas, and that would require,
again, the same types of issues that we are talking about here,
making sure that economies are transparent, making sure that
there are regulations and rules in place, making sure that
people are trained in how to get financing for their projects.
The Chairman. These organizations you have helped
establish, these not-for-profit organizations in Russia,
Ukraine, Bulgaria, Poland, the Czech Republic, you say these
organizations have developed world class expertise. What are
they expert on? What information are they able to provide that
we do not otherwise have, or that the policymakers in those
countries do not otherwise have?
Mr. Logan. For example, in China, the Beijing Energy
Efficiency Center is assisting the World Bank in creating
energy service companies, and this is a first-time activity for
that type of business in China, and they are advising the World
Bank and working with the Chinese government to make sure that
the environment is satisfactory for energy service companies to
operate in China. That is one type of expertise that these
energy efficiency centers have.
I do not work directly with the efficiency centers in most
of the former Soviet Union countries, so I am probably not good
at answering that question, but I can ask William Chandler to
respond to that as soon as he returns from overseas travel.
The Chairman. You also say the centers, each of these
centers, are now self-sustaining. How can they be self-
sustaining? Who gives them money?
Mr. Logan. The centers were initially set up with what we
call core funding, and the U.S. Environmental Protection Agency
and the Department of Energy provided 3 years of guaranteed
funding for each of the centers, and they were generally
amounts ranging from $200,000 to $400,000 for the establishment
of each center. Now, each center has----
The Chairman. $200,000 to $400,000 per year?
Mr. Logan. It depends upon the country, but I think it was
in total.
The Chairman. So $200,000 to $400,000 spread over a 3-year
period?
Mr. Logan. Yes, Mr. Chairman. Now, each of these centers is
doing business with private sector companies, with their own
Governments, with multilateral lending agencies, and a variety
of foundations, and that is where they get their support now.
The Chairman. All right. Well, there are a great many
issues embedded in this general subject of technology transfer
and how we should be assisting the rest of the world in the
efficient use of their energy resources and environmentally
responsible use of their energy resources. I do not think we
really can begin to scratch the surface of it here, but this is
useful testimony to sort of lay a groundwork for further
investigation of the issue. I appreciate you all testifying,
and we will undoubtedly follow up on this in some future
hearings.
Thank you all very much.
[Whereupon, at 10:40 a.m., the hearing was adjourned.]
[Subsequent to the hearing, the following statement was
received for the record:]
Prepared Statement of Dan Renberg, Member of the Board of Directors,
Export-Import Bank of the United States
Thank you for the opportunity to provide the Committee with
information on the important role the Export-Import Bank of the United
States (Ex-Im Bank) is playing in technology transfer by offering
companies the financing packages they need to win global competitive
bids. While Ex-Im Bank is predominately oriented to support capital
goods exports, we are also supporting services, services such as the
training of local workers needed to maintain and use high-tech systems
equipment used in plants.
As the U.S. government's export credit agency, Ex-Im Bank has
financed over $400 billion in U.S. goods and services exports since its
inception in 1934. Ex-Im Bank's primary role is to finance and
facilitate U.S. exports by filling commercial financing gaps and to
level the playing field for U.S. exporters. In fiscal year 2001, Ex-Im
Bank supported $12.5 billion in U.S. exports under our loan, guarantee
and insurance programs. This financing assisted 2,358 export sales.
Sales that helped sustain thousands of U.S. jobs. Last year, 90 percent
of the transactions authorized by Ex-Im Bank supported small business
exports. The transactions provided short (up to one year), medium (one
to seven years) and long-term (over seven years) financing to
creditworthy international customers, both public and private-sector
working capital Guarantees to U.S. exporters.
Ex-Im Bank's financing is in accordance with the Organization for
Economic Cooperation and Development (OECD) arrangement, which
established the financing parameters for most national export credit
agencies. Under the arrangement, Ex-Im Bank provides the maximum
allowable loan/guarantee repayment terms, allows support of up to 85
percent of U.S. content, and sets guidelines for interest rates at the
Commercial Indicative Reference Rate (CIRR) or market prevailing rate.
Currently, Ex-Im Bank has special initiatives for environmental
exports, small business, and lending directly to municipalities in
certain countries. As a result of Ex-Im Bank's Environmental Exports
Programs, which consists of pro-active business development and
enhancements to our programs, transactions approved under the program
have grown from 13 in 1994, to 71 in 2001, totaling over $1.5 billion
or a 446.2 percent increase. Under this program, renewable energy
exports have been a major focus. From 1980-2001, Ex-Im Bank supported
over 58 projects worth over $2 billion in renewable energy goods and
services exports. To increase Ex-Im Bank's support of these exports,
Ex-Im Bank is working in close partnerships with the Department of
Commerce, Energy, Environmental Protection Agency, and renewable
energy, energy efficiency trade associations.
Renewable energy includes solar, wind geothermal, hydro-power,
biomass, and possibly new technologies such as fuel cells. The growth
potential in this market is enormous with the value of the world's
power generated from renewable energy estimated at $7 billion up from a
billion dollars in 1990, and projected to reach $82 billion by 2010. In
this area, Ex-Im Bank has supported $653.4 million in exports since
1992, which consisted of $442.2 million geothermal, $11.7 solar, $13
million wind, $160.9 million hydro and $25.7 million biomass exports.
Wind energy has been the fastest growing new source of electricity
since 1998, with a 30 percent average per year growth and a total
market value at $4 billion. In the U.S., there are 10,000 MW, with
6,000 to 7,000 under construction. This is three times what they were
in the early 90's. Currently, Danish turbines account for 60 percent of
U.S. capacity, and U.S. firms have 30 percent of the wind market share.
Another growing area is solar photovoltaics, which increased 37
percent in 2000 to a total market of $2.5 billion. Solar power costs
have fallen 65 percent from 1990 to 2000, to 40 cents/kw and is
estimated to fall to 10 cents/kw by 2010. In 1996, the U.S. was the
world's leader in photovoltaics with a 40 percent market share;
however, Japan is the current world leader (what is their market
share).
Ex-Im Bank's financing has been a key component of these renewable
energy companies export success. In 1995, Ex-Im Bank provided a medium-
term guarantee for a three-year loan for one $440,000 wind turbine from
Zond Energy Systems, Inc. (Zond Energy), Tehachapi, California, to a
cement maker in Mexico. Zond Energy also received a $12.5 million tied
aid direct loan in 1996 to finance three wind energy projects in China
to match Danish ``soft loan'' terms. In 1996, a $49.7 million direct
loan was provided to build, own, and operate four geothermal 530 KM
power in Manila to Onnat Leyte Co. Ltd., which included the training of
local workers in maintaining the geothermal plant system. More
recently, in 2001 Ex-Im Bank provided a six-year extended loan to
support a $700,000 sale of solar panels by BP Solar International, a
small company in Linthicum, Maryland, to a utility in Argentina. In
addition, AstroPower, Inc., a small company in Newark, Delaware,
purchased short-term insurance, which enabled the company to offer four
separate open account credit lines to solar energy dealers worldwide,
including a $9,000 credit line to a dealer in South Africa.
While Ex-Im Bank support in this area has increased, much more
needs to be done to increase U.S. market share of renewable energy
exports. Therefore, Ex-Im Bank is increasing our international business
development efforts to major public, private buyers to stimulate
demand-pull for U.S. exports. We are also conducting joint initiatives
with the Department of Energy and the Department of Commerce in Brazil,
Mexico, India, China, and other target markets to identify and pursue
procurement opportunities. In addition, we are increasing domestic
business development efforts that focus on closer collaboration with
leading exporters, outreach efforts to small business exporters, and
our Public Affairs efforts to highlight our successes. Furthermore, we
will raise with Treasury and the interagency group the possibility of
having the U.S. propose within the OECD to extend the repayment terms
for renewable energy exports to 15 years in order to match those of
nuclear energy. However, we will need to consider the potential trade-
offs of such a proposal, both within the domestic budget and among
other U.S. issues of interest within the OECD, in determining the
appropriate strategy. Finally, we have just recently established a
Renewable Energy Exports Advisory Committee to assist and advise Ex-Im
Bank on ways to increase exports in this area.
But the biggest challenges to increasing U.S. renewable energy
exports are market barriers to renewable energy use, lack of awareness
of Ex-Im Bank financing among U.S. exporters and key foreign buyers,
and tied aid terms offered by other governments. To address these
problems, Ex-Im Bank is committed to coordinating with the Department
of Energy and the Department of Commerce and to identifying new methods
of supporting renewable energy and energy efficiency industries as they
pursue opportunities in the global marketplace.
APPENDIX
Responses to Additional Questions
----------
ORMAT Technology Inc.,
Sparks, NV, October 8, 2002.
Committee on Energy and Natural Resources, U.S. Senate, Washington, DC.
Attention: Jonathan Black, SD-312
Subject: Response to Questions by Senators Bingaman and Murkowski
Dear Jonathan: I want to personally thank Chairman Bingaman, the
Members of the Committee and the Staff for inviting me to appear before
the Committee on Energy and Natural Resources on September 18, 2002.
It was an honor to be able to appear and testify on Export
Investment and Technology Transfer before this most important
committee. I hope that my comments were of interest to the Chairman and
that my testimony was useful to the members.
Attached hereto are the answers to the question asked by the
Chairman at the hearing and the questions forward from Senator
Murkowski subsequent to the hearing.
If any of the members or staff have any additional questions,
please do not hesitate to contact me directly, or my colleague John
Garrison at the Business Council for Sustainable Energy in Washington,
DC.
Again I want to thank you for the courtesy and kind consideration
extended to me by the Committee Staff and I remain,
Sincerely yours,
Daniel Schochet,
Vice President.
Response to Question From Senator Bingaman
Question. What recommendations does ORMAT have with regard to the
role of the U.S. Export-Import Bank in financing renewable energy
projects in developing countries?
Answer. (a) ORMAT believes that in areas where U.S. interest
dictates, the Bank should apply special conditions to stimulate private
renewable energy projects. This was very successful in the Philippines
in the mid 1990s. In the case of geothermal energy projects, we would
recommend that Ex-Im actively seek out projects and work with finance
agencies in Central America and Eastern Africa. These areas do not have
indigenous fossil fuels and geothermal electrical power generation is
cost-effective in real unsubsidized terms, when compared to electricity
generated by use of imported fossil fuels.
(b) Ex-Im needs to demonstrate, and increase, its commitment to
clean and renewable energy projects. Additional staff and Bank
resources should be dedicated to renewable energy projects to allow Ex-
Im to maintain uninterrupted focus on such projects. Greater
flexibility should also be afforded loan officers to apply innovative
methods when financing clean energy exports. For example, the Bank
should increase limited or non-recourse financing for renewable energy
projects. ORMAT recommends that Ex-Im endorse a voluntary initiative
launched at the World Summit on Sustainable Development by the Global
Legislators for a Balanced Environment (GLOBE) that calls upon the G8
countries to promote the large-scale transfer of renewable energy
technologies to developing countries by devoting 10 percent or more of
their energy export finance portfolios to the renewable energy sector
by 2010.
(c) A third recommendation is to have a ``team'' effort to
coordinate and leverage the activities of Ex-Im with those of other
agencies, such as USAID, OPIC and TDA. We understand that this effort
is already underway with the formation of the ``Clean Energy Technology
Export Initiative'' (CETE). However, it is imperative that CETE
explicitly includes renewable technologies as a dedicated component.
ORMAT fully supports the creation of CETE and strongly recommends that
clean energy companies be given a role in its development.
(d) Since the period granted for nuclear energy projects by the
OECD countries is 10 to 15 years, it is recommended that renewable
energy projects also be granted the same long-term debt financing
repayment terms. It is our understanding that Ex-Im need only notify
the OECD that it is making longer-term credit available for renewable
energy projects, and that concurrence by the OECD is not required.
Responses to Questions From Senator Murkowski
Question. What kinds of projects have been most successful in
achieving transfer of technology to other countries?
Answer. It is difficult to say whether there is a standard ``type
of project'' that clearly stands out as having the greatest success in
achieving technology transfers. From ORMAT's perspective, geothermal
power projects have been very successful in transferring technology to
other countries. These projects are local labor intensive both during
construction and the subsequent long-term operation. In addition to
requiring the development of a supporting infrastructure, geothermal
projects create a long-term industry with high paying technical jobs
manned by locally recruited and trained staff. This has been proven in
the Philippines, Kenya and elsewhere. Thus geothermal projects create
not only a sustainable technology transfer, but also a sustainable
industrial development with a trained cadre of indigenous specialists
who can participate in additional in-country geothermal related
development.
Question. Are there different barriers or issues for different
kinds of energy technologies (efficiency, renewable, nuclear, fossil)?
Answer. Yes there are. In particular renewables face institutional
and financing barriers based on the fact that: (a) renewable and energy
efficiency projects are often relatively small both in the amount of
power they produce and in terms of the amount of financing they need
when compared to fossil fuel projects and hence often cannot compete
for the attention of government agencies with limited manpower to
conduct project reviews; (b) renewable projects are capital intensive
since the initial cost includes the construction expenses, including
the equipment and a lifetime supply of fuel, and this often results in
higher initial costs even when total lifetime costs are competitive;
(c) in developing countries fossil fuel is often subsidized and
electricity costs appear to be more economical than renewable energy;
(d) developing countries often lack the regulatory framework to support
private renewable projects; and (e) financing barriers exist due to
cumbersome and costly review and approval procedures, more suited for
large projects than for smaller renewable projects.
Question. To what extent are U.S. energy partnerships with other
countries hindered by the U.S. lack of participation in the Kyoto
Protocol and its ``market-based mechanisms''? Will this be a more
significant problem if Kyoto enters into force?
Answer. ORMAT has found that many international clean energy
projects have been delayed because Lesser Developed Countries (LDCs)
have put off energy efficient and/or renewable energy projects until
the Clean Development Mechanism (CDM) comes into force for fear that:
(a) they may lose the future, and as yet undefined, benefits of the
CDM; and (b) the CDM benefit may not apply if a project is unable to
prove that it would not have been built were it not for the CDM.
Should the Kyoto Protocol enter into force, without U.S.
participation, U.S. clean energy companies will be placed at an even
greater disadvantage than they are now with respect to their European
counterparts, by being denied access to CDM and not being able to take
part in the Kyoto emissions trading scheme (a potential source of
income from the sale of emissions allowances or credits). The end
result will be a loss of U.S. jobs and with it a decrease in U.S.
competitiveness.
Question. Are private-sector technology transfer programs more or
less successful than similar Federal programs?
Answer. Federal programs often train people very well, who then
emigrate to the U.S. or other industrial nations for better paying
jobs, thus creating a ``brain drain.'' From our perspective, private-
sector technology transfers through clean energy power projects are
more successful than Federal programs. In the geothermal industry, for
example, the long-term operations of the power projects create well
paying jobs locally, which promote future use of geothermal technology
in country. There are 22 geothermal countries, including the U.S.,
where such opportunities have been created.
In many cases, such as Kenya and the Philippines, geothermal
technology transfer has created sustainable industrial development. In
the case of the Philippines, the industrial development was created by
the private sector, but in the case of Kenya it was by the public
sector (World Bank and UN). The advantage of the private sector is that
technology transfer creates long-term sustainable relationships leading
to future exports. The addition of Federal programs to support such
private-sector technology transfer can help keep trained people in
place and contribute to the economic development of their country both
by providing sustainable electrical power from clean indigenous
resources and also by creating conditions conducive to increasing
exports from the U.S. and high paying long term employment for the
local population.
Question. What should be the proper balance of resources and
activities between the public and private sectors?
Answer. In developing countries the standards applied to investment
in the U.S. or the OECD are often not applicable. Private industry can
and should assume the technology, development, and project performance
risks. However the country risks, including credit worthiness,
institutional barriers and exploration risks (in the case of geothermal
energy), need to be supported by the public sector. This is especially
true in countries with fragile economies and mixed economic systems.
The balance between private and public sector resources should be
applied to balance the risks so as to enable investment by the private
sector in those projects, which benefit those countries where long-term
U.S. interests are at stake.
______
Responses of Jeffrey Logan and William Chandler to Questions From
Senator Murkowski
The text below addresses questions raised by Senator Murkowski
following testimony provided on 18 September 2002. In addition to the
information here, readers are encouraged to see the attached document
on energy efficiency centers* in transition economies that address many
of the questions in more detail. The document is also available on-line
at http://www.pnl.gov/aisu/pubs/center.pdf.
---------------------------------------------------------------------------
* The document has been retained in committee files.
Question 1. What kinds of projects have been most successful in
achieving transfer of technology to other countries?
Answer. Successful U.S. technology transfer projects help other
countries meet their economic development needs without compromising
environmental quality. They allow consumers to save money on energy
bills, reduce emissions of damaging local pollutants such as sulfur
dioxide and particulates, and improve global energy security. These
measures also reduce greenhouse gas emissions. While public funding can
help lay the groundwork for effective technology transfer projects, in
the end, only the private sector has the resources and incentives to
address the challenge of climate change on the scale required.
Energy technology gets transferred through the market place and in
conjunction with finance and investment. Thus, projects designed to
facilitate private sector investment have been most successful.
Experience from Battelle's Advanced International Studies Unit
indicates that successful projects must address specific barriers and
give in-country partners a stake in the outcome. Successful examples of
technology transfer projects conducted with Battelle's assistance
include ``classical'' energy efficiency, fuel switching, methane
mitigation, district heating, combined heat and power, building codes
and appliance standards, and financing facility projects.
Question 2. Are there different barriers or issues for different
kinds of energy technologies (efficiency, renewable, nuclear, fossil)?
Answer. Some of the key barriers involved in technology transfer
are similar across the range of energy technology types. Consumers and
decision-makers in developing countries lack information on energy
technologies, rendering them incapable of evaluating the most economic
alternative when all costs are included. These markets often lack
transparency and legal foundations so investors perceive higher risk.
Other barriers are distinct and depend on the specific technology
in question. Energy efficiency markets, for example, face additional
challenges in developing and transition economies. Western energy
efficiency markets have evolved over decades, creating along the way
the regulatory, legal, and financial infrastructure necessary to do
business. This business, being decentralized and distributed in nature,
requires much preparation to make it work. Market creation and market
conditioning are vital for most energy efficiency technologies.
Renewable energy technologies, on the other hand, face higher
barriers because they usually can't compete with traditional fossil
fuel options unless full environmental costs are considered.
Technological barriers, such as connecting wind turbines to local power
grids, are also often specific. Nuclear power plants, which require
very high up-front costs, raise risk premiums and magnify normal market
distortions.
Question 3. To what extent are U.S. energy partnerships with other
countries hindered by the U.S. lack of participation in the Kyoto
Protocol and its ``market-based mechanisms''? Will this be a more
significant problem if Kyoto enters into force?
Answer. It is too early to define how U.S. energy partnerships have
been hindered by absence of the U.S. in the Kyoto Protocol, but it is
likely there will be a significant impact. European commercial
interests in natural gas development are turning away U.S. competition
in part based on Kyoto. In Russia, U.S. coal mine methane efforts are
being diverted to European interests. Key developing countries like
China have already turned to Europe and Japan to collaborate on
promoting the development and use of carbon-friendly technologies. U.S.
energy suppliers could be cut out of markets for the next decade.
If Kyoto enters into force, the lack of U.S. participation will
likely have a significant impact on energy partnerships vital to U.S.
interest. (See Box 1). European countries and Japan are developing al
ties with the research, policy-making, and private sector communities
in developing countries associated with the Kyoto Protocol,
particularly the Clean Development Mechanism (CDM). In China, for
example, both the Dutch and Japanese governments have funded projects
that will influence how China participates in CDM and what technologies
will be important to focus on. In Russia, the U.S. has set up a coal
mine methane center, but it may be most useful to the Europeans now.
_______________________________________________________________________
Box 1.--The U.S. Stake in Global Energy Markets
Economic
Development
Energy technology exports
Environmental Mitigation
Local air quality
Regional acid rain
Global warming
U.S. Leadership
Energy Science
Supply- and demand-side technology
International Security
More secure supplies of foreign oil
Nuclear non-proliferation
Political stability in developing countries
U.S. Values
Human rights
Civil society
Equity, self-determination, stewardship
U.S. President's Committee on Advisors on Science and Technology,
Powerful Partnership: The Federal Role in International Cooperation on
Energy Innovation (Washington, D.C.: The White House Office of Science
and technology Policy, June 1999). available at http://www.ostp.gov/
html/P2E.pdf.
_______________________________________________________________________
Question 4. Are private-sector technology transfer programs more or
less successful than similar Federal programs?
Answer. Public and private sector technology transfer programs are
often complementary. In many developing countries, markets may be too
distorted for private sector investment to flow, so market
transformation programs funded with Federal resources can help lower
the investment risk. Federal programs can help condition the market by
defining new policy measures such as energy efficiency legislation and
regulation, funding feasibility studies or loan guarantee programs, and
informing the public on how to evaluate appliance purchases, for
example. Federal programs should be limited to helping condition the
market so that all technologies can compete on a level playing field;
they should not attempt to pick the technology winners.
Question 5. What should be the proper balance of resources and
activities between the public and private sectors?
Answer. In general, public sector programs should be restricted to
ensuring a level playing field and working to correct market failure.
Only the private sector has the resources and incentives to address the
challenge of climate change on the scale required.
In almost all developing and industrialized countries, both public
and private sector participation is essential for greater penetration
of carbon-friendly energy technologies. Public sector programs are
essential to condition the market and inform stakeholders so that all
participants make enlightened decisions. The public sector should focus
mainly on leveling the playing field so that the market can pick the
best technology, rather than trying to do that task itself. The exact
balance between public and private sectors will depend on specific
conditions in a particular market and the speed at which technology
transfer is to occur.
In some cases, the distinction between public and private sector
activities is not clear. In many countries, private sector non-
governmental organizations are playing an active role in addressing
market distortions and failures that public bureaucracies are unable or
unwilling to address. Most governments now acknowledge the important
role served by these foundations and NGOs given the competing demand
for resources in today's world.
______
BP
Los Angeles, CA, October 25, 2002.
Hon. Jeff Bingaman,
U.S. Senate, Committee on Energy and Natural Resources, Washington, DC.
Dear Honorable Bingaman: Thank you for the opportunity to testify
before the Committee on September 18, 2002. Enclosed are the questions
and answers submitted for the record. I hope the answers are
satisfactory and acceptable to the Committee.
Please feel free to call me with any questions.
Respectfully yours,
Sylvia Baca.
[Enclosure].
Question 1. Is it peculiar to the San Juan Basin that there is no
regulation of the venting, or is that common throughout the continental
U.S.?
Answer. The change that BP did on the pneumatically actuated valves
of the oil & gas production separators in the San Juan Basin was a BP
(Amoco) voluntary initiative as part of its participation in the U.S.
EPA Natural Gas Star Program. This was not routine venting, just
bleeding of natural gas when the separator valves were actuated by
natural gas (mainly methane). BP switched valves and procedures to
avoid this emissions seepage.
In general, standard practice used is that natural gas associated
with oil production was not carefully metered if the gas had no market
value and if it was not part of the production agreement. In recent
years companies started to value this gas and capture it for sale.
Also, current regulations on emissions from production operations vary
throughout the U.S. depending on their Ozone attainment status and the
respective State Implementation Plan (SIP) under the Clean Air Act--
Local authorities control emissions of Volatile Organic Compounds
(VOCs) from which methane is excluded (by definition) and these kind of
emissions or venting might not be addressed by existing rules or
practices.
Question 2. What kind of projects have been most successful in
achieving transfer of technology to other countries?
Answer. Most successful projects are those that are done
collaboratively with local authorities while engaging local academic
institutions to facilitate knowledge transfer. Specifically, national
and local authorities need to make the proper commitment and enable the
new technologies via their strategic plans. As an example, such an
approach was used by BP in its ``Clean Cities'' program that has
brought cleaner fuels to 100 cities around the world, ahead of
regulatory mandates.
Question 3. Are there different barriers or issues for different
kinds of energy technologies (efficiency, renewable, nuclear fossil)?
Answer. The most common barriers are associated with the different
level of training required, with nuclear technologies probably
requiring the highest proficiency. For other energy sources cost of
resources and services as well as licensing requirements could be a
barrier to entry if no proper incentives are available within the
framework of national strategic energy planning. In addition, issues
around political instability and governance slow down the
implementation of many large energy and infrastructure projects, which
require long lead times and assurances of an enabling environment.
Question 4. To what extent are U.S. energy partnerships with other
countries hindered by the U.S. lack of participation in the Kyoto
Protocol and its ``market-based mechanisms?''
Answer. The U.S. is viewed with suspicion and its motives are being
questioned since it has withdrawn from the Kyoto Protocol and has not
offered yet an alternative action plan. In a move towards sustainable
energy many of the emerging global partnerships strive to demonstrate
their environmental acceptability by documenting supplementary benefits
from such projects. To achieve this goal these energy partnerships
would like more certainty in ``Carbon Risk'' pricing to ensure a stable
market for carbon reduction projects. As an example, over a year ago
when the U.S. was still considering the Kyoto Protocol, the GRG trading
price was $ 25/per ton of Carbon, while now it has declined to 5/per
ton, as all the U.S. emissions reductions allocations are being
factored out of the emerging trading markets.
Question 4a. Will this be a more significant problem if Kyoto
enters into force?
Answer. If the Kyoto Protocol enters into force, the U.S. will not
have the ability to receive emissions reduction credits for projects it
is undertaking in other countries, neither through Joint Implementation
projects (with Annex 1 countries) nor through the Clean Development
Mechanism (with developing countries). This might impact U.S. companies
doing business abroad, since they will have to work through overseas
subsidiaries in countries that ratified the Kyoto Protocol. This could
result in the transfer of the emission reductions credits, created by
these projects, to the emissions allocation budget of other countries.
Question 5. Are private sector technology transfer programs more or
less successful than similar Federal programs?
Answer. Private sector technology transfer projects are successful
when operated by commercial interests through their contacts in host
countries and when they are tailored to local needs. Federal programs
that reach out only to other national governments, without involving
other stakeholders, are less efficient and are not always sustainable.
Sectoral industry association can help in facilitating, collaborative
activities among members in conjunction with governmental and other
interested organizations.
Question 6. What should the proper balance of resources and
activities be between the public and private sectors?
Answer. The emerging consensus following the World Summit on
Sustainable Development is that implementation of projects on the
ground are best done in Partnerships, where the political/national
objectives are specifically spelled out, targets are clear, a
governance framework is in place and all relevant stakeholders are
invited to participate. What is needed from the public sector is to
create the enabling framework and provide positive market signals to
the private sector. The public sector can also be pivotal in funding
education, research and development, establish centers of excellence to
assist with knowledge transfer and retention, and provide a resource
base for implementation.
______
Department of Energy,
Congressional and Intergovernmental Affairs,
Washington, DC, October 31, 2002.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Dear Mr. Chairman: On October 16, 2002, we sent you the edited
transcript of the September 18, 2002, testimony given by Carl Michael
Smith, Assistant Secretary for Fossil Energy, regarding the
effectiveness and sustainability of U.S. technology transfer programs
for energy efficiency, nuclear, fossil and renewable energy.
Enclosed is one of the inserts requested by you. Also, enclosed are
the answers to three questions submitted by you for the hearing record.
The remaining insert and the remaining answers to questions from
you and Senators Murkowski and Graham are being prepared and will be
forwarded you as soon as possible.
If we can be of further assistance, please have your staff contact
our Congressional Hearing Coordinator, Lillian Owen, at (202) 586-2031
or Barbara Barnes at (202) 586-6341.
Sincerely,
Dan R. Brouillette,
Assistant Secretary.
[Enclosures].
Responses to Questions From Senator Bingaman
statement regarding eia's gathering of gas flaring data
Question 4. Regarding the testimony of Bill Trapmann on the
gathering of gas flaring data by EIA from the States and the work that
is currently going on as to the survey, is legislation required to
implement the long term plan for collecting data (mention of a new
survey w/data coming directly from domestic producers)?
Answer. EIA has collection authority under the Federal Energy
Administration Act of 1974 to gather energy data, such as the
production data under consideration, from energy firms. Additional
legislative authority is not needed to collect data from that source.
projected timeline for eia's project
Question 5.What is the projected timeline (start and finish date)
for the project that was described by Mr. Trapmann? Will DOE be ready
by next summer to decide? How is the decision being structured? (I.e.,
who will decide and when?) In general, how are decisions on this made?
Answer. The project described by Mr. Trapmann is a multi-year
project to improve basic natural gas production data. The exploration
of data collection options and related work is scheduled to end in June
2003. According to this plan, the assessment and testing of selected
data collection options would occur during the remainder of calendar
year 2003. A decision to proceed with any option, to be made by the EIA
Administrator, will depend on its relative merits and available
resources. Public input will be a key aspect of any decision to change
EIA data collection operations. Prior to any new data collection
survey, EIA would invite public comment on the proposal through a
Federal Register notice. The decision is expected to be made in
December 2003 and would be followed in 2004 by a request for Office of
Management and Budget (OMB) approval of data collection authority and
reporting burden. System design and implementation would be conducted
in the latter half of 2004. Data collection would start early in 2005.
Only the initial feasibility study is funded at present. Subsequent
project work requires multi-year funds.
The primary intent of the current phase of this EIA project was the
examination of options for the collection of improved production data.
However, the recent indication of greater interest in venting and
flaring data can be accommodated by a shift in the workplan. The
expanded scope and possible acceleration of project schedule would
increase the associated costs.
current state of gas flaring data (collection)
Question 6. What is the current state of gas flaring data
(collection) internationally? What can be done to improve it?
Answer. At present, there are no international standards for gas
flaring information and there is no single international data
collection system for gas flaring. The Organization of Petroleum
Exporting Countries (OPEC) collects gas flaring data from its 11
members. However, the information is incomplete and the quality is
uncertain. At a national level, some countries around the world collect
the information and release the statistics but many countries do not.
In general, the current state of global gas flaring information is
poor.
The data could be improved by (a) developing internationally-
accepted definitions for gas flaring and (b) developing an
international system for collecting and disseminating the information.
In general, it helps if global systems are encouraged and developed by
multinational organizations. Organizations such as the International
Energy Agency, the OPEC, the United Nations and others have influence
over members and can get consensus about definitions and standards. The
U.S. could assist by encouraging international organizations to develop
definitions for gas flaring and to develop systems for collecting and
disseminating the information.
______
Department of Energy,
Congressional and Intergovernmental Affairs,
Washington, DC, November 6, 2002.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Dear Mr. Chairman: On September 18, 2002, Carl Michael Smith,
Assistant Secretary for Fossil Energy, testified regarding the
effectiveness and sustainability of U.S. technology transfer programs
for energy efficiency, nuclear, fossil and renewable energy. On October
31, 2002, we sent you the answers to three questions and one insert for
the record.
Enclosed are the answers to the 16 remaining questions submitted by
you and Senators Graham and Murkowski.
Also enclosed is the insert that you requested. This will complete
the hearing record.
If we can be of further assistance, please have your staff contact
our Congressional Hearing Coordinator, Lillian Owen, at (202) 586-2031
or Barbara Barnes at (202) 586-6341.
Sincerely,
Dan R. Brouillette,
Assistant Secretary.
[Enclosures].
Responses to Questions From Senator Graham
For decades the United States and other nations have relied heavily
on the petroleum reserves of the Persian Gulf. There is no doubt that
this dependence carries with it significant political and economic
pressures. For this reason, I am interested in the fossil fuels
supplies in the Western Hemisphere--which have the potential to provide
the world with vast supplied [sic] of oil and natural gas.
In light of this, I am interested in any actions that the
Department of Energy may be taking to develop additional energy
supplies, foster transfers of technologies to other Western Hemispheric
nations, and increase cooperation on energy issues among the nations in
our hemisphere.
Question 1. What can the DOE and the federal government do to
enhance energy cooperation and technology transfers in the Western
Hemisphere?
Answer. The instability in the Middle East and the volatility of
oil prices provide a strong reminder of the need for continuing and
developing Western Hemisphere energy cooperation as a key component in
strengthening U.S. energy security. The Department has been actively
involved in promoting Western Hemisphere energy cooperation to this
end, both bilaterally and multilaterally.
In an effort to identify initiatives that would assist in
increasing the reliability and security of the U.S. energy supply, and
help restore the economic vitality and viability of many of our Western
Hemisphere neighbors, the Department holds regular consultations with
its neighbors; initiated cooperation under several science and
technology cooperative agreements, including with Brazil, Canada,
Mexico, and Venezuela; and regularly hosts policy, regulatory, and
technical conferences, roundtables, and seminars. Particularly over the
last ten to fifteen years, such interactions have all led to
significant levels of collaboration and key technological transfers
between our neighbors that have advanced U.S. and regional economic and
energy security objectives.
Question 2. How can the Department of Energy work to find ways to
increase the supplies of oil and gas, indeed of all energy resources
including solar and renewables, as well as energy efficiency, in
Western Hemisphere countries?
Answer. Bilaterally and multilaterally, including through
interactions with other U.S. agencies and international financial
organizations, the Department of Energy's overall objectives have been
to develop mechanisms and relationships that will provide the
Department and its constituents with expanded access to their
counterparts in the region, promote the development of policy and
regulatory frameworks and business practices that will attract foreign
investment, encourage increased energy resource development and expand
bilateral and regional energy trade.
The Department also works closely with the private sector to
identify opportunities in which U.S. energy firms can invest, develop,
manage and/or supply technical services--including oil and gas
exploration, development, and transportation--as well as equipment and
technology. The Department of Energy continuously works to encourage
and promote an increased U.S. commercial presence in the Hemisphere
through missions to the region, consultative roundtables and dialogues
with industry, the facilitation of access to senior Western Hemisphere
government representatives, and advocacy for the utilization of U.S.
goods and services and transparency and contract sanctity in various
countries.
Question 3. What steps is the Department of Energy taking to help
increase cooperation on energy issues among countries of the Western
Hemisphere?
Answer. To promote Western Hemisphere energy cooperation and
technology transfers, increase the region's energy supply, and
strengthen the energy security of the hemisphere, the Department of
Energy, through public and private interactions, will continue to
bilaterally and multilaterally engage its neighbors at all levels.
Specific activities include:
Leading cooperation under the Hemispheric Energy Initiative
(HEI), which is the energy component of the Summit of the
Americas process. The HEI is comprised of energy
representatives from the 34 democratically-elected nations in
the Western Hemisphere. The Ministers and/or their staffs
explore possible areas of cooperation and develop partnerships
for sustainable energy development and use. These initiatives
reflect the countries' commitment to promote regulatory reform,
technical transfers, energy efficiency, renewable energy, rural
electrification, regional integration, energy security, and
increased oil and gas production and trade.
Fostering energy cooperation and communication, including
under the presidentially-mandated North American Energy Working
Group, to enhance North American energy trade, development and
interconnections; promote regional integration; and increase
North American energy security. The U.S. Department of Energy,
Natural Resources Canada, and the Mexican Secretariat of Energy
are the co-leads for the trilateral consultative mechanism.
Activities include exploring policies, regulations and
technological innovations to encourage the expansion and
acceleration of resource development, especially oil and
natural gas, as well as energy efficiency, renewable energy,
clean power, and nuclear energy, as appropriate; fostering
discussions on ways to improve cross-border interconnections;
and identifying and eliminating barriers, both physical and
regulatory, to optimal energy trade.
DOE established the Hemispheric Sustainable Energy Fund at
the Inter-American Development Bank (IDB), which requires DOE
approval on specific projects, to help prepare and define
sustainable energy projects to the point where they may receive
financing from the IDB or leverage financing from other
financial institutions. The Fund fosters private sector
participation in clean energy development, including renewable,
natural gas, and energy efficiency, in Latin America, and
provides grant and equity support for private sector
application of new and innovative energy technologies and
techniques. Approved projects are a compressed natural gas
transportation project in Peru, an electric utility demand-side
management project in Dominican Republic, and an energy
efficiency project with a Brazilian water utility.
Continuing cooperation following the DOE-hosted Western
Hemisphere energy regulators conference in March of 2002, which
focused on the need to create, harmonize and implement
transparent and stable regulatory frameworks in order to
establish a favorable climate for compatible development of the
hemisphere's energy sector and greater private sector
investment.
Providing financial assistance and support to a proposal
submitted by Florida International University to establish a
Center for Hemispheric Energy Cooperation and Technology. The
proposed Center would help identify and implement initiatives
that will increase technology transfer within the Western
Hemisphere, which will result in increased production in the
hemisphere. .
Continuing bilateral energy policy, regulatory and technical
interactions with Canadian and Mexican officials to promote
increase resource exploration and development through increased
foreign investment and energy trade, and enhanced science and
technology cooperation.
Continuing to regularly meet and interact with Canadian,
Mexican, and Venezuela energy representatives through the
Department's longstanding energy consultations, other bilateral
mechanisms and multilateral fora.
Cooperating with the Chilean government on developing a
market for natural gas, including as an alternative fuel for
the transportation sector.
Establishing regular consultations and expanding technical
cooperation and commercial opportunities with Brazil (South
America's biggest and most influential country and an economic
giant).
Undertaking bilateral and multilateral consultations and
establishing cooperative activities with Bolivia and Peru
regarding the development of natural gas domestic and
international markets.
Supporting energy integration in Central America and the
region's effort to develop stronger transmission ties and
electric system integration, including through consultations
that would help develop markets for U.S. firms, enhance cross-
border trade and cooperation, and foster a dialogue on
regulatory reform issues.
Maintaining linkages with the Caribbean region, especially
with Trinidad and Tobago (a major exporter of liquefied natural
gas to the U.S.) and the Dominican Republic.
Responses to Questions From Senator Bingaman
Question 1. What concrete actions have the Department of Energy
taken so far towards implementing the Clean Energy Initiative (CEI)
announced by the Administration at the World Summit on Sustainable
Development? What is the implementation plan?
Answer. The Department is in the process of identifying ongoing
programs that contribute to the overall organizing framework of the
CEI. We have also begun a series of interagency meetings to set
priorities for projects and target countries. Perhaps most importantly,
we are discussing the CEI with the private sector and other governments
to develop meaningful partnerships. It is our goal to identify the most
useful and effective activities--for example, the gas flaring
initiative--to coordinate with the private sector and foreign parties.
We have drafted an Implementation Plan and expect to begin circulating
the Plan to U.S. governmental and private sector entities for input and
comments in October.
In addition, the Environmental Protection Agency (EPA) is moving
forward with implementation of its efforts under the Clean Energy
Initiative. For EPA's partnership targeting pollution from vehicles,
the Agency is working with its global partners to convene an initial
meeting in November to better understand current fuel specifications
and vehicle technologies in key regions, develop goals, objectives, and
a detailed initial work plan for the partnership, and discuss options
to coordinate partnership activities. For EPA's indoor air pollution
partnership, the Agency is consulting individually with each of the
current and potential partners, and will soon convene a meeting of
partners to begin jointly developing a plan for implementation.
Question 2. Is U.S. participation in the World Bank Gas Flaring
Reduction Initiative covered/expected under the CEI? If so, under which
of the three points would it fall?
Answer. The U.S. Government participation in the World Bank Gas
Flaring Reduction Initiative would be covered under the Energy
Efficiency for Sustainable Development category of the Clean Energy
Initiative (CEI). The Department of Energy has the lead for this
element of the CEI. A major goal of the World Bank Gas Flaring
Reduction Initiative is to provide energy savings by not flaring and
venting associated gas. Energy savings would result in more efficient
production and supply, not wasting gas resources in association with
oil production, and realizing environmental benefits.
Question 3. Regarding the World Bank Gas Flaring Reduction
Initiative, where will the decision--as to whether or not the U.S. will
sign on--be made--the Department of State, DOE or the Administration/
White House? Who will make this decision? And when?
Answer. The Department of Energy (DOE) is the lead agency and is in
discussions with other U.S. Government entities, including White House
offices and the Department of State, regarding the nature and scope of
U.S. participation. We will keep you apprised of our progress.
Responses to Questions From Senator Murkowski
barriers to the export of clean energy technologies
Question 1. What are the principal barriers to deploying existing
technologies in developing countries?
Answer. The private sector has indicated that one of the greatest
challenges to exporting clean energy technologies to developing and
transitional economies is often the lack of the necessary energy,
transparency and environmental regulatory structures needed to build
capacity in partner countries, create public-private partnerships, and
disseminate information. Knowledge of the benefits of clean energy
technologies and the know-how to use them are also often lacking.
In addition, the private sector has indicated that one of the
greatest challenges to exporting clean energy technologies comes not
from U.S. government regulation, but from competition from foreign
companies that receive a higher level of export promotion support from
their government. For instance, in 1998, Germany spent 17 cents per
thousand U.S. dollars of GDP on export promotion and France spent 16
cents. By contrast, the United States spent only half of one cent.
Question 2. What additional mechanisms, policies, institutions or
funding are necessary in the U.S. to achieve greater success (e.g. loan
guarantees for projects)? In host countries?
Answer. Consultations with private sector representatives over the
past several months indicate that the U.S. private sector has
identified areas where the U.S. Government can help accelerate clean
energy technology. These areas include:
assistance to developing countries in implementing a policy,
legal, and regulatory framework that will be more receptive to
clean energy technologies and foreign investors;
assistance in financial packaging so that developing
countries find U.S. clean energy technologies as inexpensive as
alternatives being offered by competing countries;
access to government risk-sharing partnerships in promising
but uncertain markets, including financial and technical
assistance;
assistance in removing barriers to the completion of
specific field projects where U.S. government intervention may
enable closure; and
participation in discussions with regard to the application
of government funds in support of export promotion programs.
In many cases, the relative importance of these different areas of
support may differ between larger and smaller firms.
Question 3. When will the 5-year plan for the Clean Energy
Technology Exports (CETE) program be complete?
Answer. The CETE 5-year strategic plan is completed and has been
approved by all participating agencies and OMB. It is expected that the
strategic plan will shortly be transmitted to Congress.
Question 4. Can CETE function usefully as a single organizing
program for all international technology transfer activities?
Answer. It is possible that CETE could function as a single
organizing program for all international technology transfer activities
because it is a senior-level, multiagency, multi-technology partnership
that combines the resources of the U.S. federal government and the
capabilities of the U.S. private sector to facilitate the export of
clean energy technologies abroad, but it is not certain that it can
meet all the needs of the various tech transfer programs. One thing
seems obvious: CETE can go a long way toward helping to organize many
of these tech transfer activities.
CETE focuses on three categories of action: (1) establishing
effective structures for collaboration; (2) assisting host governments
in establishing the investment frameworks that will be more receptive
to clean energy technologies; and (3) enhancing the competitiveness of
U.S. technologies and services in international clean energy technology
markets.
In response to input from industry representatives, CETE will
include three major categories of program elements: (1) timely
assistance to industry in solving problems with current clean energy
technology projects in developing countries; one of the mechanisms used
will be a Project Assistance Team; (2) ``fast track'' mechanisms for
facilitating and assisting industry with new projects where a federal
government partnership is requested, such as in financial packaging;
and (3) multi-agency CETE ``signature initiatives'' originated by the
CETE agencies, in consultation with industry and other affected
parties.
CETE will be implemented by the interagency Working Group at a high
level of agency leadership, which will approve CETE program activities,
approve the framework for assessing program performance, commit agency
support of CETE, and submit an annual report to Congress. The Working
Group will be assisted by an external Federal Advisory Committee (FAC),
which will advise the Working Group regarding the appropriateness of
the portfolio of activities for achieving program objectives, assist in
assuring effective linkages with U.S. nongovernmental partners,
annually evaluate the progress of the CETE program, and produce a
publicly available annual report to the Working Group.
Question 5. If not, how can these programs be coordinated to
maximize success and reduce overlap?
Answer. As outlined in the response to Question Four, it is
possible that CETE could function as a single organizing program for
all international technology transfer activities because it is a
senior-level, multi-agency, multi-technology partnership, but it is not
certain that it can meet all the needs of the various tech transfer
program's.
Question 6. What is the status of the 90+ clean energy partnership
agreements negotiated by DOE with other countries?
Answer. These agreements are active and cooperation is ongoing.
Information can be provided on a specific agreement if desired.
Question 7. How do these partnerships fit into broader DOE policy
goals regarding technology transfer?
Answer. These agreements promote cooperation in the development and
deployment of clean-energy technologies and help create receptive
import markets in which these technologies can compete.
Question 8. What activities are generally carried out under each?
Answer. Currently the Office of Policy and International Affairs
(PI) and DOE program offices participate in many clean-energy
technology agreements. These agreements pertain to energy and
environmental security, energy sector reforms in foreign countries,
clean energy development and deployment, and nuclear security. PI
serves as the primary Department of Energy (DOE) point of contact for
international relations with foreign countries and international
organizations and works with DOE program offices to leverage resources
and organize activities that support our energy and foreign policy
objectives. Examples of such agreements include:
With China, DOE signed a Statement of Work with the Ministry
of Science and Technology in China in 1998 to develop an energy
efficient building demonstration project. The project will
demonstrate, in part, the role that U.S. energy efficient and
renewable energy technologies can play in reducing the demand
for energy in China. The construction of the building has
begun. Under the project, China will provide the funding for
the base building, while the U.S. private sector will
contribute the incremental costs due to the energy
improvements.
In India, DOE's National Renewable Energy Laboratory (NREL)
has been engaged with India's Solar Research Center (SRC) since
1993. The principal objectives were to help strengthen joint
U.S./India capacities for energy technology innovation, promote
technologies to increase energy conservation, and promote
technologies for a cleaner energy supply. Under the Memorandum
of Understanding (MOU) between NREL and SRC, concluded in 2000,
DOE anticipates a resumption of, and enhanced cooperation in,
renewable energy development and utilization between DOE and
SRC, as well as other institutions in the U.S. and in India.
The MOU, together with a resumption of fossil energy
cooperative projects under the bilateral Coal Advisory Group,
focused primarily on R&D capacity building to address
combustion and environmental issues related to coal-fired power
generation such as combustion efficiency, coal cleaning, and
fly ash characterization and utilization. These activities are
anticipated to have a beneficial local and global environmental
impact.
DOE also is working toward the deployment of clean energy in
Peru. In July 2001, Lima, Peru, inaugurated its ``Clean Cities
Peru'' program under a bilateral agreement between DOE and
Peru's Ministry of Energy and Mines. The signed Memorandum of
Understanding focuses heavily on natural gas use, and includes
collaboration in the areas of energy planning and analysis,
natural gas markets, pricing and deregulation, distributed
generation technologies using natural gas (such as fuel cells),
and planning for the ``Clean Cities Peru'' program and the
future use of natural gas in the transport sector.
Question 9. What is DOE doing to remove the major obstacles to
encouraging the increased production of indigenous energy supplies and
the more efficient use of energy throughout North America and Latin
America?
Answer. Both bilaterally and multilaterally, the Department of
Energy has been actively involved in promoting Western Hemisphere
energy cooperation, including through policy, scientific, and technical
consultations and technology demonstration and deployment activities
with Brazil, Canada, Mexico, and Venezuela, to encourage the removal of
barriers to increased energy production, energy efficiency, and energy
trade. Through the North American Energy Working Group, which the
Department of Energy co-leads with Natural Resources Canada and the
Mexican Secretariat of Energy, we are working to more fully more
integrate energy markets and to identify and remove barriers to
increased energy production and trade. The Department is also working
through public-private dialogues, including industry roundtables and
advocacy activities for U.S. companies, to encourage the implementation
of governmental policies and procedures that will attract increased
foreign direct investment.
Question 10. What are DOE's plans to foster greater cooperation
among the countries in the Western Hemisphere on issues relating to
energy production, cooperation, technology transfer, and sustainable
energy policies?
Answer. Bilaterally and multilaterally, including through
interactions with other U.S. agencies and international financial
organizations, the Department of Energy plans to enhance existing
relationships with key countries such as Brazil, Canada, Mexico, and
Venezuela, and formalize relationships with other countries on energy
policy, regulatory issues, and science and technology activities to
promote the implementation of sustainable energy policies and to
attract foreign investment to support expanded energy production and
efficient energy practices.
The Department will also continue to work closely with the private
sector to identify opportunities in which U.S. energy firms can help
explore and develop oil and gas resources in various Western Hemisphere
countries and provide technical services to promote enhanced efficiency
and to address environmental issues.