in eastern montana, on the edge of north dakota, my colleague to my right knows this all too well, our oil and gas fields are going through a renaissance. technology has unleashed the oil and gas potential and created thousands of jobs. in central montana, wind turbine blades harness the power of the chinook winds. wind farms now power 3,000 homes and three new wind farms are being built. in western montana, biomass power adds saw mills to the grid. montana also produces fortified low sulfur coal each year and we're leading the way on carbon capture and sequestration. national energy policy, i think, should replicate a lot of this mix. if we don't develop u.s. energy policy, it will continue to be subject to the whims of foreign dictators and the sudden spikes

in the price of oil. we'll be one hurricane or one regime change away from $6 gasoline. that would be disastrous for our economy. the $1 increase in the price of gasoline costs americans $110 billion a year. we're all too aware of that in our state. the tax code is an important driver of energy policy. tax incentives, as i mentioned, provide 85% of the energy sector's federal support. these provision cover almost every foreseeable form of energy, nuclear, oil, gas, coal, wind, solar, and geothermal. tax provisions also cover a wide variety of energy use, from home appliances to running massive factories. but these incentives can be improved. currently the type and level of tax incentives varies for different technologies. some incentives are temporary,

others permanent. in some cases, there are multiple incentives for the same technology. the result is inefficiency. right now we're providing direct incentives to select technologies and industries. perhaps we should adopt a more technology-neutral approach and stop playing favorites. that way we could still help new technology develop. tax reform is an opportunity for the energy sector to make real progress. it can move us further from foreign oil, it can lead us down a road to a diverse, clean, and secure energy resource. so let us seize the opportunity, as we develop domestic energy, let's also focus on efficiency, try to make the current code

less complex. let's use the firm to make sure our company has a more sure and diverse energy supply. and let us find things worth doing. let us do them right. senator hatch? >> well, thank you, mr. chairman. i want to thank the chairman for once again holding a critical hearing on tax reform. we've had a large number of these hearings and they've been very helpful, especially as we go into this next year and the remaining part of this year. it is essential that we continue these discussions in pursuit of reforming a tax code, which is complicated, unfair, and difficult to administer. we cannot afford as a nation a tax code that prevents our full potential for economic growth. looking at the witnesses, it is clear that we have a good representation of different viewpoints about the various energy sources addressed throughout the tax code itself. my hope is that this hearing will contribute to our goal of comprehensive tax reform in the near future. it is important to conduct our

examination today with president reagan's three criteria for tax reform as our guideposts. we will be looking at the fairness of the system, we will be looking at the efficiency of the system with a particular emphasis on its anti-growth features, and we will be looking at the complexity of the current tax code. if we keep these principles in mind, i am optimistic that this committee will be in a position to reform our tax code in a way that is better for families, businesses, and our economy. i know many of my colleagues on both sides of the aisle hope to achieve a tax reform that lowers rates while broadening the tax base. however, from my perspective, there is another fixture that will be essential for any successful tax reform. tax reform should be about tax reform, not about deficit reduction. we should be simplifying our tax code and lowering rates to create a more fair system that generates the economic growth necessary to generate jobs and

revenue itself. it would be a mistake to call tax increases tax reform, and use that increased revenue to achieve deficit reduction rather than pro-growth rate reductions. today, we are prospectively focusing on what role, if any, energy policy should play in the tax code. energy policy has been creeping into the tax code at an exponential rate. yesterday, i heard the chairman compare the tax code to the hydra, the hundred-headed creature of greek mythology. each time you cut off one head, two more grow back. i believe this analogy is particularly apt with with respect to energy tax provisions. i hope today that we can have an open debate about whether going forward, there is a role for energy policy in the tax code, and if so what that role should be. i could keep talking, but there is no tax incentive for producing a lot of hot air, so i'll just let the witnesses get to. and i want to thank you, again, mr. chairman, and i look forward

to hearing from our panel here toda today. >> thank you, senator. it's now my honor to introduce our panel, especially honored to introduce our first witness. don nickles, for 24 years, represented the great state of oklahoma, a valuable member of this committee, and i just welcome you back, don. it's great seeing you. i particularly represent your decisive and persistent and perceptive points of view. appreciate your return. next is the honorable phil sharp. phil is currently the president of resources for the future, and for 20 years represented indiana's second district in the u.s. house. representatives, as a matter of fact, phil and i were freshman in the house at watergate class,

1974. very fond memories of that, especially you, phil. our third witness dr. jorgensen. as it turns out, dr. jorgensen and i are fellow alumni from the same high school and former chairman of this committee bill roth is an alumnus from that same high school but there are three of us. two years in a row, we didn't make state champions in football, but runners up two years in a row. >> had a great basketball team, though. >> back in your era, they won the championships. finally, harold hamm, a position he's served in since its inception in 1967. thank you all for coming very

much and y'all know our practice, i assume you do, certainly you do, don. so speak for five or six minutes. go ahead, don. glad to have you here. and let 'er rip. life's short. pull no punches. >> mr. chairman, thank you. it's a pleasure to be on the panel and join my colleagues on the panel, especially harold hamm, who has built one heck of a company, doing so much in oklahoma, and they've added hundreds and hundreds of jobs and a lot of valuable resources to this country. so it's a pleasure to join him as well. mr. chairman, you mentioned talking about tax reform and doing it right, i remember being in this body and particularly this committee, and in my 24 years in the senate, i love this committee. this committee and those that

got on it. and it takes a long time to get on the committee, but it's a great committee. and you're doing really great work. and especially if the senate works, and so i'm a big advocate for regular order, and marking up. and that's the tradition of this committee. is marking up bills and having lots of amendments and lots of debate. and we did that on countless bills. i remember in some of the beth time in my surface in the senate, is when we had tax bills and we considered hundreds and hundreds of amendments in the committee and/or on the floor. so i urge you in the process portion of this, whether you're talking about extenders, or talking about trying to avoid the calamity of the end of this year, beginning next year, or restructuring the tax code, regular order is the process. and in that way the senate works and it makes the senate such a special place to be. you also mentioned doing it right, and you're talking about energy taxation. i ran for senate because of the

windfall profits tax. if congress hadn't passed that in '79, i wouldn't have been here. but it motivated me. i was a state senator at the time, but i disagreed with that so strongly. so when i say do it right, i think we're talking about good tax policy, and good tax policies, good economics makes sense. you don't have to pick winners and choosers. the windfall profits taxes encouraged imports. how absurd. we finally got rid of it, but it was a terrible idea. there are some other bad ideas out there. the administration talked about, let's do it with idcs. they had a comment in their statement. they said that idcs -- expensing of idcs like other oil and gas preferences, the administration proposes to repeal, by encouraging more investment in the oil and gas industry than would occur. is detrimental to the long-term

energy security and also inconsistent with the administration's policy of reducing carbon admission. what a crazy statement. crazy statement. a good tax policy allows expensing of wages. the tax code, you should allow any industry to expense the wages that are incurred in the you're that they're made. not necessarily a credit. this is not a credit. this is not a credit against taxes, it's expensing. so it's expensing nonrecoverable business expense. you ought to be able to expense that. so i defend that. they also call 199 a subsidy to big oil. hogwash. i was on the committee when we created section 199, a lower corporate rate for manufacturers. and some of you may remember, i was a manufacturer before coming to the senate with, but i argued against it, and i still think it's bad policy. i think you ought to have a uniform, so when you're reforming the tax code, have it be uniform corporate tax rate.

not a lower rate for manufacturers versus service companies or other companies. it's very confusing, very difficult. and in past law with we said, well, all manufacturers get it except for oil. oh, we're not going to give them the full benefit of section 199, which is basically a three-point reduction in corporate rate. big oil only gets a couple of points of it. but it's bad policy. so i urge you to have a uniform corporate rate. and i might mention too, there are some companies that have both. they are manufacturers, there are financial companies, they're one in the same. they have both. so then they have all this accounting challenge, trying to figure out what is what. so, anyway, where you're trying to come up with a more uniform lower, more competitive rate, and i think everybody, democrats and republicans are talking about that, god bless you, keep it up. a lower rate, a more competitive rate, a more international rate

makes good, common sense and to eliminate exemptions, deductions, and credits along the way -- not exemptions, but credits makes sense. tax oil income once. we have a lot of income that's not taxed. so you can help lower the rate by doing so. there's also a proposal eliminating dual capacity. and if you want to have u.s.-headquartered oil companies. if you eliminate that, you're going to double the tax of your foreign earnings, and the net result is total, british petroleum, other foreign countries are going to be winning all the international deals. and that would just really be a dumb thing for us to do. very shortsighted. and i could go on, mr. chairman. i just think making good tax policy isn't good energy policy, it's good tax policy. good tax policy would apply to all industries and i would encourage the committee to advance its work. i compliment the committee to do it and i encourage you for as

much as can be done this year, to avoid the end-year challenges and for totally reforming the system, i encourage along that way. i think it's very exciting and hopefully you will be successful. this committee, for it to be successful, this committee has to lead. and i hope and pray that you do. >> thank you, don. i would like to have you back. >> thank you. >> you'd be a great addition to this committee. >> congressman sharp. it's an independent think tank, nonpartisan, nonlobbied organization, and the people in it are a lot smarter than i am. and so these are strictly my comments or my experience and on a variety of commission as well as here in the house of representatives. let me quickly say, my plan just to provide a few contextual things about where we are in

public policy, on energy, as well as where the markets are. this committee, many of you are way ahead on these issues and this is probably not particularly relevant, but i think it's very important in the public discussion that we try to get better perspective on what really goes on on energy policy and within our markets. now, let me say, obviously, as everyone here knows, energy is absolutely essential to our modern economy and to any economic growth we want to have. it also has implications for our national security and it also has consequences for health, safety, and the environment. and the practical problem is there is no policy, there is no set of policies, it will serve all of these goals, so we're always in conflict, and it comes over this committee. and frankly, the american people and others should reduce some of their expectations about what can be accomplished and how it can all fit together logically. this is a vast country, this is a vast problem, and we're going to come at it over time in many different ways. let me quickly indicate,

however, that while there are many things we have done and tried and some failed and some worked, it's very important to remember that one of the fundamentals about our energy policy, which is true through democratic and republican administrations in congress, is, is that we rely overwhelmingly on private capital to build, produce, and distribute our energy in this country. and nobody that i'm aware of wants to stop doing that. and that means is it's a major challenge to what the government can actually efficiently do, because you're always trying to change, incentivize, or restrict behavior by investors or by consumers, and many of the initiatives that are taken do not pay off because they involve millions of decisions by consumers and thousands of decisions by investors that have something, are under pressures and other values at stake. with this limitation in mind, nonetheless, there are many things that do work and do help.

but let me quickly do a piece of the picture that the chairman already outlined, which is, our picture on energy continually changes, and we have a new picture today compared to where we were ten years ago, and it's very important that we recognize this change, partly to recognize it's going to continue to change and policy has to accept and work through those changes. first, we have a vast array of new technologies that have come into the marketplace in this decade. i don't care whether it's in oil production, gas production, solar, nuclear, or efficiencies and technologies and vehicles, it is amazing. and most of it was not predicted to happen by academics, by industry, or by a government when the turn of the century came about. many of these things were quite well known, but nobody expected them to take hold the way they did. second of all, we have a radical change in our supply of natural gas and the projected supply of natural gas. again, unanticipated at the beginning of the decade.

third, we have a decline, again, unpredicted, in our oil imports, which is viewed as very positive from a security standpoint, with a projection that it will continue if we don't mess it up. fourth, we have actually decline in our carbon dioxide emissions in this system with a projected minimal growth over the next decade. this is a positive development. some of it, of course, just the consequences of the unfortunate slowdown in the economy. but others represent, actually, improvements in efficiencies and fuel switching and other things that have gone on. more to be done in the view of many people on this front, but this is progress. now, why did this happen? let's remember the power of price at the outset, because we almost always want to deny it in public conversations in this country. first, we had a very high-rise in natural gas prices at the turn of the century. less than a decade ago. it was followed within a few years by a very high-rise in oil

prices with, and by the way, again, neither academic the government or the industry predicted -- a few individuals probably did, but they ended up to write their books after the fact. whether they knew it ahead of time is not clear. the truth is, that had a powerful impact on the behavior of consumers, investors, and government policy. second of all, obviously the entrepreneurial risk that people are willing to take like mr. hamm and others have been powerful, whether it's in powerful in the natural gas apply, in the new nuclear plant that is about to be built in this country, the in solar, in a whole bunch of resources. we require that entrepreneurism across the board if we're going to be effective. nobody in this group, i'm sure, would deny the importance of that. third reason for this change is because many of these technologies that came in the marketplace for production or for demand reduction were

actually the result of decades of research, some of it by the private sector, much of it supported in some level by the private sector, some of it in public sector like our national laboratories. it's very hard to unsort that mix of which is which, but nobody should misunderstand that both are important in government policy and government expenditure helped advance these technologies that now we have sucked into the marketplace. the fourth finding, there have, of course, been followses at federal and state level that have helped incentivize, and this committee itself has been very active in that, helped us in both efficient technologies and promoted adoption in the marketplace. many of these policies, i would suggest to you actually followed on the price increases that drove the incentives for the marketplace as well as the political incentive for congress and others to make decisions. now, let me suggest to you that why this picture is in my view a very positive development compared to where we were ten

years ago, obviously, it was marred in the past couple of years by that massive blowout in the gulf of mexico and marred by the events at fukushima. these are high-risk operations, we are in a position around the world where we do things bigs, we're going to be taking big risks, and we have to be smart to the extent we can mitigate. i think we have a serious responsibility, governments and industry, to minimize their impact. now, this new natural gas supply is the overwhelming development in our energy picture that was certainly unanticipated. and many people believe, and i certainly believe, this is a powerful economic benefit to this country. but we cannot mistake that there are major challenges in this development that have got to be taken seriously, whether they're impacts on air, on methane leakage, on water, and some in the industry are being extremely responsible about this, and

frankly, some are not. we have many players in this new and dynamic field, and government has to be smart and careful in the way it regulates, but we have to take seriously as the national petroleum counsel study of last summer makes very clear, this is very much of an industry along with other ngos and other involved in this, it's a federal advisory committee, as you folks well know, which says you've got to have responsible development, you've got to take these issues seriously for us to be able to capitalize and maintain a good thing. the other -- there are other challenges the iss s -- excuse chairman, i will stop with one more challenge, and this is not just changing the natural gas picture, this is changing the source of all natural gas sources in this country. and you need to think through what's going on undermined and what's not by this enormous development. sorry, mr. chairman. >> no problem. thanks very much, congressman. dr. jorgensen? you're next.

>> as the chairman told you, i'm a professor at harvard university. i taught in the department of economics there since 1969. i devoted a good part of my relatively lengthy career as an economist to the topics that we are here to debate today. and it's a very great privilege for me to participate in this panel and to join you in your deliberations. i would like to discuss three issues. to fix ideas, i'm going to associate a number with each one of them. and the first number that i would like you to remember is 1.5% of the gdp. what is this? a system of environmental taxes on fossil fuel combustion would generate revenues equal to 1.5%

of the gdp. this would be mainly a very substantial tax on coal, a much more limited tax on oil, and a minimal tax on natural gas. there would be no taxes on renewable forms of energy, like wind or solar. the 1.5% of the gdp does not, i want to emphasize, does not include any additional revenues from limiting or eliminating tax expenditures like the ones you're going to hear about today. let me then proceed to the second issue that i would like to discuss. that's the federal government budget. you've been told by dozens of economists inside and outside

the government that we'll be going off over a fiscal cliff at the end of this calendar year. the bush tax cuts of 2001 and 2003 are finally scheduled to sunset as we welcome in the new year. there's also the threat of sequestration, which was legislated by the congress in august of last year. and beyond that looms another fight over the debt limit. the height of respected director of the congressional budget office has told you that all of this will produce another recession. so the number i'd like you to remember here is 2% of the gdp. this is the difference between the federal revenue of 17% of the gdp in 2011, which is the last year for which we have real

numbers, and 19%, which is the long-term average of federal revenue in the gdp for the last 30 years. this is the minimum that i think we can expect that revenue will contribute to closing the budget gap that runs ahead of us. the third issue is comprehensive tax reform. representative hatch has reminded us that this is the subject of these hearings. the number there i'd like you to remember is 7 trillion. to paraphrase that great u.s. senator after whom this building is named, a trillion here and a trillion there, and pretty soon you're talking about real money. so what is the 7 trillion? this is the key line of impact of a carefully designed system

for comprehensive tax reform. 7 trillion is more than sufficient when added to our national wealth of 60 trillion, to put our labor force back to work, and to resolve our fiscal crisis. in short, it would enable us to achieve a fiscal policy that is sustainable. let he summarize. we're not here to debate energy policy alone. we're not here to debate comprehensive tax reform alone. we're not here to debate the federal government's budget alone. we're here to see how all three can be fitted together to solve our budget problem, to clean up our environment, and to give a

positive thrust to the growth of our long-ailing economy. thank you very much. >> thank you, doctor. in time, too. dr. hamm? mr. hamm? we'll call you doctor for now. mr. hamm? >> thanks, chairman baucus, ranking member hatch and members of the committee. it's an honor and a privilege for me to be here today. i'll be speaking on my own behalf, i'm not here on behalf of the romney campaign for which i serve as an energy adviser. it's been plenty of years before i was here speaking pfr this committee. senator david warren at that time was co-chairing of the committee, i believe, and spoke to him about a couple things that was mostly unknown, totally unconventional at the time. one of them was horizontal drilling and the other was the aspect of drilling into the source rocks themselves, or

shales, that might produce a vast amount of natural gas and talking about a temporary trigger, tax trigger, to advance that theory. well, that wasn't given. we did get a tax trigger, but over the last 20 years, we've seen those technologies developed and thank god we've come a long way since then. continental is a top tens liquids producer. we're 75% oil with last year's production, we focused on oil. with the bachen play, senator, started in montana, and that's where we started with the deep end of the pool is over in senator conrad's state over in north dakota, and we were one of the original players over there. and i might say that only here in america can a 13th child sharecrop return into the nation's