and i don't pretend that i know this, but you folks are more sophisticated but let me give you an example of the production tax credit. i think it was extremely important in this infant industry of wind. i don't have any doubt about that. what i don't know is how important it really is in the future and how much you can justify at what level because the goal was to buy down costs, to get an infant industry going, and that has happened. now, i can't tell you. i don't have the information on have we reached that sort of level. that is a very useful thing to the future of this country and the international competition and our need for environment and everything else. i don't have any doubt about that, but i don't think it deserves a permanent long-term guarantee that every kilowatt hour gets subsidized. that just means we're subsidizing energy consumption which in the long run is not the smartest policy. the same applies to the ethanol tax credit. once you went to a mandate, why would you engage in double policy that subsidizes as well as mandates, and wind, we have a

number of mandates in a number of states. the rps, so one of the problems you have is not only do you need to look at comparative things, but you need to see what other policies at the federal or state level are in place. now, frankly at the moment, all of these policies are politically under attack by various forces and various states and around there so i don't know what the outcome will be. i've only made your -- the answer harder, but i don't honestly believe that the notion of whether it's permanent or impermanent is the answer. frankly i think all of these things need radical intense review about every five years anyway. >> dr. jorgenson, i know my time is up, and if you two can give me your take on the level playing field. >> with the chairman's indulgence, senator wyden, i'd like to commend you and your colleagues for your excellent work on tax reform. i think we all need to keep in mind that the tax reform act of 1986 was the result of another

bipartisan effort, and i'd like to commend to you the consideration of taxes on energy use which is not part of what you just described. in order to have a truly level playing field, we need to recognize the environmental hidden costs associated with a combustion of fossil fuels. taxes based on energy use are going to favor renewables permanently. they are going to favor natural gas permanently. they are going to provide a fair tax on petroleum permanently, and they are going to recognize the hidden costs associated with coal. we're talking about 1.5% of the gdp for that kind of a level playing field. >> mr. hamm, quickly. >> good question on the double standard. things have always been double

standards. >> very briefly, mr. hamm. i've got senators who want to speak. >> okay. you know, we brought a case here in d.c. at the commerce department one time when we was being dumped on by venezuela and other countries, dumping oil in here below their cost of reduction and it was rejected even though everything else could have gone forward, but t with oil, and subsidies, just one short comment, you know, you talked about credits and subsidies. i've driven 17 draw holes in a row, and let me tell you webster says that subsidies is a payment, and i must have gone to the wrong window because nobody paid me. >> thank you, mr. chairman. >> thank you. senator snowe. >> thank you, mr. chairman, thank you for holding this hearing, and i want to welcome the former colleagues, senator nickles and congressman sharp with whom i served in the house

of representatives and who have had distinguished careers and contributed much to the issues that we're discussing here today, bet on energy and on tax policy, and we're very fortunate to have this extraordinary panel with such broad expertise in this critical area which is regrettable we don't even have a national energy policy. the last time we marked up energy bill was in 2007 here in the finance committee when oil per barrel -- cost of ail per barrel was about $60, and today it averages $86. last year it was upwards of $95 which is the issue that i want to get to today with respect to tax reform. and to what degree do you believe that we should have any tax credits for incentives for energy efficiency and conservation because i happen to think that you can maximize i

think the investments in this country and certainly on the part of the consumers. if they have the ability and opportunity to make those investments and, you know, weatherizing their home, providing insulation, providing new forms of technology that serve, it's certainly proven to be very beneficial. consumers last year paid the most on energy in the history of our country, $650 billion, and so while we've seen the highest levels of oil and natural gas production in 14 years, we're also seeing the highest consumer costs in the history our country. and i know that's true in maine. the "new york times" a few months ago did a front-page story on a couple who virtually, you very little income, $1,200 a month, and yet their home heating bill was $3,600 for the season, and a company came in and volunteered to insulate their house, and they were able to improve the

efficiency by 46% and saved more than $1,200 with respect to their energy bill. the point is i think that we need to provide some type of tax yesterday its, or, on the other hand, if we have overall tax reform which i hope we will, long overdue, how low do the tax rates have to go that would benefit consumers to make these investments? otherwise, if they didn't benefit from tax credits. you know, i've had tax credits for energy efficiency, and, unfortunately, it got reduced to $500. when it was in the stimulus plan, it was up to 1,500 at a 20% tax credit of the overall cost and it was a huge bonanza for many people in maine because we have the oldest housing stock in the country. and so people who did make those investments, because it was precisely that incentive, and i

happen to think we should be encouraging that, but i'd like to hear from you. if we don't have these types of tax credits, how low do the tax rates have to go in overall tax reform that could accommodate this? we provide 85% tax credits for companies, production for oil and gas companies, and yet only 20% essentially, you know, of any type of tax credits for individuals. senator nickles? >> you don't really want my answer, do you? >> no. >> i'm not a big fan of tax credits, but the difference would be, one, you mentioned comparing companies to individuals. one is certainly a subsidy for individuals. you're writing a check for the individual. you're paying 20% of the cost. we're not asking the government to pay 80% of the cost of drilling a well. there's a difference. that's not a subsidy in my opinion, but the good news is,

senator snowe, and i -- i think help is on the way. i think the lower natural gas prices, the marcellus field in the northeast is one of the most productive fields in the world. it will grow. it will grow substantially. natural gas will have a competitive advantage in the united states. i believe harold hamm or somebody or maybe congressman sharp mentioned the fact that natural gas is selling for the equivalent of about $12 to $20 per barrel, as or $2 per mcf or 2.50 per mcf, compared to europe which is five times as much, six times as much, eight times as much and we have a competitive advantage for your industries now, natural gas being much, much cheaper. i know a lot of the homes in maine and northeast are on fuel oils, not natural gas, but my guess is conversions will take place and there will be a

significant savings that homeowners will enjoy for decades. >> yeah. we have very limited in maine, and it costs -- it run the pipeline about $1 million a mile, so, i mean, we have to have incentives in that regard. there are some areas in which they are making decisions to do it, but obviously it's not pervasive. i mean, we're the most dependant state in the country on home heating oil. >> i kind of remember that. i remember your many, many efforts for low-income energy assistance over the years and wrestling with you on some of those issues on the budget committee and so on, and i compliment you for your effort and for your representation. i do think though the network expansion through the distribution lines is increasing the pipes throughout the connections so more and more people can take advantage of this very abundant, plentiful, cheap resource that we have in the united states. >> congressman sharp? >> well, senator, i certainly, one, believe it's important in this nation for us to put an

emphasis on efficiency for economic as well as environmental reasons, around certainly if we're going to have a tax system as it is today that's stacked full of all kinds of incentives, this is a good thing to do, but i don't think that this is the best long-term strategy. for one we need to help americans understand there are going to be radical shifts in price and they need to prepare for it as they make home decisions and all kinds of others and pretend to otherwise undercuts them and that's not what you've been doing, but i've been suggesting that that is what often happens. the second thing is if we're going to look at these incentives you know better than i do that there are quite different impacts on homeowners and different could be summers. depends on where you are. did i buy my home and it's upgraded or did i pay for all the upgrade or am i going to get the taxpayer to pay for my upgrades and then we get into the incentives -- i think they have all now expired -- for purchasing vehicles that were huge from an individual's point

of view. i don't think they can be justified in terms of helping the consumer in that case. i think the only legitimate justification is the effort to try to bring some new technologies in the market or to bring, you know, an industry in the place but to be frank about it i prefer the general approach that dr. jorgenson has been which helps us answer some of these broader questions. >> senator, i think we have to recognize that efficiency is an engineering concept, a technical concept, and i think that this committee ought to shift its focus to cost effectiveness, in other words, making the best use of every taxpayer dollar. now, addressing the question you raised about efficiency and conservation. the price system works. it produces massive energy conservation. oil use in this country has

plummeted over a period of extending over decades. it's now 50% of what it was as recently as 1970s. that's all due to energy prices. prices work in the home fuel market as congressman just reminded us. i'm reading from a publication. energy information administration which i quoted earlier. i'm looking at u.s. henry hub natural gas price histories. my geography isn't all that great, and it certainly isn't very recent. i believe the henry hub is in the state of oklahoma. that is an area where prices of natural gas were as high as $12.30 1,000 cubic feet as recently as 2008 in the midst of the oil price run-up, and as senator nickles reminded us, it's now $2.43.

that's the figure from may 2012 which is the latest figure. we have to use the price system. that's the whole idea of using a tax neutral approach in order to achieve our energy goals, just like our other goals, and the price system is working, senator. >> your time has expired. >> thank you. >> we can go back if you want, another round. >> thank you, mr. chairman. >> senator carper? >> thank you. i just want to say to senator nickles, my old xadry, young xadry and congressman sharp, a good friend from the house. great to see both of you. dr. jorgenson, i don't know either you or mr. hamm well, but if you two are half as good as i'm hearing from my colleagues, this is a great panel, and we're delete that had you're here today. i want to follow up a little bit on what senator coburn was saying earlier. i think there's reason to be

optimistic about the future of our country, a number of reasons, but one of those is, and he alluded -- we have been for some time the saudi arabia of coal. we are now apparently the saurd sawed of natural gas. i understand that we have become a net exporter of oil, and while we're not the top producer of oil in the world, i think we might be number three or so, but we apparently have more drills going today. wells producing today than i think maybe the rest of the world combined which is pretty amazing. i chair a subcommittee that deals with nuclear safety, and we have four brand new nuclear power plants being built in this country for the first time in 25 years, and i'm encouraged with the technology and the safety of the technology that it provides. cafe, we've implemented -- adopted cafe legislation, fuel efficiency for fuels in 2007. senator sharp, congressman

sharp, that was something you had a whole lot of interest in, and we appreciate your help on that legislation, but we're ramping up fuel efficiency standards for folks to a fleet average of 36 miles to the gallon by 2016 and over 50 miles per gallon about a decade after that. our friends from ge i think are on line for building a new solar energy product out in colorado that is going to be grid parity by 2016, and we've actually had the ability to use natural gas, not to supplant coal, make our plants safer and cleaner and a lot of our large vehicles to use cleaner fuel. that's all pretty encouraging stuff, very encouraging stuff. on the -- we've seen across the country windmill farms deployed.

they are producing a lot of electricity. senator snowe and i have been working on a -- an idea to try to incentivize the building of windmill farms off of the east coast to capture the wind and use a lot of that to power some of the hybrid vehicles that are going to be built in the decade to come. one of our ideas is to say on. investment tax credit, rather than just providing a production tax credit which is what we used to innocecentivize the building windmills on shore, what we're suggesting is a different kind of investment tax credit which would be good for a limited period of time, a limited offer, and it would basically say the first 3,000 megawatts of generating capacity developed off of our coast would be the -- however many windmill farms are developed, whoever went to 3,000

megawatts, that's it, the tax credit goes away but the idea is to get it started to show that we can do this and do it successful successfully. let me ask you, dr. jorgenson and congressman sharp, if you could just respond to that idea. if we rely on production tax credit, we're not going to build any windmill farms off of the u.s. any time soon. the incentive tax credit is what is needed. as i said a limited time offer. what do you think? dr. jorgenson, congressman sharp. >> my only question, senator, is how are you going to pay for this? that's all. i think that we have to recognize the fact that the budgetary climate, like the world oil market, has undergone a major change, and we need to take that into account when we're discussing tax policy and when we're formulating tax policy and when we're enacting tax policy. and so i think we need to ask ourselves is the market doing the job?

is it sufficient to bring forward these resources that you're talking about, and i think the fact is that it is bringing forward enormous resources in oil and natural gas and in renewables. there are many applications of renewables, mainly wind energy, which you and the senator from maine have been focusing on, which are cost effective, independently of any sort of tax breaks and higher oil prices will make them cost effective for a very, very long period of time. >> mm-hmm. congressman sharp? >> senator, i'm a great admirer of all your considerable work on these issues. i'm not really prepared to say on what you're asking because we know it's a lot higher cost to do offshore than it is onshore, and i think there is a serious cost effectiveness question that i'm sure you're looking at. as to just how far we ought to go. of course, you've already taken into account that you assume

that this is an infant industry, that you're only trying to get started. >> to get started. >> but i'm not sure that we have to learn about offshore since so much is going on in europe that i suspect that the question i think we will from time to time need to ask is things that we see happening in china, we see happening in denmark, we see happening in great britain. these can be a benefit to us, not always competitive to us. we can buy up the technologies, so i'm not quick to endorse that everything has to be done in america, much as i love this country and believe we ought tonight source of a lot of this technology. >> i would add that with respect to nuclear power, one of the reasons why we're building some new nuclear power plants, as you know, is because we've provided some financial assistance and encouragement through -- through our -- through the federal government. let me come back to something that you say, dr. jorgenson, if

i could. i think you've said we've seen a sea change in the price of oil, and here in the country we produce about 2% of the world's oil, have 2% of the world's known oil reserves and use about 20% what are the implications for the price of oil across the world. i don't think your mic is ob. >> the point is that china and india and countries that have discovered the key to economic growth are going to be the source of demand for a very, very long time to come.

that is what is behind the change in world petroleum markets. we will respond to it by having more energy efficient vehicles. that is what the price system is going to do and it is going to push us strongly in the direction of gas available in large quantities due to the highly skilled work that has been done by the colleagues in the oil and gas industry. >> now the industry look at the ramp up in the fuel efficiency standards in the next 15 years. i think they have a concern, since we don't have a high tax

federal tax or state taxes really, on motor fuels, their concern within the industry that there is not going to be an incentive, the price of oil will go down and, you need to keep in place the tax credits that we have in place -- would your message be to the auto companies chin up? >> let's focus on the tax policy. my proposal that i described here would raise the taxes at the federal level on motor fuels by 39 cents per gallon at the pump. over what period of time?

>> this is an incentive that will be permanent. >> we know that in terms of the period of time we are talking about 39 cents per gallon. you probably don't want to do this. >> not before november. you keep talking about the pricing determine technologies and development. the question comes down to price

and volatility. you are saying that there is not much that can be done. look at coal. natural gas is rising and the world is so complicated and there are so many different dynamics worldwide. many of them unexpected. i presume you are saying let prize decide. you are saying let them do what they can and develop what they can given the price signals they foresee. you said we need to have a diverse source of supply. things change including technology and supply and tax policy. so we need diversity.

>> we have a very competitive around the senators here that are present so i think we need markets work but we've got to recognize the fact that the government has a role and i pried to spell out what that should be.

>> well, certainly, i think the marketplace has worked you know, brings down the price of oil we see that. >> but the environmental cost of foz i fossil fuels as i see it in our business at least are minimal. we are drilling up there and not disturbing much of the land. we had small cost reproduction of the fossil fuels as far as environmental.

i want to thank all four of you for being here today. >> without which i don't think we would be as far along as we are. the real question that we have, is should we have any of these tax expenditures or reductions in lou of the fact that we might reduce corporate tax breaks so that it might take care of it. in your industry it is a special industry. there is a lot of risk involved and a lot of money involved. you go broke in your bus easier than any business i know. i want to compliment you. we would like you to weigh in and help us to understand what we need to do with regard to tax

reform. professor, i have enjoyed your remarks today. it is great to see you again and don, we appreciate all of what you have had to say. this has been an interesting hearing tore mfor me. >> i'm thinking the tremendous, but also the community schools, waste water treatment, clean water, housing, huge. adverse impacts and these are positive impacts huge adverse impacts and law enforcement can't keep up with them. so, i do think we have a role to

play together with respect to those provisions. let me ask you this, um, is there anything else anybody wants to say or has anybody said anything outrageous that needs a response? on either side of the table? >> i realize everybody else here knew that. i had to read it. >> thank you everybody. this is very complex important subject. and not the last time we are dealing with it. we need to keep working together. thank you for taking the time. the meeting is ajourned.