but he is laying the groundwork for a new tax code. he chaired a hearing looking at how taxes affect energy consumption and production. this is about two hours. we r hunter thompson once wrote, anything worth doing is worth doing right. i couldn't agree more. our country is at a pivotal moment in energy policy. we suspect ort in the right and we have never been so worthy of energy options and they're worth doing and they're worth doing right. thankfully, we're making progress, diverse feig our energy portfolio and we have an opportunity for tax reform to drive that progress further. when i first ran for congress, america was reeling from an oil

embargo. gas prices had doubled and at one point in 1974 20% of gas stations had no fuel at all. since then we have boosted a more diverse, efficient and productive energy policy. advances and technology mean more domestic oil and natural gas are available than ever before and we also have renewable and clean energy sources and we can do more. we're still, i think, too reliant on fossil-based energy sources. 94% of the energy used in the transportation sector comes from oil. only 10% of the electricity consumption is generated from renewable or clean energy resources. our country needs a diverse energy sector like we have on my home state of montana, let me brag a little bit. we are an energy state. we are one of a dozen states

that produce more energy than we consume. in eastern montana, next to north dakota, my colleague to my right knows this all too well because there is greater formation in north dakota than it is in montana. our oil and gas is going tlie's renaissance. technology is unleashed through our own gas potential and created thousands of jobs. in central montana, wind turbine blades aren't enough power and wind farms in montana power 100,000 homes and three new wind farms are being built and in western montana, it adds electricity to the grid. montana also produces 4 million to 5 million tons of sulfur and carbon, capture and sequestration and initial energy policy should replicate a lot of this mix. if we don't develop u.s. energy policy we'll continue the

subject to the whims of foreign dictators in the southern spikes of oil. we'll be one hurricane away from the gasoline. the $1 increase in the price of gasoline cost americans $110 billion a year. we are 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 support. these provisions cover every conceivable form of energy, nuclear, solar and geothermal. tax provisions also cover a wide variety of energy use from home appliances to running massive factories, but these incentives could be improved and level of tax incentives are various for different technologies.

some innocent i was are temporary and others permanent. some cases are the same incentives for multiple technology and the result is inefficiency. provisions that don't create jobs and improve the energy policy should be expired and repealed. we're providing select incentive, and perhaps we should adopt a more technology, neutral approach and stop playing favorites. >> that way, we can still help new energy technology develop, but let the market decide which ones stick. tax reform is an opportunity for the energy sector to make real progress. it can move us from foreign oil and lead us from a diverse, clean and secure energy resource. so let us seize the opportunity as we develop domestic energy. let's also focus on efficiency and try to make the code less

complex and use the tax reform to ensure the diverse energy supply and as mr. thompson wrote we'll find the things worth doing. let us do them right. senator hatch? >> thank you, mr. chairman. i want to thank the chairman for holding a critical hearing on tax reform. we've had a large number of these hearings and they've been very helpful and especially if we're going 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 to perform the potential for economic growth. looking at the witnesses, it's clear that we have a good representation of the different view points of the energy sources addressed throughout the tax code itself. my hope is that this hearing will contribute to our goal with

comprehensive tax reform in the near future. it is important to conduct our examination today with president reagan's free criteria with tax reforms as our guide post. we'll be looking at the fairness of the system. we will be looking at the efficiency of the system with the particular emphasis on its anti-growth features and we'll 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 it will be efficient for any successful tax reform. tax reforms 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 increase deficit reduction rather than pro-growth rate reductions. today we're 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 100-headed creature of greek mythology. each time you cut off one head, two more grow back. i believe this analogy is particularly apt with respect to energy tax provisions. i hope today we could have an open debate about whether going forward there was 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 hot air, so i'll let the witnesses keep going. >> thank you, senators. it is now my honor to introduce our panel. especially honored to introduce our first witness. don nickels, chairman and ceo of the nickels group, but for 24 years represented the great state of oklahoma, a valuable member of this committee, and i welcome you back, tom. it is great seeing you, and i particularly remember your incisive, persistent and perceptive points of view. appreciate that. next is honoral 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. as a matter of fact, phil and i were freshmen in the house of

the watergate class of 1974. very fond memories of that and especially of you, phil when you had a sharp fist, no pun intended with the members of the group. our third, dr. dale jorgen son, he's a samuel w. professor of harvard. as it turns out dr. jorgenson are fellow alumni from the fellow high school and former chairman of the committee bill roth as an alumnus from the same high school. there are three of us and it's a good school. two years in a row we didn't make the state championship football and we were runners up. >> and we had a great basketball team, though. >> back in your era they won. they won the championships and that is true. thank you. >> finally have mr. harold hamm, chairman of continental resources and he served since his inception since 1967.

thank you all for coming very much and we all know our practice, i assume you do. certainly you do, don. five, six minute, everybody, and utilizing all of your statements will be in the record. let her rip. i tell all witnesses, pull no punches and tell it like it is. life's short, you can't take it with you. go for it. >> mr. chairman, thank you. it's important for me to be on the panel and join my colleagues on the panel especially harold hamm who has built a heck of a company in oklahoma continental resources and doing much in oklahoma and montana and also in oklahoma and they've added hundreds and hundreds of jobs and valuable resources to this country and it's a pleasure to join him as well. mr. chairman, you mentioned 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. it's marking up bills and having lots of amendments and lots of debate and we did that on countless billis and remember in some of the best time of my service 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 and so i urge you in the process portion of this whether you're talking about extenders, whether you're talking about trying to avoid the calamity of the end of this year and the beginning of next year and restructuring the tax code, regular order is the process and that way the senate works and it makes the senate such a special place to be. and i also mentioned doing it right and you talk about energy

taxation and i ran for senate because of the windfall tax and if congress hadn't passed that in '79 i wouldn't have been here, but it motivated me and 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 policy is good economics makes sense. you don't have to pick winners. it discouraged domestic production and encouraged imports. how absurd. we finally got rid of it, but it was a terrible idea. there are some other bad ideas that are out there. the administration talked about let's do away with idcs. they had a comment in their statement saying that idcs, expensing of idcs like other oil and gas preferences, the administration proposed repealing markets by encouraging more gas under neutral system to the expensing of oil production

of gas to the long-term energy security and inconsistent with the administration's policy of reducing carbon emission. what a crazy statement. crazy statement. good tax policy allows expensing certainly of wages. with the tax code you should allow any industry that, and and it's expensing so it's expensing to expense that. so they also call 199 a subsidy to big oil. hogwash. i was on the committee when we created section 199 and the lower corporate rate for manufacturers and some of you may remember i was a manufacturer before coming to the senate, but i argued against it and i still think it's bad policy, and i think it ought to have a uniform and there was a

uniform corporate tax rate and not lower rate for manufacturers versus service companies or other companies. it's very confusing. very difficult and then in past law, all manufacturers get it except for oil, we're not going to give them the full benefit of the section 199 which is basically a three-point reduction in corporate rate. big oil and i guess a couple of points of it, but it's bad policy, so i urge you to you that there are some companies that have both and they're manufacturers and financial companies and they're one in the same and they have both. so then they have all of this cou accounting challenge trying to figure out what is what. when 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 and a competitive

international rate which probably means going to a territorial system makes good, common sense and to eliminate deductions, exemptions and credits along the way and not deductions and exemptions and credits makes sense. tax all income once and we have the income that's not taxed and you can help lower the rate by doing so. there's also a proposal eliminating dual capacity and not to say that if you wanted to have u.s. headquartered oil companies. if you eliminate that you'll tax the foreign earnings and as a result of that and the net result is total, british petroleum, and other foreign countries who will be winning all of the international deals and that would just really be a dumb thing for us to do and very short sighted and i can go on, mr. chairman, and i just think making good tax policy isn't good tax policy, good tax policy would apply to all industries and i would encourage the committee to advance this work

and i compliment the committee to do it and i encourage for as much as could be done this year to avoid the end year challenges and for reforming the system and i think it's very exciting and hopefully it 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 like to have you back. >> thank you. >> you'd be a great addition to this committee. >> congressman? >> thank you very much, mr. chairman. i'm delighted to be here and i must quickly say that i was head of resources for the future and it's an independent think tank and non-partisan and non-lobby organization and the people in it are a lot smarter than i am so these are strictly my comments from my experience and on a variety of commissions as well as here in the house of representatives. let me quickly say that my plan

is to provideal on where we are on public policy as well as where the markets are that many of you are way ahead on these issues and this is probably not particularly reg vent and i think it's very important that we try to get better perspective on what goes on with energy policy and with our markets. let me say, obviously, as everyone here knows, energy is absolutely essential to our modern economy and to any economic growth that we want to have. it also has implications for our national security and it also has health consequences for safetiet and environment and the problem is there's no policy and no set of policies and it will serve all of these goals who are always in conflict and it goes here and everywhere over it and frankly, the american people and others will reduce expectations about how it can fit together and we will come at it over time

in many different ways. let me quickly indicate that while there are many things that we've tried and some have failed and some worked. it's very important to remember that some of the fundamentals about our energy policy which is truth with the democratic and republican administration and congress 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 what that means is it's a major challenge to what the government can actually efficiently do because you're always trying to change and incentivize and restrict behavior by investors or by consumers and many of the initiatives that have taken do not pay off because they involve millions of decisions by consumers and thousands of decisions by investors that have something under pressures and other values at stake. with this limitation in mind

there are many things that do work and do help. let me quickly do a piece of the picture that the chairman already outlined which is the picture on energy continually changes and we have a new picture today compared to ten years ago and it is very important that we recognize this change, partly to recognize it will 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 and i don't care if it's in gas production, nuclear or solar and efficiencies in technologies and vehicles, it is amazing and most of it was not predicted to happen by academics, by india street or by government when the turn of the century came about. many of these things were quite well known and nobody expected them to take hold the way they did. second of all we have a radical change in the supply of the projected supply of natural gas

and again unanticipated in the beginning of the decade. we have a decline, again in our oil imports and it is viewed very positively from the security standpoint. fourth, we have declined in our carbon dioxide emissions in the system with the projected minimal growth over the next decade. this is a positive development, some of it, of course, is just the consequences of the unfortunate slowdown in the economy, but others represent actually improve ams uovements gone on, and more to be done on this front, but this is progress. now why did this happen? let's remember the power of price because we almost always want to deny it in private conversations in this country. we had high-rise at the turn of the century, it was followed by

a few years by a very high-rise in oil prices and by the way, again, neither academics, the government nor did the industry predicted a few individuals probably did, but they ended up to write their books and get rich after the fact or they knew it ahead of time, it is not clear. the truth is that had a powerful impact on consumers, investors and government policy. second of all, obviously the entrepreneurial risk that people are willing to take like mr. hamm and others had powerful whether it's oil and the natural gas supply and the new nuclear plant that is about to be built in this country in solar and a whole bunch of resources. we require that across the board. nobody in this group, i'm sure, would deny the importance of that. third, the reason for this change is because many of these technologies that came in the marketplace for production or

demand reduction were actually the result of decades of research, some of it by the private sector and much of it supported in some level by the public sector. some of it in public sector like the national laboratories. it is very hard to unsort that mix of which is which, but nobody should misunderstand that both are important in government expenditure and help advance these technologies that now we've sucked into the marketplace and the fourth finding, there of course, have been policies at the state and federal level that have helped incentivize in this community itself has been very active in that and in both the 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 on the marketplace as well as the political incentive for congress and others to make decisions. let me suggest to you that while this picture is, in my view, a

very positive development compared to where we were ten years ago. obviously it was in the last couple of years by the massive blow out in the gulf of mexico and marred by the events at fukushima. these are high-risk operations and we are in a position around the world where we do things big and we're taking big risks and we'll have to be smarter about how to mitigate those to the extent we can and i am one that does not walk away from all these risks and we have a serious responsibility in governments and industry to minimize their impact. the new gas supply is the overwhelming development in the energy picture which was certainly unanticipated and many people believe this is a you poorful economic benefit to this country and we cannot mistake there are major challenges in this development and we have to be taken seriously whether there are impacts on air and methane leakage and water and some in

the industry are being extremely responsible about this and we have many players in this new and dynamic field and government has to be smart and careful in the way it regulates and we have to take seriously as the national petroleum council study of last summer makes very clear and this is very much of an industry along with ngos and it's a federal advisory committee as you folks well know which said you've got to have responsible development and you have to take these issues seriously for you to capitalize and maintain a good thing. there are other challenges of -- excuse me, mr. chairman, i will stop at one more challenge and say this is not just changing the natural gas picture. this is changing the picture of the resources in this country and as you make policy, you need to think through what will be undermined and what's not by this enormous development. sorry, mr. chairman. >> no problem. thank you very much, congressman. dr. jorgenson, you're next.

>> as the chairman said, i'm a professor at harvard university, and i've taught at the department of economics there since 1969. i devoted a good part of my relatively lengthy career to the topics that we are here to debate today and it's a very great privilege for me to participate on this panel and to join you in your deliberations. i would like to discuss three issues. to associate the ideas i would like to associate a number to each one of them and the first number that i'd 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 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 sol ar. the 1.5% of the gdp does not -- i want to emphasize, does not, include any additional revenus s from limiting or eliminating tax expenditures like the once we'll hear about today. let me then proceed to the second issue that i'd like to discuss. that's the federal government budget. you've been told by dozens of

economists, inside and outside the government that will be going for 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 and there's also the threat of sequestration which is legislated by the congress in august of last year and beyond that there is another fight over the debt limit. douglasel end offer, the highly 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 from 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 moves ahead of us. third issue is comprehensive tax reform like mr. hatch has reminded us that 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 cumulative impact of

the carefully designed system for comprehensive tax reform. 7 trillion is more than sufficient when added to the -- to put the workforce back to work and to resolve our fiscal crisis. in short, i would it would enable us to achieve a fiscal policy that is sustainable. let me summarize. we are not here to debate energy policy alone. we are not here to debate comprehensive tax reform alone. we are not here to debate the federal government's budget alone. we are here to see how all three can be fitted together to solve