took place on tax reform, and you and i have talked particularly about the effort i started with senator gregg, so let's hear your thoughts, level playing field. >> a couple of comments. one, i think you kind of threw in tax breaks and then you said, well, renewables. there's a difference between deductibility and subsidies. most of the renewables gets subsidies, wind, you're talking about 2 cents per kilowatt hour multiply so there's a difference between a subsidy and a deduction, and i think allowing deductions makes sense. tax credits don't. tax credits are basically a deduction off your taxes, so i -- i would make that kind of assessment. one is much more of a subsidy than the other which is basically normal operating procedure. you could go into greater detail, but there's lots of both throughout the tax code, not just in energy. i'm talking about throughout the tax code, and i would also say

kind of since you're talking about a broader theme. tax all the income wants. a lot of incomes aren't tax. allows deductions, extensions. you have a business and you write your expenses and in some cases you get tax credits and in some cases you don't have to report the income. you're not taxed on some income. tax it, so that way you broaden the base, and the unifying or the simpler is to allow deductions but not the credits. >> congressman sharp? >> well, first of all, i wish you well in finding the answer to that. i don't pretend to have it, and i know everybody in the country wants a level playing field in every policy area and we've never seen one so i'm a little skeptical of our capacity to reach that. let me say something though. i think the harder question, as you've been dealing with, is what is the purpose of what you're trying to accomplish with the nature of the provision that's partly what senator nickles is getting at. these provisions are not all equal in the way they operate,

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 in 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 these 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 some other countries, dumping oil in here below their cost of reduction and it was rejected even though everything else could have gone forward, but not with oil, and subsidies, just one short comment, you know, you talked about credits and subsidies. i've drilled 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, both 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. in fact, i was thinking, the last time we marked up energy bill was in 2007 here in the finance committee when oil per barrel -- cost of oil 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 had virtually, you know, 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 credits, 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 20% 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 so 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 be

taking 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 those 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, and 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'm 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 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 the 1970s. that's all due to energy prices. prices work in the home fuel market as congressman sharp just reminded us. i'm reading from a publication from the 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, mr. chairman. i just want to say to senator nickles, my old compadre, young compadre 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

delighted that 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 saudi arabia 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 vehicles 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 i think 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, i think, 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 the investment tax credit, rather than just providing a production tax credit which is what we used to incentivize the building of 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 investment tax credit goes away but the idea is to get it started to show that we can do this and do it 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. resources in oil and natural gas and renewables. there are many applications of renewables, mainly wind energy which you and the senator from maine have been focussing 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. >> senator, i'm a great admirer of all these issues. i'm not prepared to say what you're asking. it's a higher cost to do offshore han onshore as to just how far we ought to go.

we always take into account that you assume this is an infant industry. i'm not sure how much we really have to learn about offshore since so much of it is going on in europe, the question from time to time that we need to ask are things that we see happening in china, we see happening in great brat tan, these can be a bif to us. they're not always competitive to us. we can let them subsidize and buy down the cost of technologies and we can buy up the technologies earlier. i'm not as quick to endorse every thing has to be done in america as much as i love this country and believe we ought to be the source of a lot of technology. >> i would add that with respect to nuclear power, one of the reasons why we're building new nuclear power plants is because we provide some financial assistance and encouragement through the federal government. let me go back to something that you said, if i could. i think you said we've seen a

sea change in the price of oil. and here this this country we produce about 2% of the world's oil. i have about 2% of the world's known oil reserves. we use about 20% on a daily basis of the oil that is consumed in the world. and when you look for it, you look ahead and we look at china coming online. we bought 11, 12 million cars last year. in china last year they caught up with us. they've got a whole lot more people as we know. what are the implications for that consumption of oil in those countries? what are the implications for the price of oil across the world. >> the point is that china and india and many countries are have finally discovered the key to economic growth are going to be the source of growth of demand for a very, very long

time to come. that is what is behind the sea change that has occurred in world petroleum markets. and we need to respond to that. we will respond to it. we'll respond to it by having more energy efficient vehicles. we'll respond to it by using hybrid vehicles when that's appropriate. we'll respond to it as i said to senator snow by energy conservation. that's exactly what the price system is going to do. it's also going to push us very strongly in the direction of domestically produced fuel, natural gas that is available now in large quantities due to the very highly skilled work that has been done by mr. ham and his colleagues in the oil and gas industry. >> the u.s. auto industry look at the ramp up in fuel officialsy standards in the next ten, 15 years. i think they have a concern that since we don't have very high

tax at least federal tax, our state tax really on motor fuels, they're concerned that there's not going to be incentive for people and not much market incentive for people to buy energy efficient cars. we need to keep in place the tax credits to incentivize the purchases. would your message be to the auto companies chin up? >> well, let me just say on tax policy, let's just focus on that, my proposal that i described here for an environmental tax system would raise the taxes at the federal level on motor fuels about 39 cents per gallon at the pump. we're talking about an insent i have to conservative. we're talk about an incentive to achieve those goals. >> over what period of time?

>> this is an incentive that's going to be permanent. >> in terms of a ramp up to get would we implement it all at once or months or years? >> we're not talking about big numbers. 39 cents per gallon. i think mast something that could be introduced in the code tomorrow. >> all right. thanks. >> you probably don't want to introduce it. not before november. >> not before november. >> just a question on my mind, you keep talking about pricing determine technology's development. i understand that's a big huge driver. and i agree that world demand is has pushed up kmadity prices significantly whether it's china, india, other developing countries. but the question comes down to price volatility.

essentially i presume you're saying there's not much the tax code could do about tax volatility. if prices are going to be volatile, they're going to be volatile. look at coal demand now is soft with natural gas rising. the world is so complicated. there's so many different dynamics worldwide. many of them unexpected. so i presume let price decide. let price be what it is and let entrepreneurs and developers do what they can and help whatever they can given the price signals they have received. >> i'd like to go back to a point you raised earlier, senator. you said that we need to have a diverse source of energy supply. and we do in this country. that doesn't mean it needs to be the same diverse supply every year or every decades. including technology and supply and tax policy.

so we need diversity. that is something that contributes to low volatility. this country has as mr. ham would be the first to tell you a very competitive industry on the supply side of fossil fuels. we have a very competitive industry in the supply of renewable engineering sources. therefore you should think as you've just suggested in terms of relying on these very, very well structured markets. they're not going to do the job by themselves. and so we shouldn't say you had free markets are the answer. nobody here have said that. i haven't heard a single voice in support of the panel or around the centers here that are present. i think we need to let markets work. we've got to recognize the fact that the government has a role and i tried to spell out what

that should be. >> what -- for government deal with externalities that is those costs. >> i think the marketplace will work and it has worked. >> be the environmental cost of fossil fuels. >> the environmental costs of fossil fuels as i see it in our business at least are minimal. we're drilling up there. we're not disturbing much of the land. being very good stewards of the land. we have a small cost of production with these fossil fuels as far as environmental. >> thank you. >> i want to thank all four of you today.

for listening carefully. i want co-compliment you mr. ham for having the guts to do what you've done. the cost of drilling has been a tremendous benefit for the oil industry to at least it be independent oil industry in this country in which i don't think we would be as far along as we are. the real question we have is should we have any of these tax expenditures or deductions in lieu of the fact that we might reduce corporate tax rates low enough so that would take care of it? in your industry it's a essential industry. there's no question about it. and there's a lot of risk involved. a lot of money involved. you go broke easier in your business than almost any business i know. i just want to compliment for you what you've been able to accomplish and the guts that you've had to get