expectations about what can be accomplished and how it can all fit together logically. this is a vast country. this is a vast problem. we're going to come at it over time in many different ways. let me quickly indicate that while there are many things that we've 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 truth through democratic and republican administrations and congresses 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 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 under pressures and other values at stake. with this limitation in mind nonetheless 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 oil production, gas production, solar, nuclear or efficiencies in technologies and vehicles. it is amazing and most of it was not predicted to happen by academics, by industry or by 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 the supply of the natural gas and sxwroekted -- 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. with a projection that it will continue if we don't mess it up. fourth, we have a decline in our carbon dioxide emissions in the system with a 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 improvements in fuel efficiencies and switching and things that have gone on. more to be done in view of many people on this front but this is progress. 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 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 and by the way, again, neither academics, the government, nor the industry predicted, a few individuals probably did, but they ended up writing their books and get rich after the fact, whether they actually 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 had been powerful whether it's oil and the natural gas supply and the new nuclear plant that's about to be built in this country, in solar, a whole bunch of resources. we require that 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 public sector, some of it in public sector like our national laboratories. it is very hard to unsort that mix of which is which, but nobody should misunderstand that both are important in government policy and government expenditure, help advance these technologies that now we've sucked into the marketplace. and the fourth finding, there of course have been policies at state and federal level that have helped incentivize and this committee itself has been very active in that, helped 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. 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 marred the last couple years by that massive blowout 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. i'm not one who thinks we can walk away from all these risks. i do think we have a serious responsibility, government and industry, to minimize their impact. the 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 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 council study of last summer makes very clear, this is very much of an industry along with other ngos and others involved in this. 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 us to be able to capitalize and maintain a good thing. there are other challenges of -- excuse me, mr. chairman, i will stop at one more challenge and that is, this is not just changing the natural gas picture. this is changing the picture of all other major energy sources 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 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. the first number 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 are going to 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 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 looms another fight over the debt limit. douglas elmendorf, 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 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 looms ahead of us. third issue is comprehensive tax reform. ranking member hatch has reminded us that is the subject of these hearings. the number there i'd like you to remember is seven 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 seven trillion? this is the cumulative impact of a carefully designed system for comprehensive tax reform. seven 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 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 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. >> thank you. thanks, chairman baucus, ranking member hatch, members of the committee. it's an honor and privilege for me to be here today. i'll be speaking on my own behalf and not as representative of continental resources or not here on behalf of the romney campaign for which i serve as an energy adviser. it's been 20 years since i was here speaking before this committee. senator david borne at that time was co-chairing the committee, i believe, and spoke to him about a couple things that were 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, the shales, that we 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 develop and thank god we've come a long way since then. continental is the top ten petroleum liquids producer, where 75% of all of last year's production, we focused on oil. and that's where we started with cooley field and the deep end of the pool is over in senator conrad's state, over in north

dakota. we were one of the original players over there. i will say that only here in america can a 13th child of a sharecropper, turn a one-man, one-truck operation into the nation's largest oil companies, but having discovered that field, at continental, we've been able to do that. today i'll talk to you on perspective that seasoned geologists that has been in this business for about 45 years. i first started speaking on it about two years ago. at the time it's been severely disparaged and people are trying to get market share. i thought someone needed to stand up for oil and i started talking about that. it's a very important segment of our energy picture and nearly all transportation runs on it and there's hardly a jet plane anywhere that burns anything besides oil products. also here to talk about the

federal tax provisions that will allow us to continue the job of the viable american dream of energy independence that we've begun. these are very important for america. there are 18,000 independent producers today that drill 95% of the wells in america. we produce 67% of the oil, 86% of the natural gas that's produced today. we typically invest all that we make, borrow about 30% more, and i'm afraid our company falls in that same model as well. independents are in the expiration and production business. that's what we do. we have no refining operations and i won't get into the tax consequences. the senator covered that very well in section 199 of the foreign tax credits could affect us a whole lot. certainly, the idcs do and we'll

stop this march to energy independence that we've begun. these same tax provisions not only allowed us to survive the terrible times and disastrous years of the '80s and '90s that eliminated about 50% of the independents within our ranks but it also allows one other real important thing and that allows us to try and fail and try again, and certainly, that's what it took. we drilled about 18 commercial wells up there before breaking the code, on producing this mighty oil field that somewhere over 24 billion barrels. without that ability, we wouldn't have been able to do that. and also talk about some other players. barnett, george mitchell quest down there. george worked 16 years, breaking a code on the barnett.

this is the largest natural gas field in texas. it took 16 years to break the code, to get that done, so try and try again and he is able to do it. i might just talk about a new era we have entered into of american oil. fair to say we're transcending from an era that was mobile, that oil moved. what we entered into today was an immobile portion of the oil, and this is estimated to be at least a third larger than the mobile portion was that we've been producing in this world 160 years. we are now able to do that through one thing and that is precision, horizontal drilling. we were able to go down two miles, turn right, go two miles and hit that lapel pin with a drill bit. it's that precision that we've

developed any the independence largely responsible for that development, myself and others and we were able to do that precision drilling and that's what unlocked this new era that we're into. and it's certainly a greater -- we've had tremendous success in these new resource plays across the country. somebody aptly described the new natural gas supplies that we've unlocked, some hundred years, i think it could be even greater than that. it's tremendous, and we've seen the imports go down as new productions come on here in america. we've gone down to about 42% right now from 60%. high of 60%. we're down to 42% now. and it's estimated marshall atkins, renowned analyst with raymond james, estimated it will fall to 26% by 2015. that's just around the corner.

and also would cut our trade deficit by 82% by 2020. so it's tremendous where we're headed and what it's done, but most importantly we're into a cheaper price regime as a discounted price regime for both oil and gas for the consumer so lower cost to the consumers here in america. that $15 a barrel right now differs between us and we're talking $2 natural gas here and talking $12 natural gas in china today so it's a tremendous difference. what this impact of new production to america is better national security, drastically reduced deficit and budget deficits, jobs creation, good paying middle class jobs. we've seen that in oklahoma, texas, north dakota, kansas, montana, you know, wherever oil

and gas is. what we're doing is estimate by by api we could add 1.2 add 1.2 million jobs to the 9.3 million jobs that's currently in the industry today by 2030 and then in the american wealth creation and we're talking wealth creation to our own federal government, $18 trillion valued of oil and gas on federal lands and that's the estimate out there. we're not talking about creating others, we're talking about at home. we're talking about 10 million right here and the states in what is a deficit. montana doesn't have a deficit. these states this is going on don't have a deficit. >> ask you to sum up. >> the big thing is the psychological impact in america. it's what we need right here to save american lives.

so the unintended consequences if we're not careful, but changing these rules could be devastating. we could stop this energy renaissance. we certainly don't want to do that. thank you very much. >> thank you, gentlemen, very much. i have a couple of questions. first, as prompted a bit by congressman sharp's point, all of the new technologies unpredicted, natural gas unpredicted, prices unpredicted. and the basic question is the degree to which tax policies really matter. the fracking technology was developed. nuclear technology is being developed. people can see how to make a buck and basic question is how much do these tax incentives really matter really?

a side question is what other countries do? do they matter? are we just responding to political pressure when the results are a result of people figuring out how to do a better job. and i have a third question. if you could wrap them together. as this committee works to pursue tax reform, the argument is why don't we have more technology neutral credit. technology neutral deduction, some standard to help boost energy production so domestic energy production but in a way that we're not picking winners and losers. i know it's a complicated question. if anybody wants to take a crack at it. those are things in my mind. dr. jorgenson? >> the main point i'd like to

make, mr. chairman is that the opportunities are not so much on reducing the tax expenditures that you just enumerated. that is an important issue, but this committee over the years has worked to limit these tax expenditures and the things that we're talking about here in terms of expensing development and the percentage depletion and so on and i certainly agree with you, those should be reconsidered and the big issue, though, is on the side of the utilization of energy. in other words, a use of energy and that's where energy taxes really have to play a role. we have an opportunity to raise revenues equal to 1.5% of gdp and those are entirely on the side of using. they have nothing to do with technology, technology neutrality, that's another range of issues that's second relative to energy utilization. >> what do you mean by energy

utilization? >> i mean burning fossil fuel, senator. i'm referring to combustion of coal in the generation of electricity. and i'm referring to the combustion of oil products as mr. hamm reminded us in transportation and the use of natural gas. the tax for energy would be primarily your senator from montana so you're aware of this. on coal, it would be a modest tax on oil and modest tax on natural gas that would lead to the substitution that's under way right now away from coal, which is the most polluting energy source, toward natural gas and generation of electricity. that's the great environmental opportunity of our time. it just turns out it produces a lot of revenue. >> so it's a cousin to carbon tax?

>> this is not a carbon tax? >> a cousin? >> it's a kissing cousin of the carbon tax, let's put it that way. this is a tax on the six criterion environmental pollutants which have been identified for years by the environmental protection agency going back to the clean air act of 1970 and enhanced by the clean air act amendments of 1990 and so it would focus specifically on the pollution that is associated with these criterion pollutants and what are those? well, there are course particulates, smoke. there are fine particulates in smoke but less visible and the list goes on. you can fill out the rest of the list. we've got to have taxes that limit this pollution. this is conventional pollution. we're not talking about climate change here. we're not talking about saving the planet. we're talking about saving lives, reducing illness.

that is what environmental protection is about, and we have a job that is still undone, that turns out to be a potential source of revenue equal to 1.5% of the gdp on the size of utilization. >> mr. sharp, do you have your thoughts? >> one sliver. when you talked about new technologies and i talked about them and entrepreneurs are very important and imaginative work around this country is very important. the truth is the government has been very important here, too, and the tax credit on research and development which i'm sure you are more familiar with than i am is to keep private sector entities working and to keep research institutions like m.i.t. and to keep national laboratories fillinging ahead because we don't know which ones of these will work. let's understand the extraordinary work by mr. hamm and others was facilitated by the federal government. seismic 3-d allowed great

visualization into the ground was a major industry achievement but had federal backing to help figure out how do you do that as well as other technologies. you have to be careful if you rip this out and how it's going to be done without someone who will see through this because it wasn't worth anybody. there was no immediate return for a lot of these technologies and return only happened after several decades. second thing i would say is it's the same with production of new kinds of energy sources like wind. i doubt that we would have anything like the wind industry that we have today. the issue is whether that's really still necessary to sustain this. >> my time expired some time ago. senator hatch.

>> thank you. i enjoyed this panel. this particular question is for the entire panel. a number of tax policy experts believe the tax systems should simply be used to raise the revenue necessary to fund a constitutionally limited federal government and not get involved in social engineering through the code. these experts suggested that the energy policy should not be run through the tax code. as part of the tax reform exercise of lowering tax rates by broadening the tax base in a revenue neutral manner, this is one approach to dealing with energy tax provisions. i just like to have your thoughts on such an approach with regard to energy tax reform. start with you. grateful to have you back and grateful to have you all here today. >> senator hatch, a couple comments. tax policy does make a difference in partial response to your question and senator baucus question if you no longer

allowed intangible drilling costs to be expensed, you would shut down the shell revolution, the oil revolution that's happening in every major play. i'm on the board of a couple companies. that's a big deal. if you don't allow people to expense and they've had expenses -- independents have had it since 1913 or something. senator hatch, in response to your question on overall tax policy, absolutely. getting a lower rate, more competitive rate, competitive internationally, this committee hasn't done a lot on the international tax front. we've always talked about it. and it's really about time, and i think a greater consensus in moving toward territorial system makes sense. we're becoming a smaller world in international competition and, frankly, we shouldn't be giving advantages to our international