America's energy challenge begins with our expanding economy, growing population, and rising standard of living. Our prosperity and way of life are sustained by energy use. America has the technological know-how and environmentally sound 21^st century technologies needed to meet the principal energy challenges we face: promoting energy conservation, repairing and modernizing our energy infrastructure, and increasing our energy supplies in ways that protect and improve our environment.

In his second week in office, President Bush established the National Energy Policy Development Group, directing it to develop a national energy policy designed to promote dependable, affordable, environmentally sound production and distribution of energy for the future. In May, 2001, the National Energy Policy Development Group reported its more than 100 recommendations to the President, which he adopted and began to implement.

Although the majority of recommendations are administrative in nature, a significant number of important initiatives require congressional action. President Bush is looking forward to working closely with Congress to implement these critical components of a comprehensive energy plan.

Modernize & Increase Conservation by increasing funding for energy efficiency programs, encouraging the development of fuel-efficient vehicles, creating tax credits to encourage consumer conservation, and expanding DOE conservation programs.

Modernize and Expand Our Energy Infrastructure by creating a new, high-tech energy delivery network; by expediting permitting for infrastructure improvements; by expanding research on reliable energy transmission; and by tearing down regulatory barriers that hurt consumers by preventing them from having lower energy bills and more dependable energy.

Diversify Energy Supplies by deploying the latest technologies to increase environmentally friendly exploration and production of domestic energy resources. The President’s plan invests in new energy technology; expands the use of alternative and renewable energy such as wind, solar, biomass and geothermal energy; and provides for the safe expansion of cheap, clean and safe nuclear energy.

Improve & Accelerate Environmental Protection. New anti-pollution technologies now allow us to increase our energy production while protecting our environment. The President’s strategy will cut harmful emissions from electric power plants and increase funding for clean coal research. An integrated approach can yield a cleaner environment, a stronger economy, and a sufficient supply of energy for the future.

Strengthen America’s Energy Security. The President wants to protect Americans – especially seniors and low-income Americans -- from soaring energy prices and supply by helping low-income families with heating and cooling assistance, reducing America’s dependence on foreign oil, and building strong relationships with energy producing nations in our own hemisphere.

Energy efficiency is the ability to use less energy to produce the same amount of lighting, heating, transportation, and other energy services. For a family or business, using energy more efficiently means lower energy bills. For the country as a whole, greater energy efficiency helps us make the most of U.S. energy resources, reduces energy shortages, lowers our reliance on energy imports, mitigates the impact of high energy prices, and helps protect public health and the environment.

Conservation and energy efficiency are important elements of a sound energy policy. Improved energy efficiency is the result of many decisions, including those of individual consumers; manufacturers of cars and appliances and other products; homebuilders; and state, federal and local government officials.

Several new and innovative technologies offer expanded opportunities to improve our energy efficiency.

Recent House action on both the Energy/Water and Interior appropriations bills is consistent with and largely supportive of the President's National Energy Policy released last month. On May 17, with the release of the President's National Energy Policy, the President directed the Department of Energy (DOE) to undertake a review of existing energy efficiency and alternative and renewable energy research and development programs to assure future program budget allocations are performance-based and modeled as public-private partnerships.

Based on the Secretary of Energy’s preliminary review, the Committee’s actions in both bills to include $285 million for energy efficiency and renewable energy research and development may be supportive of the President's objectives. The Administration looks forward to working with Congress through conference to ensure the most appropriate allocation of these resources to those programs that most effectively meets these performance-based criteria. We will also work with Congress to determine the most efficient program alternatives to be financed by lower priority program resources.

In particular, the Administration believes it is all the more necessary to greater leverage applied research and development (R&D) funds by increasing the industry cost share beyond the current average 50 percent share for some DOE programs, especially as R&D projects move closer to commercialization. This principle was outlined in the February Blueprint and the President’s budget submission.

Facilities that combine heat and power (CHP) systems allow for the productive use of much of the waste heat from electricity production, which accounts for about two-thirds of the energy used to produce electricity. By using the thermal energy that is otherwise wasted in producing electricity by conventional methods, CHP systems increase energy efficiency, lessen consumption of fossil fuels and reduce energy costs. Combined heat and power plants can operate on natural gas, oil or clean burning coal that is mixed with another energy source, like wood chips. In communities where systems like this are integrated into the main power supply, energy is used more efficiently.

President Bush proposes a change in the tax system to encourage the use of combined heat and power.

President Bush urges Congress to enact a new tax credit for investments in combined heat and power systems or by shortening the depreciation life for CHP projects. The increased demand for CHP equipment should reduce CHP production costs and spur technological innovation in improved CHP systems.

Transportation plays a key role in a growing U.S. economy, comprising 16 percent of GDP in 1998, 10.5 percent of total employment, and 27 percent of total U.S. energy consumption. Trucks and automobiles account for over three-fourths of the sector's petroleum use. Automobiles today use roughly 60 percent of the gasoline they did in 1972 per mile driven, due in part to new technology, such as better engine and design controls, improved transmission, weight reduction, and improved aerodynamics.

Opportunities to reduce oil demand in the transportation sector include increasing conservation and vehicle efficiency, and expanding the use of alternative fuels.

Several promising efficiency technologies are being introduced to the U.S. market. For example, some automobile manufacturers have already introduced hybrid vehicles, and others have announced they will introduce hybrid vehicles within the next few years. These vehicles are generally fueled by both gasoline and electricity and get substantially more miles per gallon, thus saving fuel and reducing costs to consumers.

President Bush proposes temporary income tax credits for the purchase of new hybrid and fuel cell vehicles. These credits would be available for all qualifying light vehicles, including cars, minivans, sport utility vehicles, and light trucks. The tax credits will encourage the purchase of highly fuel-efficient vehicles that incorporate advanced automotive technologies and will help to move hybrid and fuel cell vehicles from the laboratory to the highway.

One of the greatest energy challenges facing America is the need to use 21^st century technology to improve America's aging energy infrastructure. Our energy infrastructure is comprised of many components, such as the physical network of pipes for oil and natural gas, electricity transmission lines and other means for transporting energy to consumers.

Our energy infrastructure has failed to keep pace with the changing requirements of our energy system. Domestic refining capacity has not matched increases in demand, leading to high capacity utilization rates and increasing product imports. Pipelines have not expanded sufficiently to meet demand. The electricity transmission system is constrained by insufficient capacity.

There are over two million miles of oil pipelines in the United States and they are the principal mode for transporting oil and petroleum products. Virtually all natural gas in the United States is moved via pipeline. Pipelines are less flexible than other forms of transport, because they are fixed assets that cannot easily be adjusted to changes in supply and demand. Once built, they are an efficient way to move products. A modest sized pipeline carries the equivalent of 720 tanker truckloads a day – the equivalent of a truckload leaving every two minutes, 24 hours a day, 7 days a week.

Pipeline Safety

President Bush believes that ensuring pipeline safety is of paramount importance. Some of the existing pipeline infrastructure is old, requiring regular safety and environmental review to ensure its reliability.

President Bush calls on Congress to pass pipeline safety legislation that would significantly strengthen the enforcement of pipeline safety laws. The Senate has already acted on this matter and the President calls on the House to do the same.

Alaska Natural Gas Pipeline

One of the largest known reserves of natural gas in the United States has been found in the Arctic, associated with the development of oil on Alaska's North Slope. These known reserves would make a significant long-term contribution to the nation's energy supplies if delivered to the lower 48 states.

Over the past year, the Alaska North Slope gas producers have been reviewing whether projected market conditions will make transportation of this natural gas economically feasible. President Bush supports the safe transportation of this clean-burning natural gas.

President Bush has directed the Secretaries of Energy and State to coordinate with the Secretary of the Interior and the Federal Energy Regulatory Commission, to work closely with Canada, the State of Alaska, Congress, and other interested parties to expedite the construction of a pipeline to deliver natural gas to the lower 48 states. This should include proposing to Congress any modifications to the Alaska Natural Gas Transportation Act of 1976 that may be necessary.

Electricity Restructuring

Electricity demand is projected to grow sharply over the next twenty years. In their December 2000 report, the Energy Information Administration, estimates that the United States will need about 393,000 MW of new generating capacity by 2020 to meet the growing demand.

One of the most important energy issues facing us is electricity restructuring. In order to provide ample electricity supplies at reasonable prices, states are beginning to open their retail markets to competition. Most new electricity generation is being built not by old, regulated utilities but by new, independent power producers. These companies assume the financial risk of investment in new generation and in a competitive market, their success rides on their ability to generate electricity at a low cost.

President Bush has directed Secretary Abraham to work closely with Congress to develop legislation that would implement carefully thought-out electricity restructuring that promotes competition, protects consumers, enhances reliability, improves efficiency, promotes renewable energy, repeals the Public Utility Holding Company Act, and reforms the Public Utility Regulatory Policies Act.

Rights of Way for Transmission lines

Currently, the United States does not have a national transmission grid to move electricity throughout the country. Instead, there are four integrated transmission grids serving North America: the Western Interconnection, Eastern Interconnection, Electric Reliability Council of Texas, and the Province of Quebec. Transactions between the four integrated transmission grids are very limited because they are interconnected at only a few locations through interties.

Federal law governing the responsibility for siting transmission facilities was written in 1935. At the time, transmission facilities were not interstate, and there was virtually no interstate commerce in electricity. In the years since 1935, our transmission needs have changed dramatically.

The transmission system is the highway for interstate commerce in electricity. State decisions on where to locate transmission lines can sometimes fail to take into account the importance of proposed transmission facilities to the interstate grid. The inability to create an effective interstate grid can result in transmission "bottlenecks" which bring about higher prices for consumers and lower reliability.

This is why President Bush directed the Secretary of Energy to work closely with state and local governments, Congress, and relevant federal agencies to develop legislation to grant authority to obtain rights-of-way for electricity transmission lines only when absolutely necessary, with the goal of creating a reliable national transmission grid.

America's energy strength lies in the abundance and diversity of its energy resources, and in its technological leadership in developing and efficiently using these resources. Our nation has rich deposits of coal, oil, and natural gas. While our economy runs primarily on fossil fuels, we also have long experience with hydropower and nuclear energy. We are pursuing the ability to further capture the energy of sunlight, the heat of the earth, and the power of wind.

Even with improved energy efficiency, the United States will need more energy supply. The Energy Information Administration projects that U.S. energy demand will rise to 127 quadrillion Btus by 2020, even with improved energy efficiency. However, domestic production is projected to increase by only 86 quadrillion Btus by 2020.

President Bush believes that a sound national energy policy should encourage a clean and diverse portfolio of domestic energy supplies, ensuring that future generations of Americans will have access to the energy they need.

Renewable and alternative energy supplies not only help diversify our energy portfolio; they do so with few adverse environmental impacts. While the current contribution of renewable and alternative energy resources to America's total electricity supply is relatively small, the renewable and alternative energy sectors are among the fastest growing in the United States. President Bush believes that continued growth of renewable and alternative energy is vital to delivering clean energy to fuel our future economic growth.

President Bush supports several tax incentives to help increase the contribution that alternative and renewable energy makes towards our energy supply.

Wind energy accounts for 6 percent of renewable electricity generation and 0.1 percent of total electricity supply. However, advances by research labs, universities, utilities and wind energy developers have helped cut wind energy's costs by more than 80 percent during the last 20 years. The industry is poised for growth and many areas of the United States have abundant wind energy potential.

President Bush supports expanding tax credits for electricity produced using renewable technology, such as wind. The President's budget request extends the present 1.7 cents per kilowatt hour tax credit for electricity produced from wind.

Biomass is organic matter than can be used to provide heat, make fuel, and generate electricity. Wood, plants, residue from agriculture or forest products and landfill gas are all considered biomass. Unlike other renewable energy sources, biomass can be converted directly into liquid fuels – like ethanol and biodiesel.

Biomass accounts for 76 percent of renewable electricity generation and 1.6 percent of total U.S. electricity supply.

President Bush supports expanding tax credits for electricity produced using renewable technology, such as biomass. The President's budget request extends the present 1.7 cents per kilowatt hour tax credit for electricity produced from biomass; expands eligible biomass sources to include forest-related sources, agricultural sources, and other specified sources. For existing biomass facilities, the credit for electricity produced from the new sources is 1.0 cent per kWh for three years of production (2002-2004). To help reduce emissions from coal fired facilities, President Bush proposes a tax credit for electricity produced from cofiring biomass from new sources of 0.5 cent per kWh for three years of production (2002-2004).

While solar energy technologies have undergone technological and cost improvements, and are well established in high-value markets like remote power, satellites, communications and navigational aides, continued research is needed to reduce costs, make the products more user-friendly and improve performance. Solar energy accounts for 1 percent of renewable electricity generation and 0.2 percent of total U.S. electricity supply.

The President proposes a new 15 percent tax credit for individuals who purchase photovoltaic equipment or solar water heating equipment for use in the individual’s residence, up to a maximum credit of $2,000 for each type of equipment. The credit would be available for 2002 – 2007 for photovoltaic equipment and 2002 – 2005 for solar water heating equipment. This credit will reduce the cost of these investments and encourage individuals to adopt them.

The President proposes to extend the excise tax exemption for gasohol (ethanol mixed with motor fuels) and the income tax credit for ethanol used as fuel beyond 2007 when they are scheduled to expire. This encourages the production of motor fuel from a renewable energy source and reduces oil consumption.

President Bush proposes to encourage an alternative source of energy near population centers by providing tax credits for energy produced from landfill gas. The credit would be for energy produced from methane from regulated landfills that are required by EPA to collect and flare methane, and for unregulated landfills.

In the long run, alternative energy technologies such as hydrogen show great promise. Hydrogen is the most common element in the universe and can be made from water. Converting hydrogen into energy is compatible with existing energy technologies – such as fuel cells, hybrid engines, and combustion turbines. Hydrogen is also environmentally sensitive. It can be converted into useful energy forms efficiently and without detrimental environmental benefits.

In order to continue movement toward this exciting new fuel source, President Bush supports reauthorization of the Hydrogen Energy Act.

Although hydropower only accounts for about 7 percent of overall U.S. electricity generation, several states depend heavily on this important source of energy. Hydropower has significant environmental benefits. It is a form of low-cost electricity generation that produces no emissions. However, given the potential impacts on fish and wildlife, it is important to effectively integrate national interests in both natural resources preservation and environmental protection with energy needs.

The Federal Energy Regulatory Commission is required to incorporate mandatory conditions proposed by different state and federal resource agencies into hydropower licenses. Decision-making authority during the licensing process is diffused among a host of federal and state agencies. As a result, the hydropower licensing process is prolonged, costly, and poses regulatory uncertainty. The challenge is to effectively integrate national interests in both natural resources preservation and environmental protection with energy needs.

President Bush supports legislative or administrative reform of the hydropower licensing process to make the process more clear and efficient, while preserving environmental goals.

The Alaska National Interest Lands Conservation Act of 1980 expanded ANWR from 9 million acres to 19 million acres, and designated 8 million acres as wilderness. Congress specifically left open the question of management of the 1.5 million acre Arctic Coastal Plain Area of ANWR, also knows as the 1002 area, because of the likelihood that it contains significant oil and gas resources. In 1995, both the Senate and the House passed legislation containing a provision to authorize leasing in the 1002 area but the legislation was vetoed.

The U.S. Geological Survey estimates that the amount of recoverable oil is estimated to be between 5.7 and 16 billion barrels, with a mean value of 10.4 billion barrels. The mean estimate of 10.4 billion barrels is just below the amount produced to date from North America's largest field, Prudhoe Bay, since production began 23 years ago. Peak production from ANWR could be between 1 and 1.3 million barrels a day and account for more than 26 percent of all U.S. oil production.

Technological improvements over the past 40 years have dramatically reduced industry's footprint on the tundra, minimized waste produced, and protected the land for resident and migratory wildlife. By using new technologies like ice roads and drilling pads, low-impact exploration approaches, and extended reach and through-tubing rotary drilling, the size of production related facilities has been significantly reduced. Estimates indicate that no more than 2,000 acres will be disturbed if the 1002 Area of ANWR is developed.

President Bush believes that opening this small area to environmentally responsible exploration would provide the resources necessary to reduce our dependence on foreign sources of oil and provide for greater energy security. By insisting on the use of the best available technology and the highest levels of protection for the environment, the President is committed to protecting our environment while providing for the needs of Americans.

President Bush proposes that Congress authorize exploration and, if resources are discovered, development of the 1002 Area of ANWR. Any legislation should require the use of the best available technology and should require that activities will result in no significant adverse impact to the surrounding environment.

In addition, President Bush urges Congress to pass legislation to use an estimated $1.2 billion of bid bonuses from the environmentally responsible leasing of ANWR for additional funding of research on alternative and renewable energy resources, including wind, solar, geothermal and biomass.

Nuclear energy accounts for 20 percent of all U.S. electricity generation. Nuclear energy is one of the cleanest forms of energy generation available. It is practically emissions-free and provides reliable energy for millions of people around the world.

Some of the barriers to development can be addressed through Federal legislation. For example, current tax law imposes a barrier to the sale of nuclear energy plants to companies with strong safety records, by limiting deductibility of contributions to nuclear decommissioning funds and raising the cost of such sales. In addition, the Price Anderson Act, which provides for rapid compensation of victims of a possible nuclear accident, expires in August 2002.

In order to remove barriers to increased use of this clean source of energy, the President urges Congress to make the necessary changes that would allow taxpayers (other than regulated utilities) to make deductible contributions to a nuclear decommissioning fund and permit nuclear decommissioning funds to accumulate the full amount needed for decommissioning. This proposal helps to ensure that adequate funds are available for the decommissioning of nuclear power plants.

Also, President Bush believes it is important to reauthorize the Price-Anderson act to provide for adequate funds in the case of any harm arising from a nuclear accident.

The electric power industry is responsible for one-quarter to two-thirds of national man-made emissions of three air pollutants: sulfur dioxide (65%), nitrogen oxides (25%) and mercury (33%). A comprehensive, market-based approach that reduces power plant emissions of these three air pollutants would have several advantages over the traditional single-pollutant approach.

Most importantly, this comprehensive approach would have significant public health and environmental benefits. It could help reduce new cases of chronic bronchitis, hospitalizations and emergency room visits, and premature deaths from respiratory-related symptoms; reduce exposure to mercury; help communities meet national ambient air quality standards for ozone and fine particulate matter; reduce the emissions that have impacted acid-sensitive ecosystems and coastal estuaries; and improve visibility, particularly in national parks.

The President has directed the Administrator of the Environmental Protection Agency (EPA) to work with Congress to propose legislation that would establish a flexible, market-based program to significantly reduce emissions of sulfur dioxide, nitrogen oxides, and mercury from electric power generators. Such a program (with appropriate measures to address local concerns) would provide significant health benefits even as we increase electricity supplies.

Such legislation also would provide greater certainty about the regulatory future, so that plant owners, managers and investors would be encouraged to install new, cleaner and more energy efficient systems to produce power. With such certainty, they can make efficient, least-cost strategic choices with greater knowledge of the controls they will face, rather than addressing regulations one by one as they are promulgated under today’s system. Not only will newer, cleaner, more efficient technologies be installed, but this legislation also offers opportunities for regulatory reform that ensures even greater emissions reductions.

The President proposes mandatory reduction targets for emissions of three main pollutants: sulfur dioxide, nitrogen oxides, and mercury; phase in the reductions over a reasonable period of time, similar to the successful acid rain reduction program established by the 1990 amendments to the Clean Air Act; provide regulatory certainty to encourage utilities to install newer, cleaner, more efficient systems; and provide market-based incentives, such as emissions trading credits to help achieve the required results.

Ecosystems provide food, shelter, and critical breeding and spawning grounds for fish and wildlife, and support commercial and recreational fishing, tourism, and other activities that contribute billions of dollars to the U.S. economy every year.

In recognition of the important role land conservation plays, President Bush directed the Secretary of the Interior to work with Congress to create a Royalties Conservation Fund that would earmark potentially billions of dollars in royalties from new oil and gas production in ANWR to fund land conservation efforts. This fund would also be used to eliminate the maintenance and improvements backlog on federal lands.

American families, communities, and businesses all depend on reliable and affordable energy for their health, safety, and livelihood. Energy is a critical component of nearly everything that affects our daily lives, from transportation to communication, from food production to medical services and from air conditioning to heating. Each additional, unanticipated energy expense is a decrease in funds available for other needs of American families.

Unanticipated energy costs can have a greater impact on low-income Americans and threaten their ability to meet their every day needs. Energy costs for an average low-income household could total 14 percent of family income for the winter of 2000-2001. This would be an 11 percent increase from the previous winter.

LIHEAP is a federal block grant program that helps low-income consumers pay their energy bills. Millions of American families, in over eighteen states, were at risk of being unable to pay higher energy bills generated this past winter.

President Bush has submitted a request for the highest regular appropriation ever for LIHEAP funding. In his FY 2002 Budget, he requested $1.7 billion dollars – a $300 million increase from last year's non-emergency appropriation. In addition, he recently requested an additional $150 million to help those Americans who need it the most.

President Bush also urges Congress to develop other ways to make sure that LIHEAP is adequately funded. He urges Congress to pass legislation to bolster LIHEAP funding by using a portion of oil and gas royalty payments. Under this proposal, the President could redirect royalties above a set trigger price to LIHEAP, whenever crude oil and natural gas exceed that trigger price, as determined by the responsible agencies.

The Department of Energy's Weatherization Assistance Program has reduced the heating and cooling costs of low-income households by weatherizing more than 5 million homes since its inception in 1976. Currently, each dollar spent on home weatherization generates $2.10 worth of energy savings over the life of the home. There are additional environmental, economic, health and safety benefits associated with the weatherization of homes.

President Bush urges Congress to adopt his request for $1.2 billion in additional funding for this program over ten years, roughly double the current level of spending. As a result, the President's budget contains a $120 million increase over 2001.