1/8STK 3/8 1/8IN 3/8 OIL 1/8SU 3/8 POL TO NATIONAL AND ENERGY EDITORS: Detailed Recommendations on Oil Security, Climate Change, Natural Gas, Nuclear Energy, and Other Key Topics the Result of 2 Years of Research and Consultation Consensus Plan; Group to Spend 2005 Advocating Package

WASHINGTON - A bipartisan group of top energy experts from industry, government, labor, academia, and environmental and consumer groups today released a consensus strategy, more than two years in the making, to address major long-term U.S. energy challenges. The report, "Ending the Energy Stalemate: A Bipartisan Strategy to Meet America's Energy Challenges," contains detailed policy recommendations for addressing oil security, climate change, natural gas supply, the future of nuclear energy, and other long-term challenges, and is backed by more than 30 original research studies.

"Political and regional polarization has produced an energy stalemate, preventing America from adopting sensible approaches to some of our biggest energy problems," said John W. Rowe, Commission co-chair and Chairman and CEO of Exelon Corp. "Our Commission reached consensus on effective policies because of a willingness to take on cherished myths from both right and left. We believe that this package of recommendations can be of value to Congress and the Administration in energy legislation next year and beyond."

"Taken together, the Commission's recommendations aim to achieve a gradual but decisive shift in the nation's energy policy, toward one that directly addresses our long-term oil, climate, electricity supply, and technology challenges," said William K. Reilly, former EPA Administrator and Commission co-chair. "Oil reliance is a fact we will face for some time. So we recommend incentives to spur global oil production, to increase domestic vehicle fuel economy, and to increase investment in alternative fuels. Our climate change plan would both limit greenhouse gas emissions and cap the costs of doing so. At the same time, it provides incentives for low- and non- carbon sources like natural gas, renewable energy, nuclear energy, and advanced coal technologies with carbon capture and sequestration, as well as for increased efficiency of energy end use. We are proposing programs that can work in the real world."

"It's essential to take some prudent steps now to avoid intolerable costs and impacts later," said John Holdren, Heinz Professor of Environmental Policy at Harvard University and Commission co-chair. "The task of energy policy is to ensure the reliable and affordable energy services that a prosperous economy requires while simultaneously limiting the risks and impacts from overdependence on oil, from global climate change, and from other environmental and political liabilities of the available energy-supply options. Meeting this challenge requires measures to encourage increased use of the best available technologies for energy supply and energy end-use efficiency in the years immediately ahead, as well as increased investments in energy research and development to improve the options available to us in the future."

To enhance U.S. oil security, the Commission recommends:

Increasing and diversifying world oil production while expanding the

global network of strategic petroleum reserves.

Significantly strengthening federal fuel economy standards beginning no

later than 2010 for cars and light trucks, giving due consideration to

vehicle performance, safety, job impacts and competitiveness concerns.

Reforming the 30-year-old Corporate Average Fuel Economy (CAFE) program

to allow more flexibility and limit compliance costs.

Providing $3 billion over ten years in manufacturer and consumer

incentives to encourage domestic production and boost sales of efficient

hybrid and advanced diesel vehicles.

Developing non-petroleum transportation fuel alternatives, particularly

ethanol and clean bio-diesel from waste products and biomass.

The Commission estimates its recommendations could reduce U.S. oil consumption in 2025 by 10-15 percent or 3-5 million barrels per day.

"Raising CAFE standards and reforming the program go hand in hand," said Holdren. "The $3 billion package of consumer and manufacturer incentives, together with important program reforms, will enable domestic manufacturers to significantly raise fuel economy by the end of the decade while protecting U.S. jobs."

Regarding oil supply, the Commission believes the U.S. government should apply diplomatic pressure to encourage nations with significant but underdeveloped oil reserves to allow foreign investment in their energy sectors to increase and diversify global oil production. To the extent that unilaterally imposed U.S. economic sanctions may be limiting investment in foreign energy markets and constraining world oil supply, the oil security implications of these sanctions should be carefully considered. In focusing on world oil supply, the Commission report notes that "reducing vulnerability to high oil prices and supply disruptions are more meaningful and ultimately achievable policy goals than a misplaced focus on energy independence."

"The near-term key to reducing oil price shocks is curbing U.S. demand and increasing world supply," said Reilly. "We have to do both. We also have to make big investments in alternatives like bio-fuels made from domestic crops and agricultural waste."

To reduce risks from climate change, the Commission recommends:

Implementing in 2010 a mandatory, economy-wide tradable-permits system

designed to curb future growth in the nation's emissions of greenhouse

gases while capping initial costs to the U.S. economy at $7 per metric

ton of carbon dioxide-equivalent.

Linking subsequent action to reduce U.S. emissions with efforts by other

developed and developing nations to achieve comparable emissions

reductions via a review of program efficacy and international progress

in 2015.

"The Commission believes the United States must take responsibility for addressing its contribution to the risks of climate change," said Rowe. "But we must do so in a manner that recognizes the global nature of the challenge and does not harm the competitive position of U.S. businesses internationally. Our plan meets those goals."

Under the Commission's proposal, the U.S. government in 2010 would begin issuing permits for greenhouse gas (GHG) emissions based on an annual emissions target that reflects a 2.4 percent per year reduction in the average GHG intensity of the economy (where intensity is measured in tons of emissions per dollar of GDP). An emissions intensity metric is also the basis of President Bush's plan, which calls for voluntary GHG intensity reductions of 1.8 percent per year from 2002-2012.

Under the Commission's proposal, most GHG permits would be issued at no cost to existing emitters, but a small pool - 5 percent at the outset, increasing gradually thereafter to a maximum of 10 percent - would be auctioned to accommodate new entrants, stimulate the market in emission permits, and fund research and development of new technologies.

The Commission's proposal also includes a "safety valve" or cost-capping mechanism to limit the total cost of the program to the U.S. economy. The cost cap allows additional permits to be purchased from the government at an initial price of $7 per metric ton of carbon dioxide (CO2)-equivalent. The safety valve price would increase by 5 percent per year in nominal terms to generate a gradually stronger market signal for reducing emissions without prematurely displacing existing energy infrastructure.

"The Commission's climate change proposal is designed to be a logical next step for the nation, building upon many of the themes and features of the current Administration's program," Reilly said. "Such a program is entirely compatible with separate legislative efforts by the Bush Administration and the Congress to address nitrogen, mercury and sulfur emissions from electric power generation. The Commission did not study specific legislation, but supports multi-pollutant approaches as a means of improving public health, providing business certainty and accelerating investments in cleaner burning technologies, such as IGCC."

"The Commission's climate plan explicitly caps the total cost to the economy while reducing emissions. Even in 2020, the estimated cost of the plan per household will only be $30-100 a year," said Reilly. "This is no Kyoto."

In 2015, and every five years thereafter, Congress would review the program and evaluate whether emissions control progress by major trading partners and competitors (including developing countries such as China and India) supports its continuation.

Conservative modeling analyses suggest that the Commission's proposal would reduce total emissions in 2020 by approximately 540 million metric tons. Emission reductions could be much higher - as much as 1 billion metric tons in 2020 - if the investments in technology innovation and efficiency proposed elsewhere in this report further reduce abatement costs.

To improve the energy efficiency of the U.S. economy, the Commission recommends:

Updating and expanding efficiency standards for new appliances,

equipment, and buildings to capture additional cost-effective

energy-saving opportunities.

Integrating improvements in efficiency standards with targeted

technology incentives, R&D, consumer information, and programs sponsored

by electric and gas utilities.

Pursuing cost-effective efficiency improvements in the industrial

sector.

Efficiency improvements in buildings and industry are important complements to the Commission's efficiency recommendations for the transportation sector, which include fuel-saving opportunities in the heavy- duty truck fleet, which is responsible for roughly 20 percent of transportation energy consumption, but is not subject to fuel economy regulation, and in the existing vehicle fleet where a substantial opportunity exists to improve efficiency by, for example, mandating that replacement tires have rolling-resistance characteristics equivalent to the original equipment tires used on new vehicles.

"Absent substantial gains in the energy efficiency of motor vehicles, buildings, appliances, and equipment, it becomes difficult to imagine how energy supplies, and especially clean energy supplies, can keep pace with increased U.S. and global demand," said Holdren.

To increase U.S. energy supply, the Commission recommends:

Natural Gas: To diversify and expand the nation's access to natural gas supplies, the Commission recommends:

Adopting effective public incentives for the construction of an Alaska

natural gas pipeline.

Addressing obstacles to the siting and construction of infrastructure

needed to support increased imports of liquefied natural gas (LNG).

"Natural gas is the key bridge fuel for electricity over the next several decades," said Rowe. "We simply must find ways to increase supply to U.S. markets."

Advanced Coal Technologies: To enable the nation to continue to rely upon secure, domestic supplies of coal to meet future energy needs while addressing the climate risks associated with greenhouse gas emissions, the Commission recommends:

Providing $4 billion over ten years in early deployment incentives for

integrated gasification combined cycle (IGCC) coal technology.

Providing $3 billion over ten years in public incentives to demonstrate

commercial-scale carbon capture and geologic sequestration at a variety

of sites.

Coal gasification holds promise for economically capturing carbon emissions while also reducing emissions of pollutants like mercury and sulfur dioxide. The process is commonly used in the manufacture of chemicals, but - with the exception of a handful of demonstration facilities - has not yet been widely applied to producing power on a commercial scale.

"Coal's abundance in the United States, and in major developing countries like China and India, makes finding clean ways to use it among our highest priorities," said Reilly. "Coal gasification, when combined with carbon sequestration, has the potential to revolutionize energy production."

Nuclear Power: To help enable nuclear power to continue to play a meaningful role in meeting future energy needs, the Commission recommends:

Fulfilling existing federal commitments on nuclear waste management

Providing $2 billion over ten years from federal research, development,

demonstration, and deployment budgets for the demonstration of one to

two new advanced nuclear power plants.

Significantly strengthening the international non-proliferation regime.

"The contribution of nuclear energy to meeting the nation's electricity needs will decline absent concerted efforts to address concerns about cost, susceptibility to accidents and terrorist attacks, management of radioactive wastes, and proliferation risks," said Holdren. "Given the risks from climate change and the challenges that face all of the low-carbon and no-carbon supply options, it would be imprudent in the extreme not to try to keep the nuclear option open."

Renewable Energy: To expand the contribution of clean, renewable energy, the Commission recommends:

Increasing federal support for renewable technology research and

development by $360 million annually, targeted at overcoming key hurdles

in cost competitiveness and early deployment.

Extending the federal production tax credit for a further four years

(i.e., from 2006 through 2009), and expanding eligibility to all

non-carbon energy sources, including solar, geothermal, new hydropower

generation, next generation nuclear, and advanced fossil fuel generation

with carbon capture and sequestration.

Supporting ongoing efforts by the Federal Energy Regulatory Commission

(FERC) to promote market-based approaches to integrating intermittent

resources into the interstate grid system.

Establishing a $1.5 billion program over ten years to increase domestic

production of advanced non-petroleum transportation fuels from biomass

(including waste).

"The Commission's renewable energy proposals are aimed at finding ways to reduce costs and bring competitive sources to market," said Reilly. "Any scenario for tackling climate change and developing clean domestic energy resources must involve expanded use of renewable power."

To strengthen energy supply infrastructure, the Commission recommends:

Reducing barriers to the siting of critical energy infrastructure.

Protecting critical infrastructure from accidental failure and terrorist

threats.

Supporting a variety of generation resources - including both large

scale power plants and small scale "distributed" and/or renewable

generation - and demand reduction (for both electricity and natural

gas), to ensure affordable and reliable energy service for consumers.

Encouraging increased transmission investment and deployment of new

technologies to enhance the availability and reliability of the grid,

in part by clarifying rules for cost-recovery.

Enhancing consumer protections in the electricity sector and

establishing an integrated, multi-pollutant program to reduce power

plant emissions.

"There is a national imperative to strengthen the systems that deliver energy," said Rowe. "Priorities include siting reforms to enable the expansion and construction of needed energy facilities, greater efforts to protect the nation's energy systems from terrorist attack, and reforms to improve the reliability and performance of the electricity sector."

To promote the development of improved energy technologies for the future, the Commission recommends:

Doubling of federal government funding for energy research and

development, while improving the management of these efforts and

promoting effective public-private partnerships.

Increasing incentives for private sector energy research, development,

demonstration, and early deployment (ERD(3)).

Expanding investment in cooperative international ERD(3)initiatives and

improving coordination among relevant federal agencies.

Providing early deployment incentives for coal gasification and carbon

sequestration; domestically produced efficient vehicles; domestically

produced alternative transportation fuels; and advanced nuclear

reactors.

"Overcoming the energy challenges faced by the United States and the rest of the world requires technologies superior to those available today," said Holdren. "To accelerate the development and deployment of these technologies, the federal government must increase its own investments in energy-technology innovation as well as its collaboration in this domain with the private sector, with states, and with other nations."

The Commission notes that investments by both the private and public sectors in energy research, development, demonstration, and early deployment have been falling short of what is likely to be needed to meet the energy challenges confronting the nation and the world in the 21st century.

Revenue Neutrality

The Commission proposes that the nation devote the resources generated by the sale of greenhouse gas emissions permits to enhance the development and deployment of improved energy technologies. The approximately $36 billion that Commission analysis indicates will be generated over ten years by the proposed greenhouse gas tradable-permits program - most of which will come from auctioning a small portion of the overall permit pool - offsets the specific additional public investments it recommends overall.

The Commission's recommendations were developed in more than a dozen two- day meetings over two years and are informed by over 30 original, Commission- sponsored studies on major energy topics. The group also met with hundreds of leading stakeholders, including industry; environmental groups; state, local, and federal governmental officials; labor and consumer groups; agricultural interests; and many others. A full list of consulted organizations, copies of the Commission's report, supporting research studies, and other information can be found on the Commission's website at: http://www.energycommission.org.

The Commission will spend 2005 advocating for the ideas in its strategy to Congress, the Administration, the States, industry, and other key stakeholders.

"For more than 30 years, Energy has been the graveyard of many a brave policy titan," said Reilly. "But our analysis shows that these recommended policies can curb U.S. oil use, begin to address greenhouse gas emissions, develop viable new technologies, and put the U.S. in a much stronger energy posture. We intend to carry that message to the highest levels throughout 2005."

The National Commission on Energy Policy was founded in 2002 by the William and Flora Hewlett Foundation, and its partners - The Pew Charitable Trusts, the John D. and Catherine T. MacArthur Foundation, the David and Lucile Packard Foundation, and the Energy Foundation.

The members of the National Commission on Energy Policy are:

John P. Holdren

Co-Chair

Teresa and John Heinz Professor of Environmental Policy,

Harvard University

William K. Reilly

Co-Chair

Founding Partner, Aqua International Partners; former Administrator,

U.S. Environmental Protection Agency

John W. Rowe

Co-Chair

Chairman and CEO, Exelon Corporation

Philip R. Sharp

Congressional Chair

Senior Policy Advisor, Van Ness Feldman; Senior Advisor, Lexecon, Inc.;

former U.S. Representative, Indiana

Marilyn Brown

Director, Energy Efficiency and Renewable Energy Program,

Oak Ridge National Laboratory

Ralph Cavanagh

Senior Attorney and Co-Director, Energy Program, Natural Resources Defense

Council

Archie W. Dunham

Chairman, ConocoPhillips, Inc. (1999-2004)

Rodney Ellis

State Senator, Texas

Leo Gerard

International President, United Steelworkers of America

F. Henry Habicht

CEO, Global Environment and Technology Foundation; former Deputy

Administrator, U.S. Environmental Protection Agency

Mario J. Molina

Institute Professor, Massachusetts Institute of Technology

Sharon L. Nelson

Chief, Consumer Protection Division, Washington Attorney's General Office;

Chair, Board of Directors, Consumers Union

Linda Stuntz

Stuntz, Davis & Staffier; former Deputy Secretary of Energy

Susan Tierney

Managing Principal, The Analysis Group; former Assistant Secretary of

Energy

James Woolsey

Vice President, Booz Allen Hamilton; former Director of Central

Intelligence

Martin B. Zimmerman

Clinical Professor of Business, Ross School of Business, University of

Michigan; Group Vice President, Corporate Affairs, Ford Motor Company

(2001 - 2004)

Jason Grumet, Executive Director SOURCE National Commission on Energy Policy