SPEAKERS CONTENTS INSERTS
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THE KYOTO PROTOCOL: PROBLEMS WITH U.S. SOVEREIGNTY AND THE LACK OF DEVELOPING COUNTRY PARTICIPATION
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
MAY 13, 1998
Printed for the use of the Committee on International Relations
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
WILLIAM GOODLING, Pennsylvania
JAMES A. LEACH, Iowa
Page 2 PREV PAGE TOP OF DOCHENRY J. HYDE, Illinois
DOUG BEREUTER, Nebraska
CHRISTOPHER SMITH, New Jersey
DAN BURTON, Indiana
ELTON GALLEGLY, California
ILEANA ROS-LEHTINEN, Florida
CASS BALLENGER, North Carolina
DANA ROHRABACHER, California
DONALD A. MANZULLO, Illinois
EDWARD R. ROYCE, California
PETER T. KING, New York
JAY KIM, California
STEVEN J. CHABOT, Ohio
MARSHALL ''MARK'' SANFORD, South Carolina
MATT SALMON, Arizona
AMO HOUGHTON, New York
TOM CAMPBELL, California
JON FOX, Pennsylvania
JOHN McHUGH, New York
LINDSEY GRAHAM, South Carolina
ROY BLUNT, Missouri
KEVIN BRADY, Texas
RICHARD BURR, North Carolina
LEE HAMILTON, Indiana
SAM GEJDENSON, Connecticut
Page 3 PREV PAGE TOP OF DOCTOM LANTOS, California
HOWARD BERMAN, California
GARY ACKERMAN, New York
ENI F.H. FALEOMAVAEGA, American Samoa
MATTHEW G. MARTINEZ, California
DONALD M. PAYNE, New Jersey
ROBERT ANDREWS, New Jersey
ROBERT MENENDEZ, New Jersey
SHERROD BROWN, Ohio
CYNTHIA A. McKINNEY, Georgia
ALCEE L. HASTINGS, Florida
PAT DANNER, Missouri
EARL HILLIARD, Alabama
BRAD SHERMAN, California
ROBERT WEXLER, Florida
STEVE ROTHMAN, New Jersey
BOB CLEMENT, Tennessee
BILL LUTHER, Minnesota
JIM DAVIS, Florida
LOIS CAPPS, California
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff
MARK S. KIRK, Counsel
ALLISON K. KIERNAN, Staff Associate
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The Honorable Joseph Knollenberg, a Representative in Congress from Michigan
The Honorable Jo Ann Emerson, a Representative in Congress from Missouri
Dr. Janet Yellen, Chair, Council of Economic Advisers
The Honorable Stuart Eizenstat, Under Secretary of State for Economic, Business and Agricultural Affairs
Mr. Robert Burt, Chairman, Environmental Task Force
Mr. William O'Keefe, Executive Vice President, American Petroleum Institute
Mr. Kevin Fay, Executive Director, International Climate Change Partnership
Mr. Frank Gaffney, Director, Center for National Security Policy
The Honorable Benjamin A. Gilman, a Representative in Congress from New York and Chairman, Committee on International Relations
The Honorable Joseph Knollenberg
The Honorable Jo Ann Emerson
Dr. Janet Yellen
The Honorable Stuart Eizenstat
Mr. Robert Burt
Page 5 PREV PAGE TOP OF DOCMr. Kevin Fay, plus letter to Mr. Todd Stern
Mr. Frank Gaffney
Climate Change Action proposals
May 14, 1998 letter from Representative Knollenberg plus enclosures
International Climate Change Partnership 1998 Membership List
Statement of Mr. Paul M. Bernstein and W. David Montgomery
Statement of Miami-Dade Clerk Harvey Ruvin plus enclosure
May 7, 1998 article from Investor's Business Daily
THE KYOTO PROTOCOL: PROBLEMS WITH U.S. SOVEREIGNTY AND THE LACK OF DEVELOPING COUNTRY PARTICIPATION
WEDNESDAY, MAY 13, 1998
House of Representatives,
Committee on International Relations,
The Committee met, pursuant to notice, at 10:15 a.m. in room 2172, Rayburn House Office Building, Hon. Benjamin A. Gilman (chairman of the Committee) presiding.
Chairman GILMAN. The Committee will come to order. Members, please take your seats.
Our hearing today is on the Kyoto Protocol, the problems with U.S. sovereignty and the lack of participation by developing countries. While other issues before this Committee claim a lot of attention, the climate change treaty negotiated in Kyoto could have the greatest impact of any foreign policy initiative in the everyday life of each American.
Permit me to express at the outset my support for a strong U.S. role to protect the international environment. Recently our Committee authorized the appropriation of some $325 million in debt relief to support the protection of tropical forests, in a bill coauthored by Congressman Portman and our own Ranking Minority Member, Mr. Hamilton. I strongly support USAID's program to assist countries to reduce their emissions of greenhouse gases. The conversion of many nations to more sophisticated and environmentally friendly technologies that U.S. companies exemplify can only help our planet and our own economy.
Page 6 PREV PAGE TOP OF DOC I have a particular interest in climate change. The Lamont-Dougherty Observatory which has the greatest concentration of climatologists in America, happens to be located in my district. We consult with them regularly. We can all agree that this subject needs more study, particularly by such outstanding scientists as those found in that excellent observatory.
Our Committee last met on the subject just before the Kyoto negotiations began. The Senate, which must ratify a climate change treaty, unanimously voted to condition the participation of the United States in a climate change treaty on the following, and I quote, ''specific scheduled commitments to limit or reduce greenhouse gas emissions for the developing country parties within the same compliance period.''
In short, the Senate clearly stated that developing countries must be called upon to carry the same kind of burden that our country is being asked to carry to solve this global problem. The Senate did not use a weaker phrase, ''meaningful participation by key developing countries,'' a phrase that the Administration uses but so far has refused to define.
The Senate set a higher standard which the Administration's negotiators in Kyoto admitted they failed to meet. The President has recognized that failure when he declined to submit the Kyoto Protocol to the Senate for ratification, even though our Nation participated in the negotiation of the agreement. The Kyoto Protocol set emission limits on only 38 nations, including the United States, and exempted 130 nations, including the country that could be the largest polluter of the 21st century, the People's Republic of China. They are excluded.
The position that the Chinese negotiators took at the Kyoto conference can best be summarized as a policy of the ''Three Nos'': no obligations on China, no voluntary commitments by China, and no future negotiations to bind China. The ''Three No'' policy.
Since China will soon surpass the United States in the production of atmospheric pollutants, we must ask whether the Administration accomplished anything meaningful at Kyoto. The Senate resolution required that the treatment ''not result in serious harm to the economy of the United States.''
Page 7 PREV PAGE TOP OF DOC I understand that a study by the President's Council of Economic Advisors has concluded that the treaty will entail little cost to our nation. That study contradicts several studies conducted by industry, by labor, by agriculture, as well as other units within our own government and national laboratories. These studies concluded that the Kyoto treaty will cost our economy billions of dollars in lost production and that as many as 2 million Americans could lose work.
Last March the Commerce Committee requested the background and analysis behind the Administration's low cost estimate. I have been informed that while the Committee staff was able to briefly review some of the papers, White House Counsel advised that copies must be withheld from Congress, possibly on a claim of Executive Privilege.
The chairman of the President's Council of Economic Advisors, Dr. Janet Yellen, is with us this morning, and I would like to express my belief that it is critical that those supporting documents be provided to the Congress along with the Council's conclusions and peer-reviewed assumptions, so we can fully review and fully understand the cost of this agreement. I hope to receive a positive response to our request and that of Congressman Dingell, the Ranking Minority Member of the Commerce Committee, to provide the documents and analysis that support the Council's conclusions.
With that, I am pleased to recognize the gentleman from Indiana, the Ranking Minority Member, Mr. Hamilton.
Mr. HAMILTON. Thank you very much, Mr. Chairman. You certainly are to be commended for calling this hearing on global climate change and the Kyoto Protocol. I want to thank our two colleagues for appearing this morning. We are very happy to welcome them to the Committee, as well as the other witnesses.
Let me make just a very few quick observations.
First, I agree with President Clinton that the protocol should not be submitted to the Senate for ratification until developing countries agree to meaningful greenhouse gas emission reductions. While the protocol's Clean Development MechanismI hope to learn a little more about that as the morning goes onseems to be an important first step in securing developing country participation, all of us would agree that much more needs to be done. The United States needs to do its part, but so do many other countries, including China, of course, as the Chairman mentioned.
Page 8 PREV PAGE TOP OF DOC Second, it does seem to me that the market-based approach to reduce emissions is preferable to emission prohibitions. By allowing emissions trading, the protocol gives countries an economically sound and flexible market-based mechanism for reaching emission targets.
The President's climate change initiative for fiscal year 1999 contains a package of tax credits and research and development investments which at least point us in the right direction. I believe that the Administration needs to lead in building public support for eliminating wasteful energy use. The tough part in many ways will be selling this protocol to the American people, many of whom I think are skeptical about the science and the need for action.
I commend the Administration and Secretary Eizenstat in particular for his extraordinary leadership on this issue. I don't see him in the room at the moment, but I think he is nearby. He has provided excellent leadership on a very complicated matter.
I think the protocol was an important achievement. I think it is also only a first step, and in many respects the debate over global warming is just beginning. I view the protocol as a partial agreement at this point, and I suspect it marks the beginning of many, many years of international negotiations.
I do think with sustained and committed leadership over a period of time the treaty will evolve into a significant international undertaking, one that commits the nations of the world to action that will protect the planet's future. I don't pretend to be any kind of an expert on this matter, certainly not the science of it, but my general view at this point is that the scientific consensus in this country and in the world is that human activity is having an impact on the environment and on the earth's climate.
The question is how best to respond. I don't think very many of usI certainly do notsupport a crash program. Somebody said that the sky is not falling but it is slowly filling up with greenhouse gases. So my state of mind at the moment is to favor a gradual program of gradually reducing emissions, and I think all of us want to take very special care to protect the strength of the American economy.
Page 9 PREV PAGE TOP OF DOC Mr. Chairman, I thank you for holding this hearing. I think we have assembled an excellent group of witnesses and I look forward to their testimony.
Chairman GILMAN. Thank you, Mr. Hamilton.
We are pleased that we have two of our colleagues here: Congressman Joe Knollenberg from the State of Michigan, holding a position on the Appropriations Committee. Mr. Knollenberg served on the Speaker's observer group to the Kyoto negotiations. Thank you for being with us, Congressman Knollenberg.
Our second witness is Congresswoman Jo Ann Emerson from Missouri. Mrs. Emerson is a member of the Subcommittee on Forestry, Resource Conservation and Research of our Committee on Agriculture, as well as a member of the Subcommittee on Water Resources and Environment of the Transportation and Infrastructure Committee. Mrs. Emerson also served on the Kyoto congressional observer group.
We thank both of you for being here. You may submit your full statement or summarize it, whichever you deem appropriate.
Mr. KNOLLENBERG. I will make a full statement, and I think pretty much what I submit will be a mirror of what I say.
Chairman GILMAN. Please proceed.
STATEMENT OF THE HONORABLE JOE KNOLLENBERG, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Mr. KNOLLENBERG. Thank you, Members of the Committee and Mr. Chairman, for having this hearing. I think it is a very necessary hearing that we have, and I thank you for your leadership in that regard.
Let me say that I believe that we have to have a hearing of this type to get some of this out in the open. I want to commend you for holding this hearing, but the answers to these very important questions raised by both the Ranking Member and your comments have to be dealt with, and the Kyoto Treaty on Climate Change frankly is, I think, an error.
Page 10 PREV PAGE TOP OF DOC As a Member of the congressional delegation that monitored the negotiations of this treaty last December, I was frankly outraged by the final agreement. The bottom line is, this treaty in its current form is a terrible deal for the United States for several reasons. As Members of Congress, we have an obligation to ensure that its provisions are not implemented.
First, the Kyoto Treaty requires the United States to reduce its emissions of greenhouse gases by 7 percent below 1990 levels by the years 2008 through 2012. To meet this stringent requirement, the United States would have to dramatically reduce its use of energy.
What does this mean to the average American? Simply put, if the Kyoto Treaty is ratified by the U.S. Senate, the American people will see their standard of living decline in the sense that they will pay more for energy.
The Wharton Econometric Forecasting Associates or WEFA, a well-respected economic firm, has estimated that the Kyoto Treaty would result in Americans paying almost 50 cents more for a gallon of gasoline and $600 more a year for household utilities. WEFA also estimates that this treaty could result in the United States losing over a million jobs a year over a 15-year period, and I have heard figures above 2 million.
In addition, the Kyoto Treaty is unfair. The treaty, as the Chairman has pointed out, exempts over 132 of 166 nations from making any reductions in their greenhouse gases. This is problematic because nations like China, India, Mexico and Brazil, which are exempted from the treaty, are projected to be the largest emitters of greenhouse gases in the next century. Therefore, even if global warming was a problem that could be addressed by reducing the emissions of greenhouse gases, this treaty wouldn't get the job done.
Finally, the scientific community is divided on the issue of whether or not the emissions of greenhouse gases are causing the earth's temperature to warm. Global warming is only a theory. It is not a fact.
Page 11 PREV PAGE TOP OF DOC Mr. Chairman, given the lack of sound science on this issue, I believe it would be foolish to inflict the severe economic pain this treaty would cause on the American people.
Fortunately, there is strong opposition to the treaty in the Senate. That said, I believe it is important to continue monitoring this issue. I am concerned that the Clinton Administration, lacking the votes to win ratification in the Senate, will attempt to accomplish the goals of the Kyoto Treaty through regulatory fiat.
In fact, Vice President Gore forewarned us back in December of the Administration's intent to do just that, and I have a copy of last Thursday's Investor's Business Daily that I believe speaks to this very, very well, and reminds us that as Mr. Gore stated unequivocally, and I quote, whether there is an agreement, and this was done in December 1997, ''whether there is an agreement in Kyoto or not, the United States is prepared under President Clinton's leadership to unilaterally take steps that we believe should be taken in order to deal with this problem.''
Such unilateral action flies in the face of the Constitution and cuts this body out of the policymaking process. Congress must ensure that this does not happen. We have an obligation to protect the integrity of the Constitution and to defend the economic interest of our country against the overreaching U.N. Treaty on Climate Change.
That is why I was joined by my colleagues, Representatives Jo Ann Emerson and Ron Klink, in introducing H.R. 3807, the American Economy Protection Act of 1998. Simply put, our bill would prohibit any Federal funds from being spent to implement the Kyoto accord unless it receives Senate ratification.
We must ensure the Kyoto Treaty will be debated in the light of day, as we are here today doing just that, instead of being imposed on working American families. The American Economy Protection Act will prevent implementation of this dangerous treaty through back door regulatory tactics.
Page 12 PREV PAGE TOP OF DOC Mr. Chairman, I want to thank you for allowing me to testify today, and I look forward to working with you and the other Members of this Committee on what I consider to be a very important issue.
Chairman GILMAN. Thank you, Congressman Knollenberg, and thank you for your very eloquent remarks.
Congresswoman Emerson, we welcome your remarks.
Mrs. EMERSON. I think I will follow suit with my colleague and pretty well submit the statement that I read for the record.
Chairman GILMAN. Without objection.
STATEMENT OF THE HONORABLE JO ANN EMERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSOURI
Mrs. EMERSON. Thank you very much, Mr. Chairman and Members of the Committee, for inviting me to testify here today. I am really very grateful for the fact that you are holding this hearing, and I am very hopeful that we will be able to discuss in great detail any type of attempts that the Administration tries to get this Kyoto Protocol in through the back door. We can't allow that to happen, and I am very proud to stand shoulder to shoulder with my colleagues, Joe Knollenberg and Ron Klink, in sponsoring legislation that would in fact block all funding for the Administration's attempt to implement portions of this flawed treaty without Senate ratification.
Although I could spend hours discussing with you all my perspectives as an official observer at the Kyoto negotiations, I have chosen instead to focus my testimony on what I think is much more important.
Recently Small Business Committee Chairman, Jim Talent, and I held a hearing in Malden, Missouri in my congressional district to hear directly from what I call the real experts on this so-called global warming treaty. What these real men and women reported to us is simply frightening, and I will get right to the point. The witnesses who testified at this real world hearing told of their real world expectations. They have got no political ax to grind and no political agenda. Let me just share a few examples with you.
Page 13 PREV PAGE TOP OF DOC Duane Highley represents Associated Electric Cooperative in New Madrid, Missouri. Duane's organization provides power to the Noranda Aluminum plant in my district, which is responsible for employing over 1,200 people throughout the Bootheel region of southeast Missouri and some in northern Arkansas and some across the river. Duane reported that Noranda's power bill would at least double, if not triple, under the Kyoto Treaty.
Duane further commented, and I quote, ''If this treaty were ratified or implemented with regulatory action, the cost to residential electric customers, farmers, small business, industry and all U.S. consumers would be tremendous.'' Mr. Chairman, Duane should know that because he does work at the power production facility.
There is a direct cause and effect relationship between this Kyoto proposal and the livelihood of American workers and families. As I said earlier, Noranda Aluminum is one of the largest employers in my district. Steve Heddle, who is the president of Noranda, told the Small Business Committee that his company would be forced to move overseas if they were going to continue business under this flawed treaty, if it were ratified or implemented through the back door, because they simply could not afford to pay the extra costs for their power. This is 1,200 jobs in my district.
Cheap labor abroad has already encouraged and attracted many industries to move overseas, and I guess I have to ask, why does the Administration propose a treaty such as this to give more industries a good swift kick on the backside and say, ''Don't let the door hit you on the way out''?
I am not done. It gets worse. Steve Wallace operates Wallace & Owens Country Mart, a grocery in my district, and this is a small grocery store. Steve told us that his small business spent nearly $1 million on utility bills alone last year. Among other things, these bills were paid to keep foods refrigerated and safe for consumption. Steve told us that with the slim profit margin of only 1.8 to 2 percent, his company wouldn't be able to stay in business and still absorb the extra utility costs proposed by the Kyoto deal. Any significant change in utility costs will have to be paid by the consumers, Steve said.
Page 14 PREV PAGE TOP OF DOC Mr. Chairman, a great many of these consumers are frail, elderly and low income residents of southern Missouri and they can't afford to pay increased costs for utilities for heating or cooling. You know, we often hear of the so-called threat of global warming. The fact is that the facts haven't been established and the scientific community is at odds as to whether so-called global warming even exists.
So what are we left with? On the one hand we have an uncertain threat of global warming. On the other hand we have the reality of a treaty that would destroy American jobs and leave American families scrambling to find ways to pay the monthly utility bill.
With that said, I ask why the Administration would propose a budget that calls for billions of dollars of taxpayers' money to pay for the initial implementation of the Kyoto agreement when the Senate hasn't ratified the proposal. Why not use that money, however much it is, to answer the basic question: Is global warming occurring or is it not? I would encourage every Member of this Committee, Mr. Chairman, to pursue the following line of questioning of the Administration witnesses who will follow me:
One, please identify for the Committee and the American people any and all fiscal year 1999 budget requests submitted by the President that are intended or might be used by the Administration to facilitate the implementation and/or achievement of the goals called for in the Kyoto documents.
Two, how much taxpayer money does the Administration want to spend in fiscal year 1999 on efforts to convince Americans that global warming exists?
Three, how much taxpayer money does the Administration want to spend in fiscal year 1999 to convince Americans of the supposed need to implement the Kyoto Treaty?
I am aware that other committees have been informed by Administration representatives that no aspect of the Kyoto agreement will be implemented without Senate ratification. I encourage all of you to vigorously examine the Administration witnesses who will follow and specifically ask what their intentions are with regard to the Kyoto agreement.
Page 15 PREV PAGE TOP OF DOC I also encourage each Member of the Committee to take a look at the legislation that Joe Knollenberg and Ron Klink and I have introduced to ensure that no money, not a single penny, is spent by the Administration in an effort to implement this fatally flawed treaty through the back door.
Thanks again, Mr. Chairman and Members of the Committee, for this opportunity to speak to you all today.
Chairman GILMAN. Thank you, Mr. Knollenberg and Ms. Emerson. Let me address both of you with these questions.
Mr. Knollenberg introduced H.R. 3807 that would deny funding to implement the Kyoto Protocol. As I understand it, the Administration may implement many Kyoto-like projects under its authority granted under the Clean Air Act or the 1992 U.N. Convention on Climate Change. How will we be able to distinguish between Kyoto projects for which your bill will block funding and the Clean Air Act projects?
Mr. KNOLLENBERG. On three of the subcommittees I sit on in Appropriations, Energy and Water, Foreign Operations and VA/HUD, which includes EPA and NASA, we have found that monies are being spent for projects that have a global warming significance. The folks that testify are very, very blurred about thisthey can't refine it down to a number. I have asked them repeatedly, ''How much money are you spending on global warming?'' And they say it is kind of mixed in with other projects.
Now, there is some history to environmental concerns that goes back, that predates obviously the Kyoto signing in December, but I believe that the effort is being made by the Administration to move monies into the global warming area under the banner of those prior environmental categories. So the claim I would say is that nothing that we are making, nothing should be spent on global warming until the Senate ratifies that treaty.
Chairman GILMAN. We have heard concerns about the use of the Global Environmental Facility or GEF at the World Bank. Mr. Knollenberg, you serve on the Appropriations Subcommittee that funds the GEF; that is correct?
Page 16 PREV PAGE TOP OF DOC Mr. KNOLLENBERG. That is correct.
Chairman GILMAN. They are scheduled to receive an increase in funding from $45 million to $300 million. Can you tell us, is that justified, and can we be certain that the GEF is not going to be used to buy the ''meaningful participation of key developing countries,'' as set forth by the Administration in the Kyoto Protocol?
Mr. KNOLLENBERG. We are still attempting and trying very hard to get to the bottom of exactly what or how that money is going to be spent, and it is difficult because they can blur the lines in terms of the fact that there is no global warming category that is so distinct that they can tell us in numbers how much money is going to be spent. We have had hearings, as I mentioned, in those three subcommittees, I am sure my colleague will tell you about a committee or two of her own, and I don't know what they will provide in the way of information.
We are still trying to get information from those folks on the hearings that we have held ourselves. So I can't give you an answer. We are still trying to find that answer.
Chairman GILMAN. Congresswoman Emerson, would you care to comment?
Mrs. EMERSON. I would agree with my colleague. In the Agriculture Committee the other day we had a hearing on USDA's budget, and I asked a question of one of the witnesses, ''How much money are you devoting to global warming in your budget?'' And nobody was quite sure how to answer that, but then the person in charge of that particular program at USDA did indicate that they had for this year $3 million designated, I think $10 million overall at USDA, but $3 million for the part of it that he was talking about, but he did indicate that it is somewhat blurry, as Joe has indicated as well. However, you could at least pick out $3 million of the $10 million that was devoted solely to the global warming initiative.
But let me make mention of a document back in 1994 that was prepared by the Environmental Protection Agency, that sets out a list of many things with regard to the whole global climate change agenda that the Administration had, that talks about levying a 50 cent gasoline fee, that talks about a NOX cap or nitrous oxide mix cap. It talks about a cap on utility or greenhouse gas emissions, forest health initiatives, other things, all of which seem to me to have been planned in the past, that you can find these things in response to the question that you asked: How can you tell the difference?
Page 17 PREV PAGE TOP OF DOC Well, we are dealing with a NOX cap right now on nitrous oxide emissions, and that obviously weighs into the greenhouse gas emissions and the whole global warming issue, as it does also with regard to clean air. But I have this list here back from 1994 that pretty well spells out, I think, where you might start looking for things.
Chairman GILMAN. It sounds like we have some homework to do.
Mrs. EMERSON. I would like to submit this for the record.
Chairman GILMAN. Congresswoman Emerson is an expert on agriculture. I know that you serve on that committee and come from that agricultural area. What are the implications to the American farmer with regard to the Kyoto agreement?
Mrs. EMERSON. Let me say that I don't consider myself an expert on agriculture. I am a good listener and I serve on the Committee, and the base of the economy in my district is agriculture, and so I spend an awful lot of time doing that, but I didn't grow up on a farm. I am an expert by listening and through the advice of the farmers in that district.
The Missouri Farm Bureau and American Farm Bureau have indicated that increased energy costs, whether gasoline taxes or just energy, coal, fuel burning natural gas, etcetera, those increases would probably cause a 50-percent reduction in agriculture income and farm income right now because they couldn't absorb the costs.
In addition to that, the developing countries, our largest trade competitors in Brazil, Argentina, China, our biggest competitors would not be subject to those same restraints as our own American agriculture would, and so consequently we would lose a great deal in the international marketplace, and so it would be devastating for American farmers and I think it would pretty well put us out of business.
Chairman GILMAN. Thank you, Mrs. Emerson. As I understand it, while our Nation will be asked to cut emissions by 41 percent, other countries receive the right to increase emissions, such as Australia, Iceland and Portugal, to be specific. What was the basis for that? Did they have better negotiators? I ask that of both of you.
Page 18 PREV PAGE TOP OF DOC Mr. KNOLLENBERG. I would tell you when I went to Kyoto, I was shocked at the guns that were drawn on the congressional delegation. We were the enemy. We were like the reason that this world has greenhouse gases in the proportion that they do, and it is up to us to do something about it.
Chairman GILMAN. You don't look like an enemy to these people.
Mr. KNOLLENBERG. Just a point about the previous question, what we are having difficulty with is getting information out of these various agencies. It is not forthcoming. It is very difficult.
Chairman McIntosh has had, as you probably know, letters to some 20, 22 agencies, and he has gotten responses from five and that has been over a period of some weeks. That is our problem. We are not getting the answers. We believe that they are using money for global warming, but we are not getting answers as to how much.
Chairman GILMAN. Maybe besides the Kyoto Treaty we need a treaty with the agencies to get some information.
Mr. CAMPBELL. Thank you, Mr. Chairman. A couple of quick questions to my colleagues.
First of all, and I understand that you may not have the expertise, in which case just tell me, but I have heard that there is substantial evidence of an increased ozone hole over the Antarctic. Whether there was actual global warming over a period of centuries is impossible to tell because we don't have the data for that long, but as to the depletion of the ozone layer, it is my understanding that the cores done on the ice demonstrate that without ambiguity. Do you know if that is the case or not?
Mr. KNOLLENBERG. Mr. Campbell, are you talking about the fact that they have recorded an increase in greenhouse emissions over the last 60, 80, 200 years in the ice? They have done this by using the ice as a source?
Page 19 PREV PAGE TOP OF DOC Mr. CAMPBELL. I was asking almost that question. I was asking about the depletion of ozone, which may or may not have been caused by the greenhouse gases.
Mr. KNOLLENBERG. I am not a scientist at all and I would not venture into that area. I don't think that the scientists are together on that either. But with regard to using ice as a source to find out, I have been told by a number of scientists that they believe that there is accuracy in that kind of experiment, that kind of test.
But again, that just proves that it is increasing. It does not prove, have a connection to, in their judgment, to the ozone situation, nor does it have any proof that carbon dioxide is causing the problems that others would attest that it does. So it is still very mixed, very blurred.
Mrs. EMERSON. I would agree. I am not a scientist, and I can only report what I have read and not specifically with regard to the ozone, but I believe that we try to measure global warming through two different mechanisms, one by satellite and one by ground measure. The satellites tell us that there isn't global warming and the ground measures say that there is, so consequently there is no computer model that can be totally accurate because two different measures that we are using tell us two different results.
I do want to say that there is a panel of scientists, 2,600 scientists who have been touted to have signed the statement that global warming does indeed exist. But when you look at the 2,600 scientists, there aren't too many who are climatologists or meteorologists. There is a landscape architect and an ob-gyn and a psychologist and a practitioner of Chinese medicine, all of whom are probably great at what they do, but they don't have any more expertise than I do or Joe does.
Mr. CAMPBELL. My question is specifically on the depletion of ozone around the Antarctic, and I take it from Congressman Knollenberg's answer that you are willing to concede that what causes that you are not so clear on?
Page 20 PREV PAGE TOP OF DOC Mr. KNOLLENBERG. I think, if you are asking me, that the scientists themselves are mixed, not in terms of the fact that there is an ozone depletion. That is fact. And does this contribute to that? I think that is a connection that has to be made.
Mr. CAMPBELL. Fair enough. One last question, because my time is almost up. The wisdom of reducing reliance upon fossil fuels, it seems to me, is a separate reason for attempting the public policy that might also lead us toward some of the steps of Kyoto, not necessarily agreeing with any of them in particular. So that whether or not there is global warming and whether or not there is a hole over the Antarctic, sooner or later we are going to run out of fossil fuel, and it would be wise to increase dependency instead on renewals. Do you agree or disagree? Congresswoman Emerson?
Mrs. EMERSON. I don't necessarily disagree, and I believe many of the utility companies are voluntarily spending a lot of research money exploring other options for way down the road in the future.
I will tell you, however, that one company who happened to testify at our Small Business hearing, the largest energy producer in the State of Missouri, as a matter of fact, told us that they did not have the wherewithal to convert their fossil fuel energy reliance to something like natural gas, because not only was there not enough natural gas but there isn't enough pipeline, and you can always make pipeline but there is not enough natural gas. They could not do it, when I simply asked them that question.
So yes, they are spending time and efforts looking for other renewables. But in the short term or even in the next 20 years, the conversion is almost impossible.
Mr. CAMPBELL. Mr. Chairman, just to give Mr. Knollenberg a chance to respond
Mr. KNOLLENBERG. I would like to say one thing to your prior question, if I might. The CFCs cause ozone depletion, not greenhouse gases, but the connection is going to have to be made by the scientists in that regard.
Page 21 PREV PAGE TOP OF DOC But in regard to your question, yes, I believe we should strive for use in the direction of clean fuel, and that includes a number of options. That includes renewables, but it also includes nuclear power.
Why is Japan so satisfied with the Kyoto accord? Because they have 40 percent of their power produced by nuclear power, and they are adding 20 new sites, 20 nuclear reactors to go with the 44 that they have. France has 75 percent of their power from nuclear power. Nuclear power is clean power.
If they can do it with solar or renewable, I think we should move in that direction because yes, there is a limit to fossil fuels, even though the Caspian Sea has just opened up and we have another barrel or two coming from there. But we all want cleaner air, and those kinds of sources will bring us cleaner air and I think a better climate all over the world, not just in certain countries which this treaty frankly seems to focus on.
Chairman GILMAN. The gentleman's time has expired.
Ms. DANNER. Mr. Chairman, I have no questions for my colleagues. It is good to see both of you here today. I do have questions for our subsequent witnesses.
Chairman GILMAN. Thank you.
Mr. FOX. Thank you, Mr. Chairman. I was impressed with what I heard of your testimony, and I would ask both of our esteemed colleagues, I do appreciate the fact that you pointed out well and eloquently the problems of economics with regard to trying to comply with Kyoto. I guess my question would be with regard to improving our environment based on good science practice. Is the research component of what we have just discussed, and following up on our friend from California, Mr. Campbell, is this an obligation on the research side of government or private sector or do you think that it is both?
Page 22 PREV PAGE TOP OF DOC Mr. KNOLLENBERG. I think it has to be both private sector and government. But I believe that we should frankly start looking in that direction without taking the cue from someone who says the sky is falling and we have to do something now, it is too late tomorrow. So yes, I think research in both areas should be conducted.
Mrs. EMERSON. I would agree with my colleague, but let me also follow that up by saying that what is very worrisome about this treaty, the proposed treaty, and implementing it through the back door is the fact that we are doing it at our own expense and there are so many other countries who would not have to live under the same restrictions as we do. So we are putting ourselves at an unfair disadvantage to other countries. That is why I think this is the wrong approach.
Sure, I think it is always very important, all of us want a clean environment and we should invest in research and alternatives. However, I don't believe that we need to also export jobs at the same time we are exporting pollution.
Mr. FOX. We appreciate the research that you both have brought to the Committee. I have no further questions. Thank you for the time.
Chairman GILMAN. Thank you Mr. Fox.
If there are no further questions of our witnesses, I want to thank you, Congressman Knollenberg and Congresswoman Emerson. Thank you for going to the Kyoto conference, and if you have any further recommendations, please submit them. We will distribute them to the Committee. Thank you for being here today.
Mr. KNOLLENBERG. Thank you.
Mrs. EMERSON. Thank you.
Chairman GILMAN. We will now proceed with our next panel, which consists of Ambassador Stuart Eizenstat, Under Secretary of State for Economic, Business and Agricultural Affairs, and Dr. Janet Yellen, Chair of the Council of Economic Advisers.
Page 23 PREV PAGE TOP OF DOC Ambassador Eizenstat leads the work of the State Department on issues including trade and bilateral relations with such major partners as Japan and the European Union.
Before her appointment by President Clinton in 1997, Dr. Yellen served as a member of the Board of Governors of the Federal Reserve system. She has written on a wide variety of issues, most recently focusing on trade balance and economic reform in Eastern Europe. We are pleased to have both Dr. Yellen and Mr. Eizenstat with us today.
Dr. Yellen, you may proceed.
Dr. YELLEN. Thank you, Mr. Chairman.
Chairman GILMAN. You may put your full statement in the record and summarize.
Dr. YELLEN. I would appreciate that.
Chairman GILMAN. Without objection, the full statement is entered in the record.
STATEMENT OF JANET YELLEN, CHAIR, COUNCIL OF ECONOMIC ADVISERS
Dr. YELLEN. The President has said that we can work to avert the grave dangers of climate change while at the same time maintaining the strength of our economy. I agree, and I am pleased to have this opportunity to appear before the Committee to elaborate on the Administration's views on these issues.
The international agreement that was reached in Kyoto this past December is a crucial step forward in addressing global climate change, but it is only one step in a long journey. Since the international effort to reduce greenhouse gas emissions is still in some respects a work in progress, it is not yet possible to provide a full authoritative analysis of it. But in my testimony today I will attempt to identify key elements of the agreement and the Administration's policy, such as international emissions permit trading, meaningful developing country participation, the inclusion of land-use activities that absorb carbon, namely sinks, and six categories of gases, as well as domestic initiatives that can ensure that reductions in global greenhouse gas emissions are consistent with strong economic growth.
Page 24 PREV PAGE TOP OF DOC The Intergovernmental Panel on Climate Change jointly established by the World Meteorological Organization and the U.N. Environment Programme concluded in 1995 that ''the balance of evidence suggests that there is a discernible human influence on global climate.'' Current concentrations of carbon dioxide, methane, nitrous oxide and the other so-called greenhouse gases have reached levels well above those of preindustrial times.
As a result of the increased concentration of greenhouse gases, the IPCC estimates that global temperatures will increase by between 2 and 6 degrees Fahrenheit in the next 100 years, with a best guess of about 3.5 degrees Fahrenheit. The IPCC reports that a doubling of carbon dioxide levels would lead to approximately 10,000 additional deaths per year for the current U.S. population from higher summer temperatures, even after netting out the effects of warmer winters and acclimatization.
The IPCC also predicts sea level increases of about 20 inches by 2100 with greater increases in subsequent years. Despite the difficulties of deriving quantitative assessments of the damages from climate change, researchers have nonetheless developed monetary estimates of damages that prompt substantial concern and range in the tens of billions of dollars per year for temperature changes projected to occur in the next century.
If left uncontrolled, disruption of the earth's climate may thus pose substantial harm and costs in terms of adverse effects on commerce and the environment alike. These costs, and they are significant, provide the primary motivation for action to reduce greenhouse gas emissions. These estimates do not and cannot accurately reflect the value of reducing the unknown risk of large-scale and potentially irreversible events with potentially catastrophic consequences, like warming of the northern tundra sufficient to release very large amounts of methane from the permafrost, thereby leading to accelerated warming.
There is a strong argument for the Kyoto Protocol as a form of insurance against a serious environmental threat. To address climate change, the United States and approximately 160 other nations agreed in negotiations held in Kyoto last December to reduce emissions of greenhouse gases. The Kyoto Protocol, which requires the advice and consent of the Senate, would place binding limits on each industrial country's combined emissions of the six principal categories of greenhouse gases. Those limits apply to the 38 so-called Annex I countries which are the industrialized countries, defined to include Russia, Ukraine and most Eastern European countries.
Page 25 PREV PAGE TOP OF DOC In taking actions to reduce emissions, economic analysis suggests that two elements are absolutely essential. The effort must be flexible and market-based, to ensure that we reduce emissions in the most efficient way; and the effort must be global, for without global emission reductions, the effort would be ineffective. The nature of the climate change problem, that greenhouse gas emissions have the same effect on the climate regardless of how, where and, within limits, when they occur, suggests three basic approaches to lower the cost of achieving given levels of environmental protection.
We term these ''when, what and where'' flexibility. As a result of U.S. diplomatic efforts, all three forms of flexibility are broadly reflected in the Kyoto Protocol.
Dr. YELLEN. The choice of a multiyear budget period, ending later than many countries proposed, with allowance for banking of emissions reductions, constitute key elements of ''when'' flexibility. These provisions mitigate costs by permitting reductions at times when they are less, rather than more, costly. The inclusion of all six categories of greenhouse gases and certain sink activities that promote removal of carbon from the atmosphere provide substantial ''what'' flexibility.
The United States succeeded in having the Kyoto Protocol stipulate that countries with binding targets are to reduce total greenhouse gas emissions by certain percentages, but the protocol doesn't require specific reductions for specific gases and sinks can be used to offset emission targets. The inclusion of international emissions trading among countries that take on binding targets, coupled with an agreement allowing industrial countries to receive emissions reduction credit for certified investments in clean development projects in the developing world, are the critical forms of ''where'' flexibility incorporated in the Kyoto Protocol. Although details of these provisions need to be finalized in negotiations in Buenos Aires later this year, we believe that these mechanisms can produce substantial reductions in the cost of obtaining our environmental objectives.
Page 26 PREV PAGE TOP OF DOC The problem of climate change is global and so requires a global solution. Around 2020, under a continuation of business as usual, a majority of world emissions are projected to come from developing countries. Without developing country participation, we cannot achieve adequate climate protection.
In addition, developing country participation would permit relatively low-cost emissions reductions to be internationally recognized as a substitute for more expensive reductions in many industrial countries. The President has made clear he will not submit the Kyoto Protocol to the Senate without meaningful participation from key developing countries who are not included in Annex I.
An economic analysis of climate change faces three broad categories of difficulties. First are the uncertainties that still remain over the terms of the ultimate treaty. Second, are inherent limitations of available models to analyze even short-term costs and benefits. And, finally, is the impossibility of putting a single monetary figure on the long-term benefits of climate change mitigation.
Mindful of the limitations of any single model as a tool for evaluating the economic impact of the Kyoto Protocol, we have employed a broad array of techniques to assess the various possible costs and nonclimate benefits of the Administration's emissions reduction policy. Ignoring the benefits of mitigating climate change itself, our conclusion is that the net costs of our policies to reduce emissions are likely to be small, if those reductions are undertaken in an efficient manner, and if we are successful in securing meaningful, developing country participation as well as effective international trading, and Clean Development Mechanisms in future negotiations.
As I explain in detail in my written testimony, this conclusion is not entirely dependent on, but is fully consistent with formal model results. For example, given the factors such as trading I have just delineated, but excluding the benefits of acting and the impact of electricity restructuring, estimates derived using Battelle's Second Generation Model suggests that the resource costs of obtaining the Kyoto targets for emission reductions might amount to just $7 to $12 billion per year in 2008 to 2012, or about one-tenth of a percent of projected GDP. That small net premium in effect purchases a partial insurance policy against a serious environmental threat.
Page 27 PREV PAGE TOP OF DOC A comprehensive economic evaluation of the Administration's climate change policies must also take into account the potential payoffs from the full package of proposed Administration climate change initiatives. As you know, the President's fiscal 1999 budget includes a $6.3-billion package of tax cuts and R&D over the next 5 years. This package makes good sense in terms of energy policy, and it would also jump-start our efforts.
A second responsible step entails industry-by-industry consultations to prepare emission reduction plans in key industrial sectors. A final component of the President's climate change policy is his support for electricity restructuring in a manner that will offer approximately $20 billion a year in cost savings to consumers while offering modest reduction in greenhouse gas emissions.
I look forward to continuing to work with Members of this Committee as well as other interested parties in further analyzing the Kyoto Protocol and evaluating the effects of reducing greenhouse gas emissions.
I will welcome your questions.
Chairman GILMAN. Thank you, Dr. Yellen.
[The prepared statement of Dr. Yellen appears in the appendix.]
Chairman GILMAN. Ambassador Eizenstat.
STATEMENT OF HON. STUART EIZENSTAT, UNDER SECRETARY OF STATE FOR ECONOMIC, BUSINESS AND AGRICULTURAL AFFAIRS, DEPARTMENT OF STATE
Mr. EIZENSTAT. I would like to discuss the issue in four parts: science, the protocol, misperceptions, and the President's own climate change initiative.
Chairman GILMAN. You may put your full statement in the record or summarize, whatever you deem appropriate.
Page 28 PREV PAGE TOP OF DOC Mr. EIZENSTAT. Thank you. Dr. Yellen has given large parts of my statement on science, so I will just be very brief.
Chairman GILMAN. Without objection, your full statement will be made a part of the record.
Mr. EIZENSTAT. Thank you.
These two charts, the first on my far left, demonstrates the actual measurements of CO2 concentrations taken from ice core data and from Hawaii. They indicate the dramatic increase in CO2 concentrations that are occurring. These are actual measurements, these are not projections, and that is on an exponential increase.
The second chart, closest to the Committee, indicates the relationship that is likely to occur between the increase in CO2 buildup and the increase in temperatures leading to the 2- to 6 1/2-degree temperature increase over the next 100 years, with the consequences that Dr. Yellen outlined.
I would like to mention that this is an increasingly accepted body of information. In The New York Times today, some of our leading companies, Enron, Maytag, 3M, American Electric Power, Sonoco, Whirlpool, Lockheed Martin, United Technologies, Boeing and others, make four points with respect to the signs and what ought to be done.
First, we accept, they say, the views of most scientists that enough is known about the science and environmental impacts of climate change for us to take actions to address its consequences.
Second, businesses can and should take concrete steps now in the United States and abroad to assess their opportunities for emissions reduction and establish their emission reduction objectives and invest in new, more efficient products, practices and technologies.
Third, the Kyoto agreement, they say, represents a first step in the international process, although more must be done to implement the market-based mechanisms adopted in principle in Kyoto, and then move fully to involve the rest of the world in the solution.
Page 29 PREV PAGE TOP OF DOC Fourth, they say we can make significant progress in addressing climate change and sustaining economic growth in the United States by adopting reasonable policies, programs, and transition strategies. One could not have said it any better.
Then there is the issue of the protocol itself. We had three major objectives to negotiate; two we achieved, and the third we did not do enough to achieve but made some progress on.
The first was realistic targets and timetables among developed countries. We secured the key elements of the President's proposal, multiyear timeframes to reduce the burden; a timeframe 2008 to 2012, which was our timeframe, rather than the earlier ones preferred by the European Union, Japan and others; we adopted our concept of differentiated targets for key developed countries, so that we are taking reductions which are commensurate with those our competitors are taking; and we got the concept of sinks included. This means good forest practices that absorb carbon dioxide can be used to offset emissions requirements and significantly reduce costs and burdens on industry.
When changes in the accounting rules for gases and offsets for these sinks are taken into account, the ultimate reduction is at most a 3-percent real reduction, very close to the President's original proposal. We also were able to get at Kyoto all six gases covered, even though European Union and Japan fought until the last moment to cover only three.
Our second objective was to make sure that countries could meet their obligations by flexible market mechanisms rather than mandatory policies like carbon taxes. Kyoto enshrines the centerpiece of this market-based approach and that is the opportunity for companies and countries to trade emissions permits. This is both economically sensible and environmentally sound. This is not just theory. We have had actual experience with this in our acid rain program, which has reduced cost by 50 percent from what was expected. This was a signal victory for the United States to have these market-based mechanisms included.
Page 30 PREV PAGE TOP OF DOC The third objective was to try to secure meaningful participation of key developing countries. This is obviously a concern of the Congress and a concern of ours because, as Dr. Yellen indicated, global warming is a global problem and requires a global solution. We encountered significant resistance in Kyoto by some developing countries. Still, developing countries may, as a prerequisite for engaging in what to them will be very productive and profitable emissions tradings, voluntarily assume binding emissions targets through amendment to the Annex.
We did make an important down payment on developing country participation through the Clean Development Mechanism incorporating our concept of joint implementation with credits. This allows a company in the United States to co-venture with one abroad, for example, for a gas-fired power plant, and to achieve credits against its own obligations while transferring important environmentally clean technology to developing countries.
I would like now to correct some misperceptions. The first is that somehow this will imperil the ability of the military to meet its worldwide responsibilities. That is absolutely, totally, completely untrue and fallacious. We took special pains working with the Defense Department and on my team having the uniformed military present to fully protect our unique position as the world's only superpower with global military responsibilities. We achieved what we were intending to do and what the Defense Department asked us to do.
The parties in Kyoto took a position to exempt key overseas military activities from any emissions targets, including exemptions for bunker fuels we used in international aviation and maritime transport and from emissions resulting from multilateral operations, such as self-defense, peacekeeping, and humanitarian relief. This would include everything from Grenada to U.N.-sanctioned activities. Thus, it exempts from our national targets not only multilateral operations authorized by the Security Council, like Desert Storm or Bosnia, but importantly it also exempts multilateral operations initiated pursuant to the charter but without the express authorization of the Council, such as Grenada.
Page 31 PREV PAGE TOP OF DOC In terms of domestic implementation, the President determined recently that to ensure defense readiness, he will propose that military operations and training be completely held harmless from any national emissions limits that might be adopted. Measures intended to promote reductions in emission of greenhouse gases will therefore not impair or adversely impact overseas operations and training or the ability to reallocate emissions resulting from overseas activities and bases.
Secretary Cohen, in a letter of February 24th, said the Department is fully satisfied with Kyoto. That remains the view of the uniformed military as well.
A second misconception is that somehow the protocol will create a super U.N. Secretariat, threatening U.S. sovereignty. That is also fallacious. The review process and the protocol simply codifies already existing practices under the 1992 Rio Convention.
The review process is not by some centralized U.N. Secretariat; it is intergovernmental. The review teams are chosen by the government officials and then they can only come into a country with the invitation of that government. They cannot come onto any private property unless the property owner himself or herself permits it. There will be no black helicopters swooping down on farms.
Also, this intergovernmental team recently visited in April the U.S. Capitol, met with congressional staff and Members of the Congress, and the Capitol still stands. So the notion that somehow people are going to be intruding on our sovereignty is simply and totally untrue.
Finally, there are some who suggest the protocol is going to result in a huge government transfer of foreign aid to Russia. That is also not true. U.S. private sector firms may on their own choose to purchase international emissions credits from Russia or any other country that wants to sell them. It will be purely a private decision. The U.S. Government is not transferring taxpayers' money to anyone. Indeed, this will be one of the crucial ways that the private sector can achieve cost-effective reductions. It will be their decision.
Page 32 PREV PAGE TOP OF DOC Where do we go from here? First, to adopt rules and procedures to ensure that emissions trading rights, joint implementation, Clean Development Mechanism operates satisfactorily, and we will be working and we are working closely with industry to be sure they are satisfied that the emissions trading system is efficient and effective.
Most significant, we are working to secure meaningful participation of key developing countries by a full court diplomatic press. The United States, as Mrs. Yellen indicated, will not be assuming binding obligations until key developing countries meaningfully participate and more progress will be made there.
Before concluding, let me briefly address another concern that has been raised in recent weeks; namely, that somehow the Administration is seeking to implement Kyoto before submitting that treaty to the Senate for its advice and consent. That is likewise completely and totally fallacious.
We are pursuing a host of actions as a matter of good environmental and energy policy, which we have done since the first day of this Administration, long before Kyoto was a gleam in anybody's eye, including efforts to promote energy efficiency, to increase the use of renewable forms of energy, to improve air quality, to develop new technologies. These all long predate Kyoto. They represent a prudent effort to make sense of our environmental policies. They are win-win for business and for consumers and for the environment.
Last October, the President announced, not knowing whether there would be a successful outcome in Kyoto, a whole set of climate change initiatives. He then restated those in his State of the Union. We have acted openly, we have acted transparently, and we have acted in full cooperation with the Congress.
I would also like to note that the United States has existing obligations under the U.N. framework convention on climate change to adopt policies and measures to mitigate climate change. This was a convention negotiated by the Bush Administration. The U.S. Senate almost unanimously gave its advice and consent to that in 1992.
Page 33 PREV PAGE TOP OF DOC To meet our commitments under the framework convention, in 1993, again, 4 years before Kyoto, the President listed nearly 50 specific measures and programs to implement those obligations. We continue to search for cost-effective ways to do so.
What we have not done and what we will not do is to take steps that require mandatory action at the macroeconomic level or with respect to specific sectors of our economy in order to reach the Kyoto targets; that is, before the President has obtained the Senate's advice and consent.
So what we are looking for was precisely described by Chairman Yellen. This is an insurance policy. It is an insurance policy with reasonable premiums. It is one we can afford. The longer we wait, the more expensive the premiums would become.
If we fail to act, we will have not only scientists whose scientific opinion is telling us to do otherwise, and to tell us that we have done the wrong thing, but our children and grandchildren will never forgive us and shouldn't.
Mr. CAMPBELL [Presiding.] Thank you, Ambassador Eizenstat. I am sitting in for the Chairman, obviously, and the Chairman has given me a question which I would like to read precisely, that is directed to Dr. Yellen. I would ask if you might, to save me enough time to ask a question on my own during the 5 minutes that is allotted.
Dr. Yellen, the Council estimated that implementing Kyoto would increase the price of gas by at least 4 cents. The three U.S. Government labs said the tax would be 8 to 36 cents. This is per gallon. A Wharton econometric study indicated the tax would total 40 cents a gallon. The Chairman notes from your statement that you have many conclusions, but the White House counsel's office has not permitted you to give copies of the background analysis and detailed assumptions to the Commerce Committee and to the American people. Is the White House asserting executive privilege to keep copies of these documents from Congress?
Dr. YELLEN. Well, first let me address the issue of why different studies give higher results than the Council's estimate of the impact of this treaty. I have emphasized throughout my testimony that an essential part of the Kyoto treaty and the U.S. policy position is that flexibility mechanisms must be made effective and many such mechanisms are incorporated in this treaty. Examples are international emissions trading, our policy of wanting meaningful developing country participation, the Clean Development Mechanism, and the flexibility to use six categories of gases and sinks as ways of accomplishing emissions reductions. These flexibility mechanisms make a very great difference in assessing the economic impact for the United States of a treaty.
Page 34 PREV PAGE TOP OF DOC The studies that you referred to that obtain high costs for American consumers, like the Wharton study, fail to incorporate these key flexibility mechanisms. The central message of my testimony is that these are important cost-reducing features. I have tried to quantify for the Committee in my testimony how important they are in reducing the potential cost to the United States by a large order of magnitude.
Mr. CAMPBELL. My time is now half up. The question was: Are you asserting executive privilege?
Dr. YELLEN. With respect to analysis, we are not asserting executive privilege. White House counsel has made a determination that some of the material that is contained in documents we have received reflects internal deliberations of the Executive Office of the President, and also, could affect ongoing international negotiations. As a consequence, counsel has attempted to arrange a reasonable accommodation with congressional committees that have asked to view documents. We want to make available to Congress the information it needs to perform its oversight functions while preserving the interests of the executive branch in confidentiality that we think is essential to achieving U.S. foreign policy goals.
With respect to the Commerce Committee that asked for access to documents, some we turned over, and those that have these considerations we have made available for viewing in the office of counsel. This is not an assertion of executive privilege.
Mr. CAMPBELL. I take your last sentence to mean that you are not asserting executive privilege?
Dr. YELLEN. No such assertion has been made at this time.
Mr. CAMPBELL. Are there any documents that have been requested to which access is not going to be permitted, even under the rules that you set at the White House with concerns about their dissemination?
Dr. YELLEN. I am not in a position to speak broadly for the Administration. I can only speak specifically for the requests that we have already processed through counsel's office. The first document request that we received was from the Commerce Committee, following up my testimony, and they requested access to documents relating to that testimony. And as I have indicated, some have been turned over and others have been made available for Committee Members to view. Other document requests I am not in a position to speak to at this time.
Page 35 PREV PAGE TOP OF DOC Mr. CAMPBELL. Pardon me for being pedantic, but I need to be sure that I get the question answered so the Chairman is fully satisfied.
Are there any documents that have been requested of which you are aware that will not be made available to the relevant committees of Congress?
Dr. YELLEN. I am only aware of what the outcome has been with respect to the documents requested by Congressman Schaefer following my hearing at the Commerce Committee, and I have indicated what the disposition of that request was. I am not in a position to speak to the many other document requests that have been received by other parts of the Executive Office of the President or the Administration.
Mr. CAMPBELL. Pardon me again, but regarding the documents of which you are aware that have been submitted to you for which you are responsiblethat is all I am asking aboutare there any which will not be made available to the relevant committees of Congress?
Dr. YELLEN. I am only aware of the disposition of the request that I indicated to you, and I am not in a position now. I will have to get back to you on other
Mr. CAMPBELL. And what is that disposition of which you are aware?
Dr. YELLEN. The Schaefer request, we have turned over or made available for viewing all of the documents that have been requested.
Mr. CAMPBELL. That was my question. Thank you. Pardon me for being so pedantic.
And I wanted to say at the start, welcome. It nice to see a colleague professor and particularly nice to see a Haas School professor. You are the competition, as you may know, to Stanford, and also my wife works at the Haas School.
Page 36 PREV PAGE TOP OF DOC The one question I wanted to ask on my own time, and the Ranking Member has been gracious, so I hope you don't mind, Congresswoman Danner, just to give me a chance on my own. What interests me greatly isthis can go to either witnesshow one allocates the trading rights to the countries that are less developed. I certainly grant the economic efficiency of a trading mechanism. That is the right way to go. But how you allocate the opening allotment is, of course, as Pareto teaches, unimportant. So how did you allocate them?
Mr. EIZENSTAT. Trading can only be done, Congressman Campbell, among those countries that have assumed binding targets, and the developing countries have not done so. Therefore, they cannot, at this point, trade.
Mr. CAMPBELL. Some countries are anticipated to be in a position to trade, that is obviously the case. So whether my phrase of developing countries was accurate or not, I renew my question: How do you allocate the initial allocations of trading rights among those who have the trading rights?
Mr. EIZENSTAT. I mean, it is based on the targets that countries have taken and assumed, and it is on that basis that national inventories will be established for the number of credits necessary for them to be able to meet those obligations and what their base lines were in 1990.
Mr. CAMPBELL. So
Mr. EIZENSTAT. There are base lines established for the inventories that existed in 1990, what they have to achieve under the target, and it is about 2010, and it is on that basis there is a pool of permits created.
Mr. CAMPBELL. Last question, then I will yield to my colleague.
So if a country had done a really good job prior to 1990it is a typical criticism of any allocations scheme, I am not being original herebut if the country had done a particularly good job prior to 1990, it won't get much credit for it, in that the 1990 baseline is the assumption for the allocation of trading rights; is that correct?
Page 37 PREV PAGE TOP OF DOC Mr. EIZENSTAT. There were some countries, for example, like Japan, which argue they have been so energy-efficient that, in effect, they don't get full advantage of it. But there were compromises made by all countries and this is one that some of the more efficient industrial countries argued in the interests of a broader compromise to make.
Mr. CAMPBELL. Dr. Yellen, anything you want to add on that?
Dr. YELLEN. I would add that although developing countries are not now included in the agreement, they could voluntarily take on quantitative limits and qualify for trading.
One reason that I am hopeful that over time we may be able to convince countries like China or other developing countries to become part of this scheme is that if they were to take on such limits, although I think all of us feel that there is no one-size-fits-all here, that different limits are appropriate for different countries, they would then be eligible to participate in trade. And what we know is that there are potentially large gains to trade.
So I would say that for developing countries, their agreement to participate could be positively beneficial to those countries, and it would generate gains from being able to export cheap emissions reductions, and this would be fully consistent with their continued economic growth.
Mr. CAMPBELL. Thank you. The distinguished Ranking Member.
Mr. HAMILTON. Thank you, Mr. Chairman.
I just want you to kind of set out for me the responses to at least three of the criticisms. You have already done this in your written testimony, but I would like to hear it in a general way from you, for purposes of debate, really.
First, economic consequences. Dr. Yellen, you tell us the economic consequences are modest, and then we had testimony a little earlier today that it is catastrophic. Why should I believe you, is the question.
Page 38 PREV PAGE TOP OF DOC Second, the treaty is unfair. The developing countries, like China, are excluded. My understanding is that the President is not going to sign the treaty until we get participation by the developing countries. But why weren't the developing countries included? Our colleague, Mr. Knollenberg, says 132 nations are left out. Why? I don't understand why they are left out completely. So is this treaty unfair? What are you going to do about the developing countries?
And the third point is the science. I have been under the impression that most scientists think that we have a pretty serious problem here, but that is challenged by others. How do you respond to those who say the science here is not clear, that it is uncertain, and therefore we ought not be going through this elaborate response? Could you address those three questions? You have done it in your testimony, but I want to kind of get it on the record straight and clear.
Dr. YELLEN. Well, maybe I can begin with the first question and then turn the other questions over to Ambassador Eizenstat.
As you indicated, some studies show that the economic effects of this treaty would be catastrophic for the United States, and I in contrast have indicated that under reasonable assumptions, our policies would result in modest economic consequences.
You asked who should you believe. I believe that you should believe what the Administration has indicated about the economic effects. We have very clearly set out the reasoning that leads to the conclusion that the economic consequences would be modest. That conclusion is premised on our achieving acceptable and effective international trading arrangements, a workable, Clean Development Mechanism.
Now why do we think that those things, in particular, are very important? We think that it is obvious; you can look around the world, and as you compare countries, you see enormous differences in the efficiency with which energy is used.
Page 39 PREV PAGE TOP OF DOC Mr. HAMILTON. Excuse me, Dr. Yellen, for interrupting, but the difference between your conclusion of modest impact, and the conclusion of many or at least several other studies, of catastrophic consequences, are based on the assumptions that you have made?
Dr. YELLEN. Yes.
Mr. HAMILTON. Does that mean the Wharton Group, for example, has made all kinds of phony, false assumptions?
Dr. YELLEN. They have analyzed the impact of this policy under the most pessimistic possible set of assumptions about international arrangements. They have failed to take into account what I call ''what'' flexibility, that sinks and six categories of gases are included in this treaty. They have made the most pessimistic possible assumptions about the extent to which technological developments could be influenced by our participation in this treaty.
So, yes, the conclusion one gets depends on what one assumes; and what I have tried to show in this testimony is that international trading arrangements, meaningful developing country participation, electricity restructuring, six categories of gases, those things alone can produce very modest estimates of costs. And the analysis that I have given is conservative on a number of different dimensions. For example, we have purposely been conservative in our failure to assume any substantial payoff on the technology side or from sinks. So it is a question of what we assume driving the results.
Mr. HAMILTON. OK, thank you. Ambassador Eizenstat, the other two are the unfairness of the treaty, the developing countries' question and the science.
Mr. EIZENSTAT. First, just to finish up and emphasize on the first point, the economic consequences. The fact is these studies were done before Kyoto. They did not assume and take into account what we achieved in Kyoto; that is, the trading rights, the sinks, the flexible mechanisms and so forth. Nor do they take into account, nor did even our study take into account the benefits of cleaner air. We didn't even try to offset.
Page 40 PREV PAGE TOP OF DOC Second, with respect to the unfairness, we made a maximum effort to get developing countries involved, and there would have been in the treaty an article 10, which would have allowed an opt-in by developing countries to take on binding obligations. The G7 countries and China objected to that, and this will require an additional amount of education. The reason they objected, it is their perception, and an incorrect one, that by taking on binding obligations, they were impairing their level of development; that just at the stage of their early industrialization, the West was imposing on them requirements we could afford but they couldn't.
We believe quite the contrary; that in order to have sustainable growth in the developing countries, this is precisely what they want to do, should do, need to do. In addition, as Chairman Yellen just indicated, they will begin to see, over time, that it is to their advantage to take them on because this will allow them to trade and to get additional amounts of money through trading.
Mr. HAMILTON. Excuse me for interrupting. You see a long process of educating them?
Mr. EIZENSTAT. Absolutely. That is why the President has said that only when we get meaningful participation by key developing countries in dealing with the climate change will he submit it to the Senate for ratification, and that will take months and perhaps years.
Now with respect to other aspects, it is important to recognize that the developing countries are involved. They are involved in the global environmental facility, which engages them in a whole range of clean technology pursuits. They will be engaged in the clean development mechanism and joint implementation with credits, which will allow our companies to get credits and pass along clean technology to them.
Under the Rio Treaty, which the Senate virtually unanimously endorsed and which the Bush Administration negotiated, they are required to take measures to achieve the Rio results. So in all these ways, the developing countries, although they are not involved as we would like, are at least beginning to inch up to the plate.
Page 41 PREV PAGE TOP OF DOC Last, with respect to the science, it is difficult to have anything more authoritative than the IPCC study in December 1995. This was 2,000 of the world's leading scientists from 50 different countries who came to these conclusions. These conclusions are that there were discernible human influences on climate change, that there is a warming, and that these concentrations of gas are occurring. And I don't think Congressman Hamilton or anybody disputes the first chart. No one disputes the fact that there are enormous buildups in greenhouse gas emissions, the likes of which we haven't seen for 50 million years, and that is an undisputable fact. There are disputes by some scientists about the consequences of that, but certainly mainstream scientists have really reached a consensus that this is a significant problem, that it is leading to warming, that the warming will lead to problems, and that is why we talk about an insurance policy. It is insurance against the worst. If we simply sit back and hope that this consensus of science is wrong, then we are going to wake up one day to find we have to pay or our grandchildren will have to pay a much higher premium for this policy.
Mr. HAMILTON. You used the word consensus among the scientists. Spell that out a little bit for me. Is that an overwhelming consensus or is it a very narrow majority of scientists? You cite the IPCC. I suppose that is a very important organization. I never heard of them, frankly, but I guess, you know
In other words, I am trying to understand
Mr. EIZENSTAT. It is an intergovernmental panel that was brought together. It took 2,000 of the world's most distinguished scientists, and those scientists made the determinations that we have indicated, with all the negative consequences, rises in sea levels, 80 million additional cases of malaria per year if action is not taken. That is consistent with the actual findings we have made.
Mr. HAMILTON. So it is fair to say, then, that there is a very strong scientific consensus on the conclusion that there is a discernible human influence on global climate?
Page 42 PREV PAGE TOP OF DOC Mr. EIZENSTAT. Yes. And there was recently an effort by one person, I think his name is Dr. Seitz, who attempted to make it appear in a misleading way that the format of the proceedings of the National Academy of Sciences was being used in an unpublished review article that challenged the IPCC. This led to something very extraordinary, I think truly unheard of. That is, on April 20, the National Academy of Sciences released a statement critical of the effort that he was leading, saying there had been deceptive use of the National Academy of Sciences style, formatting, and the materials that accompanied it, and repeating their own 19911992 study on climate change, which concluded that this greenhouse gas was posing a threat sufficient to merit prompt responses and investment in mitigation measures act as insurance protection against the great uncertainties and the possibility of dramatic surprises. And this was issued April 20, 1998, by our own National Academy of Sciences.
Mr. HAMILTON. Thank you, Mr. Chairman.
Chairman GILMAN. [Presiding.] Thank you, Mr. Hamilton.
Ms. DANNER. Thank you.
I have questions of both witnesses and I would ask that you give me a Reader's Digest answer instead of an Encyclopedia Britannica, since I am limited in time.
Our economy, both directly and indirectly, is based upon energy. Is energy cost going to go up in the United States based upon Kyoto? Yes or no.
Dr. YELLEN. Possibly to a very modest extent, but when one takes account of the President's electricity restructuring proposal, the typical household would see no change in its overall energy bill; and even without that proposal, the likely increase is so small, it is smaller than the normal year-to-year variation that we see in gas or electricity prices.
Page 43 PREV PAGE TOP OF DOC Ms. DANNER. Is the cost of gasoline going to go up?
Dr. YELLEN. My testimony indicates that there could be a very small impact on gasoline prices.
Ms. DANNER. So the answer to both those is, yes, the cost of energy is going to increase?
Dr. YELLEN. By a very modest amount.
Ms. DANNER. Modest. I mean, we are getting into semantics now, but the bottom line is, yes, it is going to increase
Mr. EIZENSTAT. Excuse me. We are not getting into semantics. I don't think that is a fair statement. We are talking about 4 to 6 cents by the year 2010.
Ms. DANNER. Four to 6 cents a gallon?
Mr. EIZENSTAT. By the year 2010.
Ms. DANNER. Now, how do you think
Mr. EIZENSTAT. If we are all around to see that.
Ms. DANNER. How do you think this is going to affect the trade deficit that we have?
Dr. YELLEN. I believe that the impact of this policy will be sufficiently modest on energy prices, that we are not likely to see a major impact on our trade deficit. I can't fully analyze that yet. I don't think such an analysis is available, but there will be likely impacts on oil prices which would lower oil prices to American consumers as a consequence of such a worldwide effort, and that would have a positive impact on our balance of payments.
Mr. EIZENSTAT. I would also like to add to that, that to the extent we are more energy efficient, which Kyoto will lead us to be with more energy-efficient technologies, we will be demanding less foreign oil, and foreign oil is one of the largest components in our trade deficit.
Page 44 PREV PAGE TOP OF DOC Ms. DANNER. Dr. Yellen, in your written statement on page 19, and I quote: ''We do not anticipate any significant aggregate employment effect.''
Dr. YELLEN. That is correct.
Ms. DANNER. You don't think this is going to impact upon workers in the United States, whether they are in the agricultural economy or in manufacturing, these increased costs you don't think will have an impact?
Dr. YELLEN. I think, first and foremost, we should assess how large a structural change this entails; we should look at the likely impact on energy prices. As I indicated, the likely impact is extremely small. So for almost all industries in the United States, we are looking at something that will have a very minor impact on costs. Even for energy-intensive industries, I don't think that they are likely to see a major impact. The one exception I would make is the coal industry that is likely to see some impact. It is the fossil fuel that most intensely uses carbon, and
Ms. DANNER. And our most reasonable in producing electricity.
Dr. YELLEN. Yes. So the coal industry could see some impact but, even so, under the assumptions that I have outlined in my testimony, the coal industry is likely to see a tapering off of their growth relative to where they would otherwise be, rather than a sharp decline.
Ms. DANNER. Quickly, one last question for the Ambassador. You mentioned that the Wharton study was done prior to Kyoto. The other studies that my colleagues have referencedwere they done prior to Kyoto also, or subsequent to?
Mr. EIZENSTAT. Prior.
Ms. DANNER. They are all prior to Kyoto. Thank you very much.
Chairman GILMAN. Thank you, Ms. Danner.
I regret that I had to attend another hearing and was called away, but let me just briefly ask two questions of our panelists.
Page 45 PREV PAGE TOP OF DOC Under Secretary Eizenstat, I understand you are encouraging developing nations to join the binding limits of the Kyoto pact, and one of the advantages of joining that agreement is a nation can trade its unused carbon credits with other nations; is that correct?
Mr. EIZENSTAT. Are you asking me?
Mr. GILMAN. Dr. Yellen.
Dr. YELLEN. If a country took on binding limits, it would be eligible to participate in the international emissions trading system, that is correct.
Chairman GILMAN. And I understand that you are opposed to our Nation buying any such credits from renegade nations, such as Iraq, Libya, or North Korea. Am I correct, Dr. Yellen?
Dr. YELLEN. I would prefer to defer to my colleague.
Chairman GILMAN. Ambassador Eizenstat.
Mr. EIZENSTAT. Thank you, Mr. Chairman. There would be no need to do so. Only countries that assume binding targets can trade emissions under the provisions of the protocol, and none of the rogue countries to which you refer have done that. Were a situation to arise, however, where, for example, at some later point a Libya or Iraq assumes binding obligationswhich they have not done nowbut if they did, then the U.N. Security Council still has sanctions in force and that would be dealt with by the U.N. Sanctions Committee. In terms of our own law, we would continue to apply to U.S. firms the law and they would not be able to trade with rogue countries.
Chairman GILMAN. Secretary Eizenstat, I understand under this treaty, Libya could join the treaty and sell its credits to other nations, such as Japan or Germany. When they negotiated this treaty, why didn't we make certain that that could not happen?
Mr. EIZENSTAT. I am sorry to say you have been misinformed by your staff on that, Mr. Chairman. They cannot sell because they have not taken on binding obligations. If they were to take on binding obligations, then they would be covered by U.N. Security Council sanctions, by U.S. sanctions.
Page 46 PREV PAGE TOP OF DOC Chairman GILMAN. What about Cuba? Cuba is not covered.
Mr. EIZENSTAT. Cuba has also not taken on these obligations.
Chairman GILMAN. Assume they were to take on the obligation.
Mr. EIZENSTAT. That Fidel Castro would take these on, Mr. Chairman?
Chairman GILMAN. Yes.
Mr. EIZENSTAT. I doubt that would occur, Mr. Chairman.
Chairman GILMAN. Suppose it did.
Mr. EIZENSTAT. Our own sanction, our own embargo would mean our companies could not trade with Cuba.
Chairman GILMAN. What about Germany and Japan?
Mr. EIZENSTAT. If they wished to do so and they were not subject to any U.S. sanctions, they could do so. But it is difficult to assume that Fidel Castro would take on these obligations.
Chairman GILMAN. I would like to ask, with regard to the effect on our military, as you know, the Federal Government is our largest emitter of greenhouse gases in the United States. The DOD is the largest emitter of the government, 73 percent of all Federal emissions. The Under Secretary of Defense, Sherri Goodman, originally argued that all DOD should be exempt from Kyoto limits, noting that a small 10 percent cut in emissions could have serious effects. For example, armor training could be cut by some 300,000 miles a year, naval steaming days cut by 2,000 days a year, and Air Force flying hours cut by some 200,000 hours.
Our military forces are, of course, second to none in training up to now. These cuts could degrade their capability and regrettably the DOD position was reversed by the Vice President. In the Kyoto agreement only multilateral operations consistent with the U.N. charter are exempt. Domestic operations of the DOD fell within Kyoto's limits. And recently Ms. Goodman claimed Kyoto will not impair or adversely affect military operations and training. It seems to contradict the direct language of the treaty that only exempted multilateral operations consistent with the United Nations.
Page 47 PREV PAGE TOP OF DOC Mr. Eizenstat, are DOD' s domestic operations covered by Kyoto? Can you make clear in the coming treaty that the DOD is going to be exempt from Kyoto?
Mr. EIZENSTAT. I will be glad to answer that, and I appreciate the question.
First of all, our military is responsible for less than 1 percent of our domestic emissions. Second, as they have in so many other aspects of life, integration and so forth, our military is a shining example to the rest of society of what can be done in terms of energy efficiency. They are already below their 1990 levels, and that is a terrific example to set.
In addition, the Defense Department told us that they wanted bunker fuels exempted, and they were. They told us they wanted international peacekeeping forces exempted, and they were. They told us they wanted to make sure those forces were exempted, even if the U.N. Security Council didn't authorize the operation, and they were. And to take account of the very question you asked, Mr. Chairman, the President has made clear that DOD would be held completely and totally harmless in the case of any domestic emissions limitations. So the answer is not only internationally, but domestically, they will be held harmless.
Chairman GILMAN. If Kyoto exempted domestic DOD operations
Mr. EIZENSTAT. Kyoto can't deal with domestic implications, sir; it would be an invasion of a country's sovereignty to do that. You wouldn't have wanted Kyoto to tell us what to do domestically. We are doing it domestically in our own implementation laws. The President, when he sends up a treaty, will send up legislation that will hold harmless our uniformed military in case of any domestic emissions limitation requirements. So, yes, they will be protected. We would not have wanted Kyoto to tell our military or anybody else what to do.
Chairman GILMAN. Will we have to get permission from some of the other countriesIran and Libya?
Page 48 PREV PAGE TOP OF DOC Mr. EIZENSTAT. Absolutely not. Absolutely not.
Chairman GILMAN. Thank you.
Mr. EIZENSTAT. Only the Congress of the United States.
Chairman GILMAN. Mr. Berman.
Mr. BERMAN. Thank you, Mr. Chairman.
I would like to know what Kyoto does about the Indian nuclear tests.
Mr. EIZENSTAT. It is not good for the environment, I can tell you that.
Mr. BERMAN. I guess I would like to make one point. We talked about the impact on gasoline prices and energy costs. In the spring of 1996, I believe, gas prices went up to $1.50 for a while. This House went nuts. Repeal the 4-cent deficit reduction, the tax on gasoline, we have to do something, we have to do something, and pushed legislation out of the house. Within a few weeks later, the gas price plunged. Earlier this year in Los Angeles, you could get gas for 99 cents a gallon. In the course of the past 10 days, gas prices have gone up more than 6 cents. I mean, there are a thousand different factors that impact on gasoline prices. But one thing I am sure of is just under fundamental law of supply and demand, to the extent you promote energy-efficient alternatives to the internal combustion engine or to other oil-burning kinds of operations, whether it is electric cars or energy-efficient houses, you are going to reduce the demand, and that is going to have a negative impact on price.
I would like you to take a moment, if you could, when we talk about economic costs of implementing Kyoto, to talk a little bit, either of you, about the costs of not moving forward with emissions reduction. And the reason I ask is, I mean, 20 years ago, many of the same arguments we are now hearing about Kyoto were made against clean air regulations. And I know in Los Angeles 20 years ago, we had something like 130 first-day smog alerts. Ten years ago we had something like 60 first-day smog alerts during the calendar year. This past year, the 1997 that ended, we had one first-day smog alert. It is a direct consequence of some of the regulations that we passed and I would be interested in the cost of not implementing Kyoto.
Page 49 PREV PAGE TOP OF DOC Dr. YELLEN. I would start out and say I think you are absolutely right to focus on the costs of not implementing Kyoto. I indicate in my testimony that while these costs are quite hard to quantify, the kinds of estimates that have been made, certainly just from a straight economic point of view, prompt substantial concern amounting to 1 percent or more of GDP for the temperature increases that are likely entrained from the increases in concentration that we already have. And further cost increases can occur beyond that.
When you look at what some of the impacts are, we are potentially looking at a rise in sea level and vulnerability of our coast line, increases in the cost for heating and air conditioning, an increase in the number and possible severity of weather events like hurricanes, that can be quite devastating to areas, and floods, stresses on our water system that can make it more difficult to supply fresh water. Agricultural impacts; those are complex because some areas will gain and others will lose, but we will see heat stress and a decrease in soil moisture that can have an adverse impact on agriculture in a number of regions. We are looking at potentially adverse health impacts, as I indicated in my testimony, and negative impacts on ecosystems and biodiversity.
On top of that, it is very worrisome to recognize that there are potentially catastrophic events that can be triggered, like the release of methane from the permafrost or a breakup of the West Antarctic ice sheet; that however remote these possibilities are, however small the probability, these are genuinely catastrophic potential possibilities that really should prompt very substantial concern if we ignore this problem.
Mr. EIZENSTAT. If I may just add one point to the Chairman's excellent response, and that is we didn't even try to calculate the benefits of cleaner air. There are multiple benefits of taking this action as well, and rather than trying to come up with a net figure, which offset the cost with the benefits, we tried to take, in effect, only the costs in our own estimate, knowing there were very, very substantial benefits to doing this.
Page 50 PREV PAGE TOP OF DOC Mr. BERMAN. Thank you, Mr. Chairman.
Chairman GILMAN. Thank you, Mr. Berman.
Mr. SHERMAN. Thank you, Mr. Chairman.
Coming from Los Angeles, as my colleague, Mr. Berman, I would hope that you would try to give us some quantification as to the improvement in air quality. I grew up feeling we shouldn't breathe anything we couldn't see; but as Mr. Berman detailed, air quality has improved substantially because of Federal Government actions that were decried the same way this Kyoto treaty is decried.
I would like to take a moment to compliment the State Department and its colleagues around the world. I think Kyoto will go down in history as the first time that the entire world got together, focused on a problem that was not causing immediate harm or ascertainable immediate harm, and united around a solution that required some degree of sacrifice. This is the way the world should focus on problems, seeing them before they become catastrophes, putting together the vast majority of nations, sharing the sacrifice.
I think this will go down as a milestone and beyond its impact on the environment and on CO2 levels, in terms of the process of seeing and dealing with problems before they cause catastrophes, and doing that on an international basis.
Dr. Yellen, there was discussion of the cost of energy going up, but I assume that that was being measured on a per-kilowatt basis or a per-gallon basis. We have seen in this country the cost of driving a car, or fueling a car, go down on an inflation-adjusted basis over the last 30 years. That is to say, on an inflation-adjusted basis, the cost of a gallon of gas is roughly what it used to be. But when I was growing up, you didn't have cars getting 25 miles per gallon.
Under this treaty, will we see an increase or a decrease in the amount the average family pays for energy, compared to what they would pay for energy if we just continued with all those charts pointing up? I don't know if that has been calculated yet, but if we don't have Kyoto, then I assume we will all be driving more, running around more, heating more, air conditioning more, doing this as inefficiently as we do today, and presumably paying more for energy per household, not necessarily per gallon. Will this treaty lead to a reduction in the energy bill compared to what it would be otherwise?
Page 51 PREV PAGE TOP OF DOC Dr. YELLEN. Well, we tried to do a sample calculation, which is included in the testimony, simply looking, under conservative technological assumptions about the impact of emissions reductions on the typical household, and came up with an assessment that a typical household could see on the order of a hundred dollars addition to their total energy bill, which would be fully offset for the typical household by the benefits of electricity restructuring.
However, an important part of the President's policy is to increase research and development on technologies that will improve energy efficiency, a good example being fuel-efficient cars where our PNGV program has already, I think, led to substantial breakthroughs that have been recently announced by the major automobile manufacturers. The President has proposed in his budget substantial tax credits to spur energy efficiency, for example, in automobiles, and if that program becomes law, a typical household could, by the year 2000, be receiving a $3,000 or $4,000 tax credit for purchasing a fuel-efficient vehicle, and at the end of the day, see a large reduction, a tax credit for driving more fuel-efficient vehicles, and no net change in their bills.
Mr. SHERMAN. Just one more question, and that is: Will the Kyoto treaty reduce the number of barrels of oil this country has to import as compared to what we would if we just continued without implementing the Kyoto treaty?
And then, Mr. Eizenstat, if we have time, could perhaps comment on how a reduction in the number of barrels of imported oil reduces the security risks for the United States.
Dr. YELLEN. I don't have a precise number to offer you, but certainly an impact of the Kyoto agreement could be a reduction in oil imports into the United States, and lower worldwide prices for oil. That is a distinctly likely possibility.
Mr. EIZENSTAT. I would say, Congressman Sherman, to your last point
Page 52 PREV PAGE TOP OF DOC Chairman GILMAN. If I might interrupt the hearing, I am being called to a vote at a meeting next door. I will have to recess the hearing for about 5 minutes.
Mr. EIZENSTAT. Mr. Chairman, with your indulgence, I have a 12:30 meeting. I was here at 10.
Chairman GILMAN. We will only be 5 minutes. Thank you.
Mr. SHERMAN. I am informed by the Chairman he doesn't mind if you answer my question. We should not be asking you additional questions, but you can continue to answer the question.
Mr. EIZENSTAT. Thank you.
We created in the late seventies a strategic petroleum reserve, for which we spent hundreds of millions of dollars to protect ourselves against the kind of oil shock that I personally experienced when I was in the White House in the late seventies and experienced twice in the early and the late seventies.
To the extent we are able to become more energy efficient in the ways that Chairman Yellen so well explained, to that extent it would help both our national security in making us less dependent on oil from volatile sections of the world, and it would reduce the cost of our imports potentially and make it less likely that we would have to use a strategic petroleum reserve at some point in the future. So it is a very good point, Congressman Sherman.
Chairman GILMAN. The meeting will come to order.
Mr. Sherman, you were in the process of questioning.
Mr. SHERMAN. I believe my time has expired, although that has never stopped me before.
Chairman GILMAN. Ms. Danner.
Ms. DANNER. I do have a question. I will ask it of the Ambassador. Flexibility mechanisms, as I understand it, are not complete in the Kyoto Protocol and it is not certain it will be worked out in Buenos Aires or that there won't be limitations placed on them. The European Union, for example, wants to limit the amount of credits obtained through trading or other flexibility mechanisms that can be used to meet domestic obligations. Have you taken these possibilities into consideration in the analysis?
Page 53 PREV PAGE TOP OF DOC Mr. EIZENSTAT. Yes, ma'am, and I really appreciate that question. First of all, Kyoto does specifically enshrine trading rights, it is just as clear as day. You were quite right that the question of the rules and procedures have to be defined, and you are also quite right that at least elements, not all, some of the elements within the European Union would like to limit our ability to trade. We cannot and we will not allow those limits to be placed, particularly when they have the advantage of, in fact, an internal trading system through the EU bubble. It simply is something we cannot and will not do, and I think as Chairman Yellen indicated, and she can obviously speak better for herself, the cost reductions from what are some of the very high costs assumed by other studies, significantly depend on having a viable, efficient trading system.
Ms. DANNER. My other question, Ambassador, because I know you have to slip away, I will address to the doctor. There have been other studies after Kyoto. I know you said and others have said that Wharton, et al were done before Kyoto. These were done after Kyoto. Didn't they indicate that there was some potential problem with Kyoto, that studies done afterwards have a different conclusion than you?
Dr. YELLEN. I have not seen many studies done after Kyoto. I know that someone from Wharton Econometrics testified recently before some congressional committees. I don't know if that was done before or after Kyoto. What I can tell you is that Wharton's study fails to capture any of the flexibility mechanisms that I have stressed. And a limitation of the Wharton model and others that have been used to look at this is that they don't even contain the possibility of analyzing international trading because they are models that pertain only to the United States. The model results I cite in my testimony are different than that, because the Second Generation Model is one that is a worldwide model, and models explicitly the possibilities and likely cost of emission reductions all around the world. That is critical in determining these cost estimates.
Page 54 PREV PAGE TOP OF DOC Ms. DANNER. My last question has to do with finances. Correct me if I am in error, but there was talk of a $20-billion energy savings. Do I have that right?
Dr. YELLEN. From electricity restructuring.
Ms. DANNER. From electricity restructuring. Are other people who were interested in electricity restructuring on board with you? I mean, how have you come to this $20 billion in savings? That's question No. 1.
And question No. 2, I understood you to say something about a $3,000 to $4,000 tax credit by the end of this century. I mean, Ways and Means knows about this $3,000 to $4,000 tax credit per household, which is I think what you said. I mean, that is a significant hit on the Treasury.
Dr. YELLEN. First, let me comment, let's see, on electricity restructuring. The numbers I gave you are those devised by the Department of Energy. Electricity is a $200-billion market, and they estimate that increased competition at the retail level has the potential to bring down electricity prices by 10 percent or more, which translates into $20 billion a year of savings. There are a number of outside researchers who have also obtained numbers in that ballpark, so I think this is a very well grounded number.
Second, with respect to the $3,000 to $4,000 tax credit, the President's budget for fiscal 1999 requests authorizationyes, Ways and Means knows about thisfor a tax credit for highly fuel-efficient cars. These will hopefully be coming onto the marketplace toward the turn of the century, and there would be the potential for a household that buys a highly fuel-efficient car, if that proposal becomes law, to obtain a large tax credit.
Ms. DANNER. But surely not a tax credit of $3,000 to $4,000 for one automobile. That sounds illogical. I have a fear that the same person who thinks one can save $3,000 to $4,000 on an automobile is the same person that thinks that energy, electricity, can save $20 billion. I have to tell you, I am from Missouri and, you know, Harry S. Truman had some real unkind things to say about economists.
Page 55 PREV PAGE TOP OF DOC Mr. EIZENSTAT. May I just say a couple things while the Chairman is looking. First of all, electricity restructuring was not taken into account in our cost estimates. We didn't even include that. So that is icing on the cake in terms of our own study.
Second, with respect to automobiles, Toyota will be not just within the beginning of the century, but within the next few months, selling in Japan for about $17,000 per automobile a car which will get 60 miles per gallon. It is not a battery-operated car, it does not require recharging, and it was this kind of innovation that led the chairman of General Motors to indicate he likewise was going to be producing cars which could get exponentially increased gas mileage. So I think we are going to see technology really flow and jobs created by the energy which will be created in this way.
Ms. DANNER. Well, I quite agree with you, Mr. Ambassador. However, you and I both know that it takes quite a number of years from the time that General Motors, Ford, Chrysler, all go on the drawing board with a car before it is produced. And I have not read anything, as a Member of the Transportation Committee, that indicates to me they are going to be ready to come on board by the end of the century with that kind of vehicle.
Mr. EIZENSTAT. I met with the president of Toyota America. Those cars will be on by the end of the year and sold in Japan for $17,000 a car.
Ms. DANNER. But we are talking about, in the United States of America, they are going to be sold here by the end of this century, is what you are saying and that they can project a $3,000 to $4,000 tax credit per automobile?
Dr. YELLEN. If I could give you the details on this. The President has proposed in the year 2000 a credit of up to $3,000 for vehicles achieving twice the efficiency of today's comparable vehicles, and in 2003 he has proposed a credit of up to $4,000 for cars achieving three times the efficiency of today's cars. The 200-percent credit would be phased out by 2003. The 300-percent credit, the three times credit, would be phased out by 2010. The revenue estimate that has been associated with that is a total of $660 million for the 5 years between 1999 and 2003.
Page 56 PREV PAGE TOP OF DOC So clearly these cars will be new to the market. There will not be many of them available. But the purpose of these credits is to encourage early introduction of very major innovations in vehicle technology. We think this will make it attractive for consumers when these things come on the market to buy them and to introduce them early. In that sense, the purpose is to jump-start this market.
Ms. DANNER. Well, as an individual who pushes Buy American, and we do manufacture Fords in my district, I would suggest that by the year 2000 there will be no American cars who have that kind of fuel efficiency. So if this is being proposed, it is being proposed for cars that are imported into the United States. And I have to say that I still support the domestic-produced automobiles.
Mr. EIZENSTAT. These will be for domestic-produced automobiles.
Ms. DANNER. Not by the year 2000, Mr. Ambassador.
Mr. EIZENSTAT. Ma'am. Ma'am, if there are no domestic cars which produce that kind of gas savings, then there will be no credit. We are talking in Kyoto about something that has a target of 2008 to 2012. This is a long-term situation. It is not going to be solved in the year 1999 or the year 2000. We are talking about introducing technologies into the United States, so into the 21st century we have a gradual transition and we can afford the costs of becoming more energy efficient.
Chairman GILMAN. The gentlelady's time has been exceeded, and I thank Mrs. Danner.
Mr. Eizenstat and Dr. Yellen, we appreciate you having appeared today. Secretary Eizenstat, we look forward to hearing from you on ELSA by mid-month.
Mr. EIZENSTAT. I will be hopefully seeing you by the end of this week.
Chairman GILMAN. And we look forward to your subsequent hearing with us later on next month.
Page 57 PREV PAGE TOP OF DOC Mr. EIZENSTAT. I always accept your invitations.
Chairman GILMAN. Thank you. Thank you for appearing and we are sorry you were delayed.
I will now proceed to our third panel of witnesses. Our first witness on our third panel is Mr. Robert Burt, chairman of the Environmental Task Force for the Business Roundtable. Before taking on his current position, Mr. Burt was named director of finance in business development of the Agriculture Chemical Division of MSC Corporation. He also helped various corporate, regional and foreign affiliate planning positions with Mobile Oil Corporation. We are pleased to have you with us today, Mr. Burt.
Our second witness is Mr. William O'Keefe, executive vice president of the American Petroleum Institute, representing approximately 400 companies involved in all aspects of oil and gas. His responsibilities include program planning and development, policy development and advocacy. Thank you for attending, Mr. O'Keefe.
And we are pleased to have Mr. Kevin Fay, executive director of the International Climate Change Partnership (ICCP), a coalition of businesses and industries from around the world committed to responsible participation in the climate change policy process. ICCP has played an important role in the creation of the protocol, and we are pleased to have you with us, Mr. Fay.
And finally we have Mr. Frank Gaffney, director of the Center for National Security Policy. Under Mr. Gaffney's leadership, the center has been internationally recognized for its informed analysis of foreign and defense policy matters. Thank you for your appearance, Mr. Gaffney.
Gentlemen, you may put your full statement in the record and summarize whatever you deem advisable, and we will start with Mr. Burt.
STATEMENT OF ROBERT BURT, CHAIRMAN, ENVIRONMENTAL TASK FORCE, THE BUSINESS ROUNDTABLE
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Mr. BURT. I would like to summarize and have my full statement recognized in the record.
Chairman GILMAN. Without objection, your full statement will be made a part of the record.
Mr. BURT. Thank you, sir. We appreciate the opportunity to appear before the Committee as The Business Roundtable (BRT). Although I am the chairman and CEO of FMC, I am really here representing BRT, an organization which includes 200 CEOs of the largest companies in America representing over 11 million employees. I am head of the Environmental Task Force of BRT, and come here to present BRT's position.
It is clear that global climate change will have a tremendous economic impact, and we believe in BRT it is one of the most important decisions that we will make in the next several years. The BRT has three focus issues, of which global climate change is one and health and trade are the others.
We have a four-pronged approach to look at global climate change. The first is to look at what are the treaty gaps, and you will find the analysis is consistent and thorough and there are not significant differences in what has been presented.
Second, to look at the science and technology, there are a growing number of people who doubt the conclusions of IPCC, and we also want to look at technology and what impact it can have. Third, we also want to evaluate the economic impact.
Regarding the economic impact, I would like to correct some comments that were made about the Wharton analysis being pre-Kyoto. They do have an analysis that was done before Kyoto. They also have an analysis that was done after Kyoto. Before Kyoto they just concluded that $1.8 billion could be lost off GNP in 2010. After Kyoto, they concluded $2.4 billion would be lost, i.e. the GDP reductions were increased by the Kyoto Protocol.
Page 59 PREV PAGE TOP OF DOC We will be very glad to make the assumptions behind this modeling available to the Committee so that you can compare it with what the Administration's assumptions are, and we certainly would like the opportunity to do that ourselves. But after we have completed these three approaches, we are going to prepare an education campaign so that we can make sure that our 11 million employees know what are the issues in this very important issue, and BRT intends to continue as an independent objective voice in what we see as an increasingly politicized debate.
Fourth, our fundamental position is to have public dialog on the impact of the treaty, and to date we are releasing the first completed work product, which is analysis of the treaty gap. It shows that undefined gaps and resultant uncertainties make an analysis of the potential impact impossible. Therefore, we are urging the President not to sign the treaty.
Let me outline the most important gaps. First, there is no developing country participation. The Administration recognizes the problem, and without their participation, we won't solve the problem. I think that it is another thing that is very important to understand. Without developing countries' inclusion, a free trade mechanism won't work very efficiently because there are just not the credits to trade.
The second gap is, the treaty contains significant free trading mechanisms, and without understanding how they will work, it is very difficult to evaluate. Let me give you an example of why people think in the Administration that free trading will work, because I think it gives you an idea of how far we have to go internationally.
Right now we have a program that is working on a pilot basis in a limited number of utilities for one industry, one gas, and one country. Now we want to expand this to six gases. We don't need 100, but we need 45, 60 countries to make it useful and we have to come up with a trading system. The SO2 trading system currently in the United States has not yet even been included to the entire utility industry, and we support going with this mechanism; it has tremendous potential, but there is an awful lot between where we are now and where we need to get to on the international.
Page 60 PREV PAGE TOP OF DOC The third thing that the treaty is basically silent on is enforcement and compliance. Basically it is not addressed. What sovereign rights will we and others be asked to give up for this treaty, and what are the penalties for noncompliance?
In summary, the stakes are huge on both the environmental side and the economic side. Such an important subject needs public dialog on how the pain will be shared, and there will be pain with a 40 percent reduction in energy. I think it is inevitable. The Kyoto Protocol contains too many gaps to make public dialog useful and it should not be signed until we have better definition of the gaps.
BRT remains committed to playing an independent, active role in the development of climate change policy. Thank you, sir.
[The prepared statement of Mr. Burt appears in the appendix.]
Chairman GILMAN. Thank you, Mr. Burt.
STATEMENT OF WILLIAM O'KEEFE, EXECUTIVE VICE PRESIDENT, AMERICAN PETROLEUM INSTITUTE
Mr. O'KEEFE. Thank you, Mr. Chairman. I am here representing the Global Climate Coalition, and I would like to have my full statement put in the record.
Chairman GILMAN. Without objection.
Mr. O'KEEFE. I want to use my time to comment on some of the assertions made by Secretary Eizenstat and Chairwoman Yellen that I believe common sense in the protocol's own language show to be just plain wrong. In addition, I will submit for the record information that will correct some of the mischaracterizations about the IPCC report.
Chairman GILMAN. We will welcome any submission made a part of the record.
Page 61 PREV PAGE TOP OF DOC Mr. O'KEEFE. Thank you.
We are told the protocol is a work in progress whose flaws can be corrected later. The fact is, it is a finished document that must be ratified or rejected without reservation according to Article 25. Once ratified, authority to make changes would be ceded to future international conferences that would also define and implement rules and procedures that are presently mere concepts. Nothing in the protocol makes it clear that additional changes, including new targets and timetables, would have to go through the legislative process. Ratification may unintentionally delegate unchecked authority that might be inconsistent with our system of checks and balances.
Secretary Eizenstat claims that the provisions covering trading, joint implementation and sinks are significant negotiating accomplishments. They are no more than undefined concepts. The Administration offers assurances that the protocol can be implemented at modest costs. Mr. Eizenstat and Dr. Yellen touted emission trading, sinks and joint implementation as vehicles to offset the cost of reducing energy use in this country by one-third or more in a little over one decade. However, all three concepts are yet to be defined, as Articles 4, 12, and 16 make clear.
Also yet to be defined are the rules and procedures to govern these concepts. It is clear that any benefits are to be supplemental to domestic actions. The chairman of the Conference of the Parties and some EU leaders have also made it clear that any emission trading will be temporary and will not allow the United States to avoid correcting what they view as ''wasteful habits and life-styles''. Their hostility, which was evident in Kyoto, to our economic and political system makes it clear that their focus will be on domestic actions.
I might add that Secretary Eizenstat gave you some very explicit assurances about negotiating positions going forward. But the Administration gave Congress and the American people assurances before Kyoto and did not honor them.
Page 62 PREV PAGE TOP OF DOC The Administration has focused on what it claims to be overstated compliance costs. I would like to point out, as has Mr. Burt, that compliance cost estimates of some new studies do take into account Kyoto. They come not only from business but from respected academics, the Department of Energy and advisors to the Administration.
The cost estimates given to you by Chairwoman Yellen can't be validated or subjected to scrutiny, and that is a major flaw. We have initiated an analysis, and so have others, to replicate the Council's numbers. We will release our study for public review within 2 weeks. Based on the work to date, the Administration's estimates appear to be based on wildly unrealistic assumptions about technology and a flawless international trading system.
The Kyoto Protocol would require the United States to reduce energy use by about one-third or more in a little over 10 years. The Administration scoffs at analyses that show there is no way to do that and still preserve economic growth, yet it refuses to explain how to achieve those mutually conflicting goals.
The sooner we acknowledge that we made a bad deal in Kyoto, the sooner we can begin developing a truly global and rational approach to a legitimate and complex long-term concern. Thank you.
Chairman GILMAN. Thank you, Mr. O'Keefe.
STATEMENT OF KEVIN J. FAY, EXECUTIVE DIRECTOR, INTERNATIONAL CLIMATE CHANGE PARTNERSHIP
Mr. FAY. Thank you, Mr. Chairman. We believe the United States made progress in Kyoto on building an international agreement to deal sensibly with global climate change. Their approach to balancing the environmental and economic priorities was innovative and laid groundwork for further needed progress. But, like the previous witnesses, we agree that the Kyoto Protocol should be viewed as a work in progress.
Page 63 PREV PAGE TOP OF DOC Attached to our testimony is a letter we sent recently to the Administration outlining our concerns with the agreement and a prioritization of issues to be dealt with. We ask that this letter be included as part of the record.
Chairman GILMAN. Without objection.
Mr. FAY. ICCP urged negotiators leading up to and during Kyoto to stay focused on the policy framework tabled by the United States in 1996. This framework included, in addition to the notion of binding commitments by the parties, the following key elements: identification of a long-term objective; delineation of developing country participation; flexibility through joint implementation and emissions trading; avoidance of mandatory harmonized policies and measures at the international level; and a commitment to a comprehensive approach, including a single basket of gases and incorporation of sinks.
The protocol is a credible start on these issues, with the exception of the long-term objective and developing country role. Additionally, there is much work to be done in the near future to better understand the workings of emissions trading, Joint Implementation (JI), and the operation of the Clean Development Mechanism.
We believe the United States and other parties need to focus on completing this framework over the next several years. It is our intention to continue raising these framework issues until they are satisfied.
In the interim, many from the business community are anxious to know what type of regime will be used to implement this treaty; how the flexibility provisions will operate; and whether firms who act early or in many cases have already acted will receive credit for such early actions.
It is significant that the treaty specifically recognizes credit for early action under the Clean Development Mechanism. It is also significant, however, that the issue of credit for actions outside the developing country context is not fully formed. Without this assurance, voluntary actions may be delayed until the issue is resolved.
Page 64 PREV PAGE TOP OF DOC In Kyoto, the United States gained support for much of its policy framework in return for moving closer to the European target and timetable. While achievement of an appropriate policy framework is essential, it does not eliminate our concern that the target is very stringent and the timetable is very short.
We anxiously await a more thorough economic analysis of this agreement and its impact on key industrial sectors and consumers. The current analysis is, at best, on everybody's part incomplete, with assumptions concerning how much of the negotiated target could be achieved thorough emissions trading and the cost savings associated with these flexible market mechanisms very unsure.
Virtually all economic analyses produced to date concur that emissions trading can substantially reduce the cost of implementing a global climate treaty. In fact, it will be extremely difficult for the United States to achieve its target without the use of trading.
Because the target is aggressive and the timetable is short, the United States will need to utilize all the options provided by the Kyoto Protocol to achieve its reduction goal. We doubt the magnitude of reductions required can be met within U.S. borders exclusively in the mandated timeframe without serious economic consequences. Therefore, the use of these flexible market mechanisms will be essential.
We are deeply concerned, therefore, about signals by other parties that may attempt to limit the availability of this mechanism during the first compliance period. ICCP urges the prompt completion of emissions trading modalities, procedures and guidelines with the broadest possible participation and minimal government interference. This should allow the necessary flexibility for multinational entities.
In the guidance we are currently giving to the Administration, we have indicated that they should work to complete this entire framework that has been the basis for the negotiations over the last 2 years. They should prioritize the remaining issues to be completed and work first on those of critical importance to the private sector, namely the flexibility issues such as credit for early action, emissions trading and JI; begin to discuss how this treaty may be implemented domestically, particularly in light of the fact that little or no authority currently exists for implementation, including discussions with the private sector and the public at large about the true costs of the effort; and develop a strategy for developing country participation and identification of the long-term objective.
Page 65 PREV PAGE TOP OF DOC Addressing climate change will prove to be a formidable challenge for decades to come, but much work remains to be done to obtain a better understanding of this complex scientific, environmental and economic issue. Much work has already been pursued by the private sector to reduce its emissions of greenhouse gases since the signing of the Framework Convention on Climate Change in 1992.
Chairman GILMAN. Mr. Fay, if I could interrupt, we are being called to the floor for a vote, and in 5 minutes I will have to adjourn the hearing. So if you could summarize, then I will ask Mr. Gaffney if he could be brief in his testimony.
Mr. FAY. OK. It remains to be seen if this agreement can be completed in time to allow us to implement the agreement in an orderly and cost-effective manner. We will continue to work with the Administration and Congress to discuss what may be achievable.
In summary, we are not interested in back door implementation of this partial agreement. We are interested in getting frank discussions of the policy issues involved and making this a workable agreement, and we commend the Committee for focusing on this issue.
[The prepared statement of Mr. Fay appears in the appendix.]
Chairman GILMAN. Thank you, Mr. Fay.
Mr. Gaffney, I am sorry about the limitation of the time. I don't want to keep the panelists here that long.
Mr. Gaffney, please proceed.
STATEMENT OF FRANK J. GAFFNEY, DIRECTOR, CENTER FOR NATIONAL SECURITY POLICY
Mr. GAFFNEY. Mr. Chairman, thank you for including me in the panel, and I am sorry it is truncated because we have in fact heard a great deal of testimony about the issue
Page 66 PREV PAGE TOP OF DOC Chairman GILMAN. If you could comment on the military aspect, I would welcome that.
Mr. GAFFNEY. Yes, sir. I would like my full testimony to be submitted.
Chairman GILMAN. Without objection.
Mr. GAFFNEY. The three points I would like to cover with you quickly, Mr. Chairman, as a nonclimatologist like all of this panel and every panel you have heard this morning, I simply would suggest to you that what we are looking at on the science is a ''Big Lie''. There certainly is no consensus, at least in my layman's judgment, that justifies taking risks with our national security in the name of changing the global climate.
I am struck, Mr. Chairman, on an issue that we have dealt with in the past many times, the Administration takes a very lax view of the risk to this countrynamely the threat that is obvious from emerging missile threats. The evidence of that emerging threat is so palpable, yet there is no hedge, there is no insurance policy.
In this case, where the evidence is very uncertain, there is a big push to take out a very expensive insurance policy. The effect on national security is hard to calculate, partly because of the gobbledegook that you have been served up this morning. The language of the treaty is very clear, however, there are some exceptions, they do not cover all of the areas the Administration now says are covered, and I believe the impact, despite a lot of whistling past the graveyard here, will be profound on national security in a number of different respects.
I urge you, in conclusion, to make a further investigation of these impacts part of your oversight of this effortin addition, to the effort that I hope you will make to ensure that this treaty is not implemented prior to the time that it is addressed by the Senate.
And with all due respect to the Under Secretary of State, it is being implemented right now, Mr. Chairman. It is being implemented by the Environmental Protection Agency and its subordinate State and local agencies, and in many other ways, including in practical ways in the Defense Department. Those considerations need to be factored into the costs of this treaty that I believe are not warranted by the science behind it. Thank you, sir.
Page 67 PREV PAGE TOP OF DOC [The prepared statement of Mr. Gaffney appears in the appendix.]
Chairman GILMAN. Thank you. I want to thank our panelists.
Let me ask Mr. O'Keefe, Mr. Burt and Mr. Gaffney, apparently you are opposed to it. Would you suggest we scrap the present proposal and start anew? Mr. Burt.
Mr. BURT. No, I think it is an excellent first step, but we need to realize it is very much of a first step in a long-range process and that we should not ratify it until we have clarity on what it is going to mean to us.
Chairman GILMAN. Mr. O'Keefe.
Mr. O'KEEFE. I think it is fatally flawed, and that it can't be corrected. It should be scrapped and we ought to start over with something which is much more broad, comprehensive and more likely to achieve real benefits.
Chairman GILMAN. Mr. Gaffney.
Mr. GAFFNEY. I think it should be scrapped, Mr. Chairman, as a matter of process as much as a matter of substance.
Chairman GILMAN. Mr. Fay.
Mr. FAY. I think that we got most of what the United States tried to achieve out of the negotiations. As place holders, we need to hang onto what we have as a work in progress and continue to work to improve it.
Chairman GILMAN. What about the cost estimates we have heard? Mr. Burt.
Mr. BURT. As I say, there is a tremendous difference. I commend your attempt to get the assumptions that the Administration uses. Clearly the differences are in the assumptions, and that is going to be a big thing we are going to look at at The Business Roundtable. And you need that, absolutely, to evaluate for your own how realistic are the assumptions.
Page 68 PREV PAGE TOP OF DOC Chairman GILMAN. Mr. O'Keefe.
Mr. O'KEEFE. The analysis that has been done by Resources for the Future and the one we have underway appear to conclude that to achieve costs as low as the Council does, we would have to get 85 or 90 percent of the emission reductions outside the United States. That is contrary to the treaty and it is politically unrealistic.
Chairman GILMAN. Thank you.
Mr. FAY. I think we have to be suspicious of any of the economic analysis. It is not free. It is not the destruction of the U.S. economy, either. And we can't really say, I agree with Mr. Burt, what the result will be.
Chairman GILMAN. Mr. Gaffney.
Mr. GAFFNEY. Mr. Chairman, the costs associated with this treaty are understood with a far greater degree of precision than the science is understood. I believe Americans would pay any price if there really were a danger of an imminent catastrophic man-made global climate change. Since that is not the case, I think that any costs to our national security are too high to pay.
Chairman GILMAN. Mr. Gaffney, I understand that during negotiations senior representatives of the Joint Chiefs had to ask the Iranians and the Libyans for permission to exclude multilateral operations of the DOD from the treaty. Are you concerned that the United States allowed itself to negotiate in a forum where we needed to ask permission from enemies of our Nation to continue the operation and training of our forces?
Mr. GAFFNEY. As I said, Mr. Chairman, it is worth another hearing to talk about the process that gave rise to this business. I believe, Mr. Chairman, most importantly, the DOD went into these negotiations seeking a blanket and clear waiver. It was given that assurance in the run up to this meeting at Kyoto. At Kyoto, the Vice President of the United States and his National Security Advisor told them they couldn't have it, and I think that is a scandal. I believe it has brought us into serious problems, that the effort to tell you that it will not be a problem will prove to be in error.
Page 69 PREV PAGE TOP OF DOC Chairman GILMAN. Thank you. I have 2 minutes left if anyone wants to make any comments.
Mr. BURT. No, sir.
Chairman GILMAN. Mr. O'Keefe.
Mr. O'KEEFE. I know that you have had witnesses who were part of the observer group. I would urge you to think about a hearing where they could all come and tell you about the environment in Kyoto and the hostility toward our economic system that is held by those who are driving this treaty. That is why I think it has to be scrapped. The negotiating process is under the control of people who have said we are immoral and the Congress is a nuisance. We cannot negotiate a fair treaty that addresses a serious problem and that does deserve realistic action in that kind of environment.
Mr. GAFFNEY. Mr. Chairman, one last point.
Chairman GILMAN. Mr. Fay.
Mr. FAY. If you assume this is a serious problem, given what Mr. O'Keefe has referred to in terms of how others refer to us, this was clearly a diplomatic triumph for the United States in terms of achieving big parts of this framework. So I think we need to give credit where credit is due on that front, but there is a long way to go before we have a complete workable agreement.
Chairman GILMAN. Mr. Gaffney.
Mr. GAFFNEY. Secretary Eizenstat left one very misleading statement on the table that I think should be corrected. He said we needn't worry about the benefit that Russia might accrue from this trading scheme. But the issue is not a question of American taxpayer dollars. By some estimates, Russia may garner as much as $40 billion per year. I suggest to you, with respect to a national security point of view, a fair amount of that will likely wind up in the old Soviet military-industrial complex, which we should not encourage.
Page 70 PREV PAGE TOP OF DOC Mr. GILMAN. Thank you. I want to thank our panelists for being so patient.
Our Committee stands adjourned.
[Whereupon, at 12:46 p.m., the Committee was adjourned.]
A P P E N D I X
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