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COUNTDOWN TO KYOTO, PART II: THE ECONOMICS OF A GLOBAL CLIMATE CHANGE AGREEMENT
THURSDAY, OCTOBER 9, 1997
U.S. House of Representatives,
Committee on Science,
Subcommittee on Energy and Environment,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:30 a.m., in room 2318, Rayburn House Office Building, Hon. Ken Calvert, Chairman of the Subcommittee, presiding.
Chairman CALVERT. This hearing of the Energy and Environment Subcommittee will come to order.
This is the second in a series of hearings titled, ''Countdown to Kyoto.'' It is there that 169 nations, including the United States, will meet in December to consider a treaty mandating cutbacks in greenhouse gas emissions.
On Tuesday, we heard from a panel of distinguished scientists who presented very different views on human influence over the Earth's climate. Today, we will look at the impacts U.S. climate change policy could have on the American economy and whether the scientific evidence we heard Tuesday would justify imposing new economic costs at the present time.
In particular, we will focus on two studies produced by the Department of Energy's national laboratories and three independent studies. It will become quickly apparent that, as with the projections of temperature made from climate models, the projections from economic models vary greatly, depending on what the assumptions are.
It is also apparent that, just as scientists still have a lot to learn about the human influence on climate, we still have a lot to learn about the shape of a binding climate treaty only 8 weeks before it is due to be signed.
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We don't know whether the United States will stick to the goal agreed to in the Rio Treaty to reduce greenhouse gas emissions to the 1990 levels by the Year 2000 or agree to a more stringent requirement, as every nation in the world except the United States is insisting on.
We don't know whether the treaty will only be binding on the so-called Annex I countries—that is, the United States and other developed nations—or will include countries such as China, which are expected to dramatically increase greenhouse gas emissions over the next 20 years.
We don't know whether the treaty will set arbitrary timetables or allow enough flexibility for business to adapt to new technologies as they become available.
We do know a few things, however:
We know that, even under the most optimistic scenario, with the minimum emissions reductions given to us by the Department of Energy, meeting the goals will require new taxes on energy, which may force the American people to adjust their standard of living.
And , we know that leaving many countries out of an immediate ban on CFCs has resulted in a black market which has been described by the United States prosecutors as ''more profitable than drugs.''
Let me say in no uncertain terms that a treaty which would lead to the imposition of new taxes, while giving an unfair economic advantage to other countries, will be unacceptable to the American people. This is particularly true in light of testimony at our Tuesday hearing that the science behind the theory of human influence on our future climate is so uncertain.
If the United States is to put its signature to a binding document in Kyoto, the Administration must be candid with the American people about what kind of treaty it will be willing to sign and what the consequences will be.
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I look forward to exploring with our witnesses today why they believe we are or are not headed in the right direction.
Before I introduce our panel, let me turn to my friend from Indiana, the distinguished Ranking Minority Member, Mr. Roemer, for his opening remarks.
Mr. ROEMER. Thank you, Mr. Chairman. I again commend you for holding these very timely hearings.
On Tuesday, we heard from a distinguished group of scientists about the state of scientific knowledge relating to climate change issues. All of the scientists acknowledge continuing scientific uncertainties, but we heard nothing to cast doubt on the conclusions of the IPCC's 1995 report that ''the balance of evidence'' shows a ''discernible human influence'' on the Earth's climate.
Unfortunately, the best science that we have does not afford much in the way of guidance to us policy makers. Science can tell us that the Earth is warming, but cannot tell us precisely how fast and how much.
If the warming occurs at the lower end of the plausible projections, we may have time to adapt and to wait for the development of technologies to help reduce the use of fossil fuels.
On the other hand, if the warming occurs at the upper end of the plausible projections—and we saw the 2 degrees, the 9 degrees plausible projections on that screen—we will then need to act quickly, and on a global basis, to avoid major economic and environmental harm.
Scientific uncertainty does not mean that cannot act. Faced with real but uncertain risks, we should do for the Earth just what we are doing for ourselves: consider taking out an insurance policy by reducing CO2 emissions. And, just as with any insurance purchase, a wise buyer first needs to ask the key question: How much will this insurance policy cost?
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Some of the economic witnesses we hear today will suggest that reducing CO2 emissions will be costly and that the impacts on some U.S. workers and industries will be severe and intolerable.
Other witnesses will testify that, to the contrary, reducing CO2 emissions can create jobs and the net economic benefits to the country will be large. In effect, they will argue that the insurance policy will pay for itself.
Given the profusion of economic analyses released by various interest groups on the climate change issue, we should probably not be surprised that the conclusions of these studies have wild variations, ranging from predictions of net losses to the U.S. GDP of 2.5 percent to net gains of the same magnitude. Much of the variation is due to the use of very different key assumptions about economic, energy, and policy options.
Our own experiences should teach us to take all of these numbers with a dose of salt—maybe a liberal dose of salt. Just a few years ago, Congress and the White House were locked in a bitter battle over whose economic model we would use to score the balanced budget proposal. Would we use CBO's or OMB's?
The arcane differences between the two economic models resulted in billions and billions of dollars in difference in revenue and outlay projections. It sure seemed significant at the time.
However, in retrospect, we now know that neither model came close to predicting the actual budget deficit. We've seen budget deficits come down all the way to about $23 billion projected this week.
To put this in context, the CBO's single-year deficit projection ''error'' of somewhere between $130 and $140 billion is equal to the annual GDP losses or gains predicted in 2010 by some of the economic models.
I do not raise this point to criticize the CBO or to get our panelists jousting already. The point is simply that it would be foolish to give great credence to any specific projections of the Year 2010 or the Year 2020 based on only and solely on one economic model.
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At the same time, it is very important that we understand what the economic analyses are telling us.
They show us that the cost of our ''insurance policy'' can be sharply cut if we adapt policies that provide for market-based mechanisms and technology to reduce CO2 emissions.
They show us that the energy efficient and renewable energy technologies have great potential to substitute, possibly, for fossil fuel use and to lower the cost of CO2 emission reductions.
As Janet Yellin, the President's economic advisor, testified to Congress in July, ''It boils down to this: if we do this dumb, it could cost a lot. If we do it smart, it will cost much less and, indeed, could produce net benefits in the long run.''
Today's expert panel will, I'm hopeful, help us tell the difference between smart and dumb. The panel will hopefully give us some policy options, should we decide to pursue policy options. The panel can distinguish between smart technology options and dumb care standards. I'm looking forward to this helpful testimony today.
Chairman CALVERT. THANK YOU, MR. ROEMER. I APPRECIATE YOUR OPENING REMARKS.
We have with us today W. David Montgomery of Charles River Associates in Washington, DC. Mr. Montgomery is a former Assistant Director for Natural Resources and Commerce of the Congressional Budget Office.
Dr. Joseph Romm is the Acting Assistant Secretary for Energy Efficiency and Renewable Energy at the Department of Energy. He is accompanied by Marc Chupka, DOE's Acting Assistant Secretary for Policy and International Affairs.
Michael Buckner is a Research Director for the United Mine Workers of America. Mr. Buckner is representing the United Mine Workers' President, Cecil Roberts, who could not be with us today.
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Dr. Stephen DeCanio—I believe I pronounced that correctly—is a Professor of Economics at the University of California at Santa Barbara.
Gentlemen, it is the policy of the Science Committee to swear in all of the witness, so if you will please rise, we'll get that out of the way.
Do you swear to tell the whole truth, nothing but the truth, so help you, God?
Witnesses. I DO.
Chairman CALVERT. Please be seated. Without objection, the written testimony—which is quite substantial, by the way, and we appreciate all the time that you put into that—for each witness will be entered in the record.
I would ask that each of you summarize your remarks in 5 minutes or so, so there will be adequate time for questions.
With that, Mr. Montgomery, your opening statement.
TESTIMONY OF W. DAVID MONTGOMERY, VICE PRESIDENT, CHARLES RIVER ASSOCIATES, WASHINGTON, DC
Mr. MONTGOMERY. Thank you very much, Mr. Chairman. I'm honored to appear before you today to talk about the potential economic impacts of the climate agreement.
I can't resist mentioning, after walking into this room, that I remember this was the first place in which I testified before a Congressional Committee, which I think was 21 years ago, when I was a junior analyst at Congressional Budget Office and was talking about a study of synthetic fuels loan guaranties, when we were trying to convince utilities and others to stop using natural gas and start using coal.
It's a great pleasure to be back here, because I haven't been in this room since then, though in many other places.
I'd like to summarize my testimony, to be brief, under three headings.
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The first one, I think, really responds to Mr. Calvert's opening statement, because I would like to talk about some of the problems with the Berlin Mandate and the issues of the timing of emission targets under the Berlin Mandate which governs the concurrent negotiations and the possibilities for cost savings through flexibility in both timing and through bringing in developing countries, which I think is the most really important issue we all face in these negotiations.
Second, I'll summarize some of the economic impacts that we have estimated for the U.S. economy, and I would like also to kind of tie those remarks to Mr. Roemer's comments, which I thought also focused on the very important issues.
Third, to address briefly the question of uncertainties and research needs, which you mentioned in your letter of invitation and, in particular, you talk there just a little bit about contentions that smart choice of policies can do more than reduce the cost but can, in fact, make this free or beneficial to the economy, which is, I think, a proposition which I find no support for in the economic literature.
Let me begin, then, with a brief discussion about the Berlin Mandate itself.
You know, the range of proposals in the negotiations that are now underway—and it ranged from something which we at least see the Department of Energy studying within the United States, of capping emissions at 1990 levels from 2010 onward to a large number of proposals from other countries that would have even deeper cuts being required.
All of these proposals, we have found in our research, would have major impacts on all countries of the world, even the countries that would not be committing to make emission reductions.
Particularly, they would raise energy costs for the industrial countries, they would distort patterns of international trade between the developing and the industrialized countries, and that would slow the growth of both. Many of these impacts are unnecessary.
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Effectively addressing climate change won't be cheap, even if all countries got together and agreed to institute policies that would cause their citizens to reduce carbon dioxide emissions, but the approach in the negotiations leading up to Kyoto makes this unnecessarily costly.
First, imposing a requirement for carbon dioxide reductions just on the industrial countries is going to introduce trade distortions and open up possibilities that make it potentially self-defeating.
The first is that, for a number of reasons, because of changes in international trade patterns, developing countries are likely to increase their emissions because the industrial countries are reducing their emissions.
The reasons are because they will be getting cheaper energy in world markets, because the drop in demand for oil from the industrial countries will depress its price and, second, they will become havens for energy-intensive industries because energy costs will be much lower in the developing countries under the way the negotiations are developing now.
We estimate that one out of every three tons of emission reduction the United States would accomplish would be offset by increases in emissions from the developing countries.
Even worse, I think we're setting the stage for serious long-term problems by leaving the developing countries out. Rob Stavins of Harvard has made this point. Once they become havens for energy-intensive industries, they will even have less reason, in the long run, to join in a treaty to limit their carbon dioxide emissions.
There is also the problem of timing. As I think this Committee has heard numerous times, it's concentrations of greenhouse gases in the atmosphere that matter for climate change, not annual rates of emissions.
That means there are many different time paths we could choose for at what rate to reduce emissions, which would all take us to the same point in terms of protecting the global climate. This is a case where, clearly, haste makes waste.
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Since I want to keep my comments brief, let me just say that I find studies, such as those of the National Laboratories, that claim there are technologies that can be deployed between now and 2010, that are not currently being taken up by the marketplace, that would reduce emissions sufficiently to meet these goals at no cost to be extremely implausible.
They fly in the face of simple economic reasoning that, right now, energy markets work very efficiently in the United States.
We have deregulated natural gas prices, we have deregulated oil prices, we have a restructuring of the natural electric power energy, which has largely eliminated regulatory distortions on prices and inappropriate incentives for energy consumption.
People have incentives already to choose energy-efficient technologies, and I think most of us who try to do economic models that are market based assume that what is cost effective will be adopted in our baseline. Getting more than that, in the very short run, I think is a result of some fundamental flaws in these studies.
I would be happy to expand on this in the colloquy, but let me kind of bring that out in my summary statements.
Moving, then, to just a brief summary of the impacts that we see on the U.S. economy, I would say first, it's clear that 2010 and 2030 are a long way off, and we all are uncertain about what will happen then to the economy, and any estimate of the costs is uncertain. But I am convinced that the idea that there is, that there will be costs, is something about which I have no uncertainty at all.
We estimate losses in GDP of about 1 percent in 2010 from the targets I was talking about—that's about close to $100 billion in 2010, in today's dollars—and rising thereafter as a firm cap is harder to meet as the economy is growing.
It's impossible to make these costs go away by declaring that the United States won't use carbon taxes or other fiscal measures to implement these limits. We've kind of heard statements to that effect recently.
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These estimates I'm giving you do assume smart, market-based policies. Dumb mechanisms—use of regulatory programs like fuel economy standards instead of market-based programs—would make the costs higher, not lower.
I see most of the cost risks being on the side that we will not address the problem squarely and use visible policies like carbon taxes or tradable permits, but try to get it indirectly through regulatory programs, which will make it much more expensive.
Second, on job impacts. It is clear there is no way to reduce carbon dioxide emissions without reducing the use of oil, gas, and coal. That means that there will be job losses in those industries.
We estimate fairly large job losses in the coal industry, but we actually assume that, by 2010, the economy will be back at employment as full as it is today.
The losses we see in the economy don't come from that shift in jobs. They come from the fact that workers are less productive everywhere when they have less energy to assist them and that workers will shift jobs in the service industries out of, perhaps, coal, but at lower wages for everyone in the economy.
Mr. Chairman, I see you're holding the gavel. Let me stop my remarks at this point.
[The prepared statement and attachments of Mr. Montgomery follow:]
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Chairman CALVERT. Thank you, Mr. Montgomery. You'll have plenty of opportunity to answer some questions later.
Mr. Chupka, next.
TESTIMONY OF MARC CHUPKA, ACTING ASSISTANT SECRETARY FOR POLICY AND INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF ENERGY
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Mr. CHUPKA. Mr. Chairman and members of the Subcommittee, I appreciate the opportunity to discuss the report titled, ''The Impact of High-Energy Price Scenarios on Energy-Intensive Sectors: Perspectives from Industry Workshops,'' which was prepared by Argonne National Laboratory under contract with the Department's Office of Policy and International Affairs.
The Argonne report summarizes a series of industry-specific workshops that were convened in June and July of 1996.
The workshop participants discussed the effect of hypothetical energy price increase scenarios on the future competitiveness of six energy-intensive industries— aluminum, cement, chemicals, paper, petroleum refining, and steel—that together account for over 70 percent of the manufacturing use of energy.
The workshop participants included industry experts from trade associations, environmental groups, labor unions, government, the academic and financial communities, as well as from companies in each industry.
For each industry workshop, Argonne commissioned an expert to write a discussion paper to circulate to workshop participants to help focus the dialogue.
The experts and the participants were provided with a baseline scenario and energy price increase scenarios suggested from preliminary analyses of policies that did not incorporate many important features of the subsequent U.S. protocol submission of January 1997.
In particular, international emissions training, joint implementation, multi-year emission budgets, and developing country commitments were not stipulated in the price scenarios given to workshop participants, and no additional support for technology R&D was assumed.
Nevertheless, under the scenarios examined, the workshop participants painted rather grim portraits of potential impacts, such as gradual reductions in output and employment, reduced exports, and/or increased imports of these products, possible plant closures, and an increased incentive to locate production facilities in other countries.
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Our response to the findings outlined in the Argonne report has been to advocate policies that will assure that the energy price scenarios assumed for purposes of the workshop do not occur.
It is important to note that the workshop findings were based on specific energy price scenarios assumed in mid-1996, which do not reflect the flexible approach that the U.S. Government has vigorously advocated in international negotiations in the intervening year-and-a-half.
Such provisions would substantially lower the cost of achieving greenhouse gas emission reductions and would, by design, avoid the industry impacts discussed in the Argonne workshops.
In this regard, it is particularly important to note that the U.S. position is that developing countries should assume additional obligations in the near future to reduce their projected rapid growth of greenhouse gas emissions.
No such actions were reflected in the workshop scenarios, and many of the Argonne workshop participants identified the absence of commitments in developing countries as the most critical competitiveness issue
Many participants have also expressed their appreciation to the Department for the opportunity to convey their concerns in these workshops.
These workshops highlight this Administration's proactive dialogue with important stakeholders in the climate change issue, and our response demonstrates this Administration takes their input very seriously as we formulate policy.
To sum up, both the Argonne study and the five-labs study that Joe will talk about in a moment have strengthened our resolve to craft policies that respond to environmental threats in an economically responsible way.
From the Argonne report, we learn that any policy that dramatically raised energy prices for energy-intensive industries could have adverse effects on those industries.
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That key insight has influenced the evolution of the U.S. policy position toward the pursuit of flexibility in global climate change policies, including a reasonable timetable, realistic and achievable objectives, international emissions trading, joint implementation, and has strengthened our belief that developing countries must participate in a global effort to mitigate greenhouse gas emissions.
From the five-labs study, as Joe will describe shortly, we learn that a vigorous national commitment to develop and deploy energy-efficient and low-carbon technologies has the potential to cost-effectively reduce U.S. carbon dioxide emissions and that technology improvements hold the key to long-term emission reductions consistent with continued economic growth.
Climate change is an important national and global issue. In the process of developing policy that will meet our environmental objectives without disrupting our economy, this Administration has assumed the need for a variety of market-oriented flexible measures, both at home and abroad, accelerated research and development into new technologies, and an international regime involving the participation of all nations.
I appreciate this opportunity and will be happy to answer any questions.
Chairman CALVERT. Thank you, Mr. Chupka. Dr. Romm.
TESTIMONY OF JOSEPH J. ROMM, ACTING ASSISTANT SECRETARY FOR ENERGY EFFICIENCY AND RENEWABLE ENERGY, U.S. DEPARTMENT OF ENERGY
Mr. ROMM. Mr. Chairman and members of the Subcommittee, I appreciate the opportunity to come before you and discuss the results of our in-depth, peer-reviewed ''Scenarios of U.S. Carbon Reductions: Potential Impacts of Energy Technologies by 2010 and Beyond.''
This is the most comprehensive analysis of energy- efficient and low-carbon energy technologies ever undertaken, performed by some of the world's foremost authorities on energy, economics, and technology. Its findings should be good news to those who are concerned about meeting the challenge of climate change.
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Overall, the report makes three conclusions:
First, it demonstrates that a vigorous national commitment to develop and deploy energy-efficient and low-carbon technologies has the potential to restrain U.S. energy use at or near 1997 levels and U.S. carbon emissions at or near 1990 levels.
Second, it concludes that, with the right policies, the Nation's energy savings would equal or exceed the cost of achieving these reductions. In short, we can achieve significant greenhouse gas reductions without raising the Nation's energy bill.
Third, it finds that the next generation of energy-efficient and low-carbon technologies will allow us to continue an aggressive pace of carbon reductions over the next 25 years.
These findings have been extensively peer-reviewed by some of the most credible and knowledgeable people on energy economics and technology, including Dr. DeCanio, on my left.
Dr. Montgomery's testimony completely mischaracterizes the five-labs study and, I believe, is inconsistent with his own peer-reviewed work.
The fundamental reason that the report finds that greenhouse emissions can be achieved without raising the Nation's energy bill is that the Nation uses energy so inefficiently. There are substantial inefficiencies, both in how we generate energy and how we use it.
The five-labs study systematically analyzes four sectors of the economy to identify opportunities to eliminate the waste and inefficiency—electric utilities, industry building, and transportation.
In electric generation, just to give you one simple statistic, the United States throws away, in waste heat and other inefficiency in generation, 21 quads of energy. That 21 quads is equal to the entire energy consumption of Japan. That is, we use three units of energy input to produce one unit of electricity.
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The opportunity to capture that waste heat and use it for useful work is enormous. That can, of course, be used in combined cycle gas plants to create more steam electricity and create the high efficiencies associated with combined cycle natural gas plants.
My own program has a technology which will be available in about 2 or 3 years called the advanced turbine system, which takes natural gas and converts it, with an 80 to 90 percent efficiency, to electricity and steam. This 80 to 90 percent efficient natural gas plant is in stark contrast to the average efficiency of a fossil plant now on the grid, which is 34 percent.
This advanced turbine system can provide electricity directly to industry, in distributed power, at 2 to 3 cents per kilowatt hour, with some 70 to 80 percent lower carbon dioxide emissions than existing fossil fuel plants, so we can, indeed, achieve reduced CO2 emissions and keep electricity prices low.
In my renewable energy program, we have our next generation wind turbine that will be able to provide electricity at 2.7 to 3.2 cents per kilowatt hour with no CO2 emissions and no NOx or SOx emissions.
We see these kinds of inefficiencies in every other sector of the economy.
The average automobile engine is only 20 to 25 percent efficient. Again, through the Partnership for a New Generation of Vehicles, we are working on technologies to capture some of the inefficiencies in the automobile engine.
For instance, the energy lost by braking can be captured with high-energy storage devices, so-called regenerative braking. So the Department is very bullish on our ability to double and triple the efficiency of existing vehicles.
In the area of buildings, the EPA and the Department of Energy have demonstrated time and again that there are countless buildings—that virtually every building can have its energy consumption reduced 25 to 50 percent, cost- effectively, today.
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One more example. Eight to ten baseload power plants in this country do nothing but provide energy for the electronic appliances in your home when they're not even turned on, when they're just in standby mode.
I think this notion that the permit price for carbon dioxide is going to be high, based on economic models, we should be very wary of that sort of analysis, when we have seen, particularly in the case of sulfur dioxide trading, that the initial estimates, based on very sophisticated models, showed that the price for permits would be $600 to $1,500 a ton, and they now trade in the $70 to $100 range.
Let me just conclude by saying that the President has made clear that an aggressive strategy of technology development and deployment will be part of his climate policy, and what the five-labs study shows is that such a strategy can allow us to reduce greenhouse gas emissions without raising the Nation's energy bill. Thank you.
[The prepared statement and attachments of Mr. Chupka and Mr. Romm follow:]
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Chairman CALVERT. Thank you for your testimony. Mr. Buckner, you may want to comment on all this.
TESTIMONY OF MICHAEL BUCKNER, RESEARCH DIRECTOR, UNITED MINE WORKERS OF AMERICA, WASHINGTON, DC
Mr. BUCKNER. Thank you, Mr. Chairman. The Mine Workers appreciate the opportunity to be here. We applaud the Committee for holding this hearing.
We think the potential adverse effects of a Kyoto protocol are broad and deep, and yet the American people are largely unaware of the state of the negotiations or the impact on their lives. We can sum up our views of the potential impact very succinctly.
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We think that we are going to end up with lost jobs, lower wages, higher energy prices, and higher trade deficits. The effects are going to be particularly harsh on low-income families and seniors living on fixed incomes, and particularly harsh on those workers who are going to lose their jobs. Ultimately, we will have created a perverse economic incentive for American companies to relocate their operations abroad.
Despite all this substantial economic sacrifice, there is going to be little or no benefit in terms of carbon concentrations and climate change.
We believe that the Berlin Mandate, the underlying negotiating structure that we have been under for the last 2 years, is fundamentally flawed. It is fatally flawed.
Whether you believe the science is compelling or you don't believe the science, the Berlin Mandate is a flawed instrument for dealing with climate change, and it's unfair to American workers.
We wanted to learn about the economic costs of climate change, and we have been urging the Administration, for several years, to release its analyses of what the economic costs and effects on workers and consumers might be. We sit here today, within 60 days of Kyoto, and we still have not seen from the Administration a comprehensive economic analysis.
Because we were concerned about that, we commissioned, from DRI/McGraw Hill, the same economic forecasting firm used by the Clinton and Bush Administrations to forecast climate policy, and we asked the Economic Policy Institute, a well-known progressive economic think tank that has extensive experience in employment and economic distributional analysis, to take a look at the potential policies that might come from the Kyoto meeting.
We asked them to analyze a policy of reducing emissions to 1990 levels by 2010 and a policy to reduce emissions 10 percent below 1990 levels by 2010. And, as I said, those results are quite sobering.
The DRI model projects economic losses from GDP of about 1.8 percent to 2 percent in the peak years. That would be in the range of about $170 billion of lost GDP.
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I think if you look, that's about what we spend as a society collectively, at the federal, state, and local levels each year, on elementary and secondary education. That is a huge amount of money, even though the percentages may sound small.
In terms of employment impact, DRI noted that the net jobs effect would be a loss of 1.6 million American jobs by the Year 2005. A policy that aimed at 10 percent below 1990 levels would result in about 2.3 million lost jobs by 2005.
These job losses are pervasive throughout the economy. Every industrial sector, every economic sector, with the exception of the Federal Government, shows job losses throughout the vast majority of the forecast period, which was 2000 to 2020.
In terms of regional distribution, every region of the country shows job losses in the early years. Only two regions are expected to recover by the end of the forecast period, and that's the Pacific Northwest and New England. Those areas are not as dependent upon fossil fuel consumption as the interior regions of the country and the southern regions.
But just to give you a flavor of what kind of job losses we're looking at, in the Middle Atlantic region, the model projects 221,000 job losses; in the south Atlantic States, 322,000 jobs; in the east north central region, 275,000 jobs; the east south central region, 151,000 jobs; west south central, 164,000 jobs; and in the Pacific southwest, 233,000 jobs lost.
These are enormous job losses, and for those workers who are out there working today, enjoying a decent job with a high-paying wage, they are being asked to sacrifice a great deal for what we believe is a treaty that won't work.
The Economic Policy Institute also noted that, in its report, that, in addition to job loses, there's going to be a significant depression of future wage growth. They estimate that future wage growth could be cut in half.
That primarily results from the loss of high-paying jobs in the industrial sector, not only coal mining, but utility workers, oil workers, gas workers, steel workers—the kinds of jobs that President Clinton has always said, the good, high-paying jobs that you can raise a family on, are what we're talking about giving up.
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To the extent that those jobs are replaced, as Dr. Montgomery noted, they will be replaced by, probably, by lower-paying jobs in the service sector.
So as a result of the transfer from high-paying to low-paying jobs, you've got a depression of wages and family incomes and, as a result of more workers seeking fewer jobs in the economy in the 2005 to 2010 era, you also have an effect on wages. We believe this will tend to increase the already wide income disparity that we've got in the American economy.
In terms of higher energy prices, the models show significant increases in terms of natural gas, gasoline, and electricity prices. The entire modeling effort was based upon a trading program, a carbon permit trading scheme.
I would like to point out that, in our view, a carbon permit trading scheme is a tax. It will act like a tax. It will function like a tax. And, in terms of the American workers' and consumers' pocketbook, it will certainly be an energy tax.
The Administration, and the proponents of a trading program, have been very successful in pointing to the 1990 Clean Air Act, the Title IV Acid Rain Controls, and saying that here we enacted a trading program and the costs are much lower in reality than what we predicted; therefore, the same result will be had in terms of the Kyoto protocol.
We firmly disagree with that analysis. The sophisticated models that Mr. Romm pointed to in calculating the SO2 prices in 1990 had a fundamental flaw. Those models prohibited the transportation of western coal east of the Mississippi as a compliance method.
We met with the EPA during the Clean Air Act debate, and with their vendor. We pointed out to them that was just a crazy assumption in the model, that western coals would move east of the Mississippi River, and they admitted to us that they agreed with our analysis, but they had put so many model runs out that it was too late in the debate to change the model.
So the over-estimation was based upon a faulty assumption in those models that most of the compliance would be done through technological means, by applying scrubbers at power plants, and that's why there was a very high estimation of the SO2 costs.
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The actual result of the Clean Air Act has been a tremendous shift of coal production from the midwest to the western States. You can mine coal in the Powder River Basin of Wyoming for a price of—and put it on the market—for a price of $3 to $4 a ton.
And because of aggressive pricing by Burlington-Northern Railroad and other Western railroads, the main compliance method under the Clean Air Act was to switch from midwestern and northern Appalachian coals to western coals, and that is the reason that there was this tremendous decline in the actual price of S02 allowances compared to the predicted price.
Now, we were fortunate as a society that we had a lower-sulfur, lower-price alternative in terms of SO2. I don't know of any lower-carbon, lower-cost alternative to the fossil fuels that we use to run our country today.
We also believe that, again, that there will be——
Chairman CALVERT. MR. BUCKNER, IF YOU CAN SUMMARIZE YOUR STATEMENT, I WOULD APPRECIATE IT.
Mr. BUCKNER. I'll try to do it in just a few seconds, here, Mr. Chairman.
We also believe that we're building in a perverse incentive to encourage American companies to locate abroad. We don't think that's good policy. The Berlin Mandate is fatally flawed because it lets half the future emissions off the table. We're asking tremendous sacrifice from American workers and consumers.
We see this as all pain and no gain. We're not doing it smart. We have painted ourselves into a corner in terms of these negotiations. We need to let the Berlin Mandate expire and go back to square one.
[The prepared statement and attachments of Mr. Roberts follow:]
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Chairman CALVERT. I appreciate your remarks. Mr. DeCanio.
TESTIMONY OF STEPHEN J. DeCANIO, PROFESSOR OF ECONOMICS, UNIVERSITY OF CALIFORNIA, SANTA BARBARA, CA
Mr. DECANIO. Thank you, Mr. Chairman, members of the Subcommittee. I appreciate the opportunity to speak to you this morning about the economics of climate change policies.
The problems raised by climate change are difficult ones involving science and economics, decision-making under uncertainty, and balancing the interests of the generations now alive and those not yet born.
Yet, despite these complexities, a great deal of common ground can be found for reasonable policies to address the issue.
The recent Economists' Statement on Climate Change, signed by over 2,500 economists across the political spectrum, is an example of the kind of agreement on basic principles that can guide the formation of climate policy.
Scientists, economists, and the public are concerned about climate change, because of the dangers that can be foreseen and because of the risks entailed in conducting an irreversible experiment with the planet, an experiment whose outcome is presently unknown. Both economic theory and common sense point to the desirability of taking measures to reduce the risks and avoid the known damages.
In addition, climate change could trigger potentially catastrophic changes in certain Earth systems. Even if the probability of such disasters is small, taking action now to avert them is warranted. Uncertainties about the magnitude of the risks posed by climate change provide a strong rationale for action, rather than passivity.
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Estimates of the cost, excluding the environmental benefits, of policies to avert climate change vary both in methodology and magnitude. However, the most reliable sets of estimates show that the standard of living of the present population would not be harmed, and might be improved, by sensible policies.
The assumptions underlying the estimates are important predictors of the sign and size of the GDP effects but, in all cases, the most important determinants of material standards of living in the long run are the rates of economic growth and technological progress.
The design and implementation of measures to reduce greenhouse gas emissions makes a difference in terms of cost and efficiency.
Market-based policies, including provisions for international cooperation, are likely to do the best job of: (a) effectively reducing greenhouse gas emissions globally and; (b) doing so with a minimum disruption of other economic activity.
Well-designed greenhouse gas control policies would not cause large-scale job losses or capital flight, although it would be both feasible and appropriate to assist workers in a few sectors, such as coal mining, in making the transition to a less fossil-fuel-intensive economy.
The transformation of the economy to one less dependent on burning carbon for energy would provide opportunities for expansion of employment in technologically sophisticated sectors.
Similarly, reaching an international agreement to coordinate national policies to reduce greenhouse gas emissions offers an opportunity to promote global economic progress and environmental protection, simultaneously.
The Montreal Protocol on Substances that Deplete the Ozone Layer shows that this kind of international cooperation is possible, effective, and beneficial to all countries.
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Mr. Chairman, I would like to end on a personal note. I have three sons—two in college and one who is a sophomore in high school. None of them is a stranger to work. All three have had part-time jobs through their high school and college years.
My oldest son is about to graduate and enter the full-time job market. He spent this past summer in Europe, not as a tourist, but as an assembly line worker at the BMW plant in Dingolfing, Germany, as part of an international student exchange program.
I would certainly be opposed to any ill-conceived policy that would reduce my sons' opportunities or limit their chances for decent and satisfying work, as they become self-sufficient adults.
At the same time, I believe that I, and the others in my generation, will have failed in our duty to our sons and daughters if we leave them a legacy of a disrupted climate, with all the risks and dangers that would pose.
The obligation of the present leadership to future generations goes beyond short-term economic calculations of costs and benefits. We have a moral responsibility to preserve the global environment for our descendants.
Fortunately, we don't have to make a choice between economic opportunity and environmental protection. We have the means to move towards stabilization of the climate in a way that enhances technological progress and promotes economic growth. We have only to act reasonably, intelligently, and without fear.
Thank you for your attention, and I will be happy to answer questions.
[The prepared statement and attachments of Mr. DeCanio follow:]
Insert offset folios 132-181
ASSUMPTIONS REGARDING TECHNOLOGY
Chairman CALVERT. Thank you. Thank you for all of your testimony, and I'm sure we all have some questions.
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Mr. Montgomery, you say in your testimony that studies such as DOE's five-labs study, that are based on breakthrough technologies, may work in the long run to hold down costs, but not by the Year 2010.
Could you expand on that briefly for us?
Mr. MONTGOMERY. Yes. I think I agree, and much of the work that we have been doing in the Intergovernmental Panel on Climate Change, kind of in looking at what is an appropriate timing for emission reduction kind of supports the idea that technologies are extremely important in the long run, they will provide tremendous cost savings, but that the time scales for capital stock turnover and for the development of really new approaches, especially those that will provide what we really need in the long run, which is carbon-free sources of energy so that the world can continue its economic growth without increasing loading of carbon in the atmosphere, are going to take longer than the Year 2010 to put in place.
And I think even the five-labs report itself cites the kind of great good luck that it would take to get all of the breakthrough technologies that it assumes in getting its results for the Year 2010.
I think that, since what we're looking at is signing up for a firm cap on emissions in 2010, that it is betting the Nation's standard on the hope that technologies will be available that soon, when I think the technologies that we really need are likely to take much longer to develop and deploy.
COAL INDUSTRY
Chairman CALVERT. Thank you. It seems, through the testimony that we have here today, and that obviously everyone can hear, is they're writing off the coal industry. All of you basically indicated that coal has got to go.
I don't know if the workers know that yet, but that's pretty much the assumption here, and I suspect that that's the message going into Kyoto, Japan, that the coal industry is something we've just got to get rid of.
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I'm kind of interested, because we've spent quite a bit of money over here, billions of dollars over the years, on a Clean Coal Program.
And since we have representatives of the Energy Department, is the Administration going to come up and ask us to stop spending money on clean coal, since obviously you're taking a position to eliminate coal in the economy? Would DOE like to comment on that?
Mr. CHUPKA. It's certainly not the position of this Administration to call for the elimination of the coal industry.
You're quite correct, Mr. Chairman. We have invested a great deal of the public money in research and development on efficient coal-burning technologies, and those have been a marked success.
Chairman CALVERT. Maybe I misunderstood. I thought I heard every one of you, except for Mr. Buckner, of course, mention in one way or another that we must move away from coal.
Mr. CHUPKA. Let me frame my comments in a couple of ways.
First of all, it is true that much of the economic analysis done by the Administration and other sources consistently shows that the impact on coal is higher than on other forms of energy.
Chairman CALVERT. Let's just take that reasoning. If we were to move away from coal—and if Mr. Montgomery is correct, and I believe that you are, we're spending quite a bit of money here on research on renewable energy, as we should. I support that. This Committee supports that. But it's going to take some time.
The only energy source that we have, outside of carbon-based energy, that can meet the energy targets, as Europe has obviously found out, and the reason why Europe meets its targets, is nuclear. Are you proposing that we move to nuclear?
Mr. ROMM. If I could speak to that, I think we need to try to put things in perspective. In the scenario from the five-labs study that I would view as most closely representing what the Administration policies are, coal use in the country by 2010 would only decline by about 10 percent.
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Now, I don't want to say that that's not going to create hardships that the Administration would have to come up with policies to help that industry, but I want to be clear here. We're going to be using coal for a very long time. We're going to be using——
Chairman CALVERT. Excuse me. If we're going to meet the goals that are being set within Kyoto, as I understand it, how can we just drop coal use by 10 percent and meet those goals?
Are you saying that we can drop coal use only by 10 percent and still meet the goals that are being outlined in Kyoto? Is that a statement that you're making?
Mr. ROMM. What I'm saying is, as the five-labs study documents—see, what we do in a bottom-up study is try to look piece by piece as to how you get your—you need about 390 million metric tons by 2010 in order to stabilize, and I want to be clear the Administration has not adopted stabilization in 2010 as its goal.
But the Administration supports trading and joint implementation and, therefore, we would expect to get a certain amount of tons from other countries in a trading regime.
Then you get a significant amount of tons by making your automobiles more fuel-efficient and using bio-fuels. You use some renewable energy. And, yes, as it turns out, in that scenario, you only have to reduce coal use by 10 percent against the baseline in 2010.
There is a great deal of misunderstanding about what it takes to build up, piece by piece, to achieve reasonable U.S. climate goals, and I'm glad we get the chance to set the record straight here.
CARBON TAXES
Chairman CALVERT. Well, in a rational market-based economy—and I do agree with Mr. Montgomery on another statement he made, that regulatory stances in an economy are very disruptive and truly don't work—where taxes may make more sense from a policy point of view, from a political perspective, if we're going to come back here and have a tax policy on carbon base, in order to move to other types of energy use, it's going to be extremely difficult.
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And with that, I will move to Mr. Brown for the next questions.
COAL INDUSTRY
Mr. BROWN of California. Well, I'd like to follow up a little bit with what we've been discussing here.
I don't think any of us want to destroy the coal industry, and those of us who have been supporting clean coal research over the years have felt that it's highly probable that we can find ways to continue to utilize coal effectively.
But I don't know whether it is realistic to meet the proposed global standards by merely doing research on coal or whether that will produce fast enough results.
Now, do we have some estimates? I think Dr. Montgomery has indicated that we can't reduce demand for fossil fuels—and I presume that's largely coal—in time to have any substantial impact.
Is there another point of view here, that we can, and that we should pursue that vigorously by finding both improved ways to use coal as a fuel, and I don't know whether we've discussed this or not, but there's a huge interest in the chemical aspects of using coal as a chemical feedstock. Is that an alternative to using substantial amounts of coal for fuel, and turning to other technologies instead?
Mr. ROMM. Well, let me answer both parts of that question.
Clearly, the Department—as I say, the average fossil fuel plant, the average coal plant's efficiency with which it produces energy is only 34 percent in this country, and that compares to Denmark, which is 61 percent.
Mr. BROWN of California. For using coal?
Mr. ROMM. For the efficiency with which we convert coal into usable power—in this case, electricity. That is not very efficient.
The Department's goal with its advanced coal technology programs is to increase that substantially. In fact, our intention in the medium term is to get that up to 60 or 70 percent.
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So I think the Department is quite bullish on our ability to increase both the efficiency with which we convert coal to electricity, and then I think we need to say that the opportunity to use the waste heat from all fossil fuel plants is very high.
ENERGY DEREGULATION
Mr. ROMM. One has to remember that, you know, Dr. Montgomery seems to wave away the entire regulatory regime of the utility system and say we're moving to a deregulated environment.
The entire utility system of this country was set up over a period of decades in a regulated environment that, in some sense, discouraged efficient production of energy, because the way you added to your rate base was to build a new power plant.
And indeed, there was no incentive for any utility to encourage its customers to use energy more efficiently. Its incentives, with a few exceptions, were designed to encourage its customers to use energy inefficiently, or to use as much electricity as possible.
So there are huge opportunities, as we move to a deregulated environment, to make our existing fossil fuel plants more efficient, and to encourage efficiency in end use, and that is what the five-labs study documents at great length.
COOPERATIVE RESEARCH
Mr. BROWN of California. All right. If I may just continue with this, I don't think there's any question but what we're moving to a deregulated environment in energy, and in other areas, too. We may be doing the same thing in water supply, for example.
In doing so, however, I have been concerned that we were no longer providing for the private participation in the necessary research to make those plants more efficient.
Do we have a strategy that would help to achieve this, which probably needs to be a cooperative strategy between the deregulated industry and between a more sensitive government role at all levels, to participate in the financing of the most promising types of research that would lead us toward more efficient use of fossil energy? Is there a strategy to achieve that?
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Mr. ROMM. Well, Mr. Brown, let me answer that in two ways.
I think your point is absolutely critical. As we move to a deregulated environment, the first thing to go has been the research and development by gas utilities and the electric utilities.
Mr. BROWN of California. Correct.
Mr. ROMM. And that is a key role for this Subcommittee and the Full Committee, in order to make up for the effect competition has on industry's willingness to do longer-term research and development.
The answer to your question is that there is, indeed, a research and development strategy.
There is one that the President's Council of Advisors on Science and Technology released just last week to expand energy R&D considerably over the next 5 years, and the Administration itself is working in conjunction with that report to come up with its own energy R&D strategy to fill exactly the gaps that you have identified, and I expect that large pieces of that will be made—that we will be finishing up that R&D strategy in the coming weeks.
Mr. BROWN of California. May I inquire of the Chairman, could we secure a copy of that report, or do we already have a copy of that report?
Chairman CALVERT. I do not, as far as I know, but I'll be happy to get a copy distributed to us, and I'll have that sent to your office.
Mr. BROWN of California. I would very much like to see that. It would be extremely helpful.
Now, the Department of Energy is, I note, getting a little criticism for having embarked upon the largest CRADA in history with an important element of the chip industry.
Do we have any such arrangements with the more decentralized coal industry, to help us create these public-private partnerships to progress more rapidly in some of these research areas? And this may be a dumb question; I don't know.
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Mr. ROMM. Well, we have cooperative research with every energy-producing sector—not just the coal industry, but with the natural gas industry, with the petroleum-using sectors, and with all of the end-use sectors. And I think one point I want to make in particular, which I did not get to in my opening statement, is that we have a program to work with all of the energy-intensive industries that people are concerned might suffer under a climate treaty—pulp and paper, petroleum refining, steel, metal casting and glass—called the Industries of the Future Program, to develop cooperatively technologies that will reduce energy use and reduce pollution and allow them to be more productive and competitive even as they reduce their CO2 emissions.
It has always been the Department's goal to help industries become more competitive as they reduce their energy consumption and their carbon dioxide; and, indeed, I think we have shown that time and time again that we have done that.
CRADAS
Mr. BROWN of California. Well, the Congress is going to be very much concerned with this, as you know. There is still some feeling that the Department or the whole procedure by which we fund Cooperative Research and Development Agreements (CRADAs) is an indirect subsidy or a welfare payment to certain elements of industry. Now, what that means is you are going to have to justify these, and you are going to have to be able to clearly establish that you are benefiting the whole chain of American industry, not just one part of it, when you do these kinds of things.
That appears to be a problem with the CRADA with Intel, that it might be helping Intel, but it might not be helping some other parts of the electronic food chain, and we would not want that to happen in energy.
Mr. ROMM. No, not at all. I cannot speak to the Intel CRADA. That was done by a different part of the Department of Energy. We have always tried to work—and I think the Department has gotten much smarter in the past years, in the case of the Industries of the Future Program—we work with the entire industry association groups. We do not work with just one aluminum company; we sit down with the entire aluminum-industry trade association, and they tell us what their needs are.
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So I think we have tried to move to this consortium approach to work on precompetitive research for exactly the reason you say, that we do not want to be in the business of one company.
Mr. BROWN of California. Mr. Chairman, I know my time is up, but could we address additional questions in writing to the panel?
Chairman CALVERT. Oh, absolutely, and I am sure we will have a second round here if the Ranking Member would like to ask some additional questions. Next, Mr. Ehlers.
COAL INDUSTRY
Mr. EHLERS. Thank you, Mr. Chairman. First of all, several comments. There was discussion here that the Kyoto agreement, whatever it may be, might kill coal. I personally think that the particulate matter clean air requirements that have been proposed are more likely to kill coal than anything we do with CO2 requirements. And I do not think if those clean air particulate matter requirements are put in place, the concern is going to be CO2. I could be wrong. We will see.
NATURAL GAS
Mr. EHLERS. Second, I do not think natural gas is a good alternative to be talking about. I heard that mentioned here. Power companies are talking about that as an alternative to coal. If they are going to have to go to an alternative, natural gas, frankly, is too good to burn, and we are wasting a tremendous national resource, which is very important to the petrochemical industry, particularly if we use it in the vast quantities needed for power generation.
ENERGY EFFICIENCY
Mr. EHLERS. I appreciate Dr. Romm's emphasis on energy efficiency. I think that is extremely important, and I think that is stage I. We should do that regardless. It just amazes me that American industry has been so slow in picking up on energy efficiency improvements, that somehow they have to be shown by DOE or EPA or others to do it. The pay-back periods are remarkably fast on some things, and yet they have been slow to pick up on it. I think there is the suspicion that it is a fuzzy-headed liberal idea, and, therefore, it cannot make economic sense; but it does make a great deal of economic sense.
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So I think we have to look at this in stages.
TREATY REQUIREMENTS
Mr. EHLERS. Incidentally, I think—I agree with Mr. Buckner's statement—we should go back to square one on these negotiations. I think it is a gross mistake for this Nation to excuse the developing nations from their requirements. I do not have time to get into the details, Mr. Chairman, but I think it is going to lead to gross inequalities, it is not going to be good for them because they will put in capital investments, and then 10 years from now they will face having to change them all in order to meet requirements. I think it is much better that they aim for those goals right from the start.
ENERGY EFFICIENCY
Mr. EHLERS. So I think the emphasis should be stage I, energy efficiency; stage II, trying to move to non-carbon energy sources; and throughout that try to gather more data on climate change and how much climate change we are really facing.
I very much appreciate the testimony we have heard, but I would appreciate comments from the panel in response to my comments about hitting energy efficiency hard first, then continuing the work on non-carbon sources of energy and all the while trying to finalize or get a better picture of what is really happening with climate change.
And one particular aspect that I am interested in, I have not heard in this discussion, specifically pinpointed, the economic gains from energy efficiency and how will that relate to the job loss that Dr. Montgomery predicted as a result of the CO2 requirements. There are two factors there, and I am interested in the balance between those two. So any comments, I would appreciate. Dr. Montgomery.
Mr. MONTGOMERY. THANK YOU. I CERTAINLY THINK THAT YOU HAVE FOCUSED ON THE KEY ISSUES IN TERMS OF THE INTERNATIONAL AGREEMENTS AND THE EFFECTS THEY WILL HAVE ON DEVELOPING COUNTRIES. AS FAR AS THE KIND OF ISSUE OF ENERGY EFFICIENCY GOES, I THINK I WOULD START BY POINTING OUT THAT GIVEN THE THINGS THAT WE HAVE TALKED ABOUT THE RESTRUCTURING OF ENERGY MARKETS, THE PRICE SIGNALS THAT U.S. INDUSTRY FACES FOR INDUSTRY ARE PRETTY MUCH CORRECT IN THE UNITED STATES. THEY REFLECT THE COST OF PRODUCING THAT ENERGY, AND AS FAR AS JUST THINKING ABOUT THE PRIVATE MARKET COSTS, PEOPLE ARE SEEING WHAT IT IS.
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I take the fact that we do not see progress—the amount of improvement in energy efficiency that we see in U.S. industry is, in fact, quite remarkable. We do have an economy that has become much more energy-efficient over the last 20 years, so industry is paying attention. I think that the fact that we are not seeing more is actually evidence that there is something missing in the bottom-up studies, and that is exactly what the paper that Dr. Romm referred to that I wrote with Mark Jaccard, based on our work in the Intergovernmental Panel on Climate Change says, that the economist's approach to this is to ask why are people doing the things they are in the market.
If industry is not adopting more energy conservation, that is evidence that there are costs that these bottom-up studies are not seeing to adopting, to integrating into processes, to facing the risks of new technology. And those are real costs that will have to be borne if have the energy efficiency is forced too soon.
There is no question that it is a very important target for research in the short run because it is probably going to take longer to get at developing alternative, renewable fuels that will help us in the long run, but I think in both cases we are looking not at something which we are missing now, but rather something that is an opportunity for the future if we invest in the appropriate R&D now.
Therefore, I think that we do show in our analysis that there will be substantial, additional investment in energy conservation if there were substantial carbon taxes, that would mean that workers would be shifting into industries that supply that; but, nevertheless, overall it means that we would be producing fewer goods and services to actually be delivered to consumers because people would be working on developing the energy-conservation measures, which industry's choices now show do not provide as large a return.
So we reduce the overall productivity of the economy while we are making this investment in energy efficiency. It is not to say it is not a good idea, because then you have to balance that against what we achieve in terms of carbon-dioxide emission reductions. But just looking at the costs, as the Chairman said, those are costs, and they are not avoided by simply having people work in other industries.
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Mr. EHLERS. Other comments from other panelists?
Mr. ROMM. Well, you know, Mr. Ehlers, obviously I share your view that there is a lot of inefficiency in the economy that can be captured, and this Committee has supported, and continues to support, programs that capture those inefficiencies every day; but clearly, when the country gets serious about climate, we are going to have to have a much more significant effort.
POLLUTION-PREVENTION TECHNOLOGY
Mr. ROMM. Let me just talk about the industrial section. The entire regulatory regime, environmental regulatory regime of this country has for a long time discouraged investment in innovative technologies that prevent pollution, but, in fact, focus on end-of-pipe cleanup and treatment of pollution. Now, this Administration has been working to move towards a prevention-based strategy. The problem with an end-of-pipe strategy is that you have all the energy loss associated with creating the pollution and then the energy loss associated with treating, burning, or hauling it.
If you can move to a prevention approach, you save the energy on the front side, and then you save the energy that you wasted treating or burning or hauling the pollution away. So there are very large opportunities which we in the EPA have been working to capture as we reinvent the regulatory regime. And I just want to, you know, make one point clear here. There are energy efficiency savings that can be captured at no net cost, and I think this is a generic disagreement about the top-down models, such as Dr. Montgomery cites, and the bottom-up ones, such as I cite. But I just want to, you know, be very clear, because this is an important point. It is a very important issue as the country deals with climate.
In Dr. Montgomery's testimony, he says any reduction in emissions below the baseline will cost something. On this I have no uncertainty. In his article in 1996, he says, ''If there are market imperfections, if they consistently work in the direction of encouraging excessive use and if policies to reduce the imperfections at a cost less than the net economic benefits of more efficient energy use can be developed, then some reductions in energy use could be achieved at no net cost.''
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And then he goes on immediately to say the ''theoretical issues are reasonably well understood but that there has not been enough empirical work on either hidden costs or on market imperfections to decide which view of the conservation paradox is more correct.'' So in his testimony he has no uncertainty that there is not any savings below the baseline that can be captured at no cost, and in his 1996 article he says that, in fact, you cannot tell whether there are or not.
The five-lab study documents as conclusively as possible, discussing market barriers, there are, in fact, these savings, and it has been extensively peer reviewed, and I think that the Department of Energy and the Environmental Protection Agency have again demonstrated over and over again that those savings can be captured with a more aggressive effort.
Chairman CALVERT. If I could interrupt, we can come back around for another round here pretty soon so the doctor will have plenty of time. Next, Mr. Doyle.
TREATY REQUIREMENTS
Mr. DOYLE. Thank you, Mr. Chairman. Well, I would first like to make a couple of comments, too, and echo some of the things that my colleague, Mr. Ehlers, said. We were here a couple of days ago and listened to scientists talk about the science of climate change, and we heard varying degrees of testimony that said that this was a serious problem to a degree that went down to the more we know about it, the less of a problem it is.
And obviously we are not going to get concrete answers to this question any time soon, yet I think many of us feel that it is prudent that we do something, that we not wait until we are absolutely sure what the answer is, because if the answer is bad news, we may have gone down the road too far already and have much more serious impact.
So the question, in my mind and in a lot of our colleagues' minds, is what should we be doing as a country to address this problem. And I can tell you many of us are very troubled by the Kyoto conference that is coming up along the lines of this Berlin Mandate. We heard testimony from these same scientists that if we were to let developing countries off the hook, so to speak, and not require them to meet any targets while industrial countries do, that the net impact would be negligible.
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CHINA
Mr. DOYLE. I have just looked at some information here from the Energy Information Administration that says that under our present trends, that carbon emissions from China—and I believe that is being put up on the screen right now—will exceed those from the United States by the Year 2015, and it also shows on the right there that if our current proposals to reduce our emissions and other industrialized countries' emissions to 1990 levels are implemented with no restrictions on developing countries, carbon emissions from China will exceed the U.S. emissions by 500 million tons in the Year 2015. I wonder how much progress we are really going to be making if we sign an agreement that puts no limits on developing countries yet puts limits on industrial countries.
TREATY REQUIREMENTS
Mr. DOYLE. I think we are also concerned with comments that Mr. Buckner said, too, about this somewhat perverse incentive there may be to locate American industries in some of these countries that are not going to be under some of these restrictions and what that means for American workers and jobs.
So I think that the key is, and I want to echo what Mr. Ehlers said, that I do not think many of us are saying, ''Let's not do anything about this situation,'' but we want to make sure what we do makes sense for this country and actually has some benefit to affecting what is going on, and a lot of us are very concerned that if we sign an agreement along the lines of the Berlin Mandate, that we are absolutely putting this country and its workers at risk for what will be negligible results.
CAPTURING CO2 RESULTS
Mr. DOYLE. I want to address my questions to the Department of Energy because I think we need to do some things right away; and I am curious, I think our country is not spending near enough money in research and development in a lot of these technologies, and I also think we should not assume that we cannot develop technologies to address how we take CO2 and capture it and store it and utilize it, and I think that is the challenge that should be put out through the Department of Energy, through the university community, and the private sector, forming these public-private partnerships where we start to very aggressively look at those types of things because down the road, you know, we are sitting on hundreds of years of coal right here in this country.
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U.S. LEAD IN ENERGY-EFFICIENT TECHNOLOGIES
Mr. DOYLE. As someone who is from western Pennsylvania, I am not about to say, you know, we just should not use that resource anymore. I want to see us start developing aggressively some responses to that. I want to ask the Department of Energy, right now as we speak, does the United States have a competitive advantage over Japan and the European Union in energy efficiency and renewable technologies, and what are we spending relative to what countries like Japan and others are spending on these types of technologies?
Mr. ROMM. If I could answer that question, I think it is widely viewed that the United States is the leader or a leader in most relevant energy-efficient and renewable energy technologies. This is based on longstanding funding. But it must be said that in 1980, we were the undisputed leader, and we outspent the rest of the world combined in energy R&D by a factor of two or more, and today, unfortunately, the rest of the world combined outspends us by a factor of two, so I could not agree more with you that, indeed, the rest of the world is nipping at our heels in key industries like photovoltaics and wind, fuel cells. As I say, we remain the leader, but you can definitely name those major companies in Germany and Japan who are close or in some instances a little bit ahead or a little bit behind.
So it is certainly our view that we are going to capture a lot of these markets, but, again, are going to have to redouble our efforts.
CAPTURING CO2
Mr. DOYLE. It just seems to me that if we talk about engaging in a policy that could actually create some economic prosperity for this country, and I am talking down the road, it could be with some of the technologies that we could develop to help some of these developing countries to capture their CO2 emissions, but to put this country in a situation and other industrial countries, to bind us to limits that we are not binding developing countries to, just makes absolutely no sense to me, and I really think we need to rethink our position going into Kyoto along the lines of the Berlin Mandate.
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Mr. Chupka, maybe you could also make some additional responses in that regard.
Mr. CHUPKA. YES. I WOULD LIKE TO ACTUALLY GET BACK TO YOUR INITIAL POINT, CONGRESSMAN. YOU OBSERVED THAT WE SHOULD BE TAKING SOME STEPS NOW TO INCREASE OUR FUNDING AND UNDERSTANDING OF POTENTIAL CO2 capture and sequestration kinds of technologies, and, in fact, the Department of Energy Policy Office sponsored a workshop in July that actually took a very hard look at some of the emerging and, frankly, off-the-shelf technologies that exist today for just that purpose.
Some of these things are undoubtedly far in the future, but I could not agree with you more that we need to pay more attention to potential options that would allow us to burn coal, oil, and natural gas without, in fact, emitting CO2. It is technically feasible, the economics do need to be better understood, but we believe that there is sufficient promise in this area of research, that we would propose, I hope, in subsequent budgets to expand that. The workshop was very successful. It brought to light some very interesting technological opportunities, and I think you are right on this. We can probably explore some of these things and get going on the research.
Mr. DOYLE. DOCTOR?
TREATY REQUIREMENTS
Mr. DECANIO. Representative Doyle and Representative Ehlers, I would like to just comment on one theme that both of you have touched on, and that is the unfairness of having the United States be committed to certain reduction targets and developing countries not be. And it actually relates to the questions on research and development of new technologies.
You will recall that when the Montreal Protocol was signed in 1987, China and India did not sign the Protocol. They were absent from the initial list of signatories. They only joined when they saw that the other countries, the industrialized countries of Europe, Japan, and the United States, had taken the initial steps and were successful in reducing their dependence on CFCs. Once that had been demonstrated by action, then China and India joined and are now full participants in the treaty, which everyone recognizes is one of the successes of global environmental protection.
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I think the same kind of dynamic would apply in the case of the Kyoto agreement. If and when the industrialized countries begin to demonstrate that it is possible to move on this path of greater efficiency in research and development of new technologies, then through participation in the process, all of the countries will eventually join. It certainly is true that everyone has to cooperate to solve the global problem. The question is where the leadership comes from, and like it or not, the United States is the leader. We are technologically, economically, and politically the leader of the world, and we have to step up and take that responsibility.
Mr. DOYLE. Mr. Buckner.
Mr. BUCKNER. Yes. I believe that the analogy to the Montreal Protocol is a little bit misplaced. It was a much more concentrated problem. You were dealing with chemicals that were made by a handful of companies around the world who also had the capability of producing the alternatives, and whatever employment dislocation that occurred as a result of retooling those plants was temporary in nature.
So I think it is a mistake to point to the Montreal Protocol as somehow a model of what is going to happen here because, again, it is a handful of companies versus every human activity that takes place on the planet; and, Congressman, I just want to commend you for the statements that you made. It is a serious, fundamental negotiating error that we made in Berlin in 1995 by excluding half of the world's future emissions. We think it is fundamentally unfair to ask American workers and consumers to sacrifice for a treaty that admittedly is going to have a negligible effect.
If we are going to be serious about addressing climate change, if you believe that the science is compelling and that it drives us toward the conclusion that we need to do this, then everyone has to be involved, and we should not kid ourselves that we are going to do this at no cost.
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It is a very serious undertaking that we are talking about. The President of the Friends of the Earth was quoted in the Washington Post a couple of weeks ago as saying that this involves the ''entire structure of modern industrial society,'' and I do not think you can adjust the entire structure of modern industrial society at little or no cost. This is going to be a significant undertaking. But clearly, without the participation of the rest of the world, we are asking American workers and consumers to sacrifice, and we are going to be asking American companies to relocate elsewhere.
Mr. DOYLE. Thank you. Mr. Chairman, thank you.
CHINA
Chairman CALVERT. Thank you, Mr. Doyle. I have a couple of comments. Mr. Rohrabacher will be back shortly.
The United States is the leader. I think everyone here agrees that we have probably done more in the last 20 years or so to clean up our act than probably most of the world, though we are still the largest energy user and we have a long ways to go.
I was in China last December, and one of the things that hit me when I was there in Beijing was the number of coal-powered plants everywhere. They do not build power plants as we do, in centralization to distribute power more efficiently and so forth. They have a power plant, it seems, for every factory and every village and every use all around. You see smokestacks virtually like trees because there are no trees left; they are everywhere.
And one thing that does strike you, they do not even use the simplest technologies that we developed in this country in the 1960's—bag-house technology and other technology—and I asked about it, and they just did not want to spend the money to do it, it seemed to them there was no reason to do it, and that they had to keep their costs of production down. And here we are today talking about excluding China.
Based upon the chart that Mr. Doyle pointed out earlier, China will exceed the United States in coal use, or CO2 output, I should say, based primarily on their use of coal, when they can cut back a lot of that CO2, Mr. Doyle also pointed out, for relatively less money if they just put in simple technology. Any comment on that, why should we exclude China from cleaning up their act a little bit if we are going to start imposing things upon ourselves, anyone?
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JOINT IMPLEMENTATION
Mr. CHUPKA. Yes. I will comment on that. One of the important proposals that the United States has made, and continues to advocate for under the Berlin Mandate, is joint implementation, and under a joint implementation scheme, it is envisioned that if we were subject to limitations in this country and there were cheap opportunities in other countries, that some of the investments that we would otherwise have to make here could be made in those countries.
There are some estimates that suggest that emission reductions could be had on the order of $5, $10, $15 a ton in developing countries, and if we can avail ourselves of some of those opportunities, we would be able to, in some respects, lower our own costs and allow a certain amount of emissions growth to occur in this country but garner the emission reductions elsewhere.
Chairman CALVERT. Are you saying we should help China become more competitive in their energy efficiency?
Mr. CHUPKA. Well, these investments can take a variety of shapes and forms. Right now, our current experience in joint implementation is mostly in forest planning across the globe, where U.S. companies have planted forests or prevented deforestation as a way to offset some of their emissions under the pilot program.
CHINA
Chairman CALVERT. The government folks that I have talked to in China, they did not seem to be very interested in putting in a technology, even a very inexpensive technology, and really not so much to cut down on CO2 output; if they would just do it to help the environment within the community, just on coal dust, because of the amount of coal dust which is around in those high production areas. Why do you think that they would agree, if they are not going to be a signatory to this agreement, to cut back on CO2 output?
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JOINT IMPLEMENTATION
Mr. CHUPKA. Well, let me make two points on that. First of all, the joint implementation is, in fact, a voluntary mechanism. In other words, if a company in the United States wanted to reduce its emissions but found it was expensive to do so here and found a relatively cheap opportunity elsewhere, they would, in some respects, try to contract directly for that, and it could be to the benefit of a Chinese firm or some forest planting somewhere else.
NUCLEAR POWER
Chairman CALVERT. I want to go back to on voluntary, obviously we have not been able to cut back, the argument is, on CO2 output here in the United States, where Europe has. Now, Europe, would it be the impression of this panel that the reason why Europe has cut back on its CO2 output is because of its reliance on nuclear power, especially France? Mr. Montgomery?
CO2 REDUCTION IN EUROPE
Mr. MONTGOMERY. I think that nuclear industry is certainly very important in Europe in limiting its use of fossil fuel per dollar of GDP, and it has been for a long time; but I think Europe has also had two other events that were entirely unrelated to climate policy.
One is the unification of East and West Germany and essentially shutting down the East German economy and its very energy-inefficient, coal-fired power plants and industries. The other is the United Kingdom in its decision long before climate change was an issue and, again, for entirely different political reasons, its decision to, again, close down its coal industry and shift to natural gas.
Those are the two countries that are making Europe appear to be doing a good job on meeting its emission goals, but they are entirely unrelated to climate policy and two very different events, both of which involved basically getting rid of coal in large parts of the European economy.
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Chairman CALVERT. Any other comment?
Mr. BUCKNER. Yes. I would agree with Dr. Montgomery that the reason the Europeans are proposing a much more aggressive stance than what we believe is plausible is because of the reunification of Germany and Great Britain. But if you look at the cost to the workers in those communities, in Eastern Europe you have got unemployment rates of 18, 19 percent, and we have talked to our colleagues in the Trade Union Congress in Great Britain, and they tell us that the real unemployment rates in the coal-mining communities are approaching 40 percent.
Now, obviously that leads to huge social problems and long-term generational economic problems that the workers in those communities and their children are going to have to live with for a long, long time.
CHINA
Mr. BUCKNER. Mr. Chairman, to comment on your question about China and Secretary Chupka's reference to joint implementation, we should understand that there has been no agreement by China and the G–7 nations that they are going to accept a carbon-permit trading program or joint implementation in their countries. China has been adamant in the negotiations, saying that if we want to do this trading among the Annex I countries that are legally bound to this treaty, that is fine; but do not come to China and expect to get any credits for what you have done here.
They are willing to take our money and our technology, but they are resisting what Secretary Chupka is indicating in terms of joint implementation and trading. They are saying, do not come to China and expect the United States to get any credit for it.
Chairman CALVERT. Thank you. Mr. Rohrabacher has not had an opportunity to ask a round of questions, so Mr. Rohrabacher.
POLICIES OF GLOBAL WARMING
Mr. ROHRABACHER. Thank you very much, and I appreciate your understanding that I am running back and forth between a markup in another Committee and for giving me this opportunity.
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First of all, let me state unequivocally that the discussion of global warming in this country has been skewed. From the very beginning this Administration has let people go from positions of high authority if they disagreed with global warming. Scientists who want government grants understand they had better not say anything that gives any indication that they oppose his cockamamie theory, and I believe that the American people are unaware that this country is being rushed into an agreement based on science that is very questionable, because all you hear about is you cannot question it. And this treaty that we are being rushed into could dramatically and drastically affect the standard of living of our people, and I have never seen anything like this in the 10 years that I have been a Congressman, but we can see where it has been building.
We called it being politically incorrect. I mean, this is what politically incorrect is all about. No one in the scientific community has been able to question the religious commitment to the global warming theory and expect to get any government grants, and I think it is outrageous. But with that, I am willing to discuss this issue now, and I am happy to have this panel in front of me.
UNINTENDED CONSEQUENCES
Mr. ROHRABACHER. You know, there are people who accomplish things that they do not want to accomplish when they go out to accomplish something good if they do not think about the consequences. I have an office in California where because of the energy conservation measures taken by Mr. Carter back during the 1970's, we cannot open our windows, and I do not know if anybody else has allergies from air conditioning or anyone else is susceptible to germs floating in the air or smoke floating through the air, but the unintended consequence of that energy conservation has been that I have a lot of trouble breathing in my office back in California, and I understand this is not uncommon. That was an unintended consequence.
ENERGY TAXES
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Mr. ROHRABACHER. Today, I am afraid that the unintended consequences of us rushing into a global warming treaty will be a dramatic decrease in the standard of living of the people of the United States, especially the poorest. Now, Joe, I would like to ask you, even if you accept the global warming theory, why are we focusing on solutions like a tax that would increase, that would bear most heavily on the lowest income of our people?
Mr. ROMM. Well, the Administration is not proposing a tax, and at no point in any of the work that I have done have we ever analyzed or considered a tax. The goal, as always, is to figure out market-based mechanisms that promote efficiency. I am sorry for your office building back in California. It is not Jimmy Carter's fault that——
BUILDING DESIGN
Mr. ROHRABACHER. Is it your fault, Joe?
Mr. ROMM. No. I think I was a toddler back then when that building code was designed. You know, look, people thought incorrectly that conservation meant that the way that you design a building to save energy was to make it ridiculously tight. I think it has been demonstrated time and time again, particularly in the last few years, as we move away from conservation and focus on technologies that save energy, that you would design a building, and many buildings around this country have been designed, that, in fact, save energy and increase the productivity and reduce the absenteeism of the workers in that building. And as you may know, I actually published a book on that subject. We have had 20 years of superior learning on design practices and technologies.
You do not need to seal up a building to make it energy-efficient. You can actually——
UNINTENDED CONSEQUENCES OF BLACK MARKET CFCS
Mr. ROHRABACHER. But that was an unintended consequence, and let me put this to Professor DeCanio. Wouldn't an unintended consequence of this treaty, for example, where we are leaving out certain countries from these controls, haven't we already had an experience and seen an unintended consequence with this freon? The fact is, freon here, we have committed ourselves to not producing freon in the United States, but all of a sudden we have got a black market in freon, coming across our southern borders, which could negate the very controls, costly controls that we put into place?
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Mr. DECANIO. Well, the black market is a very tiny fraction of what the production and consumption of CFCs and freon had been before the Montreal Protocol. And even though it is a problem, it is an order-of-magnitude smaller problem than the ozone depletion that is being prevented by the Montreal Protocol. There are unintended consequences of policies, especially if the policies are not well thought out in advance; but there are also unintended consequences of doing nothing.
If an unintended consequence of business as usual is that the subsequent generations have to deal with planet-wide climate crises, what is their judgment of us going to be? I do not think it will be favorable, and I think that we can take steps now that are very prudent, moderate, cost-effective, rates of return on the order of 40 percent for some of the technologies that have been examined.
LACK OF SCIENTIFIC CONSENSUS
Mr. ROHRABACHER. Well, Doctor, your point was, of course, predicated on if we face this global, catastrophic change in our weather, and, again, I am sure, as our other members of this Committee have suggested before I got here, that has been far from proven.
And I know in the hearings that I had on it 2 years ago, that I felt that those people who were making the case for ozone had perhaps made their case, but global warming, I was in no way convinced; and the testimony we heard here just a few days ago again has convinced us that in the scientific community there is no consensus on this, much less a consensus wide enough to be able to make these incredible commitments that will change our way of life in the United States.
PATENT PROTECTION
Mr. ROHRABACHER. One last point, Mr. Chairman, if you will indulge me, and that is, in order to get the change that Joe is talking about here, we rely a lot on technological innovation. I mean, everyone is saying the way we can really do this with the least amount of harm is to have new technology that will be cleaner technology, yet this Administration has supported measures that gut patent protection of our people that will, indeed, encourage—that has done more to encourage that patent protection in the past technological development.
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And let me point out that in this global-warming treaty there is a provision that further guts the patent protection of the people of the United States of America; and if you are serious about this, I would like to make sure this Administration understands that this provision has not gone unnoticed by this Congressman. There is a provision that further supports the reduction of patent protection of the people of the United States, which will have exactly the opposite impact, maybe perhaps as an unintended consequence, to what you are trying to get.
And with that, unless someone wants to comment on that. Okay. I yield back the balance of my time.
Chairman CALVERT. Thank you, Mr. Rohrabacher. I appreciate your comments, always to the point, as usual; and I appreciate this panel. It has been a very interesting morning. I appreciate the travel and distance that many of you have taken to come up here. This subject obviously is not going to go away. We are going to hear a lot more about it, and this debate will go on. So we, again, appreciate your attendance, and this Subcommittee is adjourned.
[Whereupon, at 11:10 a.m., the hearing was adjourned.]
[The following material was received for the record:]
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