Chairman LIEBERMAN. Mr. Heydlauff, it might be interesting to ask you to comment on this from the perspective of one company, a big, significant company, America's largest generator of elec tricity, generating about 6 percent of the U.S. figure, comparable to the annual electric power consumption of Mexico and Australia. I am just reading from your testimony-6.1 million customers. So the question is, from your company's point of view, you are supporting action here, I assume, as an act of good citizenship, but also because there has been a calculation made within the company and you dispatched your responsibility to shareholders that this is the right way to go economically, as well. I wonder if you could talk about that a little bit.

Mr. HEYDLAUFF. I would be happy to do that. One thing I believe has come out of the research that we help fund, is that you cannot solve this problem without new technology. We believe as a company that it would be a shame if the country adds new generation, utilizing existing technologies, and does not take advantage of advanced, more efficient, less carbon intensive technologies to meet the energy needs of the Nation, and most importantly, then, if we also do not take that technology and deploy it around the globe. Let me give you a concrete example of where I think the challenge is greatest, and that is in the developing nations, which are going to utilize their indigenous energy resources to grow their economies. Case in point is China.

China's total coal burned in 1996, I think, was 600 million or 700 million tons a year. They are projected to burn 2.1 billion tons a year by 2015, the year at which they are also projected to have their greenhouse gas emissions equal those of the United States of America. A number of years ago, the Chinese came to us recognizing our expertise in coal-fired generation. They said we are going to build lots of new coal-fired generation, approximately at the time they were talking about building 15,000 megawatts of new generation a year, and we would like to talk to you about building some of those plants for us. We told them that, initially, our real interest was in trying to take these innovative clean-coal technologies that are much more efficient and much cleaner and deploy them in China. The problem is there is a price premium for that, that neither we nor our shareholders were willing to eat, nor were the Chinese willing to pay. That is one of the reasons why, for a number of years, Senator Byrd has had legislation in saying we need to figure a way to subsidize that delta between conventional technology and innovative technologies.

We built a power plant in China, relatively clean, but it was utilizing 1940's, 1950's technology because that is all they were willing to pay for. I felt real bad about it, honestly, until I understood what we were displacing, which was the direct use of coal to heat and cook in residential dwellings. We brought electricity to a community that never had it before, which is obviously far cleaner and more efficient than what they were doing. But it was not what we should have accomplished, which was that leapfrog in technology use internationally. I do not believe AEP will build another coalfired power plant like we have in operation today. I believe it will

electric generation in this country for 100 years, and it will continue to be.

We have got to find a way to burn it more efficiently, more cleanly-which the Byrd-Stevens legislation would accomplish. I applaud President Bush in his initiatives that he announced late last week, which is to advance research on carbon capture and then either utilizing the carbon dioxide for enhanced oil and gas recovery, or more appropriately probably because the volumes will be so significant, disposing of it in a safe and permanent manner in geologic formations; deep saline aquifers, abandoned oil and gas wells, coal mines, whatever. That is how you keep coal in the fuel mix, which I think is essential.

Chairman LIEBERMAN. I am going to yield to Senator Thompson and maybe he wants to take up this line of questioning. I take it from what you said in your earlier testimony that notwithstanding the need for transformational new technologies, energy technologies, you do not see the private sector here investing the necessary money in research and development, which is why we need the kind of focused, expanded effort that is part of this research and development effort through the Federal Government that is part of the Byrd-Stevens bill.

Mr. HEYDLAUFF. That is correct. Certainly, history would suggest that the levels of private sector investment in those revolutionary bold breakthrough technologies is pretty much nonexistent. There is very little of it going on today, and perhaps this legislation will motivate that.

Chairman LIEBERMAN. Thanks, thanks very much. Senator Thompson?

Senator THOMPSON. I wonder why the R&D has been so low in this area, compared to other industries. It looks to me like you are being besieged at all sides. I know you and I share a commonality in that we both represent entities that are being sued by EPA right now. I am referring to TVA, saying that we are keeping the old plants on too long, and the modifications are not permitted under the Clean Air Act. So, in fact, it is a mini-Kyoto situation, it looks to me like. You have the factor of your need for a global approach to it, because the pollution in the area is destroying the Smoky Mountains National Park, by the way. You have automobile emissions and the coal emissions from the TVA plants, but a lot of it comes from your part of the country and it settles right down in that area.

No company or entity wants to be disadvantaged. So you are going to have to have a global solution, more or less. The costs are said to be astronomical if we do it any differently. The rates will go up in the TVA area if we correct the problem and nobody knows really how much, but the damage being done is clearer there. It is more imminent. It is more polluted on the top of the Smoky Mountains most days than it is on the streets of New York City. So if we cannot have some kind of regional solution to that, I am wondering how we are going to take on the world.

I get back to my point. I wonder why, with all this pressure and commentary, industry is not doing more. Clearly the government needs to step into this. That is what we do best up here. We man

come to what seem to be logical conclusions about what ought to be done about all of these problems. We pass some bills not knowing what we are doing, unintended consequences run rampant. This is what we do well up here, research and development, but industry, I think, has got to do more too.

I would like to work with you some in the future and talk about some way we can approach this regional problem that is doing a lot of damage. Nobody wants to put anybody at a competitive disadvantage, but maybe if we do it together

Mr. HEYDLAUFF. Just to respond very quickly, one of the other things that Congress can do and can do well is resolve conflicts in Federal policy. Nowhere is that more in evidence than in the issue that you raised about new source review. The Clinton Administration came to us early on and said they were going to meet the aim of the framework convention on climate change to reduce emissions levels by the year 2000, but they do not want to rely on new bureaucracies and new regulations. They want to tap the ingenuity of the American public, and in particular, American industry.

The electric utility industry stepped up to the plate and put together a very robust program of response measures. We literally combed our company for opportunities to improve the efficiency with which we convert coal into electrons, and we took a number of measures at our power plants to do that. I would submit to you that everything we did that improved the efficiency with which we converted energy into electrons, simultaneously reduced those air emissions that you are concerned about in the Smoky Mountains. Yet, we are in the unhappy position today of having been sued for taking some of those actions. We are improving the efficiency of the plant, we are reducing emissions, yet the government is telling us that was a violation of new source review rules and, consequently and unfortunately, we have halted those measures until we have resolved this issue.

I hope that-and I realize that is an issue not for this Committee. Senator Lieberman, it is for your other committee, and in that we can get that issue resolved too. View it in the context of a multi-pollutant control legislation that Senator Voinovich talked about, where we can bring a rational approach, a resolution to all of these issues; the air quality issues, Senator Thompson, that you are concerned about in Tennessee, and I know they are concerned about it in the Northeast, as well as, perhaps, starting down the path that we all hope to go down in terms of the response to global climate change concerns.

Senator THOMPSON. Going to another question here that was mentioned, I think that several members of the panel, specifically Mr. Lash, mentioned the uncertainty of the economic estimates. I saw a June 12 USA Today article, I think you referenced it in your testimony, Ms. Thorning, that indicates the Clinton Administration has now acknowledged that its economic analysis was flawed. Back during Kyoto, they came up with some rather low numbers as to what it would cost-but, it seems it was based on China and India accepting binding emissions limits, which they have not, and Europe and other countries engaging in emissions trading as a solution, and apparently they are not making any progress on that.

thing that made them really uneasy about our analysis was that if our assumptions do not come true, costs can come up much, much higher."

Ms. Thorning, you have done that, I know, in some of your work. It has been pointed out that it is very uncertain and it all depends on assumptions and so forth. I would like for you to address that and I would specifically like for you to address what we should do and how much is it going to cost? Kyoto is a good place to start. That is one so-called solution that is out there, and people can try to measure it. There are, obviously, other approaches that will presumably have lower price tags. As far as Kyoto is concerned, first discuss the validity of being able to analyze the economic aspects. Second, what does your work reveal in terms of the effect it would have on: The gross domestic product of this country; our growth, on gas and electricity prices; and on migration of industry out of this country?

MS. THORNING. Thank you, Senator Thompson. The focus of our work over the past 10 years at the ACCF-and we have spent a fair amount of time on the issue of climate change-has been looking at the costs of action, and what are appropriate policies to respond to this potential threat. A range of credible modelers, ranging from the Department of Energy to Wharton Econometric Forecasting Associates, Australian Bureau of Resource Economics, Charles Rivers Associates, Professor Alan Mann at Stanford, suggest that the cost range of complying with Kyoto would be 2 to 4 percent of U.S. GDP or $200 to $400 billion a year. Of course, the cost varies depending on what the assumption is about global trading, particularly, as well as some other variables in the models.

As you mentioned, the Clinton Administration's Council of Economic Advisers number was really off the chart, which they have now admitted was erroneous. So it seems to me very clear that the costs are high. The Department of Energy also estimated that electricity prices would have to rise perhaps as much as 80 percent, gasoline prices, 50 percent. So the cost to the American economy is very significant. Low-income wage earners would be particularly disproportionately impacted, because the cost of energy is a much larger share of their budget. U.S. industry would tend to migrate to countries that were not CO2 constrained. Alan Mann's work suggests that by 2020, we might lose 10 to 15 percent of our energy intensive sector. So there are very serious consequences to precipitously moving forward to limit-cap CO2 emissions. It seems to me that given the uncertainty about the science, the focus of your hearing today, which is on the importance of technology and the development of alternative technologies for energy production, is very appropriate. We do need to focus on that.

Senator THOMPSON. Without China and India and these other countries being a part of it, would the CO2 emissions continue to rise anyway?

MS. THORNING. They will continue to rise. There are numerous projections that show that even if the United States and Europe shut down and sat in the dark-no electricity, no cars-the impact

Senator THOMPSON. Do you have any basis for reaching an opinion as to whether or not the European Union could or would comply, even if we did?

MS. THORNING. As my testimony points out, there are five or six new studies that suggest that the European Union will be 15 to 25 percent above its emissions targets by 2010 or 2012. So it is hypocritical, really, of the European Union to rail against the Bush Administration's policy of stepping back and taking another look at how to address climate change.

Senator THOMPSON. It seems to me that the European Union's attitude toward Kyoto is somewhat like some of our Democratic friends' on the House side-attitude is toward campaign finance reform, and that is it is a great idea, as long as it does not happen. [Laughter.]

MS. THORNING. One of the things that I think people need to realize about the European Union is the leaders there have 10 years worth of capital built up, political capital. They have made the case that they need to comply with Kyoto and it is very difficult for them now to simply back away, I think, and we need to be sensitive to that situation and help-which I think the Bush Administration is trying to do come up with alternative strategies that will enable them to feel that we and the rest of the world are going to move forward.

Senator THOMPSON. Thank you, Mr. Chairman.

Chairman LIEBERMAN. Thanks, Senator Thompson. It strikes me you are one of a small, courageous band of Republicans that could have made that comment about Democrats and campaign finance reform. [Laughter.]

Senator Bennett.

Senator BENNETT. Thank you, Mr. Chairman. I could not possibly have said what Senator Thompson said on that score. As I sit through the morning, I am beginning to see the emergence of consensus, and let me try it out and see if you agree, because obviously I do not want to put words in anybody's mouth. But it seems to me that technology is the answer to this problem. Arbitrary limits, such as came out of the Kyoto Protocol, are not, but technology that is developed to be more efficient almost always means cleaner, and there are economic benefits to being more efficient, and cleaner is a wonderful side effect that comes out, and indeed, as Mr. Lash points out, has some economic benefit in and of itself.

I am referring to an editorial comment made by Robert Samuelson, and I liked his opening. He said, "The education of George W. Bush on global warming as simply summarized: Honesty may not be the best policy." Greenhouse politics have long blended exaggeration and deception, and the Bush Administration, I think, has told the truth about Kyoto and now is being beaten up for it. But that is not the issue. The issue is what do we do, and the answer seems to be, coming out of today's hearing, that we develop the technology to deal with it, rather than putting on the artificial, politically-dominated caps.

Now, you are shaking your head, Ms. Claussen. You take the first shot at me here.

Ms. CLAUSSEN. I agree with I think virtually everyone on this