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Mr. SHARP. Mr. Rowe, you heard my question to Mr. Gruenspecht and others on the previous panel about their estimates of cost. Mr. Baroody is giving what some would view as a pretty high estimate of cost. I mean it is a lot of money. Your attitude appears to be somewhat different, that we can make a lot more progress with a lot less money. Is that a fair assessment?
Mr. Rowe. Mr. Chairman, yes, that is a fair assessment. I believe that if we go at this positively but experimentally, tentatively but consistently, we will find place after place where the creativity of our Government and our economy will produce results at substantially less cost than we now fear.
On the other hand, I would say that if we go at it by simply saying we are going to knock CO2 emissions down by 20 percent in 8 years, we will probably spend those inflating and economically depressing kinds of numbers.
To me, it is all a matter of whether one works at it with imagination and consistency or whether one just jumps in all over it. The latter is always impossibly expensive.
Mr. SHARP. Mr. Baroody, you use, I think, the figure of $95 billion a year as the potential cost to get a 20 percent reduction. Is that accurate?
Mr. BAROODY. Yes, sir.
Mr. SHARP. That is just about what the oil price rise of a few months with the Persian Gulf war or its estimated cost to our economy. Some of us believe that, among other factors, helped trigger the recession, but it didn't bankrupt us. It obviously is a lot of money, and we need to spend money wisely.
But even if those figures are correct, when one begins to see we are not going to be in chapter 11—and, of course, I realize some of your members may feel like they will be in chapter 11, members of your coalition; that may be what they fear. I am trying to get a better perspective on just what is the realistic cost of this, because the rhetorical claims go from the United States becoming a fourth rate country to it just really isn't much of a problem to get over. Of course, it depends on how strong the goal is, and Dr. Lashof is suggesting that at least a lot of the discussion hasn't been about a very strong goal so far.
Mr. BAROODY. Mr. Sharp, I put out two numbers. Frankly, the second one is the more impressive and ominous to me. That is 600,000 jobs a year lost as a potential. We are obviously in a historical context in this country, especially this year, but it has been building for some time, where the issue of international competitiveness and the ability of American industry to compete in world markets has risen to the fore, quite properly. Our challenge is greater than it has ever been, and different from externally imposed oil shocks of one sort or another, this is a strategy we are talking about which we would be imposing on ourselves at precisely the time that we are saying we have an opposite goal, and the goal is competitiveness.
I don't suggest that the issue of economic activity in a vacuum is important here, it is even important, perhaps even especially important in the context of these hearings, that we continue to have in the United States of America growing economically. That is the way that we have made the progress over the last 20 years that we have enjoyed with respect to meeting our own domestic environmental challenges. It will be no different with respect to the world, and we will not be able to lead it, as we can technologically, given the experience of the last 20 years, unless our economy continues to grow.
The differential impact, the anticompetitive impact, of the numbers I have been citing which would fall most especially and disproportionately on the industrial sector in this country shouldn't be ignored either. It is a very important concern of ours.
Mr. SHARP. It is your presumption, your assessment, based on an assumption of unilateral action, but is that based on if, multilaterally, we agreed to the kind of goal, the one you mentioned
Mr. BAROODY. The econometric analyses that have been done-I cited one, but there are several which are all in the same range—I think look simply at the question of the cost of strategies in a global context, frankly, of reducing from a baseline by 20 percent CO2 emissions. They find not only the absolute disadvantage I have identified, but on a relative scale we would be more disadvantaged than some of our partners—Japan and Europe, for example.
Mr. SHARP. I need to recognize my colleague, Mr. Cooper, from Tennessee.
Mr. COOPER. Thank you, Mr. Chairman. The practical situation we are in is, the Senate passed an energy bill which has some efficiency measures in it but really doesn't do much of anything on global warming. The question is what the House will do on global warming. As you may have heard my previous statements to the previous panel, Mr. Synar and I, with the help of Mr. Sharp and others, have put together what we feel is a very sensible, middle-of-the-road, modest approach.
would like to ask Mr. Lashof and Mr. Baroody if you would like me to repeat that approach so you can understand it better, or if you have a clear understanding in your head of what our approach is, our voluntary approach, can your groups endorse our approach, or what is your attitude?
I appreciate Mr. Rowe's kind statements. Even though he prefers a tax approach, he understands the principles in our approach. But I would like to find out from Mr. Lashof and Mr. Baroody what your reaction is.
Mr. LASHOF. Mr. Cooper, we certainly appreciate the intent of your approach and the goal I think that you specified, which is that people should get credit where credit is due. NRDC does have some concerns that there may be cases, depending on how the regulations are written to implement your approach, that credit would be given where credit might not be due and that that could be counterproductive, and we have been working with others to propose some improvements that I think would guard against that.
NRDC's position would be that this type of voluntary program is one method that can be very helpful in achieving specific targets, and we would like to see it linked with a commitment by the United States to, at a minimum, stabilize CO2 emissions at current levels in order to make progress both here and at the international level. With that commitment, then we would be assured that companies would indeed be seeking real reductions and that you would be able to make progress both here and internationally.
Mr. COOPER. Mr. Baroody.
Mr. BAROODY. Mr. Cooper, companies are making real reductions now. In my, shall I say, my parochial organization, the National Association of Manufacturers, where I hang my hat, we are rather proud of an undertaking we have embarked on with the Department of Energy to spread the word of energy efficiency. We do that in recognition of the fact that over the last decade and a half, perhaps a little more, energy efficiency has made real inroads in industrial processes and, indeed, in the industrial mind set of this country.
We estimate, and DOE shares in the estimate, that we are consuming the equivalent of 5 million barrels a day of oil less than we would have without these efficiency efforts. We would like to see continued movement in that direction. That is the thrust and the gravamen of our cooperative effort with the Department of Energy.
We would, to respond to your question directly, withhold our enthusiasm about your approach, if I could put it that way, Mr. Cooper. The suggestion of the voluntary program—and I listened very carefully to your urgings to the previous panel and your statement of objective that any implementing regulations be reasonable and as little burdensome as possible.
We in the industrial community think we can be forgiven if, despite the good intentions of everyone involved, we are a little skeptical that that is the way the implementing mechanisms would come out, and there is the final point that you have spoken of earlier in terms of a beginning. We think we see that it is a beginning toward an end in terms of the logic of the program, not in terms of your specific intent at this point, and I grant that, but in terms of the logic of the program, that credit where credit is due is meaningful only in the context downstream of a rigid, mandatory cap, and we would oppose that obviously.
Mr. COOPER. If I may summarize what I think I have heard from both panelists, Mr. Lashof and Mr. Baroody, we are in this classic situation in which environmentalists want us to do more, business wants to us do less, a moderate proposal comes down the middle, people don't really know how to react. To me, it is an opportunity for us to be friendly to both the environmental cause and the business cause by achieving moderate, cost effective reductions on a voluntary basis.
In the meantime—and, Mr. Baroody, when you mentioned the wonderful efficiency-related work that your members are doing, I say more power to them; let's give them credit for that; let's measure it in a way that they can bring to governments here and around the world and get full credit for those wonderful activities instead of your members facing the prospect of perhaps being uncredited or perhaps even punished for having done these excellent measures in the meantime.
To me, it is an opportunity we have to act in 1992 instead of waiting, as we have done in so many other environmental areas. So I would just urge both groups, to the extent possible, to set aside your larger differences and at least agree on a building block rather than to enjoy the fight so much that we delay any action, as we have seen it on too many other environmental measures.
I would like to turn to Mr. Rowe for a second, because I represent a coal area, and I would like to get specific about coal utilization for a second under either the carbon tax scenario or the externality scenario, because it is my understanding, if a new coal-fired steam plant is being considered either by a utility in the Massachusetts area or by an IPP, that that potential coal plant would be faced with, first of all, the uncertainty as to what Congress would or would not do involving global warming regulation, but the more immediate impact would be the fact that the Massachusetts regulators are imposing an externality cost of $22 per ton on coal, whereas your scientists say that $2 would be more appropriate. It is my understanding that a $22 charge would prevent anybody from considering a coal-fired steam plant in the Massachusetts area. Is that right?
Mr. RowE. Your understanding is entirely correct, sir. The only remaining proposals on the drawing boards for use of coal in any new facilities in Massachusetts are those that were put under contract before the externalities rules came into effect.
Given the size of the carbon dioxide penalty in the Massachusetts externality rules, it is impossible for a coal plant to be economic even if it is one that is fully state of the art with respect to nitrogen oxides and sulfur dioxide.
Mr. COOPER. The message I am getting from that is, if we want to consider preserving coal as a fuel, at least for electric generating purposes, we need to be able to figure out flexible ways of offsetting coal caused CO2 emissions, and to me that is a vitally important task of this committee, so that we can remain in a position to burn our Nation's most abundant fossil fuel, and that means to me that flexible approaches such as the one that Mr. Synar and I have come up with are important to be considered if we are going to avoid punishing coal as a fuel.
To us, we can achieve offsets, CO2 reductions, at a minimal cost, which enables coal to still be considered as a very important and profitable economic fuel even in a scenario in which we take real action on global warming problems, and that to us is a very important policy goal to be pursued.
Mr. RowE. Congressman, obviously I agree with that, and I think I have an example that illustrates your point. We have in Johnstown, RI, under contract a 12-megawatt landfill methane project, and if one uses the usual 10-to-1 ratio for methane versus CO2 as a greenhouse gas, that little landfill project offsets half of the CO2 from one of our coal-fired generating plants, and what we are looking for is ways to do that again and again.
Mr. COOPER. And that landfill methane is currently being vented, or most landfills are being vented in the atmosphere without any control, without any benefit to the environment.
I appreciate the time, Mr. Chairman.
Mr. SHARP. The gentleman from Massachusetts, Mr. Studds, is recognized.
Mr. STUDDs. Thank you, Mr. Chairman.
I apologize to you and to the witnesses. I myself was a witness this morning before the Senate, which is always an interesting and heady experience. I'm sorry that I missed the testimony here.
Mr. Rowe, I'm tempted to ask you a question about redistricting. I'm trying to figure out any way, with our situation as up in the air as I think you know it is, that I can persuade the legislature to give me your utility. I have a feeling that I may get the part that you serve in Rhode Island, the way things are going. But I would like to ask you a couple of questions, if I may.
Some 42 percent, I understand, of your energy comes from coal, and at the moment you don't appear to be proposing any changes in coal use, and you have concentrated on converting oil-fired plants to natural gas. I assume you would achieve greater emissions reductions by reducing your reliance on coal.
Mr. Rows. We would achieve greater carbon dioxide reductions but probably not greater reductions in sulfur dioxide or particulates because of the particular characteristics of the machines we have and the coals we use. But the underlying fact that motivates what we are doing is how we can get the maximum pollution reduction at the least cost, and if we were to put gas into one of our coal plants instead of one of those oil plants, it would substantially increase the projected cost, and, as you and I both know, electricity costs are high enough in Massachusetts.
Mr. STUDDS. Yes, and, obviously, the average ratepayer is probably thinking more about that monthly bill than about the general problem of global warming in terms of the immediacy and the urgency in a household. But can you achieve the environmental goals in your NEESPLAN 3 without raising the cost to the ratepayers? and, if so, how? and, if so, why can't everybody do it?
Mr. Rowe. We can achieve those goals without raising the cost to ratepayers in real terms. We project for the remainder of the decade being able to have price increases below inflation, and much of that is driven by retail service requirements rather than these costs.
There is, however, no magic here. First, we have assumed that we would be permitted to use the most economic ways of bringing about the environmental improvement; and, second, the cost of our conservation programs is, in large part, already in our rates, and the cost of our substantial independent power procurement program is, in large part, already in our rates, so partly we are able to make a projection of the kind we have made because we have already experienced significant price increases in the last several years.
Mr. STUDDS. And presumably what you have done ought not to be beyond the
realm of possibility for other utilities. Mr. Rowe. They ought to be able to do it too, yes, sir.
Mr. STUDDS. Your Brayton Point and Manchester Street stations, which you converted from oil to gas, I think were fairly old plants. For utilities that have oil-fired generation that is substantially newer and relatively more efficient, does it make sense to take the steps that NEES has taken? I mean if a utility's use is limited to oil and natural gas and much newer, more efficient plants, what steps can they take to reduce those emissions?
Mr. Rowe. With respect to our Manchester Street station, which we are converting, you are correct, it is a very old, almost anachronistic plant, and we are completely changing it into a new state-ofthe-art plant. You would not wish to do that with a relatively new